Amazon Business Model - Case Study Example

AMAZON.com Name: Roll No. Subject: Class: Teacher: November 15, 2007 University: Amazon Business Model 1995-2003. Changed and Evolved An American based electronic company, amazaon.com has its origin and roots in Seattle, Washington. It is agreed widely that amazaon.com is almost the number one company that initiated e-commerce. The CEO of company, Jeff Bezos is regarded as founder of e-commerce. Jeff Bezos founded the company in 1994. That year is also termed as an early and initial years of conventional internet. Bezos experienced and exploited the potential to complete extent, present in Internet. It is termed as the largest bookstore in brick-and mortar, selling an excess of two hundred thousand titles, online. As earlier mentioned that company was incorporated in the year 1994 in Washington, it was re-incorporated after two years in 1996. The company is spending millions of dollars to obtain customers and serve them beyond their expectations. This being the main strategy has worked. Company progressed by leaps and bounds. Amazon placed themselves not only in the category of books, but also targeted customers of CDs and DVDs. (Barry, D. 2006). The company also deals with barbecues, TVs with larger screens and many products of kind. Jeff Bezos served his career as Vice President in a Bank based at New York. He sensed the power and increasing supremacy of internet especially in the Web format. The growth rate of internet at that particular time was two thousand three hundred percent per year. A critical analysis was made by Bezos by studying a variety of twenty products. He searched for the best seller product online. (Borders Overbroad? 2005)The results recommended that Bezos should choose selling books online as he found a variety of more than three million books available globally. Bezos thus initiated the sale of online books in July 1995. Main focus of Amazon was on enormous and gigantic selection, high quality of service, effectiveness and pricing compatible with target customers. (Assael H. 2000) Book stores dealing in physical stock make mentionable investments in the areas of inventory, staff and building. The more investment is, the less are chances for keeping enough stock. Moreover Amazon sensed that it is difficult for the publishers and book sellers to serve the customers globally keeping in view the limitations imposed by demographics of the customers. In the initial years Amazon used the shoulders of retail stores for maintaining its inventory. In this manner Amazon was successful to avoid the costs of real estates also. (Alsop, S. 2004) In the initial years Amazon did not face major rivalry as the prominent players were not present in this category. The biggest player Barnes & Noble possessed about 1/10th market share and that too offline. Amazon enjoyed the initiative for many years and kept advantage by servicing the segments of CDs, Pet supplies, electronics etc. (Bernhard, W. 2007) Their services also include auctions thereby placing themselves as a leading market player offline as well as online. (Wills, C. 1999) In the year Amazon made investment in HomeGrocer.com to capitalize on their market share. In the same year they also entered into a partnership with Sotheby. Under the umbrella of this partnership Sothebys.Amazon.com were successful in carrying art and antiquities to be purchased through online auctions. Later in 2001, they formed a partnership with Border.com with the intention to help out its sales plans and schemes. (Alsop, S. 2004) Amazon moved swiftly in the Web market and placed themselves as the largest retailer due to its strong successful strategies. (Andrew, E. 2006)Strategies as defined by Bezos are to create and maintain a content work force, building effective brand, delighting the customers through exceeding expectations, effective set up of distribution and involving in mergers and acquisitions. Amazon spends heavily on promotional activities with the intention to create strong brand equity at the time when the big bookstores were thinking to launch their activities. (Belch. G.E.2001) In the years 1997 and 1998, Amazon had more than one and a half million customers, making them the busiest location in retailing on Web. Up to the year 2000 Amazon was successful in setting up a system characterized by one-on-one marketing. (Alsop, S. 2004)In real sense they became the first company ever to extract huge advantages from Internet. The concept of local retailing was transformed into global retailing without loosing the personal touch. (Brooker, K.2004) The years 1995 to 2003 Bezos was successful in becoming the world’s largest bookstore. (Can borders Turn the Page? 2006) This was the motive of Bezos in the selection of Amazon as the name of his firm after the largest river of the world. The beliefs of Bezos are formed on the basis that customers prefer selection, outstanding service and comparative low prices. (Belch. G.E.2001) His main focus was on these three areas and the success achieved was built on adhering to these strategies for building an admirable image of the brand. In the year 1994, Amazon was founded. Jeff Bezos left New York to Seattle with the motive to establish an online bookstore to be named after the world’s longest river Amazon and intention to become the largest online bookseller. The launching of Web site was done in July, 1995. In the following month books were sold and shipped to more than fifty states and forty countries. The year 1997 saw the launching of first IPO by Amzaon.com in the month of May. It raised more than fifty million dollars. In the same year in October, Amazon reached the landmark in sale. It made shipment of one millionth order to a Japanese Customer. The description of order was Windows NT. It also included Kitty Kelly’s ‘The Royals’. (Amazon Sells CDs. 2003) In June 1998, Amazon inaugurated its music store and later on in August same year acquired an office space comprising more than one hundred eighty six thousand square feet. Amazon bought about forty five percent stakes in an online seller named drugstore.com based in Bellevue in February, 1999. One month later in March, Amazon opened its auction business for keeping up with eBay. In July 1999, Amazon entered in the segment of electronics and toy stores. Up to November, 1999 the company recorded a loss over five hundred fifty million dollars. Bezos was selected by Time Magazine as their person of the year in December, 1999. (Michelle V. 2005) The start of year 2000 saw Amazon investing about sixty million dollars in Kozmo.com but it closed after one and a half year. In the month of June same year, Amazon.com experienced nineteen percent drop in stock being the second largest drop. Reason for such a heavy shock was a report by an analyst who predicted that online retailers were due to experience shortage in cash by the year-end. In January 2001, about thirteen hundred workers were given the gate The year 2002 had surprises for the critics of Amazon.com when it declared a profit for the fourth quarter as five million dollars In January 2003, another landmark was achieved by recording the second profit and later on in September later that year the search engine being a subsidiary of Amazon was established. Is Amazon.com a natural acquisition target for Wal-Mart? Amzaon.com is ranked as the leading online businesses. It is in fact a pioneer in online book store category and has reached to be acclaimed as the largest bookstore of the world. It manages to deliver momentous value to its stakeholders. Amazon supports the idea of consumer environment in Internet different from physical channels. Amazon operates in a non-traditional way of retailing and is successful in practicing business in an associated economy. The software used by Amazon is related with a network that is capable of defining customers’ needs to sought information about products. This is the basic objective of Amazon to enhance the power of this software. Amazon is inclined to create a relationship with its resources that provide certain levels. The company understands what is meant by a successful company. Amazon.com has in fact provided a structure to the new source of commerce now labeled as e-commerce. The leadership of Amazon acknowledges the enhanced returns of economics specifically in software industry. (Assael H. 2000) Amzaon.com offers value to its customer through convenience in purchasing. The internet is available to every one any time, any where. The Web site is designed in such a manner that reduces the down load time for users. (Saunders, R. 2001) It has a mass selection of books ranging above one and a half million. Amazon provides an admission to the usage of stock more than hundred times a volume a traditional retailer mall bookseller has. The prices are competitive enough to attract almost every segment. Company has ownership for less time than the traditional retailer. Revenue per employee is too high as compared to the traditional bookstores. The cost of rent is also low and discount offered on the shipment of three books that customer term as discount even than the price is about ten percent lower than of a traditional bookseller. In outline retailing Amazon.com has stretched to such boundaries, it had established itself as the greatest and largest online retailer. Amazon hires executive with background in technology. These executives possess expertise in different fields particularly relevant in information business. Amazon.com had to face a law suit filed by Wal-Mart in 1998. Wal-Mart suspected that Amazon.com tempted the key executives of Wal-Mart to obtain entrée to intellectual property: the Data mining system linked with Wal-Mart retail. The systems providing information are critical for e-commerce and Wal-Mart was offended enough to file suit. The policy of Amazon.com is to create relationships and connections with different business concerns. Their belief is that value has the power to be exchanged beyond the abstract limits, thus providing flexibility for Amazon.com to fulfill its needs. Amazon as a source of growth views the policy for acquisitions and mergers. Amazon is engaged in a variety of agreements with other Internet portals, the search engines. It has also developed relationship with Yahoo and is present on AOL web site. The prime element involved in understanding the company as a leader in e-commerce is in appreciating the feed back provided by customers. Heavy growth, alliances and mergers, search of new avenues and continuous advancements in technology has placed Amazon in a position that Wal-Mart and like companies are not in position to acquire this on-line giant. Is Amazon.com Business Model Looking Ahead 5 or more Years? The online giant has its focus on administering the merchandise, right from delivering parcels to develop complex modules that critically analyze the connections between products that are bought by people. In fact Amazon.com has changed the traditional buying behavior globally. Through development of e-commerce concept, company has successfully capitalized on variety of patterns. Amazon is now view more as online shopping gateway, and presents itself as an intermediary between the purchaser and seller. Amazon opened a new window of opportunity in the year 2002 expanding its operations to the spectrum of a variety of merchandize such as apparel stores. Amazon.com unveils advancements in technology. Most of its executives do not have background in books selling or in sale of other items. They rather specialize in high technology that provides company to grab the future. Amazon is reportedly working to create its own search engine that could face the search engine giant Google. The key to success of the company is to understand the dynamics of technological advancements and adapt them as early it could be. Changing behavior of consumer, and to make them relevant to the products of Amazon.com is one of the key strategies that could support them in future growth. Since its inception, Amazon.com prided themselves as a retailer. The business model of Amazon can be termed as bricks: the carrying of low inventory by the company and depended on catering to the needs of customers in a swift manner. Amazon specializes in benefiting from automated interfaces. These interfaces support them in sorting and arranging of orders that ultimately permits Amazon to acquire rapid purchase and delivery conditions. Software of the Amzaon.com scrutinizes the orders and makes selection of orders. It judges the order that are easy to be fulfilled. Amazon has built strong and meaningful relations with its distributors and as such the shipment can be made within a few hours following the receiving of order. The company processes its sales via its ware house located in Seattle. For the last few years, Amazon.com has adopted a strategy to make investments in different e-commerce companies. They have entered into partnership with a variety of retailers and are a step ahead in developing and adapting the new technological changes. The model of Amazon.com can look ahead of five years on the basis of some hits made by the company. It lets the customers to provide feedback on the online purchased items. The customers while providing feed back are able to communicate with millions of people. Other merchants are charged a monthly fee for the sale of merchandize on its Web site. It is termed as zshops and produces more profits made in any other category even through direct sales. Customers of Amzaon.com have the facility to establish a product list that is required from Amazon.com. It is called the wish list and save the viewing of list by other visitors. Amazon is capable of eliminating the fees charged to customers for shipment provided the value of shipment is above twenty five dollars. Though its an additional cost that company has to bear yet it results in enhancing sales. Can Amazaon.com Become the Wal-Mart of the Internet? Amazon.com operates in such a low price category that it has become practically impossible to compete. The alternative to avoid competition is to join the competitor. But there are some unfavorable opinions also. In joining such big boys the total loss of control is natural. Amazon has declared a war with Wal-Mart. They have ensured better pricing globally for the success in operations. (Assael H. 2000) The low price phenomenon is viewed as a key to the success of any organization through out work. Amazon increases their sales margin through buying of products in large volumes. It gives the company a tremendous power in bargaining with the suppliers. (Gregory, D.2007). Amzaon.com is established as one of the largest names in e-commerce primarily engaged with retailing and has practically transformed into the Wal-Mart of Internet. For E-Based Companies Being Focused Competitors Rather Than Broad Range Competitors The leaders in e-commerce, Amazon.com have been transformed from a bookstore to become Wal-Mart of the internet. Diversification in products range from toys, tools, apparels, music, and much more. Major competition faced by Amazon.com was from bricks and clicks stores. Barnes and Nobles for example possessed the competitive advantage of much stronger brand. Their association was with more than thousand bookstores located all over the country. The Barnes & Nobel offered a variety of packages to attract a broad customer base and competing strongly with Amazon. Barnes and Nobles onslaught the individual book sellers. The competition intensified when in 1999, American Booksellers Association launched a web site named as BookSense.com. This site allows customers to place orders over Internet and the local bookseller is provided commission on every sale made. BookSite.com provides privilege to small brick and mortar book sellers to be equipped with the weapons of e-commerce. Amzaon.com responded the challenge through an alliance with borders. Amzaon.com operates in a broad wider market of competitors. In 1998 the company launched the music shop. In November same year Amazon offered DVD/Video for sale. In July 1999 toys and electronics were introduced for sale at web site and after that sky is the limit. The success of Amazon.com is mainly due to operating in broader offering to customers. Main role of Amzaon.com is of an intermediary serving between the customer and seller. Their role is becoming more significant in locating the products so the customers can search them on internet. The activities of Amazon.com highlight the role of intermediary transformed from seller or retailer. References Amazon Sells CDs. (2003) Videos in Japan. The Financial Times Andrew, E. (2006) Amazon Links start to pay off. Financial times. Alsop, S. (2004) I’m betting on Amazon.com. fortune, New York.I vol.143, no.9 Assael H. (2000) Marketing: Principles & Strategy. Dryden Press. Barry, D. (2006). Borders Group. Merill Lynch Capital Markets. Belch. G.E.(2001) Advertising and Promotion: An Integrated Marketing Communication Perpectives. Bernhard, W. (2007). A Dog of a Debut. The Industry Standard. Borders Deal to Allow Book-Printing in Stores. (2006) Atlanta Journal & Constitution. Borders Overbroad? (2005) Forbes. Brooker, K.(2004). Beautiful Dreamer. Fortune. Can borders Turn the Page? (2006) Business Week. Gregory, D.(2007) Virtual Shopping Gets Real. Information Week. Michelle V. (2005). Pets.com Fetches Investment from Amazon.com. The Industry Standard. Saunders, R. (2001) Business The Amazon.com, UK: Capstone Publishing Limited. Wills, C. (1999). Amazon.com really matter?. Forbes, New York. Read More