Amazon: Box to Kindle to Cloud
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Amazon went through 7 years with no profit
Retail giants dominated smaller ones
Amazon’s Jeff Bezos expanded warehousing capacity, e-commerce operations instead of
concentrating on quarterly results of Wall Street
Kmart and Borders fell as Amazon dominated
Lengthening the time horizon allows you to engage in endeavors and only a smaller fraction
of competitors
o Invested in Blue Origin, commercial rocketry/aviation firm, Twitter, Uber
o Bought Washington Post and used 60 minutes to announce/demo Amazon Prime Air
 Drones to deliver packages
Emperor of E-commerce
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“wheel of growth” is able to provide all products and lower competition
3 pillars of business: large selection, customer experience/convenience, lower prices
o Reinforce one another and work together to create additional assets for competitive
advantage
o Good customer exp. makes a strong brand, more customers shop online, firms
provide more products as a result, a scale is created
o 3rd parties are allowed to sell on amazon. Customers attract more sellers, which
attracts more customers (2 sided network effect)
Fulfillment Operations
Early warehousing days were inefficient. Hired CIO and CLO from Walmart
o Walmart supports superstores and ships large pallets of items in one shipment
o Amazon warehouses pack boxes of different individual items to individual homes
Noticed that workers took forever to package items, so they worked with vendor to get
prepacked and ready to ship boxes
Warehouses powered by code
Products received by shippers are scanned/prepped so inventory is ready to fulfill customer
orders ASAP. Workers examine any defects, and call for a ‘problem solver’ who fixes the
issue and keeps the inflow.
o Good workers are praised throughout the day
In the past, there would be shelvers and pickers, which required wide lanes and managing
traffic
o Used robots to auto bring shelves to workers
o Position shelves to expose correct side for inventory placement and scanning
o No two similar products sit next to each other, reduces chances that a picker will
make mistake, and also allows robots to simultaneously fulfill different orders for
same items
Software identifies optimal size of cardboard box needed for order and weights box
Address stamped and sent quickly to trucks
Robots are equipped with motion sensors and floor mounted guides
o Repairmen are always on site
Kiva robots allow shelves to be slotted closer and queued for rapid trips
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o Does not lower the need for personnel
Boats package delivery rate when there is a bad weather forecast
Warehouse inside Warehouse
High volume and fast moving items are passed to Amazon, which uniquely ships to
individual customers
Vendor Flex cuts cost and reduces warehouse/shipping time to keep up with
Costco/Walmart. Removing transit steps reduces carbon footprint and congestion
Cash Conversion Cycle
Does not pay suppliers right away, but makes an account payable: bill that says when
payment is due in the future
o Those who pay immediately clear credit card/checks in a few days
o Cash conversion cycle: period between distributing cash and collecting funds
associated with given operation
o Liquidity problems: firms that cannot generate cash quickly enough
o Amazon has negative CCC, selling gods and collecting money before it has to pay
suppliers. This is an advantage b/c they have more money to work with
o Keep inventory turns high
Internet Economics, Scale, and Pricing Power
Selling more goods gives Amazon more bargaining power
Focuses on software, automation, and expansion of warehouses
Able to operate with thin margins and low prices due to large scale; endure low prices to
remove others
Amazon watches stock outs of other companies, and then can raise their own prices
o Dynamic pricing: shifting prices based on shifts in demand
Profits are low because Amazon focuses on rapid expansion and investments
Large scale allows Amazon to create own product lines: cables, batteries, electronics,
kitchen gadgets, tools, etc.
o Reduces costs that would otherwise go to a branded supplier
o Gives negotiating leverage with suppliers. Those unwilling to lower costs w/ Amazon
will see competition with a private product
Amazon Business sells paper, IT products, snacks, lab equipment, etc.
o Targeted at business customers
Customer Obsession
Bezos leaves one seat open at the conference table for the customer, and makes senior
executives spend two days answering customer calls
Prime makes customers happy and changes behaviors to fuel sales growth
Strong brands are built largely through customer experience
Leveraging Data Asset
More customers makes recommendations/preference/price tolerance accurate
“impulse buy” recommendations idea
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Bezos said that a team should be only large enough to be fed “two pizzas” and can help
ideas flourish
Monitoring customer activity and variables (wording, images, buttons, size/color, etc.)
A/B testing experiments with customers
Web browser receives unique tracking string called cookie, which amazon uses to track
surfing behavior and buying history
o Uses collaborative-filtering to monitor trend among customers and personalizes
every customers experience
Generates profit from ads, and offers customers to pay price to remove ads
Retargeting- seeing popups from past search history on websites
Selection and Network Effects
Offers products by others along with its own listings. 3rd parties are part of Marketplace
Sellers can ship items on own or use amazon’s warehouse
o The latter lets Amazon handle everything and gives customers benefits
Marketplace allows long tail of offerings and Amazon enjoys two-sided network effect
o Popular items make up inventory, but there is more money to sell obscure items
Competition between listings lowers price and makes customers stay on Amazon
Selling competitors items benefits their customer relationship
Removes firms with poor quality to protect brand
Allows others to market for firm and receives percentage of sales generated from
promotions (affiliate marketing program)
Acquisitions and Category Expansion
Amazon will buy out other firms that may pose competition
Flash sales site: deep discounts of limited quantity of inventory
Growing own brands in new categories
Working to put inexpensive special tech in customers for easier ordering
o Amazon Dash scanner helps Amazon Fresh customers build grocery lists
o Dash Button can be scattered throughout home
o Build warehouses close to cities for same-day delivery
Kindle
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Places store in customers hands
Features of kindle beat others: hi-res, color, touch screen, price, cloud
Linked to amazon account, which makes customers buy more items on Kindle
Fire TV stick offers television
o Runs apps for Netflix/Hulu
o Voice search enabled in remote mic
o Became a fork: developers start with a copy of project’s program source code, but
modify it and create something new from original base
Amazon Echo is a wireless speaker that customer can talk to
o Similar to Siri, but gets smarter
Fire phone allows serval functions to be performed with just one hand
o Firefly is the signature software program that uses camera to recognize all objects
 Dial phone number with tap, QR code, art, groceries, buy music currently
playing on radio
 Offers user to buy product they see on picture. Linked with amazon prime
 Search service
o Plan fails b/c customers already used to iOS or Android (high switch cost)
Content Publishing
Vertically integrate in book value chain
Amazon gets into book publishing business, and publishes certain genres for authors who
want to use Amazon as a market instead of traditional publishers
o Comes faster than physical copies
Amazon Game Studios release games for Kindle Fire, TV, and phone
Spends money for digital media offerings for Prime customers: HBO, Netflix, pilots, locked
up content from Nickelodeon. Gets movies a month after theatre dates
Bought Twitch gaming streams
Channel Conflict and Consolidated Power
Channel conflict: firm’s potential partners see that firm as threat
o Barnes and Noble stopped carrying titles from Amazon’s publishing arm
o Walmart/Target stopped carrying kindle in stores
o Winner in channel conflict is firm that offers greater value to conflicted partners
 Providers may want to prevent Amazon from monopolizing since their scale
is so large already
Fought with big book publisher Hachette
o Amazon did not allow customers to preorder their books. Delayed sales and blocked
recognitions in Firefly
o Questions firm’s commitment to customer
Wholesale pricing- amazon paid publishers for titles and sell them at any price
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Agency pricing- publisher sets price and reseller gets a cut
o Top publisher switched to this when iPad came out
Amazon to Cloud
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Biggest push is to offer access to corporate-quality computing as a service
AWS (Amazon Web Services) allows firms to rent computing capacity
o EC2 (elastic computing Cloud) provides same power of physical computing hardware
 Operating systems, database products, enterprise software, programming
environments, networking services, etc.
o S3 (Simple Storage Service) provides web-based storage
AppStream is a cloud for game developers for massive processing power
AWS powers 100s of businesses, and they are usually the largest firms in their categories
o Allow organizations to rent as needed
o Experience in scalability and security improves AWS
AWS is early lead compared to other providers
AWS is to monetize the firms expertise in scalability and reliability and to turn it in to
revenue-generating business