Amazing Amazon

1
Amazing Amazon

• Tomorrow never dies?
• ECON519
• Mary Man
• Hill Chan
• Kevin Xu
• Yilin Zheng
• Mar. 12, 2005 HKUST

2
Content

• Introduction
• Business Model
• Bookselling and An Online Business Model
• Factors of Amazons Success
• Strategy Analysis
• Two-sides market
• Patents
• Pricing Structure
• Prospect
• Competitors
• Conclusion

3
Questions

• What are the advantages of online bookstores
  compared to traditional ones?
• Why Amazon.com using dynamic pricing?

4
Introduction
5
Overview Amazon.com

• Launched in 1995, Amazon.com began as an online
  book-selling company but has now branched off
  into many other areas, including DVD, music CDs,
  computer software, video games, electronics,
  apparel, furniture and more.
• -- en.wikipedia.org
• We are not a retailer and we are not a
  technology company. We are a customer company.
• -- Jeff Bezos, 2001

Jeffery P. Bezos Founder, CEO, Amazon.com Times
Man of the Year, 1999
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GBF Get Big Fast

• 1995 Founded as online bookstore
• 1997 IPO (AMZNNasdaq)
• 1997 Launched one-click service
• 1998 Started selling music, videos,
• and DVDs
• 1998 Expanded overseas
• 1999 Electronics, toys and software
• 2000 Slowed down in Dotcom collapse
• 2001 Amazon Marketplace (C2C)
• 2002 Gained profit! (Q4, 1c per share)
• 2003 First full-year net profit
• 2004 Launched search engine a9.com
• 2005 DVD rental service?

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Change in sales structure

• Wild Wild West Hotter Rivals
• 98- Vs. Barnes Noble One-click lawsuit
• 00- Vs. Wal-Mart. com, bluelight.com(Kmart)
• 01- Vs. eBay C2C e-commerce
• 04- Vs. Google a9.com (search engine)
• 04- Vs. Overstock.com ?

8
SWOT

• Hard Times
• Rough waters for Amazon.com
• Businessweek, Feb.03, 2005
• Murky waters for Amazon.com
• Businessweek, Oct.22, 2004
• Missed profit expectation for
• Q4, 2004 by about 13
• (stock price plummeted 15)
• Intensifying Competition
• Increased marketing costs
• (increased by 44 compared
• to 26 growth in sales)
• Investors suspicions on
• e-commerce giants
• (similar fate for eBay)

Opportunity Harry Potter Year
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Business Model
10
Screenshot of the Amazon home page
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Bookselling and An Online Business Model

• Advantages
• Unlimited online shelf space
• Offer customers a vast selection through an
  efficient search and retrieval interface
• Realize significant structural cost advantages
• Sources product from a network of book
  distributors and publishers which can give a
  decent discount.
• Personalized service

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Bookselling and An Online Business Model

• Negative Operating Cycle
• Shift inventory risk to its vendors in the
  process.
• Generate interest on the full sale price for over
  a month.
• In addition, Amazon introduced co-branded
  auctions and zShops Marketplaces.
• In this new model, Amazon acted as an agent
  by facilitating transactions and taking a fee.

13
Factors of Amazons Success

• Brand
• By 2000, Amazon.com became the forty-eighth most
  valuable brand in the world.
• Personalization would be a hallmark of the Amazon
  brand.
• Customers
• Listen
• Invent
• Personalize
• Amazons Mission To be the earths most
  customer-centric company.
• Distribution Capability
• Bezos We will have a competence in distribution
  that will be hard to compete with.

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Factors of Amazons Success

• Technology E-commerce Expertise
• Customized Information Systems
• Amazon Commerce Network (ACN)
• One-Click Process
• Search Engine System
• Customers
• Listen
• Invent
• Personalize
• Amazons Mission To be the earths most
  customer-centric company.
• The ability to continually innovate
• A great team with a passion for innovation and A
  passion for serving customers well
• Other Marketing Strategies

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Strategy Analysis
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Two-Sides Market

• Network effect- value of a network depends on the
  number of users
• Amazon faces a Two sides market
• Buyers/customers want to visit/buy for a website
  with more books available
• Book sellers/publishers choose the website that
  has large customer bases
• An example of Chicken and Egg Problem

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Ways to attract Suppliers

• Amazon a platform to provides valuable and
  accurate, real-time customer information, lower
  display costs and low return rate ..
• Amazon offers attractive returns to
  publishers/title owners, usually
• Provides space to smaller independent publishers
• Cheap credit card clearance

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Ways to attract Customers

• Broad variety, from books to DVD
• Low price and personalized services
• Build loyal customer bases
• Reviews and recommendation convenience and
  reduce cost of searching of the
  customers/potential customers
• Create an unique community experience

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Community the value of a network

• Community experience in order to building a loyal
  customer base the good community should bring
  reputable and in return, more business
• Not only a platform for the business to take
  place, but also a community, an experience for
  the customers
• Were determined to offer both world-leading
  customer experience and the lowest possible
  prices, 2002 Amazon Annual report

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Community

• Community is extremely important in the internet
  business- the value of a network depends on the
  users community) it already and expects to
  connect.
• IM, such as QQ( in China), ICQ, MSN, and EBay,
  Amazon are examples
• The ability of Amazon to build the community is
  the most important and the next problem is how
  they could profit from the community

21
Patents

• 1-Click ordering is turned on immediately after
  you place your first order, provided you've paid
  for that order with a credit card. You can place
  an order to any address you've shipped to before
  by clicking just one button. We will
  automatically reference your account for shipping
  and billing information. Amazon Website

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1-Click Patent

• convenience for the customers , personalized
  services
• although the technology is somewhat simple, the
  granted patent block the competitors to use the
  similar technique in their websites

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Another Patent- Amazon Associate Program

• Starting in 1996, Amazon Associates program was
  the first online affiliate program of its kind. 
  Today, it is the largest and most successful
  online affiliate program, with over 900,000
  members joining world wide.  If you are a Web
  site owner, Amazon seller, or Web Developer, you
  can start earning money today and earn up to 10
  in referral feesStart making money today. Click
  here for easy registration Amazon Website

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Another Patent- Amazon Associate Program

• Participation in the scheme is free
• Could earn return up to 10, depends on the
  performance
• attractive for websites, almost no cost but only
  put the Amazon items on their websites
• Patent also granted for the program, block again
  the competitors using similar program to build
  the customer base.
• The patents owned to Amazon put its competitors
  at a disadvantage

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Dynamic Pricing

• Definition Charging the same products on
  different price for different customers- Max
  Profit
• Technology enables company to measure price
  elasticity more accurately and more real-time
• "Amazon.com acknowledged that it's been
  presenting different prices to different
  customers in its DVD store, but denied that it
  does so on the basis of any past purchasing
  behavior at Amazon. "We want to measure what
  impact price has on a customer's purchasing
  patterns. It's a limited test," Amazon
  spokeswoman Patty Smith said. "Different
  customers will see different prices."
  - PCIN Issue 101

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Dynamic Pricing

• Dynamic Pricing is common in the off-line world
• Priceline.com, for example, tends to accept
  lowball bids from first-time bidders to draw them
  into the service, then gradually raises the bar
  in future bids. - Wired news, 2000
• Dynamic Pricing/ Price discrimination requires
  customer information, including purchase pattern
• With internet, information is obtained more
  easily and less expensive much easier to
  implement
• The problem is, when the customers know the
  practice some pay more, some pay less, the
  customers will dislike the practice and destroy
  the customers loyalty

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Prospect
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Competitors

• Internet Retailers
• BarnesNoble.com
• eBay
• Half.com (ebay)
• Wal-Mart
• Bluelight.com
• Brick Mortar Retailers
• Wal-Mart
• Toy RUs
• Barnes Noble
• Sears
• Target
• Circuit City
• Kmart

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eBayDifferences

• Amazon
• Standard online sale method
• Mainly business-to-consumer based business model
  (expanded to user-to-user)
• Started as an online bookstore
• eBay
• Fixed time / Fixed price auction
• User-to-user based business model (driven by
  users, not the company)
• Your success is eBays success

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eBay Similarities

• Amazon eBay
• Internet retailers
• Sells everything in any quantity (especially
  things not found locally)
• Repeat customers are important, thus they have
  ways to promote repeat purchases (Amazon Gold
  box, eBay points and feedback)

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BarnesNoble

• Amazon.com

• BarnesNoble

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Amazon Vs BarnesNoblePrice Comparison
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Acquisitions and Strategic Investment

• Acquisition
• LiveBid
• Bookpages
• Telebook
• Back to Basic Toys
• Accept.com
• Exchange.com
• ...

• Strategic Investment
• Drugstore.com
• Living.com
• Gear.com
• Kozmo.com
• Ashford.com
• Della.com

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Conclusion

• First-mover advantage
• All-you-can-buy
• Virtual store
• Low cost
• Easy to use

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Questions

• What are the advantages of online bookstores
  compared to traditional ones?
• Why Amazon.com using dynamic pricing?