AMAZON.COM Inc. 2004

1
AMAZON.COM - Inc.2004

• Dustin Nadeau, Donatas Sumyla, David Deprey and
  Jaime Rodriguez
• Bus 411, April 2006

2
Case-Study Overview

• Existing Condition
• Amazon overview
• Industry overview
• History, Key Facts, Goals and Objectives and
  Stock Information
• Amazon Proposed Vision and Mission
• External opportunities and threats
• CPM
• EFE
• Financial Ratios
• Internal strengths and weaknesses
• IFE

• Analysis
• SWOT Matrix
• SPACE
• BCG
• IE matrix
• Grand Strategy Matrix
• QSPM
• Possible strategies
• Recommendations
• Strategic implementation and desired results
• Show Cost
• Annual objectives (goal) and polices
• Evaluation Procedure
• Current Update

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Amazon Overview

• Founded in 1994 Started selling books online and
  now operate Web sites that offer various products
  and services, which include music, DVDs, videos,
  electronics, camera and photography, clothing
  apparel, shoes, etc.
• Features include one-click shopping, customer
  review and e-mail order verification.
• The company is in coalition with other retailers
  and offer various new, refurbished, and used
  items in categories.
• Headquarters is in Seattle (Washington) with an
  additional office in Coffeyville, Kansas. It has
  six global websites to serve domestic customers
  in the US, the UK, Germany, France, Japan and
  Canada

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Key facts

• Index Membership SP 500, SP 1500, Super Comp
  NASDAQ 100
• Sector Technology
• Industry Internet Software Services
• 2002 Number 492 in the Fortune 500 list
• Full Time Employees7,800
• The 57th most-valuable brand worldwide
• 2002 31 millions active customers
• Sales
• First seven years 0 3.2B
• 2002-2003 3.93B 5.26B
• 2004 revenues of 6.9 billion (growth of 31.5
  from 2003 to 2004)

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History

• November 1994 CEO Jeff Bezos and two associates
  set up shop in a converted garage.
• Founder and Bezos opened the virtual doors of
  Amazon.com's online store in July 1995 and began
  selling public.
• In May 1997 Amazon.com completed its initial
  public offering (IPO).
• April 1998 the company acquired online bookstores
  in U.K. and Germany (Bookpages and Telebuch)
  first international expansion
• In 1999 the company launched its own auction site
• In 2000 Amazon.com launched amazon.co.jp and
  amazon.fr (Japan and France)
• In 2002 e-commerce strategic alliances were
  performed with Virgin and Office Depot.
• In January 2003 announced the Free Super Saver
  Shipping
• September 2003 launched new Sporting Good store.

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Acquisitions/Partnerships

• Acquisitions
• Bookpages (April 1998, Amazon.co.uk)
• Telebuch (Telebook) Inc. (April 1998,
  Amazon.co.de)
• Paid 200M to acquire e-Niche, Inc., Music Find,
  Accept.com, and Alexia Internet Company (1999)
• Introduced zShops Amazon.coms online mall
  (1999)

• Partnerships
• Bought 46 of Drugstore.com (1999)
• Bought 50 of Pets.com (1999)
• Gained a 1.7 stake in Sothebys Holdings and
  formed a joint online auction site (1999,
  sothebys.amazon.com)
• Bought 35 of Homegrocer.com (1999)
• Bought 49 of Gear.com (1999)
• Offered a co-branded credit card with Nextcard
  (1999)
• Annouched plans to open a Target store at
  www.amazon.com (2001)
• Others partnered with BabiesRUS, ToysRUS, and
  Borders Group (2001)

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Historical Product Introduction and Geographical
Diversification
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Company Structure
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Amazon Stock (AMZN) Info

• Trading on NASDAQ, ticker symbol AMZN.
• IPO 1997 (18 per share)
• Dividends have never been declared or paid on the
  common stock.
• Reason Earnings are retained to finance future
  growth and therefore do not anticipate paying any
  cash dividends in the foreseeable future.
• The Company currently does not offer a Direct
  Stock Purchase Plan.

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Stock Price Performance
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Industry Overview

• The World Wide Web might have been built to
  support geek-speak, but today it is used to
  transmit information anyone can understand. Aside
  from possibly E-mail and instant messaging,
  accessing online content is the main reason most
  people use the Internet today. It is estimated
  that a billion people around the world have some
  kind of Internet access, either at work or at
  home, and most are going online to read the news,
  to get product information or for multimedia
  entertainment. Some of  the largest content
  providers are Yahoo, MSN, and America Online.
  Some other traditional media companies like Walt
  Disney Internet Group operate some of the top
  destinations on the Web, such as ESPN.com and ABC
  News. With Internet access continuing to grow
  and advertising rates stabilizing, online content
  is developing and expanding on several fronts. 
  One of the most exciting areas of development is
  streaming audio and video content, which has
  become increasingly popular with the rising use
  of broadband Internet connections. While sites
  run by online and traditional media companies
  will most likely continue to command the lion's
  share of audience and advertising revenue, there
  are some grass roots efforts that are beginning
  to challenge that dominance.

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Compared to SP 500
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Compare to Industry
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Economic Performance
15
Top Internet Retailing Sites in terms of Unique
Visitors(Source Media Matrix)
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Goals Objectives

• We seek to be Earth's most customer-centric
  company, where customers can find and discover
  anything they might want to buy online, and
  endeavor to offer customers the lowest possible
  prices.

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Vision Statement

•  Our vision is to be Earth's most customer
  centric company to build a place where people
  can come to find and discover anything they might
  want to buy online.

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Mission Statement

• The companys six core values customer
  obsession, ownership, bias for action, frugality,
  high hiring bar, and innovation. The company
  motto Work Hard, Have Fun, and Make History.

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Proposed Vision

• To continue expanding in all countries with
  Internet access, while maximizing total
  commitment in becoming the number one company in
  Internet transactions.

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Proposed Mission

• To continue to offer quality products and
  services using the best technology available and
  at a reasonable price. This results in highly
  loyal customers, while maintaining shareholders
  interest and company profits in mind. We also
  want to expand geographically, increasing the
  number of customers and to keep improving our
  main competitive advantage - infrastructure. By
  working hard and having fun we seek to offer the
  best working environment to our employees,
  promoting career opportunities, and to increase
  our responsibility towards environment and the
  society.

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External opportunities and threats

• OPPORTUNITIES
• Construction of an extensive community of buyers
• Positive changes in the business model of the
  book market
• Internet taxes prohibited by the Internet Tax
  Freedom Act (1998) and its extensions (2001 and
  2003)
• Growth of internet users in the next five years,
  predominantly in the international market
• E-commerce expansion in Asia and the Pacific
• Several product categories with high penetration
  of retail on-line sales
• 13 jump of Latinos going online in 2003 in the
  US since 2001

• THREATS
• eBay, Barnes Nobles, and Wal-Mart
• Possible rejection to on-line sale in
  international markets if new taxes (Value Added
  taxes VAT) in products are levied
• Population segment not targeted to on-line sales
  due to their lack of internet access
• Weak economic performance of Germany and France
  in the last year
• Competition will increase due to the low barriers
  to entry in the market offline companies are
  coming online

• OPPORTUNITIES
• Construction of an extensive community of buyers
• Positive changes in the business model of the
  book market
• Internet taxes prohibited by the Internet Tax
  Freedom Act (1998) and its extensions (2001 and
  2003)
• Growth of internet users in the next five years,
  predominantly in the international market
• E-commerce expansion in Asia and the Pacific
• Several product categories with high penetration
  of retail on-line sales
• 13 jump of Latinos going online in 2003 in the
  US since 2001

• THREATS
• eBay, Barnes Nobles, and Wal-Mart
• Possible rejection to on-line sale in
  international markets if new taxes (Value Added
  taxes VAT) in products are levied
• Population segment not targeted to on-line sales
  due to their lack of internet access
• Weak economic performance of Germany and France
  in the last year
• Competition will increase due to the low barriers
  to entry in the market offline companies are
  coming online

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EFE Matrix
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Direct Competitors Comparison (2006)

• AMZN Amazon Inc.
• BKS Barnes Noble Inc.
• EBAY eBay Inc.
• Industry Internet Software Services
  (Source http//finance.yahoo.com)

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Competitive Profile Matrix (CPM)
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Internal strengths and weaknesses

• STRENGTHS
• Strong brand name
• Large product selection
• Pricing policy with discounts
• Corporate culture
• High quality management team
• Customer service support (Highest score in 2002
  American Customer Satisfaction Index)
• Strong Infrastructure Effective automated
  distribution centers in the US and overseas
  (Competitive Advantage)
• Developed and upgraded technology software and
  hardware
• Pioneer in the syndicate selling on the Web
• Two segments B2C and B2B e-commerce.
• In the process of building efficiencies of scale

• WEAKNESSES
• Lack of Spanish website version (Latino and
  Hispanic Americans are the fastest-growing online
  ethnic group)
• Low finance performance (high debt level)
• Risk of introduction of wrong new categories
  which could damage companys brand
• Companys offered free shipping might affect
  future financial outcome
• Certain products (high volume/weight) have high
  shipping costs which could confront with local
  offline retailers

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IFE Matrix
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Amazon Key Ratios (2006)
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Overall Key Ratios (2006)
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SWOT Analysis
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SPACE Matrix

• Y axis - Financial Strength 3
• - Environmental Stability - 2
  Y coordinate 1 STRATEGY AGGRESIVE
• X axis - Competitive Advantage - 1
  X coordinate 5
• - Industry Strength 6

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Business Structure

• Operating Segments
• BMVD Books, Music, and Video/DVD Include
  retail sales from the different websites and
  commissions
• ETK Electronics, Tools, and Kitchen Includes
  sales from www.amazon.com, mail-order catalog
  sales, and commissions
• International segment Includes all retail sales
  from the international sites
• Services segment consists of commissions, fees,
  and other amounts earned from other service
  business

• Operating Results
• North America www.amazon.com, www.amazon.ca, and
  mail-order catalogs.
• International www.amazon.co.uk, www.amazon.de,
  www.amazon.fr, and www.amazon.co.jp

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Business Structure
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Sales Amazon vs eBay
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BCG Matrix
INTNL 31
QUESTION MARKS
STARS
NA 69
CASH COWS
DOGS
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IE Matrix
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The Grand Strategy Matrix

• Potential Strategies
• - Market Development
• - Market Penetration
• - Product Development
• - Backward Integration
• - Concentric Diversification

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Matrix Analysis
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QSPM
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Decisions

• Primary Expanding to emerging Asian Markets
• Alternative
• Introducing new product categories
• Expanding to Central and South American markets
• Research and Development to increase the
  innovation and quality of customer services
  provided
• Increasing marketing expenditures in order to
  reach new population segments and fastest growing
  trends and tendencies

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Showing Cost EPS-EBIT Analysis
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Implementation

• Objectives
• Increase net income by 5 in the first year and
  15 in the overall period of 3 years
• Increase the net profit margin to 5
• Increase total revenue in Asian market by 30
• Decrease longterm debt
• Use increased income to pay down long-term debt
• Keep operating costs low (efficiencies of scales)
• Create different website versions based on the
  five most common language in Asian region
• Focus marketing strategies on customer feedback
  to find out what Asian customers tend to buy

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Evaluations

• Financial reports annually and quarterly if
  necessary
• Customer feedback program
• Top level management meetings to assure goals are
  achieved
• Determine corrective actions after the first year
  if annual objectives werent accomplished

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Update 2004-2005

• 2004
• Expansion in China (www.joyo.com) buying a
  Chinese e-commerce website
• Debuted A9.com company focused in researching
  and building innovative technologies Search
  Inside the Book and Find It on the Block
• Launched Presidential Candidates feature
• Set up an online donation channel to American Red
  Cross (Tsunami in the Indian Ocean)
• 2005
• Set up an online donation channel to American Red
  Cross (Tsunami in the Indian Ocean)

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References

• http//finance.yahoo.com
• 2004 Amazon Inc. Annual Report
• Amazon.com a business history. To appear in
  e-commerce management text and cases by
  Sandeep Krishnamurthy (last updated on September
  27, 2002)
• Strategic Management Concepts and Cases (10th
  Edition) by Fred David. Prentice-Hall
• Strategia e Sistemi di Pianificazione
  E-strategy Il caso Amazon. By Prof. Cassia and
  Fattore. Universita di Bergamo
• www.altavista.com (images)

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Thank you!

• Questions?
• Comments?