Business Strategy – A Success Story Raghu Kasturi April 2009

Agenda Who are Amazon? Interesting facts about Amazon How they achieved success? Business Strategies of Amazon Conclusion

Who are Amazon?

Interesting facts about Amazon

How they achieved success?

Business Strategies of Amazon

Conclusion

Who are Amazon? Amazon.com (NASDAQ: AMZN), a Fortune 500 company based in Seattle, Washington USA. It was one of the first major companies to sell goods over the Internet and was one of the iconic stocks of the dot-com bubble. Since its creation in 1995 when Amazon began as an online bookstore, they have significantly expanded the product offerings, international sites, and worldwide network of fulfillment and customer-service centers. A blend of traditional retail principles and innovative application of marketing practices. Now after thirteen years, Amazon has a revenue of 19 billion USD.

Amazon.com (NASDAQ: AMZN), a Fortune 500 company based in Seattle, Washington USA. It was one of the first major companies to sell goods over the Internet and was one of the iconic stocks of the dot-com bubble.

Since its creation in 1995 when Amazon began as an online bookstore, they have significantly expanded the product offerings, international sites, and worldwide network of fulfillment and customer-service centers.

A blend of traditional retail principles and innovative application of marketing practices.

Now after thirteen years, Amazon has a revenue of 19 billion USD.

Financial Performance

Amazon Vision ‘‘ Earths most customer centric company - Start with customers and work backwards’’ -Jeff Bezos, Founder

‘‘ Earths most customer centric company

- Start with customers and work backwards’’

“ Data is King at Amazon” – Jeff Bezos, Founder & CEO

Interesting facts about Amazon What was the first name for the company (before Amazon)? Cadabra Inc. Where does the ‘Amazon’ name come from? The name reflected the vision of Jeff Bezos, to produce a large scale phenomenon like the Amazon river. How much money has Amazon spent on real state (headquarters, warehouses, etc)? Amazon owns zero real estate! In 2003 Amazon passed the $5 billion sales mark – it took Wal-Mart 20 years to achieve this. Amazon has only 13,900 employees (2006) , Wal-Mart has 1.9 million employees (2007).

What was the first name for the company (before Amazon)?

Cadabra Inc.

Where does the ‘Amazon’ name come from?

The name reflected the vision of Jeff Bezos, to produce a large scale phenomenon like the Amazon river.

How much money has Amazon spent on real state (headquarters, warehouses, etc)?

Amazon owns zero real estate!

In 2003 Amazon passed the $5 billion sales mark – it took Wal-Mart 20 years to achieve this. Amazon has only 13,900 employees (2006) , Wal-Mart has 1.9 million employees (2007).

“ If we can get this to work, it will be big” - Jeff Bezos, Founder.

Amazon's first gateway page

Amazon's Today’s page

Amazon's first office building

Seattle headquarters building

Strategy Source: Amazon, 2009

“ We don’t make money when we sell things; we make money when we help customers make purchase decisions” - Jeff Bezos, Founder.

Amazon’s Strategy [Strategy Cont…] Three Customer Sets Consumers, Sellers and Developers Consumers : Who buy products on Amazon (including Amazon’s products). Sellers : Who want to sell products on Amazon (including Amazon) Developers : Who want to use Amazon’s developing services like Developing websites/portals, Hosting, Web Services, S3 (Storage), Checkout Services, etc.

Three Customer Sets

Consumers, Sellers and Developers

Consumers : Who buy products on Amazon (including Amazon’s products).

Sellers : Who want to sell products on Amazon (including Amazon)

Developers : Who want to use Amazon’s developing services like Developing websites/portals, Hosting, Web Services, S3 (Storage), Checkout Services, etc.

Consumers 84 Million Active Customers as ‘08

Kindle

Music Downloads

On Demand Videos

Over 1.5MM Active Sellers, Up 18% Y/Y Selling On Amazon

Selling on Amazon Source: Amazon.com

Fulfillment By Amazon (FBA) Available in US, UK, DE & JP; Beta in FR

Available in US, UK, DE & JP; Beta in FR

Amazon Enterprise Solutions

Checkout By Amazon

[Strategy Cont…] Customer is the King – Create an experience for him ‘ Culture of Metrics ’ Customer’s each ‘click’ on website is recorded- a valuable asset for Amazon Allows clear sensing of customer needs & preferences Formation of ‘ S Team ’ to address strategy issues Customer is the key at all levels in the Organisation Customer Loyalty and repeat purchase Amazon do not over emphasise competitors – It has turned some of them like Borders in to collaborators

Customer is the King – Create an experience for him

‘ Culture of Metrics ’ Customer’s each ‘click’ on website is recorded- a valuable asset for Amazon

Allows clear sensing of customer needs & preferences

Formation of ‘ S Team ’ to address strategy issues

Customer is the key at all levels in the Organisation

Customer Loyalty and repeat purchase

Amazon do not over emphasise competitors – It has turned some of them like Borders in to collaborators

Whole World is market place….. [Strategy Cont..] Strategic change in vision from being an online bookstore in 1995 to becoming world’s largest online store Leveraged on the strength of brand value and business model Very low fixed costs Geographical expansion in Canada, Western Europe, Japan & most recently China.

Strategic change in vision from being an online bookstore in 1995 to becoming world’s largest online store

Leveraged on the strength of brand value and business model

Very low fixed costs

Geographical expansion in Canada, Western Europe, Japan & most recently China.

Expansion

Global

International

International

Amazon …an experience [Strategy Cont..] Selection Wide product range Books, videos, many more …and they have a category ‘Crazy Things’ under Toys & Games ! Convenience Selection available on your screen Various price ranges – New & Used Delivery in shortest possible time Prices Prices revised daily Many times Free Shipping

Selection

Wide product range

Books, videos, many more …and they have a category ‘Crazy Things’ under Toys & Games !

Convenience

Selection available on your screen

Various price ranges – New & Used

Delivery in shortest possible time

Prices

Prices revised daily

Many times Free Shipping

Convenience – Amazon Prime

Objective “ Amazon’s objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.” – Amazon, 2009

“ Amazon’s objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.” – Amazon, 2009

Operational Strategy Cost-Leadership – Low and Fixed Prices, Bundle Discounts, Future Discounts. Customer Differentiation – Personalization, Convenience, Quality. Focus Strategy – Takes one of the above applies to a market niche a specialized area within a customer group.

Cost-Leadership – Low and Fixed Prices, Bundle Discounts, Future Discounts.

Customer Differentiation – Personalization, Convenience, Quality.

Focus Strategy – Takes one of the above applies to a market niche a specialized area within a customer group.

Relationships matter [Strategy Cont…] Customers Effective Process management Satisfied Customer Low costs Competitors Turn them into collaborators Superior Technology Platform – value for competitors to use the platform, advantage for Amazon to offer wider choice Collaborators Amazon Marketplace – Customers and retailers can sell their new and old items Amazon Merchants – Larger third party Merchants Amazon Affiliate Programme- Amazon Associates – Advertising Amazon’s Products on website.

Customers

Effective Process management

Satisfied Customer

Low costs

Competitors

Turn them into collaborators

Superior Technology Platform – value for competitors to use the platform, advantage for Amazon to offer wider choice

Collaborators

Amazon Marketplace – Customers and retailers can sell their new and old items

Amazon Merchants – Larger third party Merchants

Amazon Affiliate Programme- Amazon Associates – Advertising Amazon’s Products on website.

“ Be afraid of our customers, because those are the folks who have the money. Our competitor are never going to send us money” - Jeff Bezos, Founder.

Technology Source www.amazon.com

Comparing Technology Source : http:// i.zdnet.com/blogs/comparingpaas.png

Corporate Responsibility Amazon.com's green idea is brown

Amazon’s Environment “ Amazon's evolution from Web site to e-commerce partner to development platform is driven by the spirit of innovation that is part of the company's DNA. The world's brightest technology minds come to Amazon.com to research and develop technology that improves the lives of shoppers and sellers around the world.” (Amazon, 2009)

“ Amazon's evolution from Web site to e-commerce partner to development platform is driven by the spirit of innovation that is part of the company's DNA.

The world's brightest technology minds come to Amazon.com to research and develop technology that improves the lives of shoppers and sellers around the world.” (Amazon, 2009)

Usage Source: Google Trends

SWOT Analysis Limited financial resources Limited experience in merchandising non-core retail products like pharmaceuticals, sport equipment etc. Substantially smaller retail sales volume limits ability to exploit. Limited financial resources Limited name recognition in selected markets like consumer electronics Retail management depth Inadequate warehousing and inventory management systems to support rapid sales growth Weaknesses Fulfillment infrastructure for selected products like books. Information technology infrastructure Convenient online order entry system Extensive experience in online marketing, advertising and fulfillment like satisfying customer orders. Brand recognition Wall-Mart, Best Buy, Costco, etc are increasing their presence on the Internet To be perceived by Internet users as the performed online “department store” to exploit accelerating online retail sales Strengths Threat Opportunity

Limited financial resources

Limited experience in merchandising non-core retail products like pharmaceuticals, sport equipment etc.

Substantially smaller retail sales volume limits ability to exploit.

Limited financial resources

Limited name recognition in selected markets like consumer electronics

Retail management depth

Inadequate warehousing and inventory management systems to support rapid sales growth

Fulfillment infrastructure for selected products like books.

Information technology infrastructure

Convenient online order entry system

Extensive experience in online marketing, advertising and fulfillment like satisfying customer orders.

Brand recognition

Competition in Home Entertainment System Source: WikiInvest.com

Cooperative Strategy Partnerships : Drugstore.com, Living.com, Pets.com, Wineshopper.com, HomeGrocer.com, Sothebys.com(auction) ,Kozmo.com etc - Amazoning a sector Alliances : Amazon formed alliances with many portals, internet search engines and Internet Service Providers (ISP’s) Acquisitions : The first acquisition started in 1998 from Bookpages ( one of the largest online bookstores in the United Kingdom ), Telebook ( operating through its ABC Bücherdienst subsidiary, was Germany’s number one online bookstore ) and Internet Movie Database (largest repository for information on movies and television) on April 27, 1998. Recent acquisition was in August 2008 AbeBooks,

Partnerships : Drugstore.com, Living.com, Pets.com, Wineshopper.com, HomeGrocer.com, Sothebys.com(auction) ,Kozmo.com etc - Amazoning a sector

Alliances : Amazon formed alliances with many portals, internet search engines and Internet Service Providers (ISP’s)

Acquisitions : The first acquisition started in 1998 from Bookpages ( one of the largest online bookstores in the United Kingdom ), Telebook ( operating through its ABC Bücherdienst subsidiary, was Germany’s number one online bookstore ) and Internet Movie Database (largest repository for information on movies and television) on April 27, 1998. Recent acquisition was in August 2008 AbeBooks,

“ Amazon is not merely a store, but an immense repository of facts”

Conclusion Amazon’s online business model is very successful and advantageous to the company. Though facing many challenges and opportunities they are constantly improving customer experience, investing in the existing platform and focusing on optimizing free cash flow. “ Innovation is the Foundation of Everything We Do” – Amazon, 2009

Amazon’s online business model is very successful and advantageous to the company.

Though facing many challenges and opportunities they are constantly improving customer experience, investing in the existing platform and focusing on optimizing free cash flow.

“ Innovation is the Foundation of Everything We Do” – Amazon, 2009

References Campbell, D, Stonehouse, G, & Houston, B (2002). Business Strategy: An Introduction . Woburn: Butterworth-Heinemann. "Amazon.com expands internationally". Discount Store News. FindArticles.com. 15 Apr, 2009. http://findarticles.com/p/articles/mi_m3092/is_1998_Oct_26/ai_53191183/ DePamphilis, Donald (2007). Mergers, Acquisitions, and Other Restructuring Activities . London, UK: Academic Press. unknown, (2008, October 28). Amazon: International Strategy?. Retrieved April 15, 2009, from Seeking Alpha Web site: http://seekingalpha.com/article/101806-amazon-international-strategy unknown2, (2008, December 10). Amazon talks strategy, international growth. Retrieved April 15, 2009, from Seattle PI Web site: http://blog.seattlepi.com/amazon/archives/156631.asp Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut, The New Press, New York, NY. Internet Retailer (2003) The New Wal-Mart? Internet Retailer, Paul Demery. Amazon, (2009). Amazon's Media Room. Retrieved April 16, 2009, from Amazon http://phx.corporate-ir.net/phoenix.zhtml?p = irol-mediaHome&c =176060 Proctor, T 2000, Strategic Marketing: An Introduction, Routledge, London. Daft, R. (2003). Management. 6th Ed. Cincinnati, Ohio: Thomson South-Western. Porter, M 1998, Competitive Strategy: Techniques for Analysing Industries and Competitors. Free Press. Sloman, J. and Sutcliffe, M. (2003). Economics for Business, 2nd Ed. Harlow, England: Pearson Education Limited. Williams, J. R. (1992). How Sustainable Is Your Competitive Advantage?California Management Review, Spring, pp. 29-51. BookSellers, (2009, March 27). News. Retrieved April 16, 2009, from BookSellers.com Web site: http://www.thebookseller.com/news/81164-page.html Slawski, William (2006. October 26). Amazon Acquisitions and Investment. Retrieved April 16, 2009, from SEO by the Sea Web site: http:// www.seobythesea.com/?p =342 Chaffey, Dave (2008, March 13). Amazon.com case study.. Retrieved April 16, 2009, from Your Guide to Digital Business Web site: http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/Amazon-case-study Amazon, (2009) Amazon's Media Room. Retrieved April 16, 2009, from Amazon http://www.amazon.com

Campbell, D, Stonehouse, G, & Houston, B (2002). Business Strategy: An Introduction . Woburn: Butterworth-Heinemann.

"Amazon.com expands internationally". Discount Store News. FindArticles.com. 15 Apr, 2009. http://findarticles.com/p/articles/mi_m3092/is_1998_Oct_26/ai_53191183/

DePamphilis, Donald (2007). Mergers, Acquisitions, and Other Restructuring Activities . London, UK: Academic Press.

unknown, (2008, October 28). Amazon: International Strategy?. Retrieved April 15, 2009, from Seeking Alpha Web site: http://seekingalpha.com/article/101806-amazon-international-strategy

unknown2, (2008, December 10). Amazon talks strategy, international growth. Retrieved April 15, 2009, from Seattle PI Web site: http://blog.seattlepi.com/amazon/archives/156631.asp

Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut, The New Press, New York, NY.

Internet Retailer (2003) The New Wal-Mart? Internet Retailer, Paul Demery.

Amazon, (2009). Amazon's Media Room. Retrieved April 16, 2009, from Amazon http://phx.corporate-ir.net/phoenix.zhtml?p = irol-mediaHome&c =176060

Proctor, T 2000, Strategic Marketing: An Introduction, Routledge, London.

Daft, R. (2003). Management. 6th Ed. Cincinnati, Ohio: Thomson South-Western.

Porter, M 1998, Competitive Strategy: Techniques for Analysing Industries and Competitors. Free Press.

Sloman, J. and Sutcliffe, M. (2003). Economics for Business, 2nd Ed. Harlow, England: Pearson Education Limited.

Williams, J. R. (1992). How Sustainable Is Your Competitive Advantage?California Management Review, Spring, pp. 29-51.

BookSellers, (2009, March 27). News. Retrieved April 16, 2009, from BookSellers.com Web site: http://www.thebookseller.com/news/81164-page.html

Slawski, William (2006. October 26). Amazon Acquisitions and Investment. Retrieved April 16, 2009, from SEO by the Sea Web site: http:// www.seobythesea.com/?p =342

Chaffey, Dave (2008, March 13). Amazon.com case study.. Retrieved April 16, 2009, from Your Guide to Digital Business Web site: http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/Amazon-case-study

Amazon, (2009) Amazon's Media Room. Retrieved April 16, 2009, from Amazon

http://www.amazon.com

Questions Any Questions ???

Any Questions ???