Amazon Was Founded in 1994, Spurred by What Bezos Called
Introduction:
Amazon was founded in 1994, spurred by what Bezos called "regret minimization framework", his effort to fend off regret for not staking a claim in the Internet gold rush
"In his typically analytic way, Bezos cast his decision in what he calls the "regret- minimization framework." He imagined that he was 80 years old and looking back at his life. And suddenly everything became clear to him. When he was 80, he'd never regret having missed out on a six-figure Christmas bonus; he wouldn't even regret having tried to build an online business and failed. "In fact, I'd have been proud of that, proud of myself for having taken that risk and tried to participate in that thing called the Internet that I thought was going to be such a big deal. It was like the wild, wild West, a new frontier. And I knew that if I didn't try this, I would regret it. And that would be inescapable." The company began as an online bookstore named "Cadabra.com", a name quickly abandoned for sounding like "cadaver"; while the largest brick-and-mortar bookstores and mail-order catalogs for books might offer 200,000 titles, an on-line bookstore could offer more. Bezos renamed the company "Amazon" after the world's biggest river. Since 2000, Amazon's logotype is an arrow leading from A to Z, representing the desire to sell many products.
The domain amazon.com attracted at least 615 million visitors annually by 2008 according to a Compete.com survey. This was twice the numbers of walmart.com.
Amazon's initial business plan was unusual: the company did not expect a profit for four to five years; the strategy was effective. Amazon grew steadily in the late 1990s while other Internet companies grew blindingly fast. Amazon's "slow" growth provoked stockholder complaints: that the company was not reaching profitability fast enough. When the dot- com bubble burst, and many e-companies went out of business, Amazon persevered, and, finally, turned its first profit in the fourth quarter of 2002: U.S. $5 million, just 1¢ a share, on revenues of more than U.S. $1 billion, but the profit was symbolically important.
Merchant partnerships
Amazon.com powers and operates retail web sites for Target, Sears Canada, Benefit Cosmetics, Bebe Stores, Timex Corporation, Marks & Spencer, Mothercare and Lacoste. For a growing number of enterprise clients, currently including the UK merchants Marks & Spencer, Benefit Cosmetics' UK entity and Mothercare, Amazon provides a unified multi channel platform from whence a customer can interchangeably interact with the retail website, standalone in-store terminals, and phone-based customer service agents. Amazon Web Services also powers AOL's Shop@AOL.
Product lines
Amazon has steadily branched into retail sales of music CDs, videotapes and DVDs, software, consumer electronics, kitchen items, tools, lawn and garden items, toys & games, baby products, apparel, sporting goods, gourmet food, jewelry, watches, health and personal-care items, beauty products, musical instruments, clothing, industrial & scientific supplies, groceries, and more.
Products and services
Amazon.com has incorporated a number of products and services into its shopping model, either through development or acquisition. 2001
Honor System and donations The Honor System was originally launched in 2001 to allow customers to make donations or buy digital content, with Amazon collecting 2.9 percent of the payment plus a flat fee of $0.30 USD.
2002
Web Services Amazon launched Amazon Web Services (AWS) in 2002. The service provides programmatic access to many features leveraged behind the scenes on its website.
2004
Amazon also created "channels" to benefit certain causes. In 2004, Amazon's "Presidential Candidates" allowed customers to donate US$5-200 to the campaigns of 2004 U.S. presidential hopefuls. Amazon has periodically reactivated a Red Cross donation channel after such tragedies as 9/11 and Hurricane Katrina. After the 2004 earthquake and tsunami in the Indian Ocean, Amazon set up an online donation channel to the American Red Cross, waiving its processing fee. As of January 2005, over 162,000 individuals had donated over US$13.1 million. Similar channels were set up for the British, Canadian, French, German and Japanese Red Cross organizations. Over 7,000 Britons donated more than US$350,000; 900 Canadians over US$56,000; 660 French over US$23,000; 2,900 Germans over US$145,000; and 1,900 Japanese over US$66,000.
2005
Prime Amazon Prime offers customers free 1-day shipping in the UK, Japan and Germany and free 2-day shipping in the United States, for a yearly fee of US$ 79 or £49. The service also offers discounted priority shipping rates. Amazon launched the program in the continental United States in 2005, Japan in June 2007 and the United Kingdom and Germany in November 2007. Shorts Launched in 2005, Amazon Shorts offers exclusive short form content, including short stories and non-fiction pieces from best-selling authors, all available for immediate download at US$.49. As of June 2007, the program has over 1,700 pieces and is adding about 50 new pieces per week.
Mechanical Turk In November 2005, Amazon.com began testing Amazon Mechanical Turk, an application programming interface (API) allowing programs to dispatch tasks to human processors. 2006
S3 In March 2006, Amazon launched an online storage service called Amazon Simple Storage Service (Amazon S3). An unlimited number of data objects, from 1 byte to 5 gigabytes in size, can be stored in S3 and distributed via HTTP or BitTorrent. The service charges monthly fees for data stored and for data transferred. Discussion boards In August 2006, Amazon launched product wikis (later folded into Amapedia) and discussion forums for certain products using guidelines that follow standard message board conventions. EC2 In August 2006, Amazon introduced Amazon Elastic Compute Cloud (Amazon EC2), a virtual site farm, allowing users to use the Amazon infrastructure with its high reliability to run diverse applications ranging from running simulations to web hosting.
2007
Amapedia In January 2007 Amazon launched Amapedia, a collaborative wiki for user- generated content to replace Product Wiki. Unbox In March 2007, Amazon launched an online video on demand service, which has been criticized for its use of digital rights management (DRM).
MP3 downloads In September 2007, Amazon launched a new music store (currently in beta) called Amazon MP3, which sells downloadable tracks, all in the MP3 format and most recorded at 256 kilobits per second variable bit rate (VBR).Amazon's terms of use agreements legally restrict use of the music, but Amazon does not use DRM to enforce those terms. Amazon MP3 is selling music from the Big 4 record labels, EMI, Universal, Warner Bros. Records, and Sony BMG, as well as many independents; as of January 2008 they are the only store to sell DRM-free music from all Big 4 labels. Previous to the launch of this service, Amazon made an investment in Amie Street, a similar music store with a variable pricing model based on demand.
Vine In August 2007 Amazon launched Amazon Vine, which allows top product reviewers free access to pre-release products from vendors participating in the program. FPS In August 2007 Amazon launched a payment service specifically targeted at developers. Amazon FPS has facilities for developing many different charging models including micro-payments. The service also gives developers easy access to Amazon customers. Kindle In November 2007, Amazon launched Amazon Kindle, an e-book reader which downloads content over "Whispernet," a free EV-DO wireless service on the Sprint Nextel network. Initial offerings include approximately 115,000 books, newspapers, magazines and blogs. The screen uses E Ink technology to reduce battery consumption. Simple DB In December 2007, Amazon introduced Simple DB, a database system, allowing users of its other infrastructure to utilize a high reliability high performance database system.
2008
Amazon MP3 In January 2008 Amazon announced they would be rolling out their Amazon MP3 service to their subsidiary websites worldwide throughout the year.
Undated
Connect Amazon Connect enables authors to post remarks on their book pages and to customers who have bought their books. Web Store Web Store by Amazon allows businesses to create e-commerce websites using Amazon technology. Merchants can customize their sites using their own photos and branding. Sellers pay a commission of 7 percent, which includes credit-card processing fees and fraud protection, and a subscription fee of $59.95/month for an unlimited number of web stores and listings.
Question 1) How does Amazon.com create value for its customers? How has its approach to creating value changed since its founding?
Amazon creates value for its customers by offering customer satisfactory services by managing retail operations with efficient use of technology. Operational efficiency is the strength of Amazon.com and supports the management to maintain its competitive advantage and enhance corporate performance.
Amazon.com creates value for its customers by offering customers broad array of products to select from through their website and ensuring timely delivery of products to exhibit high level of commitment towards their business and customers
Amazon.com was a venture into an emerging market of internet and had to face hidden and unexpected hurdles in order to survive and excel in the market. Therefore, Amazon.com kept modifying its strategies with their focus on enhancing customer experience of online shopping and to delivery exceptional services with complete convenience to their customers. One of the major strategic decisions was to compromise on cost saving stragegy when Amazon.com started to maintain its own warehouses in different countries in order to ensure timely and accurate delivery to their customers
Question 2) Who are Amazon.com’s competitors and how has it created its competitive advantage?
Place tactics as part of the eMarketing Mix. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). For others the Internet has provided the opportunity for a new online company.
New Internet companies. These companies only trade on the Internet. New online retail brand e.g. Amazon, Lastminute.com - Essentially these companies could not have been conceived without the creation of the Internet. New companies sprang up as the Internet began to be adopted. Entrepreneurs were investing heavily in all sorts of start- ups. Some were successes, most were not.
New online manufacturer brand e.g. Dell.com - Entrepreneurs saw opportunities for developing online manufacturers' brands that took advantage of online technologies that enabled innovative new products to be adapted to customer preferences, and by using IT to enable efficient and effective operations such as assembly and logistics. Online Auction e.g. eBay. In common with new online retail brands, before the emergence of Internet technologies, this concept was not possible. Essentially eBay is a Consumer-to- Consumer (C2C) business. For more information on how online auctions work, see the lesson on eMarketing and price. Pre-existing companies that have adopted eMarketing. These are traditional companies that trade on the Internet. Banking and financial Services e.g. HSBC Bank. Banks and financial services have benefited tremendously from the popularity of Internet usage. There is a mixture of new online banks and traditional banks, both offering online banking services. Essentially banks no longer need to invest in high cost, high street selling units i.e. old fashioned town-based banks. Labor costs have also been reduced since much of the traditional banking bureaucracy is done using IT, and the use of overseas call centers has meant that salaries are much lower. Software also means that customers can be retained by using Customer Relationship Management (CRM) eMarketing approaches.
Existing online retail brand e.g. Wal-Mart, took advantage of this new mode of distribution by extending products and services to consumers via the medium of the Internet. eMarketing enhances their traditional marketing. Direct distribution channel e.g. New York Yankees' shop. Organizations have access to consumers worldwide. So brand loyal consumers such as sports fans are now able to buy directly from their preferred club, which pockets the entire profit without having to give a cut to intermediaries. Wholesalers e.g. C and S wholesale Grocers. IT allows retailers to order directly from their wholesale partners via their website. Retailers can check stocks and look at current promotions. This approach is more effective than depending entirely on merchandisers. Agents e.g. Avon Representatives. There are a number of different types of agents. One well known example is that of Avon cosmetics and their workforce of extremely loyal representatives. The representatives are in reality agents. eMarketing allows customers to choose between the services of their traditional Avon rep or the Avon Online Shop i.e. using an agent or going direct. Franchises e.g. KFC. There are many examples of franchises. The online equivalent of a franchise is an affiliation or 'affiliate.' This gives the franchise owner the opportunity to develop a network of affiliates that display goods, services or solutions on the affiliate website. A commonly cited example is that of Amazon.com. So if you are a golf enthusiast, and you have developed a site that give tips on how to play better golf, then you can apply to Amazon.com for an affiliation that allows you to place tailored Amazon ad boxes on your site. They can be adapted to sell golfing books, and you as the site owner can adapt the ads to match the feel of your site. For every golf book sale that your leads generate, you are paid a commission. Vending and automated retailers e.g. Coke machines. Vending is very much based upon the physical location of machines near to where they are most likely to sell product. However, vending machines can use IT and the Internet to communicate with a central server, giving information on what is currently selling well, or what might need replacing. Competitive Advantage
Question 3) Which of Porter’s and Treacy and Wiersema’s competitive strategies has Amazon pursued? What is its competitive position?
Strengths. Amazon is a profitable organization. In 2005 profits for the three months to June dipped 32% to $52m (£29.9m) from $76m in the same period in 2004. Sales jumped 26% to $1.75bn. Until recent years Amazon was experiencing large losses, due to its huge initial set up costs. The recent dip is due to promotions that have offered reduced delivery costs to consumers. Customer Relationship Management (CRM) and Information Technology (IT) support Amazon's business strategy. The company carefully records data on customer buyer behaviour. This enables them to offer to an individual specific items, or bundles of items, based upon preferences demonstrated through purchases or items visited. Amazon is a huge global brand. It is recognisable for two main reasons. It was one of the original dotcoms, and over the last decade it has developed a customer base of around 30 million people. It was an early exploiter of online technologies for e-commerce, which made it one of the first online retailers. It has built on nits early successes with books, and now has product categories that include electronics, toys and games, DIY and more. Weaknesses. As Amazon adds new categories to its business, it risks damaging its brand. Amazon is the number one retailer for books. Toy-R-Us is the number one retailers for toys and games. Imagine if Toys-R-Us began to sell books. This would confuse its consumers and endanger its brands. In the same way, many of the new categories, for example automotive, may prove to be too confusing for customers. The company may at some point need to reconsider its strategy of offering free shipping to customers. It is a fair strategy since one could visit a more local retailer, and pay no costs. However, it is rumoured that shipping costs could be up to $500m, and such a high figure would undoubtedly erode profits. Opportunities. The company is now increasingly cashing in on its credentials as an online retail pioneer by selling its expertise to major store groups. For example, British retailer Marks and Spencer announced a joint venture with Amazon to sell its products and service online. Other recent collaborations have been with Target, Toys-R-Us and the NBA. Amazon's new Luxembourg-based division aims to provide tailored services to retailers as a technology service provider in Europe. There are also opportunities for Amazon to build collaborations with the public sector. For example the company announced a deal with the British Library, London, in 2004. The benefit is that customers c an search for rare or antique books. The library's catalogue of published works is now on the Amazon website, meaning it has details of more than 2.5m books on the site. In 2004 Amazon moved into the Chinese market, by buying china's biggest online retailer, Joyo.com . The deal was reported to be worth around $75m (£40m). Joyo.com has many similarities to its new owner, in that it retails books, movies, toys, and music at discounted prices. Threats All successful Internet businesses attract competition. Since Amazon sells the same or similar products as high street retailers and other online businesses, it may become more and more difficult to differentiate the brand from its competitors. Amazon does have it s brand. It also has a huge range of products. Otherwise, price competition could damage the business. International competitors may also intrude upon Amazon as it expands. Those domestic (US-based) rivals unable to compete with Amazon in the US, may entrench overseas and compete with them on foreign fronts. Joint ventures, strategic alliances and mergers could see Amazon losing its top position in some markets. The products that Amazon sells tend to be bought as gifts, especially at Christmas. This means that there is an element of seasonality to the business. However, by trading in overseas markets in different cultures such seasonality may not be enduring.
Question 4) What marketing strategy recommendations would you make to Amazon.com?