Business information Systems Management pgp18

Case Questions

Case: Amazon.com: The Brink of Bankruptcy

Submission date: 22/01/2015

Akshey Bhogra (PGP/18/178) Section D

Questions:

1. How did the Amazon.com business model evolve from the company’s launch in 1995 to early 2001?Answer: Amazon started its business as an online bookstore. 2 years later, the company’s successful initial public offering netted approx. $50 million and the company used that money to foray into other categories like music, video, toys, videogames, consumer electronics, software, home and kitchen appliances apart from expanding online bookstore. To cop up with increasing complexities due to scaling, the company offered auction platforms and online marketplace to leverage its proprietary online retail infrastructure and millions of customers. The company later realized that the toy business was not generating profits so it closed down its toy business and partnered with Toys”R”U online store to provide it with technology to build and host Toys”R”U website. Later, Amazon expanded further to provide customer and logistic services.

2. What role did IT play in the company’s strategy and the capabilities it built to execute strategy?Answer: After expanding into different product categories, Amazon was facing issues relating to increased complexity due to scaling. The company spent over $429 million to build a digital business infrastructure and operations that linked its various distribution and customer service facilities. This digital business infrastructure improved operational efficiency of the business. Moreover, this infrastructure was a proprietary asset that would be a source of sustained advantage and that was very difficult for competitors to emulate. Later company started providing IT services in logistics and customer support which drove major chunk of profit for the company.

3. As a member of the company’s board of directors, what advice would you give to Jeff Bezos in early 2001? Answer: Traditional retailers and even some competitors like BarnesandNoble.com and eBay.com are reaping high gross margins while Amazon’s gross margins have been almost stagnant for the past few years. So there is a huge scope of reducing the operation expenses in order to increase the gross margin. EBay’s model can be used as a reference because it has

Business information Systems Management pgp18

Case Questions

posted way higher gross margin than Amazon. In case of ‘Distribution and Shipping Services’, customers have increased but profit margin has decreased significantly. Focus should be on decreasing the cost of these services. Certain product categories like books, videos, music etc are doing great in in terms of market share. So these categories should be extended in order to take advantage of their success. On the other hand, certain product categories like consumer electronics, home and kitchen appliances have not been successful. So Amazon should find partners under these categories. Also inventory turnover should be increased as in case of Barnesand.