1. MD253/MK252 Electronic Commerce March 29, 2005 Amazon.com

2. Issues Covered Amazon’s strategy –competitive advantage Inventory efficiencies –turns & float Excellence in customer service –Personalization & switching costs Partnerships & ‘service’ businesses –Syndication model, merchants.com, web services Challenges

4. Amazon’s Strategy

5. Offline vs. Online Retail Efficiencies Turnover –3 times / year –avg. book in store 121 days –Book on shelf 68+ days after paying suppliers Inventory –shelf & warehouse stock –30% returns Turnover –16 times / year –avg. book in house 22 days –avg. 28 days of float / title Inventory –all warehouse stock –few returns

6. Capital Efficiency – Negative Operating Cycle (Float) Day 0 Product Received Product Shipped Customer Payment Supplier Paid 222553 28 Days Inventory Turns for Full Product Line, 2004 Amazon = 16 B&N = 3, Home Depot = 5, Best Buy = 5, Wal-Mart = 7

7. Amazon’s Warehouse Network 5 facilities, > 4 million sq. feet Extremely diverse product mix Mixed Automation & Manual Sorting and Conveyance Direct to consumer fulfillment Photos: blog link provided by the San Jose Merc News

8. captures early demand & improves inventory forecasting

16. Leveraging the Amazon Platform Amazon.com as seller –AMZN inventory & product detail pages Syndicated stores / Merchants@ –AMZN tech & inventory, co-branded website –Ex: Borders, HMV, Waterstones, Waldenbooks, VirginMegastore Marketplace –3 rd party inventory, AMZN product detail pages Merchant.com (Amazon Enterprise Solutions) –AMZN technology powers partner websites –Ex: Target, NBA.com, Bombay Company, DVF Shops