1. From Books to Services Seungeun Baeck, Jerome Coste, Mugun Gil, Steven Granese, Helen Han, Jung Chule Kim, Sam Lee

2. Overview  Introduction Internal Analysis Internal Analysis Business Model Business Model Financials Financials Value Chain Value Chain IT IT External Analysis External Analysis Competitive Structure Competitive Structure Industry Structure Industry Structure Summary Analysis Summary Analysis SWOT SWOT Conclusion Conclusion Q&A Q&A

3. Source: AnnOnline Introduction Key Facts Amazon.com is headquartered in Seattle, Washington and founded by Jeff Bezos in 1995, who graduated from Princeton University with Computer Science and Electrical Engineering degree. Amazon.com is headquartered in Seattle, Washington and founded by Jeff Bezos in 1995, who graduated from Princeton University with Computer Science and Electrical Engineering degree.

4. Introduction History Highlights 1995 - Book 1997 - IPO 1998 - Music, DVD, Video, Germany, UK 1999 - Toy, electronic, home improvement, software, and video games; Amazon.com Auctions 2000 - Online bargain stores, France, Japan 2001 - Partnership with Target and Circuit City, Office Deport, acquired Egghead.com, first quarterly profit of 5.8 millions in 4th quarter 2002 - Third-party content incorporation

5. Source: Annual Stockholder Meeting, 5/28/03 Business Model Mission & Vision Mission: “To become Earth’s most customer- centric company” Vision: To become Earth’s biggest store

6. Source: Annual Stockholder Meeting, 5/28/03 Business Model Value Proposition

7. Source: Amazon.com, Target.com Business Model Revenue Model Retail: Virtual Merchant Model Service: Market Creator Model: Marketplace, Zshops, and Amazon.com Auctions Affiliate Model: Merchant@ and Merchant.com programs

8. Source: Finance Yahoo Financial Stock Price Five year performance Range:15.06 - 47.75 Market Cap:18.47B EPS :-0.23

9. Financial Sales vs. Operating Expense (in Billions)

10. Financial Interest Expense vs. Net Loss (in Billions)

11. Financial Sales Business Unit Sizing 2002 Projected to grow to 33% of Total Sales

12. JIT inventory JIT inventory Virtual inventory stored in database Virtual inventory stored in database Suppliers Operations Relatively low overhead Relatively low overhead Track consumer demand Track consumer demand IT maintenance IT maintenance 24/7 world wide operation 24/7 world wide operation Distribution Routing optimization Routing optimization Customer integration with suppliers Customer integration with suppliers Customers Automated customer serviceAutomated customer service Value Chain Primary Activities

13. Huge Database, High R&D Spending In house, online purchasing software High quality IT infrastructure; Major focus on cutting costs Technology Procurement Human Resource Infrastructure Expensive technical talent; High Sales/Employee ratio Supporting Activities Primary Activities Value Chain Supporting Activities

14. Source: Business 2.0 Significant Investment in Information Technology Significant Investment in Information Technology Spent over $1 Billion on IT Spent over $1 Billion on IT Recruit the top computer scientists and engineers Recruit the top computer scientists and engineers Pioneer in innovative e-tailing features Pioneer in innovative e-tailing features “One-Click” buying “One-Click” buying Customized shopping experience Customized shopping experience Product suggestions Product suggestions Cross and up-selling Cross and up-selling Speedy checkout procedure Speedy checkout procedure IT Original Focus: Spending

15. Source: Business 2.0 Reduced IT spending from 11 to 6 cents for every dollar of sales Reduced IT spending from 11 to 6 cents for every dollar of sales Custom software = customized business processes Custom software = customized business processes Heavy reliance upon Open Source Heavy reliance upon Open Source 2001: switched to all Linux servers on HP machines, which cut expenses from $71 to $54 million 2001: switched to all Linux servers on HP machines, which cut expenses from $71 to $54 million Linux provides many benefits Linux provides many benefits IT New Focus: Saving

16. IT Technology Spending (in millions)

17. Source: Wired IT Becoming an IT Development Shop Created web services (XML) tools for 3rd party developers Created web services (XML) tools for 3rd party developers Spun off subsidiary “Amazon Services” to leverage use of their proprietary IT Spun off subsidiary “Amazon Services” to leverage use of their proprietary IT  Retailers can access Amazon’s products (Toys R Us)  Amazon can build and maintain a branded site (Target) Fastest growing part of their business Fastest growing part of their business  Accounts for 19% or sales  Possible because of brand name

18. Overview Introduction Introduction Internal Analysis Internal Analysis Business Model Business Model Financials Financials Value Chain Value Chain IT IT  External Analysis Competitive Structure Competitive Structure Industry Structure Industry Structure Summary Analysis Summary Analysis SWOT SWOT Conclusion Conclusion Q&A Q&A

19. Source: Sandeep Krishnamurthy Competitive Structure Top e-Tailing Sites, in Terms of Unique Visitors

20. Source: Sandeep Krishnamurthy Competitive Structure Top e-Tailing Sites in Books, Toys, Videos and Music

21. (-) Products available in offline stores (-) Online order, offline pickup (+) Installed customer base creates high barrier to entry (+) Amazon services create valuable marketplaces (-) E-tailing can be replicated (-) Internet offers direct selling (+) Amazon’s brand reduces supplier’s bargaining power (+) Little differentiation of products (+) High volume decreases suppliers’ bargaining power Suppliers Industry Competitors Barnes and Noble Buy.com Walmart.com eBay (-) Strong competition on price (-) Duplication of each other ’ s features Buyers (-) Price search engines increases buyers’ power (+) Amazon’s features increase switching costs Threat of Substitute Entry Barriers Industry Structure

22. Overview Introduction Introduction Internal Analysis Internal Analysis Business Model Business Model Financials Financials Value Chain Value Chain IT IT External Analysis External Analysis Competitive Structure Competitive Structure Industry Structure Industry Structure  Summary Analysis SWOT SWOT Conclusion Conclusion Q&A Q&A

23. StrengthsWeaknesses Innovative in-house IT: Innovative in-house IT: One-click patent Large selection of virtual products Personalization of website Great search accuracy Related product matching Customer reviews Strong Brand Strong Brand First mover and dotcom hype Positive WOM Affiliated with other companies Huge customer database Huge customer database High rate of repeat customers: 78% High rate of repeat customers: 78% One-stop-shopping and cross-selling One-stop-shopping and cross-selling High inventory turnover for books High inventory turnover for books Management team stayed focused with vision Management team stayed focused with vision Services are growing (19% of Sales as of second quarter, expected to be 33% for the year) Services are growing (19% of Sales as of second quarter, expected to be 33% for the year) Time delay distribution Time delay distribution No exclusive accesses to primary content High COGS for products High COGS for products High advertising costs High advertising costs Difficult relationship with manufacturers Difficult relationship with manufacturers Strategy used to be too vague: Get Big Fast Strategy used to be too vague: Get Big Fast Spreading themselves too thin Spreading themselves too thin No Profit Yet, but expected for 2003 No Profit Yet, but expected for 2003

24. OpportunitiesThreats Expansion of other product groups Expansion of other product groups International expansion International expansion Strategy shifts to services Strategy shifts to services Merchant.com: Powered by Amazon.com Merchant@Program Auctions: C2C market creater Z-shops: B2C market creater Brick & Mortar competitors are going online Brick & Mortar competitors are going online Existing Internet competitors Existing Internet competitors Low Financial flexibility Low Financial flexibility Only two major suppliers Only two major suppliers Technological innovations Technological innovations E-books Mp3 p2p services MPEG4 Price search engines Price search engines

25. Overview Introduction Introduction Internal Analysis Internal Analysis Business Model Business Model Financials Financials Value Chain Value Chain IT IT External Analysis External Analysis Competitive Structure Competitive Structure Industry Structure Industry Structure Summary Analysis Summary Analysis SWOT SWOT  Conclusion Q&A Q&A

26. Conclusion First mover in e-commerce retail industry First mover in e-commerce retail industry Built a strong brand with a loyal following Built a strong brand with a loyal following Struggled to make a profit Struggled to make a profit Focused on reducing costs Focused on reducing costs Leveraged brand to launch service model Leveraged brand to launch service model Expected to become profitable Expected to become profitable

27. Q & A