The document discusses Amazon's early business models and strategies. It describes how Amazon started as an online bookstore in 1995 and then expanded into other product categories like music and videos. It discusses Amazon's move to an online marketplace model in 2000 that allowed third-party sellers. The document also summarizes Jeff Bezos' solution in 1999 to focus on infrastructure services by leveraging Amazon's platform and capabilities to launch new businesses faster and at lower costs.

1. Ankita | Arjun | Kizy | Pratik | Rimple
| Sandeep | Shubhangini |
Sidharatha | Vivek

2. 1/28/2015 Group-2 2
Business Models
Online
Retail
Auction
 The firm owns the product and
logistics system
 Transactional Cost High, Inventory
and Stock out cost risk
 An online platform to facilitate trade
between buyers and sellers
 Online player takes care of Marketing
 Risk of Uncertain Cash flow
Online
Market
Place
 Auction Model with Fixed Price
advantage
 Wider reach and firm cash flows
Logistics
Services
 Third Party Logistics Service Provider
(3PL)
 Global Distribution and Customer
Service Network
Other E-Commerce Models: Online Ticketing, Online Deals, Online Portals

3. The Amazin’ Amazon Story
1/28/2015 3Group-2
• Jeff Bezos, the youngest vice president at Banker’s
Trust in New York had to decide if he would stay and
receive his 1994 Wall Street bonus or leave and start a
business on the Internet
• He makes a list of 20 products to sell on the internet;
books being at the top as no bookstore can stock
sufficiently.
• Bezos, who had never sold a book in his life, developed
a strategic plan to sell books online.
• In the fall of 1994, Amazon filled its first book order—
personally packaged by Bezos and his wife . Amazon is
incorporated as “Earth’s Biggest Bookstore”

4. Timeline of Events
1/28/2015 4Group-2
1995 :
Amazon.com
online bookstore
launched, $20,000
sold out of garage
1996 : enhance
product and
service offerings,
1-click shop, shop
through wireless
devices
1997 : IPO netting
$50 million used to
expand from
online bookstore
into online
superstore;
1998 : Category
expansion and
international expansion
through partnerships
with online retail
aggregators e.g.
Drugstore.com,
living.com and pets.com
1999 : New business
models like auction (low
and high end) and online
marketplace (zShops)
apart from online retail.
Agent for software and
services. Distribution
Infrastructure built had
70-80% overcapacity
2000 : Bankruptcy of
living.com and pets.com.
Stock prices drop but no
of customers and
revenues on the rise.
Logistics services model
implemented by shifting
from dot com retailers
to traditional retailers
like Toys “R” Us

5. Amazon.org?
• Key challenge in late 2000s :achieve profitability by 2001
end
• Lehman Brothers analysts believed that Amazon relied too
heavily on borrowings
• Rising fulfillment costs (11% of sales in ‘98 to 14% in ‘99) –
difficult to scale across range of products esp. like toys ,
home and garden, electronics etc.
• Simply growing revenues and retaining customers not
enough –need for generating profits to support businesses
and deliver returns to investors
• Strong growing competitors lining up
• Problems intensified because of dot com stock market
crash and bankruptcy of online retails partners
1/28/2015 Group-2 5

6. Competitive Analysis &
Business Strategy
Initial Business Model
• Sell and deliver books to customers
• Leveraged on – low prices, large
selection, convenience/ customer
experience
1/28/2015 6Group-2
Advantages of Digital
• Enables limitless inventories
• Boosts customer care
• Allows high margins, lowest prices
• Categorical Expansion- books, music,
videos, toys etc
• Heavy investment to develop digital
business infrastructure and
operations
• Digital driven supply chain
• Reaped benefits of First mover
advantage
• Accelerate development: Build, buy,
partner
• Acquiring know how and reaching
new audience
• Customer centric approach

7. Digital Engine
Digital lever to provide
competitive advantage to
outperform its competitors
1/28/2015 7Group-2
Amazon identified the
advantages of INTERNET and
pushed them to their limits
Advantages of Digital
•Kept its fixed cost at a very low level
•Real time optimization
• A/B testing and full size prototype
•No limit to market boundaries
•Unlimited inventory and category
•Ever improving metrics & optimization

8. Customer centric innovation
1/28/2015 8Group-2
 90 percent of Amazon’s customer service and support was
done over emails. Amazon developed its own software to
handle its emails
 Amazon always looked for new frontiers to enhance
customer experience
• Amazon came up with One-click buying for more conversion of
customers and ease on the customer’s behave to make a quick
buy
• They came up with Amazon vouchers and Amazon prime
• Customer product search history, product recommendation
 Amazon.com catered to all of customer needs to become
the preferred online site for buying online

9. One Click Patent
• One click revolutionised the buying process-
taking convenience to extremes
1/28/2015 9Group-2
Conversion
Funnel
•Each step of the funnel carries a risk to loose potential customers
•Abandoning carts
Conversion
Optimization
•Monitoring each step to improve its conversion rate
•Pioneer of this tactic
1- Click
Ordering
•Patented in 1997
•Allows to bypass the shopping cart
•Increased conversion rate

10. Logistics: Fulfillment centers
1/28/2015 10Group-2
• Amazon fulfillment used to find out the cheapest origin for a customer’s
order
• Fast moving goods were kept in all FCs, hard to find items were kept in
small quantities in one or two FCs
• Easily movable items (e.g. media) were kept in highly automated facilities
• In 2000, Amazon launched its market place model that allowed third party
sellers to sell and reference their product side by side with Amazon’s
products
• S3 file storage and EC2 compute capacity
• Amazon monetized its expertise on scalability and reliability
• 70 percent of its software development concerns its distribution centers
• Amazon introduced metal lockers in grocery convenience and drug stores
that can accept packages for customers for a later pickup
• Media stores that would sell music, movies, eBooks online

11. Managing the Long Tail
•Leveraged 3rd party sellers
•Best selling products kept in stock
•Self improving
Better stock
management
•Promoting competition between sellers
•Provide lower prices
Promoting
lower prices
1/28/2015 11Group-2
Marketplace Model
• Allowed third-party sellers to sell and reference their products
• Risked cannibalizing its own sales
• Offer long tail items at low cost

12. 2001’s Amazon vs 2015’s
Flipkart
Do Amazon’s problems remind you of the
problems faced by FLIPKART today ?
1/28/2015 12Group-2

13. SWOT Analysis
1/28/2015 13Group-2
STRENGTHS
• Best-in-class capabilities in online retailing ,
customer service, fulfillment, distribution
• Lower advertising, marketing costs compared
to traditional retailers
• Excess capacity available to scale-up their
operations
• Visionary management, hiring top executives
across departments
• First mover advantage in many product
categories and almost having a monopoly in
the online ecommerce industry
WEAKNESSES
• Need to leverage existing capabilities to enter new
markets
• Building popularity/ Marketing new product
categories to create awareness is currently a slow
process
• Net revenue is growing at an excellent pace, but
where are the profits?
• Operating costs for holding inventory is expensive
OPPORTUNITIES
• Expansion in multiple categories such as
Electronics, Toys, Home & Garden
• Strong brand appeal, multiple loyal customers,
long-tail of products
• Existing retail players desire entry into the
online market, but lack the resources to do so
( for e.g. Toys ‘R’ us partnership)
• Online sales expected to grow at 60%+
• Amazon could explore long-distance Gifting
opportunities
THREATS
• Increasing complexity of online transaction
model
• Other online retailers exiting from the market,
causing an added load on Amazon
• Lack of confidence in the new revenue model of
online players
• Existing competition from the traditional
retailers
• Pressure from investors/shareholders to
generate profits

14. 1/28/2015 Group-2 14
Same New
Expand
internationa
lly(1998-99)
Partner with
Toys “R”Us
Launch Z stores
and
auctions(1999)
Enhance
customer
experience(199
7)
Partner with
online
aggregators(
1996-97)
Launch online
book
store(1995)
Improve
distribution
,fulfillment
and
customer
service(199
8-99)
Partner with
online
retailers(1999
)
Launch toys,
kitchen home
stores(1998-
99)Launch music
and video
stores(1997-98)
MARKET EXPANSIONS BUSINESS EXPLORATION
MARKET
PRODUCTION
ENHANCEMENTS PRODUCT EXPANSIONS
PRODUCTS
MARKET
Same
New

15. Action Plan
1/28/2015 15Group-2
Start selling PCs along with the electronic
goods
Maintain discounts on selling products like a
cartel
Focus on overseas expansion and strengthen
the current product line abroad
Leveraging on the market place model
Focusing on cutting costs and outsourcing

16. Even Superheroes
have to take risk,
I’m just a normal
man.
1/28/2015 16Group-2

17. Bezos’ Solution
• Infrastructure Services business model
“The amazon.com platform is comprised of brand,
customers, technology, distribution capability, deep
e-commerce expertise, and a great team with a
passion for innovation and serving customers well…”
-Launch new e-commerce businesses faster
-Higher quality of customer experience
-A lower incremental cost
-Higher chance of success
-A clearer path to profitability any other company
- Amazon.com 1999 Annual report

18. Bezos’ Solution
• “Jeff Bezos, founder and CEO, is convinced
that the company will be able to leverage its
strategic position, within a network of
customers, suppliers, and partners, and the
capabilities it built, to achieve profitability by
year-end 2001.”

19. Breakdown
• Infrastructure Services business model
-Labor intensive shipping supported by
technology
-Removes excess concerns of new business model
activities being scaled across range of products
- Hosting both PHYSICAL and ONLINE customer
logistics services

20. Continued
• With the Bezos Plan, was Amazon.com
poised for exponential growth in
revenues, profits, and returns to
investors?
• Cyclical Effect

21. Recommendations
• Reduced prices, more desirable shipping
for larger orders, and downsizing of
product selection.
• Focus on cost reduction = lower price =
more customers = less cost per unit sold=
cost reductions
• Mixed Bubble with cost reduction focus
(cyclical solution)