Dustin Nadeau, Donatas Sumyla, David Deprey and Jaime Rodriguez AMAZON.COM - Inc. 2004 Dustin Nadeau, Donatas Sumyla, David Deprey and Jaime Rodriguez Bus 411, April 2006

Case-Study Overview Existing Condition Amazon overview Industry overview History, Key Facts, Goals and Objectives and Stock Information Amazon Proposed Vision and Mission External opportunities and threats CPM EFE Financial Ratios Internal strengths and weaknesses IFE Analysis SWOT Matrix SPACE BCG IE matrix Grand Strategy Matrix QSPM Possible strategies Recommendations Strategic implementation and desired results Show Cost Annual objectives (goal) and polices Evaluation Procedure Current Update

Amazon 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 offer 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

Key facts Index Membership: S&P 500, S&P 1500, Super Comp NASDAQ 100 Sector: Technology Industry: Internet Software & Services 2002: Number 492 in the Fortune 500 list Full Time Employees:7,800 The 57th most-valuable brand worldwide 2002: 31 millions active customers Sales: First seven years: $0 => $3.2B 2002-2003: $3.93B => 5.26B 2004: revenues of $6.9 billion (growth of 31.5 from 2003 to 2004)

History November 1994 CEO Jeff Bezos and two associates set up shop in a converted garage. Founder and Bezos opened the virtual doors of Amazon.com's online store in July 1995 and began selling public. In May 1997 Amazon.com completed its initial public offering (IPO). April 1998 the company acquired online bookstores in U.K. and Germany (Bookpages and Telebuch): first international expansion In 1999 the company launched its own auction site In 2000 Amazon.com launched amazon.co.jp and amazon.fr (Japan and France) In 2002 e-commerce strategic alliances were performed with Virgin and Office Depot. In January 2003 announced the Free Super Saver Shipping September 2003 launched new Sporting Good store.

Acquisitions/ Partnerships Bookpages (April 1998, Amazon.co.uk) Telebuch (Telebook) Inc. (April 1998, Amazon.co.de) Paid $200M to acquire e-Niche, Inc., Music Find, Accept.com, and Alexia Internet Company (1999) Introduced zShops; Amazon.com’s online mall (1999) Partnerships: Bought 46% of Drugstore.com (1999) Bought 50% of Pets.com (1999) Gained a 1.7% stake in Sotheby’s Holdings and formed a joint online auction site (1999, sothebys.amazon.com) Bought 35% of Homegrocer.com (1999) Bought 49% of Gear.com (1999) Offered a co-branded credit card with Nextcard (1999) Annouched plans to open a Target store at www.amazon.com (2001) Others partnered with: BabiesRUS, ToysRUS, and Borders Group (2001)

Historical Product Introduction and Geographical Diversification

Company Structure

Amazon Stock (AMZN) Info 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.

Stock Price Performance

Industry Overview The World Wide Web might have been built to support geek-speak, but today it is used to transmit information anyone can understand. Aside from possibly E-mail and instant messaging, accessing online content is the main reason most people use the Internet today. It is estimated that a billion people around the world have some kind of Internet access, either at work or at home, and most are going online to read the news, to get product information or for multimedia entertainment. Some of  the largest content providers are Yahoo, MSN, and America Online. Some other traditional media companies like Walt Disney Internet Group operate some of the top destinations on the Web, such as ESPN.com and ABC News. With Internet access continuing to grow and advertising rates stabilizing, online content is developing and expanding on several fronts.  One of the most exciting areas of development is streaming audio and video content, which has become increasingly popular with the rising use of broadband Internet connections. While sites run by online and traditional media companies will most likely continue to command the lion's share of audience and advertising revenue, there are some grass roots efforts that are beginning to challenge that dominance.

Compared to S&P 500

Compare to Industry

Economic Performance

Top Internet Retailing Sites in terms of Unique Visitors (Source: Media Matrix)

Goals & Objectives We seek to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavor to offer customers the lowest possible prices.

Vision Statement  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.

Mission Statement 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’.

Proposed Vision To continue expanding in all countries with Internet access, while maximizing total commitment in becoming the number one company in Internet transactions.

Proposed Mission To continue to offer quality products and services using the best technology available and at a reasonable price. This results in highly loyal customers, while maintaining shareholders interest and company profits in mind. We also want to expand geographically, increasing the number of customers and to keep improving our main competitive advantage - infrastructure. By working hard and having fun we seek to offer the best working environment to our employees, promoting career opportunities, and to increase our responsibility towards environment and the society.

External opportunities and threats 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 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 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 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

EFE Matrix

Direct Competitors Comparison (2006) AMZN = Amazon Inc. BKS = Barnes & Noble Inc. EBAY = eBay Inc. Industry = Internet Software & Services (Source: http://finance.yahoo.com)

Competitive Profile Matrix (CPM)

Internal strengths and weaknesses Strong brand name * Large product selection * Pricing policy with discounts Corporate culture High quality management team Customer service support (Highest score in 2002 American Customer Satisfaction Index) Strong Infrastructure: Effective automated distribution centers in the US and overseas (Competitive Advantage) Developed and upgraded technology: software and hardware Pioneer in the syndicate selling on the Web Two segments: B2C and B2B e-commerce. In the process of building efficiencies of scale WEAKNESSES: Lack of Spanish website version (Latino and Hispanic Americans are the fastest-growing online ethnic group) Low finance performance (high debt level) Risk of introduction of wrong new categories which could damage company’s brand Company’s offered free shipping might affect future financial outcome Certain products (high volume/weight) have high shipping costs which could confront with local offline retailers

IFE Matrix

Amazon Key Ratios (2006)

Overall Key Ratios (2006)

SWOT Analysis

SPACE Matrix * Y axis: - Financial Strength: + 3 - Environmental Stability: - 2 => Y coordinate: + 1 STRATEGY: AGGRESIVE * X axis: - Competitive Advantage: - 1 => X coordinate: + 5 - Industry Strength: + 6

Business Structure Operating Segments: Operating Results: BMVD = Books, Music, and Video/DVD: Include retail sales from the different websites and commissions ETK = Electronics, Tools, and Kitchen: Includes sales from www.amazon.com, mail-order catalog sales, and commissions International segment: Includes all retail sales from the international sites Services segment: consists of commissions, fees, and other amounts earned from other service business Operating Results: North America: www.amazon.com, www.amazon.ca, and mail-order catalogs. International: www.amazon.co.uk, www.amazon.de, www.amazon.fr, and www.amazon.co.jp

Business Structure

Sales: Amazon vs eBay

BCG Matrix INTNL: 31% STARS QUESTION MARKS NA: 69% CASH COWS DOGS

IE Matrix

The Grand Strategy Matrix Potential Strategies: - Market Development - Market Penetration - Product Development - Backward Integration - Concentric Diversification

Matrix Analysis

QSPM

Decisions Primary: Expanding to emerging Asian Markets Alternative: 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

Showing Cost: EPS-EBIT Analysis

Implementation Objectives: Increase net income by 5% in the first year and 15% in the overall period of 3 years Increase the net profit margin to 5% Increase total revenue in Asian market by 30% Decrease long–term debt Use increased income to pay down long-term debt Keep operating costs low (efficiencies of scales) Create different website versions based on the five most common language in Asian region Focus marketing strategies on customer feedback to find out what Asian customers tend to buy

Evaluations 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

Update: 2004-2005 2004 Expansion in China (www.joyo.com) buying a Chinese e-commerce website Debuted A9.com: company focused in researching and building innovative technologies: “Search Inside the Book” and “Find It on the Block” Launched “Presidential Candidates” feature Set up an online donation channel to American Red Cross (Tsunami in the Indian Ocean) 2005

References http://finance.yahoo.com 2004 Amazon Inc. Annual Report Amazon.com: a business history. To appear in “e-commerce management: text and cases”; by Sandeep Krishnamurthy (last updated on September 27, 2002) Strategic Management : Concepts and Cases (10th Edition) by Fred David. Prentice-Hall Strategia e Sistemi di Pianificazione; E-strategy: Il caso Amazon. By Prof. Cassia and Fattore. Universita di Bergamo www.altavista.com (images)

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