Wednesday, January 7, 2009

Amazon - Business Model

Amazon – Business Model


Company Overview:

  •  Founded in 1994; Started selling books online and now operate Web sites that offer various products and services, which include: music, DVDs, videos, electronics, camera and photography, clothing apparel, shoes, etc.
  •   Features include: one-click shopping, customer review and e-mail order verification.
  •   The company is in coalition with other retailers and offers various new, refurbished, and used items in categories.
  • Headquarters is in Seattle (Washington) with an additional office in Coffeyville, Kansas. It has six global websites to serve domestic customers in the US, the UK, Germany, France, Japan and Canada.


Our vision is to be Earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.


The company’s six core values: customer obsession, ownership, bias for action,  frugality, high hiring bar, and innovation. The company motto: ‘Work Hard, Have Fun, and Make History’.

External Opportunities:

  •   Construction of an extensive community of buyers
  •   Positive changes in the business model of the book market
  •   Internet taxes prohibited by the Internet Tax Freedom Act (1998) and its extensions (2001 and 2003)
  •   Growth of internet users in the next five years, predominantly in the international market
  •   E-commerce expansion in Asia and the Pacific
  •   Several product categories with high penetration of retail on-line sales
  •   13% jump of Latinos going online in 2003 in the US since 2001


External Threats:

  •          eBay, Barnes & Nobles, and Wal-Mart
  •           Possible rejection to on-line sale in international markets if new taxes (Value Added taxes: VAT) in products are levied
  •         Population segment not targeted to on-line sales due to their lack of internet access
  •         Weak economic performance of Germany and France in the last year
  •   Competition will increase due to the low barriers to entry in the market: offline companies are coming online


Few of the things that make that Amazon what it is today:

  •   Very large database
  •   including out of print and used books
  • Not restricted catalogue
  • Not just buying from Amazon but a network of booksellers
  • Not just books
  • One stop shop – web supermarket
  • Useful features like:   Reviews by readers, readability scores, sample   pages,   Filter searches by price, genre.


Collaborative Filtering:

  •         Collaborative filtering based on user profiles tracking
  • —   What books/cds/dvds/etc people have bought
  •          What web pages they have visited
  •          Aim is to recommend items to people who share similar tastes.

 Business Structure

           Competitive Environment

Competitive Advantage: 

Market Strategy:

  •           Strong brand name
  •        Customer service support (Highest score in 2002 American Customer Satisfaction Index)
  •        Developed and upgraded technology: software and hardware
  •        Two segments: B2C and B2B e-commerce.


How Amazon works ?

  •        Bulk Purchase from source.
  •        Huge Distribution Capacity
  •       No intermediaries- An effective B2C purchase model.
  •       Excitement-Jeff Bezos describes it as “Thrill Factor” associated with Amazon.


Sales figures:


Major competitors in Internet Space: pic here

Strategic Mergers & Acquisitions:

  •         Highly aggressive growth strategies in thr form of Organic as well as Inorganic growth.
  •        Bookpages (April 1998,
  •         Telebuch (Telebook) Inc. (April 1998,
  •         Paid $200M to acquire e-Niche, Inc., Music Find,, and Alexia Internet Company (1999)
  •          Bought 35% of HomegrocOffered a co-branded credit card with Nextcard (1999)
  •        Annouched plans to open a Target store at (2001)
  •        Others partnered with: BabiesRUS, ToysRUS, and Borders Group (2001)


Stock & Shareholder Policies:

  •         Trading on NASDAQ, ticker symbol AMZN.
  •   IPO: 1997 ($18 per share)
  •    Dividends have never been declared or paid on the common stock.
  •    Reason: Earnings are retained to finance future growth and therefore do not anticipate paying any cash dividends in the foreseeable future.
  •    The Company currently does not offer a Direct Stock Purchase Plan.


Control System:

  •         Financial reports annually and quarterly if necessary
  •   Customer feedback program
  •   Top level management meetings to assure goals are achieved
  •   Determine corrective actions after the first year if annual objectives weren’t accomplished


Road Ahead:

  • Primary: Expanding to emerging Asian Markets
  • Introducing new product categories
  •  Expanding to Central and South American markets
  •  Research and Development to increase the innovation and quality of customer services provided
  • Increasing marketing expenditures in order to reach new population segments and fastest growing trends and tendencies


Compiled by:

Prashant Gupta

MBA - Symbiosis Institute of International Business ( SIIB )