from books to services seungeun baeck, jerome coste, mugun gil, steven granese, helen han, jung...

From Books to From Books to ServicesServices

Seungeun Baeck, Jerome Coste, Seungeun Baeck, Jerome Coste,

Mugun Gil, Steven Granese, Helen Mugun Gil, Steven Granese, Helen Han,Han,

Jung Chule Kim, Sam LeeJung Chule Kim, Sam Lee

OverviewOverview IntroductionIntroduction Internal AnalysisInternal Analysis

Business ModelBusiness Model FinancialsFinancials Value ChainValue Chain ITIT

External AnalysisExternal Analysis Competitive Competitive

StructureStructure Industry StructureIndustry Structure

Summary AnalysisSummary Analysis SWOTSWOT

ConclusionConclusion Q&AQ&A

Source: AnnOnline

IntroductionIntroductionKey FactsKey Facts

Amazon.com is Amazon.com is headquartered in headquartered in Seattle, Seattle, Washington and Washington and founded by Jeff founded by Jeff Bezos in 1995, who Bezos in 1995, who graduated from graduated from Princeton Princeton University with University with Computer Science Computer Science and Electrical and Electrical Engineering Engineering degree.degree.

IntroductionIntroductionHistory HighlightsHistory Highlights

1995 - 1995 - BookBook

1997 - 1997 - IPOIPO

1998 - 1998 - Music, DVD, VMusic, DVD, Videoideo, , GermanyGermany, UK, UK

1999 -1999 - ToyToy, , electronicelectronic, home , home improvementimprovement, , software,software, and and videovideo gamesgames; ; Amazon.com Amazon.com AuctionsAuctions

2000 - 2000 - Online Online bargainbargain stores, France, stores, France, JapanJapan

2001 - 2001 - Partnership with Target and Circuit Partnership with Target and Circuit City, Office Deport, acquired Egghead.com, City, Office Deport, acquired Egghead.com,

first quarterly profit of 5.8 millions in 4th first quarterly profit of 5.8 millions in 4th quarterquarter

2002 - 2002 - Third-party content Third-party content incorporationincorporation

Source: Annual Stockholder Meeting, 5/28/03

Business Model Business Model Mission & VisionMission & Vision

Mission: “To become Earth’s most Mission: “To become Earth’s most customer- customer- centric company” centric company”

Vision: To become Earth’s biggest Vision: To become Earth’s biggest storestore

Source: Annual Stockholder Meeting, 5/28/03

Business Model Business Model Value PropositionValue Proposition

Source: Amazon.com, Target.com

Business ModelBusiness ModelRevenue ModelRevenue Model

Retail:Retail: Virtual Merchant Virtual Merchant

ModelModel Service: Service:

Market Creator Market Creator Model: Marketplace, Model: Marketplace, Zshops, and Zshops, and Amazon.com AuctionsAmazon.com Auctions

Affiliate Model: Affiliate Model: Merchant@ and Merchant@ and Merchant.com Merchant.com programsprograms

Source: Finance Yahoo

FinancialStock Price

Five year performance Range:15.06 - 47.75 Market Cap:18.47B EPS :-0.23

FinancialSales vs. Operating Expense

(in Billions)

0.0150.1480.61

1.64

2.763.12

3.93

-0.567-0.149-0.72-0.006-0.031-0.125

-1.411-2

-1

0

1

2

3

4

5

1995 1996 1997 1998 1999 2000 2001 2002

Net Sales

Operating Expense

FinancialInterest Expense vs. Net Loss

(in Billions)

-1.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

1998 1999 2000 2001 2002

Interest Exp.

Net Loss

FinancialFinancialSales Business Unit Sales Business Unit

Sizing 2002Sizing 200227%

44%15%

6%

8%

International BMVD ETK Services Shipping

Projected to grow to 33% of

Total Sales

• JIT inventoryJIT inventory• Virtual inventory Virtual inventory stored in database stored in database

Suppliers

Operations• Relatively low overheadRelatively low overhead• Track consumer demandTrack consumer demand• IT maintenance IT maintenance • 24/7 world wide24/7 world wide operation operation Distribution

• Routing optimizationRouting optimization• Customer integrationCustomer integration with suppliers with suppliers

Customers•Automated customer serviceAutomated customer service

Value ChainPrimary Activities

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 ChainSupporting Activities

Source: Business 2.0

Significant Investment in Information Significant Investment in Information TechnologyTechnology

Spent over $1 Billion on ITSpent over $1 Billion on IT Recruit the top computer scientists and Recruit the top computer scientists and engineersengineers Pioneer in innovative e-tailing featuresPioneer in innovative e-tailing features

“ “One-Click” buyingOne-Click” buying Customized shopping experienceCustomized shopping experience Product suggestionsProduct suggestions Cross and up-sellingCross and up-selling Speedy checkout procedureSpeedy checkout procedure

ITITOriginal Focus: SpendingOriginal Focus: Spending

Source: Business 2.0

Reduced IT spending from 11 to 6 Reduced IT spending from 11 to 6 cents for every dollar of salescents for every dollar of sales Custom software = customized business Custom software = customized business processesprocessesHeavy reliance upon Open SourceHeavy reliance upon Open Source

2001: switched to all Linux servers on HP 2001: switched to all Linux servers on HP machines, which cut expenses from $71 to machines, which cut expenses from $71 to $54 million$54 million Linux provides many benefitsLinux provides many benefits

ITITNew Focus: SavingNew Focus: Saving

0

50

100

150

200

250

300

1998 1999 2000 2001 2002

ITITTechnology SpendingTechnology Spending

(in millions)(in millions)

Source: Wired

ITITBecoming an IT Development Becoming an IT Development

ShopShop Created web services (XML) tools for Created web services (XML) tools for

3rd party developers3rd party developers Spun off subsidiary “Amazon Spun off subsidiary “Amazon

Services” to leverage use of their Services” to leverage use of their proprietary ITproprietary IT

Retailers can access Amazon’s products Retailers can access Amazon’s products (Toys R Us)(Toys R Us)

Amazon can build and maintain a branded Amazon can build and maintain a branded site (Target)site (Target)

Fastest growing part of their businessFastest growing part of their business Accounts for 19% or salesAccounts for 19% or sales Possible because of brand namePossible because of brand name

Source: Sandeep Krishnamurthy

Competitive StructureCompetitive StructureTop e-Tailing Sites, in Terms of Top e-Tailing Sites, in Terms of

Unique VisitorsUnique Visitors

Source: Sandeep Krishnamurthy

Competitive StructureCompetitive StructureTop e-Tailing Sites in Books, Top e-Tailing Sites in Books,

Toys, Videos and MusicToys, Videos and Music

(-) 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

SuppliersIndustry

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

StrengthsStrengths WeaknessesWeaknessesInnovative in-house IT:Innovative in-house IT:

One-click patentLarge selection of virtual productsPersonalization of websiteGreat search accuracyRelated product matchingCustomer reviews

Strong BrandStrong BrandFirst mover and dotcom hypePositive WOMAffiliated with other companies

Huge customer databaseHuge customer databaseHigh rate of repeat High rate of repeat customers: 78%customers: 78%One-stop-shopping and One-stop-shopping and cross-sellingcross-sellingHigh inventory turnover for High inventory turnover for booksbooksManagement team stayed Management team stayed focused with visionfocused with visionServices are growing Services are growing (19% of Sales as of second (19% of Sales as of second quarter, expected to be quarter, expected to be 33% for the year)33% for the year)

Time delay distributionTime delay distributionNo exclusive accesses to primary content

High COGS for productsHigh COGS for productsHigh advertising costsHigh advertising costsDifficult relationship with Difficult relationship with manufacturermanufacturerssStrategy used to be too Strategy used to be too vague: Get Big Fastvague: Get Big FastSpreading themselves too Spreading themselves too thinthinNo Profit Yet, but No Profit Yet, but expected for 2003expected for 2003

OpportunitiesOpportunities ThreatsThreatsExpansion of other Expansion of other product groupsproduct groupsInternational International expansionexpansionStrategy shifts to Strategy shifts to servicesservices

Merchant.com: Powered by Amazon.comMerchant@ProgramAuctions: C2C market createrZ-shops: B2C market creater

Brick & Mortar Brick & Mortar competitors are going competitors are going onlineonlineExisting Internet Existing Internet competitorscompetitorsLow Financial Low Financial flexibilityflexibilityOnly two major Only two major supplierssuppliersTechnological Technological innovationsinnovations

E-booksMp3 p2p servicesMPEG4

Price search enginesPrice search engines

ConclusionConclusion

First mover in e-commerce retail First mover in e-commerce retail industryindustry

Built a strong brand with a loyal Built a strong brand with a loyal followingfollowing

Struggled to make a profitStruggled to make a profit Focused on reducing costsFocused on reducing costs Leveraged brand to launch service Leveraged brand to launch service

modelmodel Expected to become profitableExpected to become profitable

Q & Q & AA

from books to services seungeun baeck, jerome coste, mugun gil, steven granese, helen han, jung...

Documents

total sales slide

sam lee slide

earths biggest store

virtual merchant model

market creator model

auctions affiliate model

suppliers customer integration

database virtual inventory