Date: September 24, 2009
To: Professor Truex
From: Douglas Tarkington, IB8680
Subject: Comparison of Amazon.com Cast Study, Being Digital, and The World is Flat
1. Introduction
The advent of electronic commerce left its fair share of casualties along the information
superhighway. Among these were the infamous sock-puppet branded Pets.com, online fashion retailer
Boo.com, eToys.com and the list goes on. For many entrepreneurs and venture capitalists, the
realization that change was in the air and that new opportunities were emerging was not always
matched by the foresight of how those changes would ultimately manifest themselves.
Amazon.com, however, figured it out. Amazon.com focused on leveraging the internet across the
traditional four P’s of the Marketing mix in order to develop a competitive advantage. These themes
of Place, Price, Product and Promotion are all present, if not explicitly stated in as many words, within
Negroponte’s Being Digital and Friedman’s The World is Flat. The important point to understand
with each author is that they recognized the shift that globalization, instantaneous communications
and the internet would cause to businesses and society.
2. Place
Amazon.com used the concept of place strategically in two ways. In the physical sense, it was able to
gain competitive advantage by reducing the need for brick-and-mortar retail locations and by locating
its warehousing facilities in close proximity to its supply chain in Seattle. In the virtual sense of place,
Amazon.com optimized product placement on the webpage, improved search to help customers find
what they were looking for and streamlined checkout processes via 1-click to provide a better
customer experience with limited computer-screen real estate.
In The World is Flat, Friedman mentions Amazon.com and Barnes and Noble specifically, and alludes
to the notion that Amazon is able to create a more convenient place to shop with greater selection
through its use of technology, but he also still likes to browse in a physical store such as Barnes and
Noble. Both the Amazon.com case and The World is Flat highlight the idea that the internet created a
new, competing “place” that had both advantages and disadvantages compared to traditional concepts
of physical space. Negroponte, however, takes a similar but somewhat more extreme view stating that
the limitations of geography will be all but removed. Although Negroponte carries the argument too
far in suggesting that place may no longer matter, it does not diminish the value in his idea that the
new global, digital network carries significant repercussions for business that fail to adapt to the
changing environment.
3. Price
Of the many value propositions that Amazon.com offers to its customers, low prices rank high on the
list. Amazon.com makes money, while delivering low prices, based on the advantages it gains from
lower fixed-costs in real estate, a streamlined supply-chain, low distribution warehousing costs and
sales tax advantages. These advantages in pricing are largely enabled by the use of global
communications technology. Amazon.com’s strategy of limiting operations to an online store means
that there is no need for physical retail stores. This allows Amazon.com to locate its distribution and
transportation centers nearby to publishers and suppliers without having to worry about centralizing to
accomodate retail chain locations. This is the same direct-to-customer approach that Dell Computer is
widely known for.
Friedman uses the example of Wal-mart to illustrate how technology can be used to create low prices
by optimizing the supply-chain and creating value by capturing data at the point-of-sale system.
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Whereas Amazon.com uses technology to compete against physical retailers in more recent times,
Wal-mart used similar tactics to gain an advantage over other physical competitors back in the 1980’s.
Negroponte similarly points out how technology can drive down price in a compelling way with his
proposition that “bits are bits”. This concept ties in to the idea that the marginal cost of producing
another copy of a digital good is negligible compared with the cost of producing another physical
good. For this reason, iTunes is growing while traditional music retailers are suffering. The price of a
single song, distributed direct-to-customer in an electronic format will always be cheaper than having
to produce and store physical bundles of songs in a shrink-wrapped CD format.
4. Product
There were 20 products that Jeff Bezos, CEO of Amazon.com, identified as compatible with online
sales when he first conceived the company in the 1990s. The decision of what to sell, which in
Amazon’s case began with books, was as important as the decision of what not to sell. This is to say
that not all products sell equally well over the internet. Digital goods are obviously strong candidates
to sell online, but in the 1990s, the digitization of music, movies and books had not acheived lift-off
yet. Jeff Bezos chose books because the product fit with the business model he was setting up. While
traditional businesses develop a product or service first, many online businesses took the opposite
approach, which asks which product will sell well given the dynamics of a new channel (the internet).
In a flattened world, Friedman may sympathize with this reverse model. His argument follows that in
in a globalized world where things can be produced anywhere and transported quickly, other factors
matter more, such as innovation, creativity and brand. Businesses who have produced a product or
service in the old world must refine or redefine their product in a flattened world. When new
producers suddenly appear from China, or a new channel suddenly appears in the form of the Internet,
businesses must react in a convincing manner to stay ahead.
Negroponte focuses on the rift created by the digitization of many products. He argues, successfully,
that music, movies and anything that can be digitized must be sold and marketed as an entirely new
kind of product. The difficulty that these industries have had is a testament to Negropontes argument:
the CD is no longer the product, but rather the MP3 is. For movies, the DVD is no longer the product,
it’s the stream of bits that constitute the on-demand Netflix viewing. For newspapers, it’s the
nytimes.com online article, rather than the folded newsprint. Indeed, the product itself has sometimes
changed entirely, above and beyond its method of sale and distribution.
5. Promotion
Amazon.com focuses relentlessly on the customer. By doing so, the company has created something
bigger than just a store, it has created a community that provides value back to the company.
Amazon.com puts significant resources into improving the user experience, allowing for customer
reviews, ratings and personalization. The community that develops when Amazon.com customers
write reviews of products reinforces the value provided by the site. Customers that have dedicated
time and energy into writing reviews for a site often develop an attachment to it, having invested
effort in making it better. This leads to positive word-of-mouth promotion which is one of the best
and cheapest forms of advertising. Amazon.com essentially leverages technology and the internet to
build a community which becomes a core competitive advantage that traditional retailers cannot copy.
Friedman writes that communities and the power of uploading is one of the 10 flatteners. By using
technology to facilitate the creation of communities and leveraging personalization, companies can be
large in size but operate with all the personal attention as if they were much smaller. Sites like
Amazon.com greet customers by name, serve up recommendations in the appropriate language and
provide features such as lists and “people who bought this also liked…” features that tie customers to
like-minded individuals. The community drives promotion and sales in a way that traditional
advertising can’t match on a cost basis.
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Negroponte refers to digital butlers and personal filters that will custom tailor experiences to promote
products and services. He sums up the value proposition of the flattened world and global network
well: “the true value of a network is less about information and more about community.”
6. Conclusion
What drove Amazon.com to success whereas others failed was their ability to understand how the
changes in technology and communications applied to the traditional drivers of business and
marketing. What other companies failed to grasp was that the business environment was changing
with globalization and new technology, but that business itself, and the fundamental concept of buyers
and sellers coming together to exchange goods and services, remained the same. Offering value is still
paramount.
Amazon.com took advantage of the traditional 4 P’s by understanding the changes within the
guidelines of that framework. Friedman and Negroponte hit upon these same issues, although to
different extremes and sometimes in more roundabout ways, given that the focus of their books are all
slightly different. The takeaway from the Amazon.com case is that a relentless focus on providing
value to the customer is the clear path to success. The key is to understand how to best deliver on that
proposition within the context of globalization and emerging technologies.
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A Comparison Table of Collura and Applegate, Negroponte and Friedman
Place - Location
matters, but not in
the traditional sense
Price Technological
change to the
supply chain and
point-of-sale can
provide an
advantage
Product - Every
product has a
different level of
compatibility with
online sales
Promotion Customer
experience is
changed through
community and the
online model offers
a larger community
with ease of
communication
Amazon.com Case Study
Being Digital
The World is Flat

Online stores can touch
anyone with a connection
and are far-reaching



However, people still do
like to go outside (p.27)
The new platform is global
and operates without regard
to “geography, distance,
time and, in the near future,
language” (p.204)


Innovative search and
page layouts create a store
that’s extremely easy to
find products with and to
shop in

Online retailers have
lower fixed costs, lower
customer acquisition
costs, higher sales per
employee and often don’t
charge sales tax
“I used to have to go to
Barnes & Noble to buy and
browse for books, but once
the internet came alive, I
wanted to browse for books
on Amazon.com as well”
(p.71)
Wal-mart, the biggest retail
company in the world, does
not make a single product.
“All it ‘makes’ is a hyperefficient supply chain”
(p.152)

These factors give online
stores a pricing advantage
over traditional retail

Physical retailers can’t
compete on price (p.27)

Amazon.com researched
and selected products and
services that would be
successful online

Every customer gets their
own unique and
personalized store

Leverage brand strength
and word-of-mouth to
reduce advertising costs
(p. 11)

Use the community to
build value through
reviews,
recommendations, referral
programs

“the post-information
age will remove the
limitations of
geography” (p.165)
New technology means
traditional mediums for
delivering goods and
services (bits) will
change, impacting price

Products that can be
digitized will be sold
differently

Bits are bits and are
infinitely scalable


In 1983, Walmart
introduced point-of-sale
terminals allowing it to
track inventory better

Amazon now innovates in a
similar way to how Walmart innovated in the past,
using technology to lower
prices
Many products and services
can be replicated quickly
and cheaply in remote parts
of the flattened world


Services that can be
delivered over the internet
mean increased competition
for traditional firms
Uploading and harnessing
the power of communities
is one of the flatteners
(p.93)

“Everything is made to
order, and information
is extremely
personalized” (p.164)


Digital butlers and
Personal filters (p.150)

“Rule #4: And the big shall
act small....”

“the true value of a
network is less about
information and more
about community”
(p.183)

The birth of the selfdirected consumer (p.455)
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