Question

After reading the following article, how would you summarize it? What conclusions can be made about Amazon?

Case 12: Amazon.com Inc.: Retailing Giant to High-Tech Player? (Internet Companies) Overview Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon), was incorporated in the state of Washington in July 1994, and sold its first book in July 1995. In May 1997, Amazon (AMZN) completed its initial public offering and its common stock was listed on the NASDAQ Global Select Market. Amazon quickly grew from an online bookstore to the world’s largest online retailer, greatly expanding its product and service offerings through a series of acquisitions, alliances, partnerships, and exclusivity agreements. Amazon’s financial objective was to achieve long-term sustainable growth and profitability. To attain this objective, Amazon maintained a lean culture focused on increasing its operating income through continually increasing revenue and efficiently managing its working capital and capital expenditures, while tightly managing operating costs. The name “Amazon” was evocative for founder Jeff Bezos of his vision of Amazon as a huge natural phenomenon, like the longest river in the world. He envisioned the company to be the largest online marketplace on earth someday. By 2008, Amazon had become a global brand, with websites in Canada, the United Kingdom, Germany, France, China, and Japan, with order fulfillment in more than 200 countries.1 Its operations were organized into two principal segments: North America and International Operations, which grew to include Italy in 2010 and Spain in 2011. By 2012, Amazon employed more than 56,200 people around the world working in the corporate office in Seattle, and in software development, order fulfillment, and customer service centers in North America, Latin America, Europe, and Asia. Amazon Corporate Governance Jeff Bezos is the Chairman of the Board and CEO of Amazon and owns 19.4% of the company. Amazon has three board committees of which two are standard: the audit committee and the governance committee. The third committee, the Leadership Development and Compensation Committee, is uncommon. Most publicly traded companies have a compensation committee; however, it is unusual for the compensation committee to have leadership development as part of its mandate. The Leadership Development and Compensation Committee “monitors and periodically assesses the continuity of capable management, including succession plans for executive officers.” Amazon’s board is not populated by CEOs or retired CEOs. It includes several venture capitalists, a number of senior-level executives from varied industries, an eminent scientist, and a representative from the non-profit sector. Amazon’s board has served together for a long time. This implies a deeper understanding of the company and increasing familiarity and even friendship amongst the group. This tends to discourage independent thinking and objectivity. All of it is further proof that Jeff Bezos is a strong CEO and runs the company. Retail Operations/Amazon’s Superior Website As people became more comfortable shopping on line, Amazon developed its website to take advantage of increased Internet traffic and to serve its customers most effectively.2 The hallmarks of Amazon’s appeal were ease of use; speedy, accurate search results; selection, price, and convenience; a trustworthy transaction environment; timely customer service; and fast, reliable fulfillment3—all of it enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. The site, which offered a huge array of products sold both by itself and by third parties, was particularly designed to create a personalized shopping experience that helped customers discover new products and make efficient, informed buying decisions. Key to Amazon’s success was continual website improvement. A huge part of the technological work done for Amazon was dedicated to identifying problems, developing solutions, and enhancing customers’ online experience. Jacob Lepley, in his “Amazon Marketing Strategy: Report One,” notes that, “when you visit Amazon . . . you can use [it] to find just about any item on the market at an extremely low price. Amazon has made it very simple for customers to purchase items with a simple click of the mouse. . . . When you have everything you need, you make just one payment and your orders are processed.”4 This simple system is the same whether a customer purchases directly from Amazon or from one of its associates. Pursuing perfection, Amazon was aggressive in analyzing its website’s traffic and modifying the website accordingly. Amazon particularly excelled at customer tracking, collecting data from every visit to its website. Utilizing the information, Amazon then directed users to products that it surmised they might be interested in because the item was either related to a product that they had previously searched for or purchased by another Amazon customer looking for a similar product. Recommendations were also customized based on the information customers provided about themselves and their interests, and their ratings prior purchased. Amazon also collected data on those who had never visited any of its websites, but who had received gifts from those who had used the site. One of Amazon’s most distinctive features was the community created based on the ratings/reviews provided by private individuals to help others make more informed purchasing decisions. Anyone could provide a narrative review and rate a product on a scale of 1–5 stars, and/or comment on others’ reviews. Individuals could also create their own “So You’d Like . . . ” guides and “Listmania” lists based on Amazon’s products offerings and post them or send them to friends and family. To streamline customer research, Amazon also consolidated different versions of a product (e.g., DVD, VHS, Blu-ray disk) into a single product available for commentary that simplified commentary and user accessibility.5 To further target potential customers, Amazon engaged in permission marketing, eliciting permission to e-mail customers regarding specific production promotions based on prior purchases on the assumption that a targeted e-mail was more likely to be read than a blanket e-mail. This strategy was hugely appreciated by Amazon customers, further contributing to Amazon’s success. In addition, Amazon purchased pay-per-click advertisements on search engines such as Google to direct browsing customers to its websites. The ads appeared on the left-hand side of the search list results, and Amazon paid a fee for each visitor who clicked on its sponsored link. At the same time, as “TV and billboard ads were roughly ten times less effective when compared to direct or online marketing when concerning customer acquisition costs”6, Amazon reduced its offline marketing. The strategy was simple: as customers shopped online, online marketing was key. However, in 2010, Amazon initiated a small television advertising campaign to increase brand awareness. Finally, to round out its customer care, Amazon expedited shipping by strategically locating its fulfillment centers near airports7 where rents were also cheaper, giving Amazon the two-pronged advantage of speed and low cost over its competitors. Furthermore, in the United States, the United Kingdom, Germany, and Japan, Amazon offered subscribers to Amazon Prime the added convenience of free express shipping. Amazon Prime’s free next-day delivery endeared it to Amazon customers, again contributing to the customer loyalty that was key to Amazon’s success. Amazon Prime cost $79 annually to join and included free access to Amazon Instant Video. The overarching objective of the company was to offer low prices, convenience, and a wide selection of merchandise, a pared down, yet wide-reaching strategy that made Amazon such a huge success. Diversified Product Offerings Amazon diversified its product portfolio well beyond simply offering books, which in turn allowed it to diversify its customer mix. In 2007, Amazon successfully launched the Kindle, its $79 e-book reader, which offered users more than one million reasonably priced books and newspapers easily accessed on its handheld device. Competitor Apple, Inc., then introduced the iPad, the first tablet computer, in January 2010, sparking further development of mobile e-readers. E-book sales took off immediately, increasing by more than 100%, according to the Association of American Publishers. Eager to compete in a market for which it was uniquely positioned, Amazon quickly developed its own low-cost tablet, the Kindle Fire, an Android-based tablet with a color touchscreen priced at $199, more than $300 lower than the iPad, sacrificing profit margins in search of sales volume and market-share gains. Other tech giants such as RIMM and HP were unable to compete with the iPad. Only the Sony Nook, the Amazon Kindle and Kindle Fire, and the Samsung Galaxy and Series 7 tablets challenged Apple’s consistent 60% of market share. Ultimately, however, Amazon’s huge growth derived not simply from the sale of Kindle hardware and the growth of e-book sales, but from its diversification and the continual expansion of the easy website access created by mobile devices. By 2010, 43% of Amazon net sales were from media, including books, music, DVDs/video products, magazine subscriptions, digital downloads, and video games. More than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies. Amazon also offered its own credit card, a form of co-branding that benefited all parties: Amazon, the credit card company (Chase Bank), and the consumer. Amazon benefited because it received money from the credit card company both directly from Amazon purchases and indirectly from fees generated from non-Amazon purchases. In addition, Amazon benefited from the company loyalty generated by having its own credit card the consumer sees and uses every day. The credit card company gained from Amazon’s high visibility, increasing its potential customer base and transactions. And the consumer earned credit toward gift certificates with each use of the card. Partnerships Amazon leveraged its expertise in online order taking and order fulfillment and developed partnerships with many retailers whose websites it hosted and managed, including (currently or in the past) Target, Sears Canada, Bebe Stores, Timex Corporation, and Marks & Spencer. Amazon offered services comparable to those it offered customers on its own websites, thus freeing those retailers to focus on the non-website, non-technological aspects of their operations.8 In addition, Amazon Marketplace allowed independent retailers and third-party sellers to sell their products on Amazon by placing links on their websites to Amazon.com or to specific Amazon products. Amazon was “not the seller of record in these transactions, but instead earn[ed] fixed fees, revenue share fees, per-unit activity fees, or some combination thereof.”9 Linking to Amazon created visibility for these retailers and individual sellers, adding value to their websites, increasing their sales, and enabling them to take advantage of Amazon’s convenience and fast delivery. Sellers shipped their products to an Amazon warehouse or fulfillment center, where the company stored it for a fee, and when an order was placed, shipped out the product on the seller’s behalf. This form of affiliate marketing came at nearly no cost to Amazon. Affiliates used straight text links leading directly to a product page and they also offered a range of dynamic banners that featured different content. Web Services As a major tech player, Amazon developed a number of web services, including ecommerce, database, payment and billing, web traffic, and computing. These web services provided access to technology infrastructure that developers were able to utilize to enable various types of virtual businesses. The web services (many of which were free) created a reliable, scalable, and inexpensive computing platform that revolutionized the online presence of small businesses. For instance, Amazon’s e-commerce Fulfillment By Amazon (FBA) program allowed merchants to direct inventory to Amazon’s fulfillment centers; after products were purchased, Amazon packed and shipped. This freed merchants from a complex ordering process while allowing them control over their inventory. Amazon’s Fulfillment Web Service (FWS) added to FBA’s program. FWS let retailers embed FBA capabilities straight into their own sites, vastly enhancing their business capabilities. In 2012, Amazon announced a cloud storage solution (Amazon Glacier) from Amazon Web Services (AWS), a low-cost solution for data archiving, backups, and other long-term storage projects where data not accessed frequently could be retained for future reference. Companies often incurred significant costs for data archiving in anticipation of growing backup demand, which led to under-utilized capacity and wasted money. With Amazon Glacier, companies were able to keep costs in line with actual usage, so managers could know the exact cost of their storage systems at all times. With Amazon Glacier, Amazon continued to dominate the space of cold storage, which had first come into prominence in 2009, amidst competitors such as Rackspace (RAX) and Microsoft (MSFT) offering their own solutions. By 2012, Amazon Web Services were a crucial facet of Amazon’s profit base, and Amazon was one of the lead players in the fast-growing retail ecommerce market. Seeing huge growth potential, Amazon made the decision to expand Amazon Web Services (AWS) internationally and invested heavily in technology infrastructure to support the rapid growth in AWS. Though its investments in ecommerce threatened to suppress its near-term margin growth, Amazon expected to benefit in the long term, given the significant growth potential in domestic and, even more so, in international ecommerce. Amazon’s Acquisition of Zappos, Quidsi, Living Social, and Lovefilm On July 22, 2009, Amazon acquired Zappos, the online shoe and clothing retailer, for $1.2 billion. At that time, Zappos was reporting over $1 billion in annual sales without any marketing or advertising.

Answer 1

SUMMARY-

Amazon is one of the top ecommerce giant company founded by Jeff Bezoz in 1994 where Company started its business by selling books and dvds to address of customers. Jeff found the opportunity in internet to use it for business and created a business model which became multi billion dollar business right now. If we talk about its offerings then Amazon initially sold only limited range of products but after year passes and Company raise funds from IPO then amazon add more consumer products. Amazon now have become a platform to sell thounsands of types of consumer products. Amazon also expand its business by diversifying its products from selling e-books and android tablet called Kindle Fire. This was the strategy to compete with companies like Apple and Samsung in electronics market.

In terms of Governance, There is hierarchy structure of amazon where Founder and CEO jeff takes all the decision because he owns 19.4% of Amazon's shares. There is also board of directors with independent directors who help bezoz to manage its business. Amazon have alternate source of revenue like Web cloud computing, Prime membership and affiliate marketing. Amazon has its own warehouse called fufillment centers which are used to stock products of third party sellers who can use Amazon as selling platform. when customer place an order to seller then seller provide the information and Amazon dispact the product to customer's address in speedy and fast delivery like one or two day delivery.Amazon has invested billions of dollars to grow its business by acquiring other business like Zappos, wholefoods market,quidsi, living social etc so that Amazon can diversify its risk and generate revenue from multiple sources.

the conclusion that can be gained from Amazon is that Amazon has strong leadership and clear vision and strategy which helped amazon to become ecommerce and tech giant creating multi billion dollar business in short period of time.The right use of governance and business stratgey to focus on providing low cost and fast service help amazon to achieve competitive advantage over its rivals like alibaba, ebay etc.