Amazing Amazon
Tomorrow never dies?
ECON519
Mary Man
Hill Chan
Kevin Xu
Yilin Zheng
Mar. 12, 2005 HKUST
Content
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Introduction
Business Model
 Bookselling and An Online Business Model
 Factors of Amazon’s Success
Strategy Analysis
 Two-sides market
 Patents
 Pricing Structure
Prospect
 Competitors
 Conclusion
Questions
What are the advantages of online bookstores
compared to traditional ones?
Why Amazon.com using dynamic pricing?
Introduction
Overview: Amazon.com
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Jeffery P. Bezos
Founder, CEO, Amazon.com
Time’s Man of the Year, 1999
“Launched in 1995,
Amazon.com began as an
online book-selling company
but has now branched off into
many other areas, including
DVD, music CDs, computer
software, video games,
electronics, apparel, furniture
and more.”
-- en.wikipedia.org
“We are not a retailer and we
are not a technology company.
We are a customer company.”
-- Jeff Bezos, 2001
GBF: Get Big Fast
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1995 Founded as online bookstore
1997 IPO (AMZN:Nasdaq)
1997 Launched “one-click” service
1998 Started selling music, videos,
and DVDs
1998 Expanded overseas
1999 Electronics, toys and software
2000 Slowed down in Dotcom collapse
2001 Amazon Marketplace (C2C)
2002 Gained profit! (Q4, $1c per share)
2003 First full-year net profit
2004 Launched search engine a9.com
2005 DVD rental service?
Change in sales structure
Amazon.com Revenues by Product Category, Q4, 1999
14%
10%
13%
1%
8%
54%
Books
Music
Video/DVDs
5%Video Games/Toys
Software
Consumer Electronics
2%
Home Improvement
1%
Others
Amazon.com Revenues by Product Category,
Q4, 2004
Media
2%
24%
Electronics and
other general
merchandise
Other
74%
Wild Wild West: Hotter Rivals
 98Vs. Barnes & Noble: “One-click” lawsuit
 00Vs. Wal-Mart. com, bluelight.com(Kmart)
 01Vs. eBay: C2C e-commerce
 04Vs. Google: a9.com (search engine)
 04Vs. Overstock.com ?
SWOT
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Hard Times:
 Rough waters for Amazon.com
Businessweek, Feb.03, 2005
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Murky waters for Amazon.com
Businessweek, Oct.22, 2004
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Missed profit expectation for
Q4, 2004 by about 13%
(stock price plummeted 15%)
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Intensifying Competition
Increased marketing costs
(increased by 44% compared
to 26% growth in sales)
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Investors’ suspicions on
e-commerce giants
(similar fate for eBay)
Opportunity: Harry Potter Year
Business Model
Screenshot of the Amazon home page
Bookselling and An Online Business Model
Advantages:
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Unlimited online shelf space
Offer customers a vast selection through an efficient
search and retrieval interface
Realize significant structural cost advantages
Sources product from a network of book distributors
and publishers which can give a decent discount.
Personalized service
Bookselling and An Online Business Model
Negative Operating Cycle
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Shift inventory risk to its vendors in the process.
Generate interest on the full sale price for over a
month.
In addition, Amazon introduced co-branded
auctions and zShops Marketplaces.
In this new model, Amazon acted as an agent by
facilitating transactions and taking a fee.
Factors of Amazon’s Success
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Brand
 By 2000, Amazon.com became the forty-eighth most valuable
brand in the world.
 Personalization would be a hallmark of the Amazon brand.
Customers
 Listen
 Invent
 Personalize
 Amazon’s Mission: To be the earth’s most customer-centric
company.
Distribution Capability
 Bezos: We will have a competence in distribution that will be hard
to compete with.
Factors of Amazon’s Success
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Technology ＆ E-commerce Expertise
 Customized Information Systems
 Amazon Commerce Network (ACN)
 One-Click Process
 Search Engine System
Customers
 Listen
 Invent
 Personalize
 Amazon’s Mission: To be the earth’s most customer-centric
company.
The ability to continually innovate
 A great team with a passion for innovation and A passion for
serving customers well
Other Marketing Strategies
Strategy Analysis
Two-Sides Market
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Network effect- value of a network depends on the
number of users
Amazon faces a Two sides market:
Buyers/customers want to visit/buy for a website
with more books available
Book sellers/publishers choose the website that
has large customer bases
An example of Chicken and Egg Problem
Ways to attract Suppliers
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Amazon: a platform to provides valuable and
accurate, real-time customer information, lower
display costs and low return rate ..
Amazon offers attractive returns to publishers/title
owners, usually <10%
Provides space to smaller independent publishers
Cheap credit card clearance
Ways to attract Customers
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Broad variety, from books to DVD
Low price and personalized services
Build loyal customer bases
Reviews and recommendation: convenience and
reduce cost of searching of the customers/potential
customers
Create an unique community experience
Community – the value of a network
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Community experience in order to building a loyal
customer base: the good community should bring
reputable and in return, more business
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Not only a platform for the business to take place, but
also a community, an experience for the customers
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“We’re determined to offer both world-leading
customer experience and the lowest possible
prices”, 2002 Amazon Annual report
Community
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Community is extremely important in the internet
business- the value of a network depends on the
users community) it already and expects to
connect.
IM, such as QQ( in China), ICQ, MSN, and EBay,
Amazon are examples
The ability of Amazon to build the community is
the most important and the next problem is how
they could profit from the community
Patents
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“1-Click ordering is turned on immediately after
you place your first order, provided you've paid
for that order with a credit card. You can place an
order to any address you've shipped to before by
clicking just one button. We will automatically
reference your account for shipping and billing
information.” – Amazon Website
1-Click Patent
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convenience for the customers , personalized
services
although the technology is somewhat simple, the
granted patent block the competitors to use the
similar technique in their websites
Another Patent- Amazon Associate Program
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“Starting in 1996, Amazon Associates program
was the first online affiliate program of its
kind. Today, it is the largest and most successful
online affiliate program, with over 900,000
members joining world wide. If you are a Web
site owner, Amazon seller, or Web Developer, you
can start earning money today and earn up to
10% in referral fees……Start making money today.
Click here for easy registration ” – Amazon
Website
Another Patent- Amazon Associate Program
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Participation in the scheme is free
Could earn return up to 10%, depends on the
performance
attractive for websites, almost no cost but only put
the Amazon items on their websites
Patent also granted for the program, block again
the competitors using similar program to build the
customer base.
The patents owned to Amazon put its competitors
at a disadvantage
Dynamic Pricing
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Definition: Charging the same products on
different price for different customers-> Max
Profit
Technology enables company to measure price
elasticity more accurately and more real-time
"Amazon.com acknowledged that it's been
presenting different prices to different customers
in its DVD store, but denied that it does so on the
basis of any past purchasing behavior at Amazon.
"We want to measure what impact price has on a
customer's purchasing patterns. It's a limited test,"
Amazon spokeswoman Patty Smith said. "Different
customers will see different prices."
- PCIN Issue 101
Dynamic Pricing
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Dynamic Pricing is common in the off-line world
Priceline.com, for example, tends to accept lowball
bids from first-time bidders to draw them into the
service, then gradually raises the bar in future bids. Wired news, 2000
Dynamic Pricing/ Price discrimination requires
customer information, including purchase pattern
With internet, information is obtained more easily
and less expensive; much easier to implement
The problem is, when the customers know the
practice: some pay more, some pay less, the
customers will dislike the practice and destroy the
customers’ loyalty
Prospect
Competitors
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Internet Retailers
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Barnes&Noble.com
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eBay
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Half.com (ebay)
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Wal-Mart
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Bluelight.com
Brick & Mortar Retailers
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Wal-Mart
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Toy R’Us
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Barnes & Noble
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Sears
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Target
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Circuit City
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Kmart
eBay
Differences
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Amazon
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Standard online sale method
Mainly business-to-consumer based business model
(expanded to user-to-user)
Started as an online bookstore
eBay
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Fixed time / Fixed price auction
User-to-user based business model (driven by users, not the
company)
“Your success is eBay’s success”
eBay
Similarities
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Amazon & eBay
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Internet retailers
Sells everything in any quantity (especially things not found
locally)
Repeat customers are important, thus they have ways to
promote repeat purchases (Amazon Gold box, eBay points and
feedback)
Barnes&Noble
Amazon.com
Barnes&Noble
Amazon Vs Barnes&Noble
Price Comparison
Amazon.com
Barnes&Noble
China Reform: Strategy
and Economic Reform
22.5+3.99
=26.49
Not Available
Information Rules
23.19+3.99
=27.09
19.97 (e-book)
14.97+3.99
=18.96
29.95+3.99
=33.94
19.79+3.99
=23.78
20.99+3.99
=24.98
Da Vinci Code
Harry Potter
The Order of Phoenix
14.97+3.99
=18.96
Acquisitions and Strategic Investment
Acquisition
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LiveBid
Bookpages
Telebook
Back to Basic Toys
Accept.com
Exchange.com
…...
Strategic Investment
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Drugstore.com
Living.com
Gear.com
Kozmo.com
Ashford.com
Della.com
……
Conclusion
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First-mover advantage
All-you-can-buy
Virtual store
Low cost
Easy to use
Questions
What are the advantages of online bookstores
compared to traditional ones?
Why Amazon.com using dynamic pricing?