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MW-CH4107-20061025-106<br />Competitive overview<br />Connected World/Global Web <br />March 30, 2010<br />
1<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial p...
2<br /><ul><li>Amazon.com consistently outsells Bestbuy.com in every major product category except laptops, where Dell dom...
Amazon.com has over 60% share in movie sales and over 70% in music; entertainment overall is Amazon’s strongest category a...
Best Buy has made strides in A/V equipment, which includes TVs, gaining four points of share year over year and actually b...
3<br />4<br />…but despite Amazon’s rapid online growth, Best Buy continues to outpace Amazon’s overall share growth in th...
4<br />y<br />Amazon’s consistent revenue growth and healthy operating cash flow have earned it an industry-leading earnin...
When combined with their flexible and compressed SG&A structure, Amazon becomes an investment that commands a high multiple
AMZN currently trades at 65x earnings, far ahead of any competitor, including BBY at 14x, Apple at 23x, and Walmart at 15x...
5<br />Amazon’s performance is driven by their ability to keep SG&A costs low, a result of their flexible SG&A structure<b...
6<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial p...
7<br />Amazon continues to win on price…and product assortment<br />2<br />Price comparison by SKUs1<br />Percentage; 2010...
8<br />But fails to meet many other customer needs…<br />2<br />% of online shoppers who consider it important<br />Why Am...
Amazon cannot offer the “connected” experience of showing how products interact; you can buy a router and a home theater s...
Even if Amazon were to implement an online customer-facing sales force, they would be unable to demonstrate products in th...
This becomes especially problematic around the holidays as purchases have a higher likelihood of being returned</li></ul>P...
As more consumers look to buy “connected world” solutions, having a trusted in-house installation and service offering is ...
9<br />m<br />=<br />X<br />Although consumers spend more time per visit on Bestbuy.com, they visit Amazon more often, res...
10<br />m<br />Amazon’s conversion rate among online shoppers is higher than Bestbuy.com, and we are losing significant va...
11<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial ...
12<br />Originally a pure-play retailer, Amazon has built a diversified set of businesses through internal development and...
Amazon’s SVP of Web Services proclaimed that “Amazon at it’s heart, is a technology company”</li></ul>CloudFront<br />c<br...
Aware that customers value this radical transparency that information provides, Amazon has invested heavily in information...
Additionally, Amazon has made an effort to expand their other downloadable media offerings, inlcuding Amazon MP3, which cu...
13<br />s<br />Amazon drives revenue from a variety of sources, although traditional retail still provides over 50%<br />3...
Drives ~1-2% of profitability</li></ul>3.6<br />Affiliates<br />Affiliates<br /><ul><li>Revenue from third parties that us...
Drives 10-12% of profitability (post-commission)</li></ul>Marketplace<br />7.7<br />Marketplace<br /><ul><li>Revenue from ...
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  1. 1. MW-CH4107-20061025-106<br />Competitive overview<br />Connected World/Global Web <br />March 30, 2010<br />
  2. 2. 1<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial performance<br />1<br />Amazon is well positioned to deliver against customers’ needs for low prices and wide<br />assortment, but ill-suited to provide the physical immersive experience they prefer<br />2<br />Amazon has made enhancements to their existing businesses and continues to create new<br />business models and profit pools, including marketplace, Kindle, and Amazon Web Services<br />3<br />Despite their impressive performance, Amazon has limitations and risks, including<br />impending changes to state sales tax laws and new competitive pressures<br />4<br />Amazon executive summary<br />SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis<br />
  3. 3. 2<br /><ul><li>Amazon.com consistently outsells Bestbuy.com in every major product category except laptops, where Dell dominates, Best Buy is second, and Amazon trails in third
  4. 4. Amazon.com has over 60% share in movie sales and over 70% in music; entertainment overall is Amazon’s strongest category as they have 50% market share compared to Best Buy’s 5%
  5. 5. Best Buy has made strides in A/V equipment, which includes TVs, gaining four points of share year over year and actually beating Amazon in 4Q09</li></ul>Amazon outpaces Best Buy in online CE share growth…<br />1<br />Online market share, CE<br />Percent of market<br />Amazon<br />Best Buy<br />03<br />2002<br />07<br />08<br />09<br />06<br />05<br />04<br />SOURCE: Comscore <br />
  6. 6. 3<br />4<br />…but despite Amazon’s rapid online growth, Best Buy continues to outpace Amazon’s overall share growth in the CE market<br />1<br />Net share gain<br />(2004-2009)<br />US Market share<br />% of total CE market (offline and online)<br />CAGR<br />44%<br />3.7%<br />0.7<br />0.8<br />1.4<br />2.3<br />3.4<br />4.4<br />3%<br />2.0%<br />5%<br />6.0%<br />Other<br />retailers<br />-4%<br />-11.7%<br />66.3<br />65.5<br />65.2<br />63.4<br />59.3<br />53.5<br />05<br />06<br />2004<br />08<br />09<br />07<br />SOURCE: Stevenson Traqline<br />
  7. 7. 4<br />y<br />Amazon’s consistent revenue growth and healthy operating cash flow have earned it an industry-leading earnings multiple<br />1<br />Amazon<br />Best Buy<br />Total revenue<br />$ Billions<br />Avg. stock price<br />$ per share<br />+11% p.a.<br />Amazon<br />120<br />+32% p.a.<br />49.7<br />45.0<br />40.0<br />80<br />35.9<br />24.5<br />19.2<br />14.8<br />10.7<br />40<br />BBY<br />09<br />08<br />07<br />2006<br />0<br />Mar<br />10<br />Jan<br />Nov<br />Sep<br />Jul<br />May<br />Mar<br />09<br />Operating cash flow <br />$ Billions<br /><ul><li>Amazon’s ability to drive revenue growth with creative business models and produce incredible amounts of cash make them an attractive play to Wall St.
  8. 8. When combined with their flexible and compressed SG&A structure, Amazon becomes an investment that commands a high multiple
  9. 9. AMZN currently trades at 65x earnings, far ahead of any competitor, including BBY at 14x, Apple at 23x, and Walmart at 15x</li></ul>+3% p.a.<br />+67% p.a.<br />09<br />08<br />07<br />2006<br />SOURCE: Company financials<br />
  10. 10. 5<br />Amazon’s performance is driven by their ability to keep SG&A costs low, a result of their flexible SG&A structure<br />1<br />SG&A costs<br />% of sales<br />Amazon SG&A costs<br />% of sales<br />-1% p.a.<br />20.2%<br />19.8%<br />19.3%<br />19.1%<br />18.8%<br />Fulfillment <br />0%<br />8.4%<br />1.7%<br />Marketing <br />2.8%<br />07<br />08<br />06<br />2005<br />2009<br />Technology and<br />content<br />1.2%<br />5.1%<br />Best Buy SG&A costs<br />% of sales<br />+1% p.a.<br />9.3%<br />Stores**<br />0%<br />21.3%<br />20.8%<br />20.3%<br />19.7%<br />19.8%<br />Other general<br />and administrative<br />7.2%<br />1.3%<br />Total SG&A<br />19.4%<br />17.6%<br />2005<br />07<br />06<br />2009<br />08<br /> * Figures are for year ending Dec. 31, 2009 for Amazon and Q3 projected fiscal year 2009 for BBY<br /> ** Stores includes store labor, rent and taxes, but does not include D & A<br /> Source: Amazon 10-K, BBY internal data<br />
  11. 11. 6<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial performance<br />1<br />Amazon is well positioned to deliver against customers’ needs for low prices and wide<br />assortment, but ill-suited to provide the physical immersive experience they prefer<br />2<br />Amazon has made enhancements to their existing businesses and continues to create new<br />business models and profit pools, including marketplace, Kindle, and Amazon Web Services<br />3<br />Despite their impressive performance, Amazon has limitations and risks, including<br />impending changes to state sales tax laws and new competitive pressures<br />4<br />Amazon executive summary<br />SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis<br />
  12. 12. 7<br />Amazon continues to win on price…and product assortment<br />2<br />Price comparison by SKUs1<br />Percentage; 2010<br />Price per SKU of DSLR cameras, 10-11MP<br />USD; 2009<br />Tied<br />Best Buy lower<br />82<br />Amazon lower<br />1 Based on a price comparison of 128 overlapping SKUs<br />SOURCE: Best Buy Competitive Strategies Group<br />
  13. 13. 8<br />But fails to meet many other customer needs…<br />2<br />% of online shoppers who consider it important<br />Why Amazon is ill-equipped to address it<br /><ul><li>Without physical stores, Amazon has no way of getting it’s inventory in the hands of customers pre-purchase
  14. 14. Amazon cannot offer the “connected” experience of showing how products interact; you can buy a router and a home theater system on Amazon, but you can’t see it at work </li></ul>Physical inventory to handle and experience<br />XX%<br /><ul><li>Amazon has no Blue Shirt equivalent and has no face-to-face interaction with their customers
  15. 15. Even if Amazon were to implement an online customer-facing sales force, they would be unable to demonstrate products in the same way an in-store staff can </li></ul>Experienced and knowledgeable staff to answer questions<br />YY%<br /><ul><li>To return an Amazon product, a customer is forced to ship the product back to Amazon’s warehouse
  16. 16. This becomes especially problematic around the holidays as purchases have a higher likelihood of being returned</li></ul>Physical store for returns<br />ZZ%<br /><ul><li>While Best Buy can offer service and installation packages with devices sold in-store, Amazon is unable to offer in-house servicing
  17. 17. As more consumers look to buy “connected world” solutions, having a trusted in-house installation and service offering is an increasingly important factor</li></ul>In-house service offering<br />VV%<br />
  18. 18. 9<br />m<br />=<br />X<br />Although consumers spend more time per visit on Bestbuy.com, they visit Amazon more often, resulting in 4x as much time spent on Amazon.com per month<br />2<br />Time on site per visit<br />Minutes<br />+37%<br />Time spent on site per month<br />Minutes<br />Amazon.com<br />Bestbuy.com<br />-74%<br />Number of visits per month<br />Number<br />Amazon.com<br />Bestbuy.com<br />-81%<br />Amazon.com<br />Bestbuy.com<br /> Source: iConsumer clickstream analysis<br />
  19. 19. 10<br />m<br />Amazon’s conversion rate among online shoppers is higher than Bestbuy.com, and we are losing significant value to Amazon <br />2<br />…moreover, estimates suggest we lost $570M in value to Amazon last year<br />…and of those that make a purchase at BBY or AMZN, 75% go to AMZN…<br />29% of Bestbuy.com visitors also visit Amazon…<br />Where BBY.com visitors make their purchase<br />Percent; 2009<br />Lost value from bestbuy.com visitor non-buyers<br />$ Millions<br />Total BBY.com visitors<br />Percent; 2009<br />100<br />100<br />2,000<br />Also visit<br />Amazon<br />Bestbuy.com<br />Amazon.com<br />570<br />29<br />Dell.com<br />537<br />Visit<br />Bestbuy.com<br />only<br />213<br />Walmart.com<br />75<br />Amazon.com<br />71<br />680<br />All others<br />Total BBY.com visitors<br />Visitors that do make purchase<br />Dollar Share<br /> Source: iConsumer clickstream analysis, Comscore<br />
  20. 20. 11<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial performance<br />1<br />Amazon is well positioned to deliver against customers’ needs for low prices and wide<br />assortment, but ill-suited to provide the physical immersive experience they prefer<br />2<br />Amazon has made enhancements to their existing businesses and continue to create new<br />business models and profit pools, including marketplace, Kindle, and Amazon Web Services<br />3<br />Despite their impressive performance, Amazon has limitations and risks, including<br />impending changes to state sales tax laws and new competitive pressures<br />4<br />Amazon executive summary<br />SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis<br />
  21. 21. 12<br />Originally a pure-play retailer, Amazon has built a diversified set of businesses through internal development and M&A<br />3<br />Brands/products/acquisitions<br />Strategy<br />a<br /><ul><li>Amazon continues to fulfill Bezos’ original mission to sell to any consumer any product at any time by expanding their product assortment (Amazon Fresh), acquiring new retail outlets (Zappos), and creating new business models to leverage third party vendors and affiliates (marketplace and Amazon Associates)</li></ul>E-commerce<br />Marketplace<br />b<br />Computing services<br />EC2 Cloud<br />Data storage (S2)<br /><ul><li>Amazon Web Services’ computing solutions not only provide a high-margin auxiliary revenue stream, but also lay the groundwork for potential consumer solutions based on the cloud experience
  22. 22. Amazon’s SVP of Web Services proclaimed that “Amazon at it’s heart, is a technology company”</li></ul>CloudFront<br />c<br />Information/ Social ntwk.<br /><ul><li>From early on, Amazon has incorporated large amounts of information into the e-commerce experience in the form of product reviews and collaborative filtering
  23. 23. Aware that customers value this radical transparency that information provides, Amazon has invested heavily in information sites, like IMDb and Alexa, as well as social networking sites like Shelfari</li></ul>d<br /><ul><li>With the Kindle, Amazon revolutionized the e-book, connecting to consumers to content and realizing steady revenue streams in the process
  24. 24. Additionally, Amazon has made an effort to expand their other downloadable media offerings, inlcuding Amazon MP3, which current offers over 8 million songs, and Amazon Video on Demand, which offers streaming movies and TV</li></ul>Downloadable media<br />
  25. 25. 13<br />s<br />Amazon drives revenue from a variety of sources, although traditional retail still provides over 50%<br />3<br />Amazon revenue breakdown<br />$ Billion<br />Web Services & Others<br />$24B<br />0.5<br />Web Services & Other<br /><ul><li>Revenue from Amazon Web Services, which provides storage, cloud computing, database, payments, and other products
  26. 26. Drives ~1-2% of profitability</li></ul>3.6<br />Affiliates<br />Affiliates<br /><ul><li>Revenue from third parties that use APIs to sell Amazon’s inventory
  27. 27. Drives 10-12% of profitability (post-commission)</li></ul>Marketplace<br />7.7<br />Marketplace<br /><ul><li>Revenue from selling third-party merchants’ inventory on Amazon.com
  28. 28. Drives ~33-34% of profitability</li></ul>Traditional retail<br />Traditional retail<br />12.5<br /><ul><li>Revenue from Amazon selling their own inventory to customers
  29. 29. Includes sales of physical goods, all downloadable media, Kindle device and content sales, etc.
  30. 30. Drives ~54-56% of overall profitability</li></ul>2009<br />SOURCE: Best Buy Competitive Strategies Group <br />
  31. 31. 14<br />d<br />Amazon continues to fulfill its mission to sell anything to anyone, while also building profitable business models around the engine<br />3a<br />Amazon Associates<br />Amazon Marketplace<br />Amazon.com<br /><ul><li>Amazon associates uses open APIs to allow third party merchants to advertise Amazon products on their site
  32. 32. Merchants receive a commission for each sale they generate
  33. 33. When customers click on the advertisement, they are directed to Amazon.com
  34. 34. Increases customer traffic to Amazon.com
  35. 35. Estimated to generate ~15% of overall revenue and ~10-12% of profitability after commissions
  36. 36. Amazon’s marketplace allows third party sellers to upload their inventory to Amazon.com and sell their products alongside Amazon’s own inventory
  37. 37. Amazon charges a 6-15% commission depending on the product sold as well as closing fees
  38. 38. Increases customer choice and provides a new revenue stream
  39. 39. Estimated to generate ~32% of overall revenue and ~33-35% of profitability</li></ul>Tools & Industrial<br />Apparel<br />Physical media<br />Sporting Goods<br />Digital downloads<br />Books<br />Toys & Kids<br />Home & Garden<br />Grocery & Beauty<br />Consumer Electronics<br />Kindle<br />SOURCE: Amazon.com, BBY.com<br />
  40. 40. 15<br />Amazon’s marketplace allows third party merchants to sell alongside Amazon and provides ~30% of overall profitability<br />3a<br />How it works<br />5<br />4<br />Payment is routed to Amazon first, who collects 6-15% commission and various fees, then sends remainder to Target<br />Customer decides to purchase the Target product, and pays via Amazon.com<br />6<br />Order is sent to Target for fulfillment (Amazon offers fulfillment services)<br />1<br />3<br />2<br />Target uploads inventory to Amazon.com marketplace<br />Customer can view “more buying choices” and find Target’s listing for the same product<br />Amazon posts Target’s listing for the same product alongside their inventory and other third party merchants<br />How it makes money…<br />Marketplace<br />Amazon as seller<br />84%<br />83%<br />2%<br />6%<br />14%<br />11%<br />0.56<br />1.73<br />3.19<br />3.26<br />Profit<br />Price<br />Proc.<br />Fee<br />Seller rev<br />Price<br />COGS<br />Shipping<br />Profit<br />SOURCE: Team Analysis, Amazon.com, Amazon Financials, <br />
  41. 41. 16<br />Amazon Web Services has already attracted prominent clients and is estimated to generate ~$400M in revenue per year…<br />3b<br />AWS products<br />What it does?<br />Elastic Compute Cloud (EC2)<br /><ul><li>Provides resizable compute capacity in the cloud
  42. 42. Designed to make web-scale computing easier for developers
  43. 43. Amazon Web Services’ revenue is estimated at $400M per year and growing
  44. 44. AWS already boasts an impressive list of clients, including ESPN, eHarmony.com, and Eli Lilly
  45. 45. S3 storage is estimated to hold 82 billion objects and can receive 100,000 requests per second
  46. 46. Hundreds of thousands of developers currently using S3 storage functionality
  47. 47. In a 2010 FastCompany comparison between Amazon, Apple, and Google, Amazon was selected as having the superior web service offering
  48. 48. Margins for AWS are estimated at ~45%</li></ul>CloudFront<br /><ul><li>Web service for high-speed content delivery
  49. 49. Integrates with other AWS products</li></ul>Virtual Private Cloud<br /><ul><li>Provides a bridge between a company’s existing IT systems and the Amazon cloud via a virtual private network (VPN)</li></ul>Simple Storage Service (S3)<br /><ul><li>Data storage infrastructure
  50. 50. Web-based interface to store and retrieve objects </li></ul>Database services<br /><ul><li>Highly scalable database storage with less internal administrative oversight required</li></ul>Flexible payments services (FPS)<br /><ul><li>Built on top of Amazon’s own payments structure, it gives e-commerce engine a payment tool they can integrate into their stie</li></ul>Simple Queue Service (SQS)<br /><ul><li>Scalable structure for storing messages as they travel between computers</li></ul>SOURCE: Amazon.com, Analyst reports, FastCompany.com<br />
  51. 51. 17<br />Amazon has acquired and integrated a host of informational and social networking sites into their existing business<br />3c<br />How Amazon uses it<br />What is it?<br /><ul><li>Internet database with a wealth of information regarding movies and TV shows, including episode summaries and community forums for contributors to voice their opinions
  52. 52. Acquired boxofficemojo.com, which provides in-depth information and statistics on movies
  53. 53. Amazon has used IMDb as a advertising mechanism; for example, if someone searches for information on Avatar, they will be presented with a one-click reroute to Amazon where they can buy the DVD
  54. 54. Still operates as an independently-branded site
  55. 55. Company that collects and publishes statistics on browsing behavior, including web traffic broken down by various demographics
  56. 56. Under Amazon Web Services, Alexa remains relatively unconnected to Amazon’s e-commerce business models
  57. 57. Human search engine for users to post and answer questions
  58. 58. Users get “experience points” depending on how often they contribute; has developed into a social network of sorts
  59. 59. Co-branded with Amazon (Askville by Amazon)
  60. 60. Amazon-related questions are amongst the most popular on the site
  61. 61. Users upload a virtual bookshelf with all their favorite titles
  62. 62. Users can rate, review, discuss, and suggest books to other users
  63. 63. When looking at any given title, Shelfari has a link to Amazon to buy the physical book or a digital Kindle edition
  64. 64. Amazon also has a stake in Shelfari’s main competitor, LibraryThing
  65. 65. Free web hosting site for wikis1
  66. 66. Users can browse different categories and follow wikis they find interesting
  67. 67. Monetized through advertising revenue
  68. 68. Limited connection to Amazon currently</li></ul>1 Amazon does not own Wikia, but has invested $10M <br />SOURCE: Amazon.com, Company sites<br />
  69. 69. 18<br />Amazon has expanded their digital media offering with Kindle, Amazon Video on Demand, and Amazon MP3<br />3d<br />What is it?<br />How is it monetized?<br />Performance<br /><ul><li>Amazon’s e-reader that allows customers to read digital books, magazines, blogs, and newspapers; competes with other e-readers and traditional book sales
  70. 70. Kindle device sales
  71. 71. Digital book revenues
  72. 72. Commissions off newspaper and magazine subscription sales
  73. 73. No revenue numbers released; unit sales estimated in the “millions”
  74. 74. Kindle is widely considered the market leading e-reader; Credit Suisse estimates that Amazon currently has 90% of the digital book market
  75. 75. Amazon’s streaming and downloadable video site; allows customers to watch on computers and TVs; competes with Netflix and free services like Hulu
  76. 76. Digital movie rentals
  77. 77. Downloadable and streaming TV/movie revenues
  78. 78. Widely believed to be well behind Netflix in market share
  79. 79. Amazon VOD recently became accessible on Roku digital video players
  80. 80. Amazon’s streaming and downloadable music site; competes with iTunes, Napster, and other download sites
  81. 81. Downloadable and streaming music revenues
  82. 82. Estimated at having 8% market share, well behind iTunes near 70% share
  83. 83. Has over 11 millions songs in its current catalog
  84. 84. First store to sell without digital rights management (DRM)</li></ul>SOURCE: Amazon.com, Analyst reports, FastCompany.com<br />
  85. 85. 19<br />Best Buy continues to gain share in the overall CE market despite Amazon’s impressive<br />business and financial performance<br />1<br />Amazon is well positioned to deliver against customers’ needs for low prices and wide<br />assortment, but ill-suited to provide the physical immersive experience they prefer<br />2<br />Amazon has made enhancements to their existing businesses and continues to create new<br />business models and profit pools, including marketplace, Kindle, and Amazon Web Services<br />3<br />Despite their impressive performance, Amazon has limitations and risks, including<br />impending changes to state sales tax laws and new competitive pressures<br />4<br />Amazon executive summary<br />SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis<br />
  86. 86. 20<br />Despite their impressive performance, Amazon is not without challenges and difficulties, including…<br />4<br />Amazon’s current advantage<br />Risks/limitations<br /><ul><li>Amazon currently enjoys “remote seller” status in states where it lacks a physical presence, allowing them to avoid charging sales taxes to customers in most states
  87. 87. Four states have recently passed laws designed to collect sales tax from e-commerce engines that enjoy “remote seller” status
  88. 88. Six additional states, including California, are considering similar regulations; Amazon’s tax advantage is slowly eroding </li></ul>Changing state tax laws<br /><ul><li>The Kindle is widely considered the leading device among e-readers; no sales numbers have been released, but estimated to be in the “millions”
  89. 89. Credit Suisse estimates that Amazon has ~90% of the digital book market
  90. 90. Apple’s iPad debuts on April 3 and has already sold out its initial order supply
  91. 91. The iPad, although slightly more expensive than the Kindle, will have much greater functionality than the Kindle, including access to a wider array of media
  92. 92. Amazon has developed a Kindle application for the iPad in anticipation of the iPad taking significant share from Kindle devices </li></ul>Apple’s iPad<br /><ul><li>Amazon’s lack of physical stores have allowed them to keep their SG&A costs low and flexible and their prices down
  93. 93. Customers’ number one complaint with online shopping is the lack of a physical store to try the product and get your questions answered; with no plans to open physical stores, Amazon will be unable to address this concern </li></ul>Lack of physical stores<br />
  94. 94. 21<br />Amazon is a formidable competitor, but a closer look reveals strategic advantages for Best Buy<br />4<br />Amazon is/has…<br />But…<br /><ul><li>Continuing to beat us in online CE sales
  95. 95. Best Buy gained 3 points of share in the overall CE market last year while Amazon gained 1 point
  96. 96. Beating us on price for 82% of SKUs
  97. 97. Customers say not being able to interact with a knowledgeable employee is their biggest frustration with online shopping and our Blue Shirts fit that need
  98. 98. A great collaborative filtering engine that produces recommendations and product bundles
  99. 99. We actually have better and more comprehensive information to leverage with nearly a billion total visits (in-store, online, RewardZone, services, etc.)
  100. 100. A marketplace that provides 30% of their item sales and profitability
  101. 101. We can develop our own marketplace worth $XM
  102. 102. We have Remix, which gives 3rd party merchants access to our product library
  103. 103. A digital content offering, including Amazon Video on Demand and Amazon mp3
  104. 104. They only have 8% market share in digital music
  105. 105. We have Napster and Cinema Now
  106. 106. A tax advantage in most states as no sales tax is levied on e-commerce
  107. 107. Four states have already enacted laws designed to capture this tax and six more, including California, are considering following suit
  108. 108. A Web Services business that provides cloud computing, storage, and payments products
  109. 109. Their products are largely B2B with limited application for consumers</li></ul>SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis<br />
  110. 110. 22<br />BACKUP/APPENDIX<br />
  111. 111. 23<br />d<br /><ul><li>Amazon’s recommendations and customized content based on purchase history and in-cart items create an immediate connection with the consumer upon log-in
  112. 112. Bestbuy.com’s splash page provides standard content despite an extensive purchase history and 2 items in the cart</li></ul>Amazon.com effectively uses customer information to provide recommendations and typically-bundled products…<br />3c<br />SOURCE: Amazon.com, BBY.com<br />
  113. 113. 24<br />Amazon has developed the Kindle, connecting consumers to books and other media electronically<br />3d<br />Kindle<br />Magazines<br />Blogs<br />$1.99/month<br />$2.99/month<br />$259<br />Books<br />Newspapers<br />Non-revenue “connected” features <br />$13.99/month<br />$9.40<br />SOURCE: Amazon.com<br />
  114. 114. 25<br />Additionally, Amazon is slowly losing grip of their sales tax-exempt status, with additional legislation pending<br />4<br />How we got here <br />Recent/upcoming changes<br />Consumer reaction<br /><ul><li>Under federal law, remote sellers are required to collect and pay sales taxes in any state in which they have a physical presence; Amazon, with almost no physical presence has been successful in establishing “remote seller” status in most states
  115. 115. As of July 1, 2008, New York state required sales taxes to be collected from e-retailers that use local marketing affiliates
  116. 116. North Carolina and Rhode Island passed similar measures in 2009
  117. 117. In 1999, Amazon tries to sue the state of New York on ground the new statute is unconstitutional; case is thrown out
  118. 118. Marketplace sellers must pay sales tax and often include it in the price listed
  119. 119. In February, Colorado passed a law requiring e-commerce sites to either collect sales taxes or provide the state with sales information so it can collect taxes from consumers directly; Amazon has severed ties with all Colorado marketing affiliates as of March 15
  120. 120. Six other states are considering similar provisions, including California, Connecticut, Illinois, Maryland, Virginia, and Vermont
  121. 121. Due to increasing budget constraints, more states are likely to look at remote seller sales taxes as a potential revenue source
  122. 122. 23 states have come together to try to create a national sales tax that treats online retailers the same as brick-and-mortar retailers
  123. 123. Estimates of lost sales tax revenue are as high as $12 Billion by 2012
  124. 124. In the first half of 2009, after New York passed the new regulations, the conversion rate for online retailers in the state fell by 11.4%, a much bigger drop than the 7.4% seen across the country
  125. 125. Potential PR problems for Amazon as they respond to new regulations, including cancelling Colorado affiliate relationships despite no provision including those entities as a physical presence</li></li></ul><li>26<br />Despite the Kindle’s success, analysts believe that the debut of the iPad could have disastrous effects on Kindle sales…<br />4<br />Amazon Kindle<br />Analyst / expert opinions<br /><ul><li>$259-$489
  126. 126. Sold exclusively by Amazon
  127. 127. Wi-Fi and 3G capabilities depending on model
  128. 128. Access to 450,000 digital books, many newspapers, magazines, and blogs
  129. 129. Can store up to 350,000 books
  130. 130. No internet or application functionality
  131. 131. Among consumers looking for an e-reader device, the iPad was seriously considered by 15%, while the Kindle stayed close at 14%
  132. 132. Comscore
  133. 133. 37% of potential iPad customers were planning to use it as an e-reader
  134. 134. Comscore March 23, 2010
  135. 135. Amazon has braced itself for reduced Kindle device sales by developing a Kindle application for the iPad, allowing Amazon to receive revenues from iPad users</li></ul>Apple iPad<br /><ul><li>$499-$829
  136. 136. Will be sold at Apple stores as well as third party retailers
  137. 137. Has Wi-Fi and 3G capabilities, depending on model and data package
  138. 138. Access to 150,000 apps from AppStore
  139. 139. Will feature an Amazon-created Kindle application
  140. 140. iPad sales will surpass all-time Kindle sales within three months of its debut
  141. 141. FBR Capital report
  142. 142. Amazon’s share of the e-book market will fall from 90% to 35% over the next five years
  143. 143. Credit Suisse analyst report</li></ul>SOURCE: Amazon.com, Apple.com, Analyst reports<br />
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