Amazon.com is a company that is closely tied with the e-commerce phenomenon. Jeff Bezos, the founder of the company, broke the rules of the book business by using the Internet rather than conventional distribution channels. Based in Seattle, USA, the company has grown from a book seller to a virtual Wall Mart of the Web selling products as diverse as music CDs, software, office products, electronics, toys, games, cookware, hardware, food, and health products. The company has also grown at a tremendous rate with revenue rising from about US$150 million in 1997 to US$5.2 billion in 2003.
Entrepreneurial Spirit of Jeff Bezos, Founder of Amazon.com
Amazon.com was founded by Jeff Bezos, a computer science and electrical engineering graduate from Princeton University. Bezos had moved to Seattle after resigning as a Senior Vice-President at D.E.Shaw, a Wall Street investment bank. He didn't know much about the Internet. But he came across a statistic that the Internet was growing at 2300%, which convinced him that it was a large growth opportunity. Not knowing much more, he plunged into the world of e-commerce with no prior retailing experience.
He chose to locate the company in Seattle because it had a large pool of technical talent and since it was close to one of the largest book wholesalers located in Rosenberg, Oregon. He was thinking of the company as a bookseller at the beginning. Moreover, the sales tax laws for online retailers state that one has to charge sales tax in the state in which one is incorporated. Therefore it was logical to locate in a small state.
The company went online in July 1995. In May 1997, Amazon.com went public. As a symbol of the company's frugality, Jeff and the first team built desks out of doors and four-by-fours. The company was started in a garage. Initial business meetings were conducted at a local Barnes and Noble store. Bezos picked the name Amazon for his company because it started with the letter A, signified something big, and it was easy to spell.1
For his contribution, Jeff Bezos was picked as the 1999 Time person of the year at the age of 35 making him the fourth-youngest person of the year. Describing why it choose Bezos, Time magazine said, "Bezos' vision of the online retailing universe was so complete, his Amazon.com site so elegant and appealing that it became from Day One the point of reference for anyone who had anything to sell online."
Amazons Business Model
The company began as an online bookstore. Founder Bezos saw the potential of the Internet; while the largest brick-and-mortar bookstore might offer upwards of 200,000 titles, an online bookstore could sell many times more. Bezos renamed his company "Amazon" in reference to the world's most voluminous river, the Amazon. Amazon.com began service in July 1995. The company was originally incorporated in 1994 in the state of Washington and was reincorporated in 1996 in Delaware. Amazon.com had its initial public offering on May 15, 1997, trading on the NASDAQ stock exchange under the symbol AMZN at an IPO price of $18.00 per share (equivalent to $1.50 after three stock splits during the late 1990s).
Amazon's initial business plan was unusual; in that the company did not expect to turn a profit for four to five years after it was founded. In retrospect the strategy was sound, despite the dotcom collapse of 2000. Amazon grew at a steady pace in the late 1990s while other Internet companies appeared out of nowhere and grew at a blindingly fast pace. Amazon's "slow" growth caused a number of its stockholders to complain, saying that the company was not reaching profitability fast enough. When the Internet "bubble" burst and many e-companies began going out of business, Amazon persevered and finally turned its first-ever profit in the fourth quarter of 2002. It totalled a meagre $5 million, just 1 cent per share, on revenues of over $1 billion, but it was important symbolically. It has since remained profitable and maintained revenues of over $1 billion per fiscal quarter. In January 2004 Amazon posted its first full-year net profit (for calendar year 2003). Its profits were $35.3 million on revenues of $5.65 billion. Much of the growth of the company was due to its international division.
Recognizing the website's success in popularizing online shopping, Time Magazine named Bezos its 1999 Man of the Year.
Sources of Competitive Advantage
Maintaining and improving operational efficiencies is the key to sustainable competitive advantage of Amazon.com. The ability to offer shopping convenience, ease of purchase, speed, decision-enabling information, a wide selection, discounted pricing, and reliability of order fulfilment are all tied directly to the company's logistical competencies.
By purchasing large volumes of products directly from publishers the company offers a wide selection to customers and receives great discounts from suppliers.
Amazon.com aims to ship 95% of products on the day they are ordered. Direct model enables Amazon.com to shorten shipping times. The company invested also heavily in warehousing and material handling systems to achieve multifold improvement in throughput.
Building Brand Equity
Amazon.com has steadily increased its spending on advertising and promotion to make its brand stronger and build brand equity. By 2003, the brand of Amazon.com was worth US$ 22 billion. "A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well," says Jeff Bezos, the founder of Amazon.com.
Value Added Information Services
Amazon.com works hard to achieve value-added differentiation through customer-focused information services. Amazon.com's site retains customer preferences and provides automated customization for users.
Jeff Bezos has a vivid vision for how this technology will be used: "Personalization is like retreating to the time when you have small-town merchants who got to know you, and they could help get the right products. The right products can improve your life, and the wrong products detract from it. Before the era of mass merchandizing, it used to be that most things were personalized. The purpose of ... customization is ... you get the economies of mass merchandising and the individuality of 100-years-ago merchandising."
Amazon.com's market success depends on its ability to maintain and grow its customer base by knowing and serving its customers better than its competitors and providing a higher level of value-added differentiation in customer service. Due to high level of customer satisfaction, repeat customers account for approximately 60% of Amazon.com's orders.
Amazon.com's Value Proposition
Values play an important role in Amazon.com's succeeding. A value is like a goal and forms an ongoing objective. Amazon.com's values and philosophy is at the Centre of the organization and often determines the difference between success and failure of the enterprise (Saunders, 2001, pp.141). There are two strong values that are practised by Amazon.com. These include customer satisfaction and operational frugality. These two values complement Amazon.com's operational strategies in achieving and maintaining an effective competitive advantage and encouraging employee and corporate performance. For example, Amazon.com's employees are paid base salaries that are obviously less than competitive rates. So, due to the frugality value, Amazon.com spends much money on branding and business expansion. However, Amazon.com sustains employee loyalty through employees' ownership of company shares. Amazon.com injects a message into the employee's minds - when Amazon.com begins to show a profit, their shares will profit too.
Amazons Revenue Model
Amazon.com discussion forum, Amazon derives about 40% of its sales from affiliates whom they call Associates and third party sellers who list and sell products on the Amazon websites. In worldwide, Amazon has "over 900,000 members" in its affiliate programs. There are a new affiliate product, aStore, allows Associates to embed a subset of Amazon products within, or linked to from, another website. Consistent with the data, there are 1.3 million sellers sold products through Amazon's World Wide Web sites in 2007. Therefore it shown that Selling on Amazon has become more popular as Amazon expanded into a variety of categories beyond media and built a variety of features to support volume selling.
Other than that, Amazon.com also incorporated a number of products and services into its shopping model, like Kindle which launched in November 2007. These products can attract people to continue buying in Amazon.
Amazons Business Strategy
List mania is the option to create a list of items that have particularly influenced you as an Amazon.com reviewer - items that you find personally or professionally important. Many pages on Amazon post these lists at the bottom of the product page. If you've impressed upon a viewer that you're a reviewer who knows what they are talking about, they will pay special attention to your list and consider purchasing what is on it. When they click on your list, they will see your entire line of recommended product(s) and your comments on each one.
You can include items any of the following categories in your List mania list:
- DVD & Video
- Toys & Games
- Computer & Video Games
- Kitchen, Tools & Hardware
- Lawn & Patio
To add a list to your Amazon.com profile, simply click the "Add a List mania List" link on the left side of the Friends & Favourites home page.
The second option on Amazon is to write a "So You'd Like to..." list. These lists differ from the straightforward List mania list in that these are supposed to be written like guides to show people how a given product or products can enrich them or solve a problem. Because of this, they take a little more care in writing but come across as more sincere and convincing to potential customers. As with the List mania feature, many pages on Amazon post these lists at the bottom of the product page.
"So You'd Like to" lists work the same was as with List mania ones in that if you've impressed upon a viewer that you're a reviewer who knows what they are talking about, they will pay special attention to your list. When they click on your list, they will see your entire line of recommended product(s) and your comments on each one.
There is an inherent advantage to "So You'd Like To" lists versus List mania ones. If you compare the comments you can place on this list compared to List mania, you'll notice that they are more personal and engaging on the whole - thereby making your recommendations more appealing.
Amazon has and continues to be at the vanguard of online retail. While it started as a store that focused primarily on books and music, Amazon quickly expanded to other segments and now sells products in nearly every segment - apparel, home improvement, groceries. In addition, Amazon has expanded from a Business-to-Consumer (B2C) only store to a mixed model with its corporate account functionality that focuses on business buyers. Added to the mix, is the Amazon marketplace - Amazon's answer to eBay- which allows merchants to list their products and customers to purchase from merchants while using Amazon's ecommerce platform.
Amazon started with a store that was fairly feature-rich for its time and has gone on to strengthen that foundation. Today, it probably ranks as the leader in terms of the richness of its e-Commerce features. As a provider of ecommerce software to mid-market, we use Amazon as a reference for the features it has on the web store. Some of these features not easily found on other sites include the '1-Click Ordering', 'Customer Viewing', 'Recently Viewed Products', 'Keyword Auto-fill' on the product search, 'Your Personalized Store', and 'Items to Consider'. While some of these features are relatively easy to implement e.g. '1-click Ordering', others are not so easy and require an advanced platform. For example, the 'Customers Viewing' this product ultimately bought, requires the ecommerce platform to track and record the click path of a customer from the product page they are viewing to what they finally buy and keeping a record of that, analysing it and then serving up the aggregated results on an individualized basis. The feature will give information such as - of the customers who viewed this product 48% bought this product itself, 35% bought product B, 20% bought product C etc. Similarly the 'Items to Consider' is not a generic recommendation of specials but provides personalized recommendations based on your browsing history. Inspired by your Shopping Trends makes recommendations on products based on the type of products you purchase. For example, if you buy self-improvement books Amazon will make several recommendations on other self-improvement books. This same theme of personalized recommendations extends throughout the site with other similar recommendation sub-groups like Frequently Bought with Items in Your Wish List, Customers with Similar Searches Purchased etc. This takes significant analytical infrastructure behind the scenes and Amazon has done a very good job of ensuring it has all the underpinnings required to make strong and very logical recommendations.
Amazon has created its own virtuous circle: more customers coming to Amazon make it a more attractive platform for other merchants, while more merchants selling on Amazon lead more consumers to start their shopping at Amazon.com.Add in Amazon's low prices, personalized recommendations, free shipping and strong reputation among consumer. Amazon expanding into new categories beyond books and musicmore than a dozen in the past year. The e-retailer's free shipping offers and low prices encourage frequent purchases by 81 million active Amazon shoppers. And thousands of other retailers are helping expand Amazon's selection by selling on Amazoneven though it means paying a commission and handing over customer data to a competing e-retailer.