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933 views14 pagesAmazon Case Study
case study
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Tade FaweyaCopyright
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CASE STUDY
Amazon.com® 2007-early 2009
Gary J. Stockport
This case study is concerned with the continual roll-out of Amazon's global strategy through the development of
resources and strategic capabilities. [tis about global dominance through the development and use of technology
‘and acquisitions and alliances to offer an increasing array of products and services and continually enhancing
‘eustomer experience. The case discusses the widening of Amazon's business through serving three distinct and
rent groups of customers. The case highlights a number of potentially disruptive technologies including Kindle
cloud computing
.
reduction
2008, Amazon.com had a market capitalisation of
USS29.4 billion’ (£19.36 or €21.4bn) (see
radix 6) and employed around 20.700 employees.
was a truly global company and it had established
in Canada, the UK, Germany, Prance, Japan and
‘and 47 per cent of consolidated sales were out-
lis home country (see Appendix 2). The company
everything from books to jewellery to digital music
ithad recently established itself as a major player in
computing with the development and provision of
inthe cloud’.
hua faced many challenges over the years. Ithad
ea signlficant challenges such as the technology
bursting’ during April 2000 as well as deteriorating
older sentiment at various times. The organisation
survived and overcame all these challenges, and even
the ‘eye of the recent global nancial crisis, Amazon,
ed {o make strategic investment decisions for the
erm, CBO Jeff Bezos pointed out: ‘When we plant @
it tends to take § to 7 years before It has a meaningful
‘on the economics of the company.”
2009 rolled on, some strategic Issues that Bezos
‘entifed and needed to consider included the
20,66 «€0.73
(© How might depressed consumer sentiment in the global
Sinancial eis lect its growth?
(© Is the continued heavy investment in technology and
innovation the right strategy for building and maintain-
ing Amazon's sustainable competitive advantage?
© What is the optimal balance between catering. for
the novds of Amazon's different customer groups? As
‘Amazon developed from being Just an online retailer
toa web services provider for sellers and now moving,
Into providing web technology infrastructure develop-
‘ment, it may face challenges in trying to reconcile
lis vision of being ‘customer-centric’ through having
{0 consider which group(s) of customers should take
priority.
‘© Generally, is Amazon's business model the right model
looking ahead five years or more?
‘The founder ~ Jeff Bezos
At the age of 14, Jeff Bezos, the stepson of petroleum.
‘engineer, admitted to wanting to become an astronaut or
1 physicist, or something that would allow him to use
cutting edge technology. During his high school years he
ounded his frst venture, the DREAM Insite, which was
‘summer school programme aimed at stimulating creative
thinking in youngsters
By the age of 30, Jelf Bezos, the Princeton ‘summa
cum laude’ graduate with a Bachelor degree in Hletrical
ly isan update of @ number of case studies written about Amazon.com and published in earlier editions of this
of the case was written by Professor Gary J. Stockport and MBA students Trica Ong, Celina Chien, Eun-Ah Lee,
[Markl Ws, Mary Ngusaru and Michael Yoo: Business School, The Universit of Western Australia. ts intended as a basis.
discussion and not as an illustration of good or bad practice. © Gary . Stockport 2010, Nott be reproduced oF quoted 574 awazon con® 2007-caRty 2008
Engineering and Computer Science, was the youngest
‘Senior Vice Presitent of D. Shaw running a Wall Street
hedge fund. Whilst working at Shaw, Besos eame up with
te statistic that the electronic word, kmown as the World
Wide Web. would grow at an incredible rate of 2300 per
cent monthly. Beas, stunned by these growth figures, fel
Ariven to act quickly, saying: ‘I decided that when I was
vighty, [ wouldn't regret quitting a Wall Street job when
| was thirty, but when 1 was eighty I might really regret
this great epportuniy.”
‘Afier quitting his job, Bezos drove his wile, MacKenzie,
land their dog across the US in a Chevy Blazer that his
stepfather had donated, arriving in Seattle on 5 July 1994.
Bezos hal already chown hooks as his preferred product
‘due to their low price point and the size of the global
market, estimated at over USS80 billion at the time. He
believed web-based technology would provide customers
‘with a much larger range of tts at thetr fingertips as
‘well as enable better organisation and presentation of the
imulions of books.
Seattle was a logical choice to locate the business as
‘vas close to Ingram Books, the largest US book distributor.
It also had access to a large supply of computer software
talent. Furthermore, the State of Washington had a more
favourable sales tax climate. Over the next 12 months,
whilt operating from the garage of his rented home,
‘ews, his wile, and three others established relationships
with shippers and wholesalers, developed the soltware
‘ni tried to raise money. The business went ‘ive’ with an
online store in July 1995,
Early growth
exos believed the power ofthe internet lay in continuous
communication and word of mouth, which mode brand
Ing even more important. As a result, he chose to name
his site alter the world’s largest river. believing Amazon |
‘would become the biggest bookshop in the world. Beas
Pointed oat: “A brand for a compiny is lke @ regitation
for a person. You earn reputation by trying to do hard
things weil
In 1995, Aman had no significant online rivils and
although Barnes and Noble had @ 14 per cent market
share of traditional retail bookstores, it had no oniine
Prevence, Once launched, it tok less than a year for
‘Amazon 10 be recognised as the web's largest and best
‘online bookstore with over | milion tiles During thisearly
srowth period, Heaos did a fot of the manual work himse'
‘such as loading and unloading packages in the back of
his Chevy Blazer and detivering them to the Post Office.
Unable io raise critical funds needed to grow the business
fiom his existing contacts in New York's money market,
Beas relied on private investment of $1.2 million and
Silicon Valley funding fora further $8 mallion,
‘an initial public offering (IPO) comprising 3
raised $50 million and enabled an aggressive
ofthe business.
Vision
‘The vision behind Amazon has progressively
Since it started in 1995, What hogan as the goal
the world's biggest and best online bookstore
Into a store where customers could buy “ai
«capital &, [also wanted to become the
‘customer-centric’ company. Bezos added:
‘Our goal is to be Barth's most customer-centric
pany. I will leave it to others to say if we've
that. But why? The answer is three things.
fs that customer-cenirie means figuring out
customers want by asking them, then fi
hhow to give it to them, and then giving tt to
‘That's the traditional meaning of customer:
‘and we're focused on it. The second is inuova
‘behalf of customers, figuring out what they dont
they want and giving it to them. The third
‘unigue to the Internet, is the idea of personal
redecorating the store for each and every
customer. If we have 10,7 million customers...
‘we should have 10.7 million stores.
Defining the business
‘The core of what defined Amazon. as reflect in the I
Letter to Sharcholders, has remained over the yeas
{etter contained a series of core commitments such as
‘emphasis on longer torm market leadership, Extras
Ware reproduced opposite.
From originally serving just website retail
‘Amazon in 2009 served three distinet groups of
© Constmercustomers: through its retail websites. Am
provided a wide range of merchanglse, low price,
‘convenience to iis consumers;
© ‘Soller customers: sellers thet sold their products
‘on Amazon's websites or on thete own brand:
and fatiled their orders using Amazon's fal
facilites:
© Developer customers: customers that used Amazon
services which provided access io Amazons ted
‘infrastructure that enabled them i create virtually
type of business. See Appendix 3 for « more
analysis defining Amazon's business.
(Central to Amazon's strateey was growth. Figure
shows Amazon's approach of achleving growth t AMAZON.COM® 2007-EARLY 2009 575
1997 LETTER TO SHAREHOLDERS
4th Peragroph)
‘of cur emphasis on the long term, we may make decisions and weigh tradeatts differently than some
‘Accordingly, we want te share with you our fundamental management and decision-making approach
jou. ur shareholders, may confirm that it's consistent with your investment philosephy:
continue to focus relentlessly on our customers
‘continue to make irvesiment decisions in light of long-term market leadership
continue to measure our programs ang the effectiveness of our investments analytically, te jettison those
no provide acceptable returns, and to step up our imvostment in those that work best. We will continue to
rom both our successes and our failures.
‘make bold rather than timid investment decisions where we see a sulficien! probability of gaining markt
‘advantages. Some ol these investments will pay of, others will not, and we wll have earned another
Lesson in either case.
of future cash flows, wel take the cash flows.
lorced te chocse between optimising the appearance of cur GAAP accounting and maximising the present
ot 1977 wetter to Sharenotders reprinted ne 2002 and susequent Arua Resorts,
41 Amazon's Strategy
Lowe cost Lower
structure prices,
Selection and
Customer
experience
Teale
rgaly dame by Jo Bezos in 05.
rie” and continually improving the
experience by ollering lower prices and wider
‘This in turn fed back to the increasing use of
websites (trafic) by customers and sellers. which
ack to growing resources for innovation for
Jeustomer experience, and so the Virtuous’ cycle
|. Amazon's braad mantra was to relentlessly
‘enstomer by shaping the customer experience.
logo had continually evolved over the past
tomatch Amazon's shilting business offerings.
tad built three pillar strategy to guide and
vision, These pillars were selection, price and
with its foundation on innovation.
‘© Seletion: Amazon ollered the widest selection of products,
from its vast selection of retail products to Amazon's
software and Cloud Computing oflerings:
‘© Price; Amason was committed to price leadership and to
‘consistently and continuousty offer this with nosacriice
‘toquality. Porexample. Amazon offered ve shipping offers
tocustomers along with a guarantee of on-time delivery:
‘© Convenience: Amazon continually strived to “please” Us
customers. For example, Amazon dedicated many
resources to understanding what its customers wanted
by offering customer review and feedback forms on all of
its products.
‘These three pillars were supported by Amazon's continual
‘commitment 10 Innovation and investing in the future,
esos conclude: “There's more to innovation ahead of us
than innovation behind us. Underpinning innovation was,
‘te emphasis upon technology.
Fulfilment
Although Amuaoa was commonly regarded as an online
business productshd tobe physically shippe tocustomers.
Amazon's many fulflment centres were typically strategically
located ina number of cities In North America, Europe
‘and Asia, offen near sieports. In total, they comprised some
19.7 million square feet of properties all ovéF the world
(see Appendix 4). In 2008. Amazon.com opened a new
£600,000 square fet fulfilment centre in Hazleton, PA to
serve Amazon's Northeast customers. Another new facility
{n Goodyear, Arizona of more than 500,000 square fect
‘was also opened. ‘S76 awazon.cons 2007-€4.y 2009
Daring 2008, Amazon launched “Frustration-Pree
Packaging. a new initative designed to make easter for
‘customers to take products rom thee packages. rustation-
Free Packaging was launched in the 1S with 14 bese
rodct from leading manufacturers ncn Psber- Price,
Mitel, Micosolt and electronics manlocturr Transcend.
‘Amagon intend to expand this nitlative ross its oter~
‘national sites during 2009,
Aman tad always taken a strategie approach to recruit-
Ing. As mentioned earlier, located in Seattle as there was
large supply of computer sofware talent available. Over
the years. it had continually strengthened Ke management
cam. For example. during 1997 Richard Dalya. a former
‘WalMart Vice President joined as Chie Information Oficer
10} He brought expertise in merchandising and logistics
sgatems, supply chain ystems, international retain acd
merchandising systems and commercial decision support
‘and lata mining systems. Other senior managers Had been
ecrutied from a variety of companies such as AledSigna,
‘Apple, Black and Decker Delt Atnes and Micros
‘Mace generally. Amazon recraited ‘tightly’ around their
ned to service the customer. Hezos wed:
Companies get skil-focused, instead of customer-needs
focused. When (companies) think about extending
thet business into some new area, the frst question ks
“why should we do that we don'thave any sills in that
arcaThat approach pus aint icuimeon a company.
because the word changes and hat used ote euttng-
cede sill have tarnd int something your customers
‘may not need anymore. A much mace stable strategy fs
to start with ‘what do my customers nce" Then do an
Inventory ofthe gaps in your aki.
Culturally, Bems cosured that his company was never
‘ated with the status quo and never too comfortable
‘and he emphastint:‘l ask our people to wake up alco
‘aod tered (about the customer) every moeing.’ He alo
‘pointed out: ‘customers are the folks who ave the money.
‘Our competitors ure never golng 1 send ws money
Technolagy, technology, technology
Despite proyresne change inte isn, Be typical
response akout the main diference between conventonal
etal and his bene was
‘The thre ment porn siogs etal are cation,
location, location. The thee most important things for
‘our consumer busines are tecnakgy, technology
technology, Thats what tak the place of realestate
oarbusives.
‘ecormmendstionsaf what other customers pa
4 new customer found a product they
tn. In many ways. Amazoa had built the u
powerful and other organisations had aed
similar market data on suc a large see,
by claiming tha:
Amazon's continual emphasts pe tec
‘number of major outcomes between 2007 teat
Inching Kinde, impcoving Amin Web Series
‘igtal content and enhancing accessbilty
Kindte
‘Amazon developed and marketed an innovate st
slectronic reading device called. Amon Kinde
the Amazon brand. This device was unwell in
‘quarter of 2007 and enabled custoenrstodownidl
‘magazines, newspapers and blogs. Amazon
Kindle’ wireless delivery system, used nations
high speod data network and Kindle users could easy
‘access to the Kindle Store where over 90,0 bod
available, There were o additional charges foe
feces or service commitment fr customers 0th
truly convenient value efor Amen’ hook, ‘Amazon had increased the number
‘available to Kindle from 90,000 to 190,000
books being added every day. Amazon built
with partners such as Simon & Schuster,
n Publishers. making even more titles avail-
‘Yuelling’ interest in this revolutionary
ty 2009. Amazon launched Kindle 2, an
on. of the original, product with longer
la new ‘Text-to-Speech’ feature. Amazon was
ayer in the professionally narrated audiobooks
hits subsidiaries Audible and Brilliance, and
ih feature would be likely to introduce
erato the convenience oflistening to books and
d the peofessionally narrated audiobooks
won farther enhanced Kindle for iPhone and
Jn March 2009. which allowed customers 10
240,000 books.
Services
lsruptive technological innovations released
between 2007 and early 2009 were through
P Services (AWS). AWS products were examples
‘and sofware in their own data centres and
fim accessible via the internet, The trend in Cloud
thas been compared to the development of
ety network more than a century ago, whereby
fis stopped having to prodice their own power and
Ephgged into a national electric grid, In the same
and organisations can now corinect (9
Fofcomputing resources 10 fuel theie information
ing needs on the internet. The benedt. of
mach was that companies with access to hug:
‘of scale can sell their hardware or software
Power to users on a “pay as you use” basis far
thin a user could individually. Ifthe internet
iy could facilitate this discupive technology,
jcomputers 2s we know them today may become
sand producis such as Kindle or “dumb terminals’
tte thee place.
ero{bigtechnology names had already embraced
Compating revolution, including Google, IBM.
tems. However. Amazon's C2 was commonly
as being te most popular and more eommercial-
Any ofits competitor's offerings. Products that
eased included AWS Premium Support, Amazon
‘Tork, Amazon EBS, Amazon Cloudront and
Sets on AWS
Preiium Support provided I customers with
technical assistance and released. new
that enabled developers to build eren more
sad fault resiicnt applications on the sntemet.
AMAZON.COME 2007-EARLY 2029 S77
These new capabilities were amongst the top requests froin
developers.
During the third quarter of 2008, Amazon Mechanical
‘Turk launched a new set of web-based tools that made it
‘easier for businesses to outsource work to an on-demand
workforce to businesses worldwide, These web tools
allowed customers to utilise the internet to outsource
thousands of tasks, manage a virtual workforce and eastly
download work results. This technology opened up the
service to a wider range of customers because it no longer
required clients to have programming skills. With these
new web-based tools, any business could submit work that
required human intelligence to a weekforce of hundreds
of thousands of wotkers from over 100 countries in just
2 few minutes. This enabled businesses to get important
‘work done quickly and inexpensively,
Im the same quarter (third quarter of 2008). Amazon's
Innovative AWS division launched the Amazon Elastic
lock Store (Amazon ERS). a new and improved storage
feature for C2 that provided unlimited storage potential
tocllents using the Amazon BC2 service.
‘The last quarter of 2008 was a busy and productive
‘one for AWS. BC2 was upgraded for compatibility with
‘Micresoft products such as Micrasoft Windows Servee and
Microsoft SQL Server, and provided even greater flexibility
for deploying solutions in the AWS “cova,
AWS also launched Amazon CloudFront, a high-
performance, self-service, pay-as-you-go method of disrtbut-
ing data over the internet at high data transfer speeds.
Adam Selipsky. Vice President of Product Management
and Developer Relations at AWS claimed:
Our customers asked us for a way to globally distribute
their most frequently accessed content with all the
‘benefits that AWS provides: low. pay-as-you-go pricing,
high performance and reliability!
AWS alko introduced Public Data Sets on AWS, which
‘enabled developers and researchers to costellectively
‘create, share and consume large sets of data fre of change.
AWS had been working to lower the barriers to entry for
‘ellow scientists for the past tive years. and Public Data
Seis on AWS would provide virtually free resources to
researchers. By increasing the number of people with
sccess to important and useful dav, and making it easy to
compute on that data with cost-efficient scevices such as
‘Amazon BC2, AWS hoped to fuel innovation and further
accelerate the pace of new discoveries.
AWS was voted thefith mostinfluential itech product
of 2008 by 2D Net. Peter De Santis, General Manager of
C2 concluded: For aver 2 years, we've focused on deliver:
lng w costelective, web scale inrastructure to developers.
aiving them complete festility in the kinds of solutions
they deliver” ‘B78 AMAZON.COM 2007-EARLY 2009
Digital contents
‘Another significant expansion for Amazon between 2007
and eatly 2009 was in ts digital cootent olferings. During
2007. Amazon launched a MP3 Music Store, « digital
‘music downloads store. All MP3 contents on the Amazon
MP3 store were offered without Digital Rights Manage-
‘ment (DRM) software. so customers could listen to these
MP3s without any restrictions. EMI music, one of the major
‘music providers, joined this launch and the Warner Music
Group had become another supplier by the end of 2007.
‘Ths DRAMice partnership with major music providers
helped Amaaon establish its strategic position as the
‘work's largest selection of DRM-ree MP'3.
From early 2008, Amazon made DRMiee MP3 musie
downloads from Sony Music Entertainment available to
‘customers on Amazon MP3. Consequently. Amaaoa MP3
‘became the only retale to offer customers DRM fre MP 3s
{rom all the major music labels. as well as over 33.000
Independent labels. It also announced in January 2008 an
‘international roll-out of Amazon MP3, where every song
was playable on virtually any digital music capable device,
‘including the PC, Mack, iPod®. iPhone! and HlackBerry®.
‘ater in the year, Amazon launched & New Artists Store
featuring comprehensive artist content, including fall album,
discographies, CDs, DRM-ree MP3 and einyt catalogue
selection along with community features such as artist
Images, biographies wnd related products,
In September 2008, Amazon's subsidiary IMDb.com
announced that users could wateh over 6000 fall length
feature films and TV episodes fr free on IMDb.com. This
Included new stores devoted to customers’ favourite TV
series ana children’s programming. I roll-out a Geeman
version in November. www.imdb.de, specially to help
German-speaking movie and TV lovers easily find informa.
tion for thei favourite films and TV shows,
‘Accessibility
Many technology developments were aimed at enbancing
‘customer accessibility. For example, during early 2008,
Amazon launched a new feature, Amazon Currency
‘Converter, on its webste allowing international customers
to pay for thetr purchases inthe currency oftheir payment
‘card, instead of US dollars. This enabled international
‘customers to purchase eligible items from its website with
sreater ease and certainty.
Along similar lines, Amazon launched "Bl Me ate's next
eneration payments service for its customers to complete
purchases instantly online without using a crit card. With
its flesible financing programmes Bill Me Later, Inc. was a
‘eader inthe digital payments industry Is network included
‘hundreds of top-tier merchants including Borders. Bluefly,
Continental Airlines. LUXURY, Fujitsu, Jetue, Toshiba,
Toys Us. US Aieways, Walmart.com and Zappos.
In Ape 2008, Amazon.com
‘anew service that allowed customers
1 find and buy products sold on
addliion of TextBuylt to Amazon's
Including its mobile ite and mobil
could mow shop virtually anywhere
‘message o their mobile device's web)
Im order to expand Amazon's FT
clients. Amazon Payments announce
encral availabilty of Amazon Flexible
(Amazon FPS). This effectively allowed
‘accept payments from Amazon's
‘and enabled developers to monetise
enabled it to quickly rollout its activites
(see Appendix 5) During 2007, i launched
new sites that served customers with
fon shoe and handbag items. It provided
shipping, ‘a 110 percent price guarantee’ on
1nd convenient navigation and search
250 brands and 15,000 styles of shoes and
Endless.com operated "24-hour-a-day
phone support’, which enhanced and
‘customer shopping experience. By mid-2007, It
‘ower 50 new brands to is existing selection.
‘Amazon launched two music stores,
Blowout Store and Go Indie Musie Store.
‘Thomas May. Amazon's senior music editor,
44 decreasing. number of bricks-and-mortat
land increasing demand for the selection af
‘music offered on Amazon. Go Indie Music Store
‘nwsic buyers with hundreds of titles from more
30 independent music labels.
‘Amazon All Business Centre war introdaced
now category store, providing one-stop
star-up businesses as well as growing busines.
sore offered various solutions targeted at ent
needs and some of the key offerings were customer
laptops. software solutions, furniture and stationery.
store also provided customers with services such
Amazon Web Services, Fulllient and Amazon
‘Accounts.
‘Amazon continuously expanded globally via ts
‘national network, After the initial"Success of
Jewellry, Amazon launched its Jewellery & Watches:
{in the UK, Germany, Prance and Japan. Amazon's jewellery
business had remarkable growth in the second quarter
‘of 2007, 260 per cent in diamond sales, 169 per cent ‘and 107 per cent in sterling silver
de various brands, such as Cri
yand Technomarine.
lnunched its Offce Supplies Store,
ition that offered competitive
the classroom. home siice. smell
paeverything in-between’. This new
jon of more thar: $00,000 products
cturers, Including both well
ibrandssuch as Avery. Hammermill,
into auto parts, launcbing tts
angle shopping destination for
accessories and protective gear: "The
ton of more than 500,000 products
wlicturers, Including top beans Uke
Harley Davidson, Suauki and
| 2008, Amaron unvelled the Software
new category store featuring essential
titingual software products. With,
jin English accompanied by some Spanish
featured an extensive selection of
ofiware as well aseducational offerings
"The Amazon Software en Espanol
tobe the destination for Hispanic eon-
meet he needs ofthe nearly 1.6 milion
ysineses inthe US.
dof” 2009 with the launch of Amaon's
fore which offered customers everything
{oatendan event. host an inagurs-
ch the milestone eceasion from home.
Bh included Amazon's PC Casual Game
which fered over 600 game titles to
sme portals such as Vahioo Games.
alliances,
Zio arly 2009 period, strategically aligned
pdaliances remained a key way for Amazon
thology development. applications and
services, These alliances benefited
ess through, for example, accesso capital,
ertise and Amazon's. hu
of acquisitions included:
© customer
company aequired Pabric.com. aleuting
sflre custom measured and cut fabrics,
5, Sewing tools and accessories, This
el Pakrc.ccm to further expand its selec.
and accessories while enabling Amazon.com
a wider variety of products nthe
band hobby segment
AWAZON.COM® 2007-EaRLY 2009 579
In October 2008, Amazon acquieed Reflexive Bntertsioment,
42 PC casual game distributor and developer, Rellexive’s
CPO lars Brubaker announced ts acquisition with the
‘expectation that Reflexive would serve a broader range of
customers vie Amazon's distribution channel.
‘Amazon.com also completed its acquisition of AbeBooks,
an online markeiplace fur books, with over 110 milion
primarily used, rare and out-of print books listed for sale
by thousands of independent booksellers from around the
world. AbeBooks added milions of customers to Amazon's
‘existing consumer base and expanded its geographic
reach with AbeDock’s global websites (AbeBooks.com,
AbeRlooksca, AbeReoksco.ak, AbeBooks de, AbelLooks.e
AbeBlooksit and Iberitro.com). Abeliooks.com also had
alates in Germany and the US,
Competitors
Based on Amazon's Annual Report (20098), it was
possible to Mleify se diferent types of competitors Firstly,
there were physical-world retailers, publishers, vendors.
lsiributors, manufacturers and producers of Amazon's
‘products, fxampls included Wal-Mart and Bares & Noble
‘Seconily. there were ether online e-commerce and mobile
e-commerce sites, incuding sites that sold or distributed
digital content A major player Bay, had acleved less than
balf of Amazon's sales, but earned much higher netincome
and net profit margin (see Appendix 1). John. Donahoe,
CED ofeay, recently announced that it would facus on the
‘sevontery market... as a part of its effort to transform
lis core marketplace business’ (Morrison, 2009), Thirdly,
there were indirect competitors including media compas,
‘eb portals, comparison shepping websites and web search
‘engines. Fourthly, there were companies that provided
e-commerce services, including website developient,
fulfilment and customer services. Fiftly, there were com
panies that provided inkastructure web services or other
Information storage or computing services or products,
‘As Amauon entered into the web infrastructure industry,
‘ovo new competitors were Apple and Google. Finely, there
‘ere companies that designed. manufactured, marketed
‘or sold digital media devices. Again. Apple and Google were
‘competitors within this category. Appendix 6 provides a
‘comparison of some competitor's revenue.
Key financiats
Appenilix 2 presents sales and income a allocated to
North America and International Segments 2001-8.
Capital expenditure and cash
In bne with Amazon's mission to become the arth's mest
‘customer-centric company for ts Unree primary customer 580 aMazow.com® 2007-EAnLy 200
sets: consumers, sellers aiid developers’ (Amazon.com,
2009a), Amazon continued to invest heavily in technology
innovation. Beaos pointed out:
We transform much of customer experience ~ such as
‘unmatched selection, extensive product information.
Personalized recommendations, and other new software
features ~ into largely a fied expense. With customer
‘experience cosis largely xed, our costs as a percentage
‘of sales can shrink rapidly as we grow our business.
This commitment to invest heavily in technology mnove-
tion was reflected in the high rate of year-on-year growth
Jn technology and content operating expenses and cost
of internal-ase software and website development (see
Appendix 7). During 2008, US$LO33 million was spent
‘on the development and enhancement of vartous areas of
{technology and content. including seer platforms, web
services digital inidatives as well as technology infrastrac-
ture, In 2008. Amazon had also capitalised US$187 millon
of internal-use software and website development cost
‘This amount represented an increase of 45 per cent (rom
ts 2007 level ($129m,
Another stated strategic financial focus for Amazon
‘was on ‘Lang term, sustainable growth in free cash flow’
(Amazon.com, 200%a). Typically, Amazon offered short
Figure 2 Amazon share price 2006-9 relative to market
[Rete ~— mana
Toran — "oR
credit terms to its customers and enj
terms feom supplers, the value ef
‘mately 26 days. ‘This: operational
‘Amazon to use funds collected frame
of working capital, As a consequence
junction with other cash management
was able to maintain a strong cash bw
its continuous investment. in
‘Amason’s long term debt data aly
relying less on long term debe to
operations activities (see Appendix 7)
‘Share price
Since listing in 1997, Amazon had yet to
shareholders. Investors hal therefore to
price fuetuations for investor return |
Amtzon’s share price relative to the make
Doubts about Amamon's plan to
spending to build its new Web Se
capacity combined with investors!
‘apparent lack of payoll in Amazon's
resulted in its stoek price falling elese
2004 to 2006 (Sage, 2006). Conse
‘Amazon was forced (o iavest in is ted
expansion at a slower rate in onder to
dex DJI and IXIC
a
i
ahd adc ta CATT
Int this slowdown of investment in innova
list lbng, ‘I telieve you have to be willing to
if you're going to innovate’, Beas said
remarked that he was able to ignore
Wall Strvet, the press, and others about
to pre-2007 lovels and was supported
sentiment due to positive returns being
the market
1d ~ mixed opinions
J. Amazon warmed that the global financial
[amplify the strategic and financial risks it faced
te likely to make general trading conditions
ing during 2009. However. analysts were
‘whether Amazon would be able to ‘weather
er than ts peers. For example a senior asalyst
©, Bemsiein predicted that Amazon would
tweulperform is competition.
ability (o maintain strong cash low whist
reliance on borrowed funds for day-to-day
shas seen it gain favourable commentary from the
‘AMAZON.COM® 2007-EARLY 2007 581
‘fits plans to redeem US$335 milion of the outstanding
principal on (ts convertible subordinated notes due by
the end of March 2009 further conflaned the strength
‘ofits cash position and was well recelved by the market
(Kelleher, 2009).
However, other analysts were Kean to point out that
fas Amazon's survival bad been reliant om ses growth, «
significant reduction in th sales growth rate would have
a considerable impact on Amazon's cash flow and future
ability to invest in technology innovation, Symptoms of
decreasing consumer demand were refloted in Amazon's
2008 December quarter revenue, which had only grown
by 18 per cent in comparison to 40 por cent in the last
‘quarter of 2007.
Amazon's international sales contribution, currently a
447 per cent. was expected to increase to 50 per cent ofits
‘consolidated slesin the near future (Amanen.com, 2009)
Whilst this would spread the risk of a slow-down in
North American markets. t woukl also increase Amazon's
‘exposure to foretgn exchange risk. which amounted t0 a
loss of 8$320 milboa in fourth quarter in 2008 alone.
‘Clearly, there was much for Beans to consider,
mn, Amazon'srecent announcement Pi Warcsser, AMID Claud Frat takes, Younet om, 60,
IX 1 Peer comparison 2008
Jnéusty:Etaling (620)
Market ap Netincome Net pref
_ampany rome Seles USOm __Empleyees___USDm UsOm margin
‘anazon com, ne 19:166.00 2ame «9A As ‘is.00 241%
ay Ire Bul 26 14200 1ng08.78 rear 083%
Pricolire com incorporated gc) 1700 321043 1347 104um
Ticketmaster Ertetainvent, nc vais eon 29.99 95 BAe
Oversick com, nc ‘47 1038 21605 i265 1S
Valve Vision Medi, Ine as ee 1176 2245, 28%
United Fuel & Energy Corporation ub.06 “an 351 su Ts
ued Commorca SA zone 26 307 375 09%
Oigtal River. Inc 20 128 oat a2 ao 61
DeNACo, Li. air “s 1513.08 BR Be
Ft (exh i Dow Jaros Cerosty Report fr Amasoncom he $82 AMAZON.coM® z007-EARLY 2008
APPENDIX 2 Sales and income as allocated to segments, 2001-08
Noxth Amerie
Net sales
Cost a sales
(ross prot
Direct segment operating expenses (1)
Segment operating income loss
International
Net saiee
Costa sates
Gross profit
Direct segment operating expenses (1
Segment operacing income toss)
Consotida
Net sales
Costa estos
‘Gross profit
Direct segment operating expenses
Segment operating income lash
‘Stock-based compensation
‘Other operating income lexpense]
Income floss rom operations
Total nor-epersting income lexpensel net
‘Benefit (provision) for income taxes
‘Cumslative effect of change in accountng principle
Net income loss)
Segment highlights:
Y/Y net sales grow:
North America
Internstional|
Consolidated
‘VEY grass profit growth:
North America
International
Censolidated
“1 eagemant aporatng income growth
North America
International
Censotidated
Net sales min
‘North America
International
‘roa Margin
North america
International
Censoiidated
Soares: Compiled irom various eres.
si0228
1733
AI
2980
oS
1%
53%
4”
26%
199
2a
38%
x
ed
2%
a
37
m%
ra
59%
Bum
ca
Re
B%
a
26
20%
a
20
tte
0
“2
25%
5
260%
192
29
smn
Sie
1267
im
2%
ar
3.007
7
8450
ist
2009
tara
5
“7
