From Books to Services
Seungeun Baeck, Jerome Coste,
Mugun Gil, Steven Granese, Helen Han,
Jung Chule Kim, Sam Lee
Overview
Introduction
Internal Analysis
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External Analysis
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Competitive Structure
Industry Structure
Summary Analysis
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Business Model
Financials
Value Chain
IT
SWOT
Conclusion
Q&A
Introduction
Key Facts
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Amazon.com is
headquartered in
Seattle, Washington
and founded by Jeff
Bezos in 1995, who
graduated from
Princeton University
with Computer Science
and Electrical
Engineering degree.
Source: AnnOnline
Introduction
History Highlights
1995 1997 1998 1999 -
Book
IPO
Music, DVD, Video, Germany, UK
Toy, electronic, home improvement, software, and
video games; Amazon.com Auctions
2000 - Online bargain stores, France, Japan
2001 - Partnership with Target and Circuit
City, Office Deport, acquired Egghead.com,
first quarterly profit of 5.8 millions in 4th quarter
2002 - Third-party content incorporation
Business Model
Mission & Vision
Mission: “To become Earth’s most customercentric company”
Vision: To become Earth’s biggest store
Source: Annual Stockholder Meeting,
5/28/03
Business Model
Value Proposition
Source: Annual Stockholder Meeting,
5/28/03
Business Model
Revenue Model
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Retail:
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Virtual Merchant Model
Service:
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Market Creator Model:
Marketplace, Zshops, and
Amazon.com Auctions
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Affiliate Model:
Merchant@ and
Merchant.com programs
Source: Amazon.com, Target.com
Financial
Stock Price
Five year performance
Range:15.06 - 47.75 Market Cap:18.47B
Source: Finance Yahoo
EPS :-0.23
Financial
Sales vs. Operating Expense
(in Billions)
5
3.93
4
2.76
3
3.12
1.64
2
Net Sales
Operating Expense
0.61
1
0.015 0.148
0
1995 1996 1997 1998 1999 2000 2001 2002
-1
-2
-0.006-0.031-0.125 -0.72
-0.567-0.149
-1.411
Financial
Interest Expense vs. Net Loss
(in Billions)
0.4
0.2
0
-0.2
1998
1999
2000
2001
2002
-0.4
-0.6
-0.8
-1
-1.2
-1.4
-1.6
Interest Exp.
Net Loss
Financial
Sales Business Unit Sizing 2002
27%
Projected to grow to
33% of Total Sales
8%
6%
15%
International
44%
BMVD
ETK
Services
Shipping
Suppliers
• JIT inventory
• Virtual inventory
stored in database
• Relatively low overhead
• Track consumer demand
• IT maintenance
• 24/7 world wide
operation
Value Chain
Primary Activities
Operations
Distribution
• Routing optimization
• Customer integration
with suppliers
Customers
•Automated customer service
Value Chain
Supporting Activities
Primary Activities
Supporting Activities
Infrastructure
High quality IT infrastructure; Major focus on cutting costs
Human Resource
Expensive technical talent; High Sales/Employee ratio
Technology
Huge Database, High R&D Spending
Procurement
In house, online purchasing software
IT
Original Focus: Spending
Significant Investment in Information Technology
 Spent over $1 Billion on IT
 Recruit the top computer scientists and engineers
 Pioneer in innovative e-tailing features
 “One-Click” buying
 Customized shopping experience
 Product suggestions
 Cross and up-selling
 Speedy checkout procedure
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Source: Business 2.0
IT
New Focus: Saving
Reduced IT spending from 11 to 6 cents for every
dollar of sales
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Custom software = customized business processes
Heavy reliance upon Open Source
 2001: switched to all Linux servers on HP machines, which
cut expenses from $71 to $54 million
 Linux provides many benefits
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Source: Business 2.0
IT
Technology Spending
(in millions)
300
250
200
150
100
50
0
1998
1999
2000
2001
2002
IT
Becoming an IT Development Shop
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Created web services (XML) tools for 3rd party
developers
Spun off subsidiary “Amazon Services” to
leverage use of their proprietary IT
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Retailers can access Amazon’s products (Toys R Us)
Amazon can build and maintain a branded site (Target)
Fastest growing part of their business
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Accounts for 19% or sales
Possible because of brand name
Source: Wired
Overview
Introduction
Internal Analysis
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External Analysis
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Competitive Structure
Industry Structure
Summary Analysis
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Business Model
Financials
Value Chain
IT
SWOT
Conclusion
Q&A
Competitive Structure
Top e-Tailing Sites, in Terms of Unique
Visitors
Source: Sandeep Krishnamurthy
Competitive Structure
Top e-Tailing Sites in Books, Toys, Videos
and Music
Source: Sandeep Krishnamurthy
Industry Structure
Entry Barriers
Suppliers
(-) Internet offers direct
selling
(+) Amazon’s brand reduces
supplier’s bargaining power
(+) Little differentiation of
products
(+) High volume decreases
suppliers’ bargaining power
(+) Installed customer base
creates high barrier to entry
(+) Amazon services create
valuable marketplaces
(-) E-tailing can be replicated
Industry
Competitors
Buyers
•Barnes and Noble
•Buy.com
•Walmart.com
•eBay
(-) Strong competition on price
(-) Duplication of each other’s
features
Threat of Substitute
(-) Price search engines
increases buyers’ power
(+) Amazon’s features
increase switching costs
(-) Products available in offline
stores
(-) Online order, offline pickup
Overview
Introduction
Internal Analysis
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External Analysis
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Competitive Structure
Industry Structure
Summary Analysis
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Business Model
Financials
Value Chain
IT
SWOT
Conclusion
Q&A
Strengths
Innovative
in-house IT:
One-click
patent
Large selection of virtual products
Personalization of website
Great search accuracy
Related product matching
Customer reviews
Strong
Brand
First
mover and dotcom hype
Positive WOM
Affiliated with other companies
Huge
customer database
High rate of repeat customers: 78%
One-stop-shopping and cross-selling
High inventory turnover for books
Management team stayed focused
with vision
Services
are growing (19% of Sales
as of second quarter, expected to be
33% for the year)
Weaknesses
Time
delay distribution
No
exclusive accesses to primary content
High
COGS for products
High advertising costs
Difficult relationship with
manufacturers
Strategy used to be too vague: Get Big
Fast
Spreading themselves too thin
No
2003
Profit Yet, but expected for
Opportunities
Expansion
of other product
groups
International expansion
Strategy shifts to services
Merchant.com:
Powered by
Amazon.com
Merchant@Program
Auctions: C2C market creater
Z-shops: B2C market creater
Threats
Brick
& Mortar competitors
are going online
Existing Internet
competitors
Low Financial flexibility
Only two major suppliers
Technological innovations
E-books
Mp3 p2p services
MPEG4
Price search engines
Overview
Introduction
Internal Analysis
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External Analysis
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Competitive Structure
Industry Structure
Summary Analysis
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Business Model
Financials
Value Chain
IT
SWOT
Conclusion
Q&A
Conclusion
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First mover in e-commerce retail industry
Built a strong brand with a loyal following
Struggled to make a profit
Focused on reducing costs
Leveraged brand to launch service model
Expected to become profitable
Q&A