Password is amazon

1. AMAZON, and it’s
Future Prospects
A M A Z O N . c o m I n c .
H e a d q u a r t e r s i n S e a t t l e -
W a s h i n g t o n , U S A
Sumit Kumar Das
Roll : 95/MBA/130020;MBA – Calcutta
University;Alipur Campus

2. 1
In less than 20 years, the feats accomplished by Seattle’s Amazon are simply
astounding and, curiously, often taken for granted. It is the world’s largest online
retailer, a master of logistics, an oracle of computing power, a wrangler of digital
content, a beacon of customer service and reviews, and even innovative when it
comes to conceiving handheld electronic devices. In terms of what can be reasonably
expected of a business at its scale, Amazon has not only lived up to its namesake as
a massive force of nature, but also its mythology as fierce warriors, waging battles
along multiple fronts with remarkable dexterity.
For context, let’s briefly revisit how Amazon has evolved since its origin. It began as
a destination to buy books, and eventually other media. It then offered marketplace
services for online retailers and/or individuals (similar to eBay), while simultaneously
selling other physical goods for homes, offices, cars, and beyond. During the shift to
online retail, Amazon excelled by harnessing web data for optimize price, locating
warehouses to optimize logistics, and experimenting with delivery models (e.g.
“Prime”) to segment its consumers, all the while providing trust through customer
service and reviews. In its second decade, Amazon maintained its roots while
becoming a player in the market for digital media, cloud computing services, and,
most recently, manufacturing its own handheld electronic devices, a dizzying amount
of diverse and complicated business lines to be committed to, and yet it continues
to hum along, executing its way to a $100B+ market cap and an extremely bright
future.
With such a glorious run to date, what does that future look like for Amazon,
specifically?

3. 2
We all know that Amazon is a truly exceptional company and their past is well-
documented. My own belief is that if the company were located in Silicon Valley, it
would receive an even more hype and be valued above its already impressive P/E
ratios. My biases aside, I meet lots of up-and-coming founders who idolize Amazon’s
CEO over other role models, not to mention that they wouldn’t mind being acquired
by the company, either. With all this hard-earned momentum, I’ve been thinking
about what Amazon could do to leverage it further into its third decade, to wedge
into and newer markets, continue their march to dominance, and transform into an
Apple-like company that, as it says in this telling television commercial, are the ones
that put a “smile” on the box.
Amazon is known for selling and delivering physical goods, so we can expect the
company to directly challenge the big offline consumer retail megastores as they
accumulate more purchasing power, and as incumbents look to become leaner by
shedding underperforming real estate liabilities and rising costs pegged to headcount.
Amazon already offers these services, but will likely go beyond the Targets of the
world to include chains like Staples, as well. Competing directly with the big CPG
companies won’t be easy given their scale, but early in the game, Amazon is off to a
good start. Additionally, as Amazon’s traffic provides it with enough liquidity to
attract other sellers and buyers for its marketplace, the company will also be on the
prowl for other web- and mobile-based acquisitions to add to its portfolio, which
includes Diapers.com, Soap.com, and Zappos.
For a company that sold and delivered physical items, Amazon’s ability to add digital
goods to its arsenal has also been well-executed, to put it mildly. Beyond this,
Amazon has already laid the groundwork to offer content-creators a platform to
self-publish, distribute, and collect payments for their work, as well as creating its
own publishing arm (kicked off by signing Tim Ferris). Amazon will be a player in the
gaming space and has already dabbled in questions with Askville. Focusing on written
content, I’d expect authors who once coveted publisher advances to experiment with
a host of creation options and tests

4. 3
Amazon’s revenue growth in the recently reported quarter stood at 22%. Although
the figure came down compared to last year, it is still impressive for a company
that’s garnering $16 billion in quarterly revenues. There is no doubt that the overall
e-commerce growth is propelling revenue growth for Amazon, but there are other
finer points to consider. The company has been pushing its Kindle tablet which can
act as a catalyst in promoting its merchandise sales. In addition to this, Amazon’s
management seems clear about its focus on absolute cash flows rather than
percentage margins. This strategy implies that the company will continue to offer
deep discounts to push its sales. As far as margins are concerned, growth in
Amazon’s Web Services business should help support the company’s profitability.
Growth In E-Commerce Market
Market research firm Forrester expects U.S. online retail sales to grow rapidly and
take market share away from physical stores. This is clearly evident from the
comparison of Amazon’s growth with that of traditional brick-and-mortar retailers
such as Wal-Mart, Costco, Target and Best Buy. Forrester further predicts that the
U.S. online retail market will reach $262 billion in 2013, registering 13% growth
over 2012.
Although the online channel still accounts for just 8% of total retail sales in the
U.S., the future growth is going to be healthy with Amazon leading the way. This
growth will be further complemented by traditional stores investing in web businesses
to support a multichannel strategy as well as the global adoption of Internet and
mobile devices. The research firm forecasts a compounded annual growth rate of 9%
for the next 5 years.

5. 4
While the U.S. growth outlook certainly looks promising, international markets can
offer even higher potential in the long term. A lot of growth for Amazon will come
from these markets where its presence is low.
According to eMarketer, B2C (business to consumer) e-commerce sales in the Asia-
Pacific region increased by more than 33% in 2012, amounting to $332 billion. The
figure is expected to grow by more than 30% this year amounting to $433 billion
and accounting for more than one-third of the global B2C e-commerce sales.
Growth In Kindle Shipments Will Attract More Online Traffic
The growing popularity of Android devices can help Amazon promote its Kindle Fire
device range. These devices can help the company capture a major share of Internet
traffic as the traffic’s source shifts from desktops to mobile devices such as tablets
and smartphones. Amazon had launched a revamped range of Kindle devices with
features closely matching those of tablet device pioneer Apple’s iPad in September
2012.
An estimated 200 million tablets have been shipped worldwide since 2009 and
another 1 billion are predicted to ship over the next five years. Market intelligence
firm ABI Research estimates that 22% of the U.S. tablet users spend $50 or more
per month and 9% spend $100 or more – much higher than the spending levels
observed for smartphone users. The growing popularity of Amazon’s Kindle Fire range
could mean that a major share of this spending will be re-directed to Amazon’s
online storefronts. Since Kindle devices are optimized to run on Amazon’s services,
we expect them to drive greater adoption of Amazon’s services. We believe that the
content business comprising eBooks and movie/music streaming will be the biggest
gainer from the trend.
Focus Is On Cash Flow vs. Margins
Although Amazon’s diversified product portfolio and growing e-commerce business will
support its strong revenue growth, there are other factors that suggest there could
be margin pressure going forward. The company, which is in the middle of setting up

6. 5
a number of fulfilment centres to roll out same day delivery, is battling growing
competition in the cloud/web services front and is spending heavily towards the
development of its content library. All of these activities are cost-intensive and will
negatively impact its already thin margins. This suggests that it may try to control
its revenue growth and focus on becoming more profitable.
However, that is not the intent of the company, which leads us to believe that the
fast revenue growth may continue. In an interview with The Harvard Business Review
earlier this year, Amazon’s CEO stated: “Percentage margins are not one of the
things we are seeking to optimize; it’s the absolute dollar free cash flow per share
that you want to maximize. If you can do that by lowering margins, we would do
that. Free cash flow, that’s something investors can spend.”
Source: Forbes
“We were not thinking about numbers then, but we knew something big can be built
out of e-commerce”
Binny Bansal & Sachin Bansal, Founders, Flipkart.
The e-commerce industry is a sunrise sector in the Indian market at present. This
can be primarily attributed to the significant reduction in the price of personal
computers, the increased internet penetration in India, & the many incentive
schemes (i.e. COD, varied payment options, discounts) that online retailers give to
consumers. India has close to 10 million online shoppers , which is growing with a
whooping CAGR of around 30%.In addition, India has one of the youngest online
demographic audiences globally, with 75% of them in the aged group of 15-34 years.

7. 6
Apparel has been the fastest growing sub-category in online retailing, followed by
consumer goods & sports & outdoor merchandises.
A leading global research and advisory firm, Forrester Research’s projections for Asia-
Pacific e-commerce sales by country (in billions, in U.S. dollars) in 2012 & 2016-
Country Sales in $Billion
2012 2016
India 1.6 8.8
Australia 23.2 35.4
Japan 63.9 97.6
China 169.4 356.1
Source: Forrester;
A report recently published by the Boston Consulting Group also says that online
retail in India could be a $84- billion industry by 2016 — more than 10 times its
worth in 2010 .
Source: IAMAI digital commerce 2011; Avendus estimations
16600
21700
28500
40300
55600
77100
107800
0
20000
40000
60000
80000
100000
120000
2009 2010 2011 2012 2013 2014 2014
Total Online Revenues (Rs. Crore)

8. 7
Internet & Mobile Association of India (IAMAI) estimates for Indian e-commerce
industry growth
Flipkart & Amazon: Brief history, growth & survival strategies
Flipkart is presently one of the largest online retailers in India, present across more
than 14 product categories & with a reach in around 150 cities. Flipkart is currently
a 10,000 member strong team, with
3000 sellers on its platform and delivering 5 million shipments per month. It made
its presence felt in online retailing by offering path breaking services like Cash On
Delivery (COD), 30 Day replacement Guarantee, EMI options, Flipkart mobile app,
etc.
Amazon, the world’s largest online retailer entered India in 2013, & soon became a
huge success, with their sales growing exponentially. As direct FDI is still not
permitted in India, Amazon started by bringing together different online vendors on
a single platform. It soon came up with innovative service features like ‘100%
Purchase Protection’ on shopping, ‘guaranteed one-day delivery’, ‘next day delivery’ ,
‘free shipping’ & ‘happy hours’. Amazon now sells 15 million products across 20
product categories. Like Flipkart, it too has launched its Amazon app & COD
schemes.
Future Prospects - Flipkart
With the entry of Amazon in the Indian market, Flipkart needs to renovate &
expand its business in order to sustain or increase its present market share.
Flipkart’s plans for the future mainly include scaling up the size of its business. It
plans to have 10-12000 sellers on its platform within the next few years. Also, on

9. 8
acquisition of Myntra, Flipkart presently owns about 50% of the organized lifestyle
market in India. It plans to increase this figure to 70%. It has more than 1000
sellers now, & it wants to scale up this number to 10,000 to 15,000 in a year’s
time, & to a few lakhs in 4 to 5 years. Around 40% of Flipkart’s online traffic now
comes from mobiles. It thus wants to add more features to its mobile shopping app,
to increase customer satisfaction & loyalty.
Flipkart is also trying to develop its IT infrastructure, as online shopping is heavily
dependent on technology. It wants to customize its IT framework to perform 2
functionalities. One is the ability to recommend its buyers to what other purchases
can be bought to complement a product that has been already purchased from
Flipkart (like recommending a stereo headset for a mobile phone). The other one is
to simultaneously conduct a live survey by siphoning a small portion of this data to
analyse customer purchase patterns & preferences.
Flipkart is also considering having their own logistics so as to reduce dependability on
the third party companies to provide it. Flipkart has also recently launched its own
digital accessories brand Digiflip, & its apparel brand Flippd, & is yet to see how
they perform in the market. Also part of its agenda is to be present in more
number of cities, & for that it is contemplating on having larger no. of warehouses
& increased automation in its supply chain system. Flipkart also wants to include
more categories of products in its domain, & plug the gaps in its existing categories.
Future Prospects – Amazon
As part of its expansion plan in India, Amazon has been pushing its Kindle tablet,
especially the Kindle Fire range, which can automatically act as a catalyst for
promoting its merchandise sales. As consumers are majorly shifting from computers
to mobile handsets, they will be majorly benefited from reading e- books & streaming
live music & videos through the Kindle devices.
Amazon is mostly interested in its cash flow per share valuation rather than
percentage margins. Thus, they are likely to offer even larger discounts to push
sales. The company is also in talks with leading retail chains of India like Future

10. 9
Group, Spencer’s Retail, Woodlands, Shoppers Stop & Crosswords to act as a selling
platform for their products. Amazon is also planning to introduce its very own
mobile handset in the future, through which it hopes customers will have more
access to its online store & its contents.
But perhaps the most interesting & path-breaking service that Amazon is about to
offer yet, is using drones, or unmanned aerial vehicles, to deliver packages to
customers. Amazon came up with this concept in 2013, & will supposedly (according
to media reports) be launching it first in India during in late 2014.The drone, known
as Amazon’s Prime Air is an octocopter, i.e. fitted with 8 rotors, weighing less than
25 kg and travelling at over 80 kmph. The drone is supposed to be carrying a
payload of up to 2.26 kg, which covers 86% of products sold on Amazon. Using
this, Amazon believes, top-selling products like mobiles & books within 90 minutes
to 3 hours for select customers.
Thank You
Sumit Kumar Das
95/MBA/130020
MBA – Major Finance, Minor Marketing
Calcutta University
Alipur Campus