Amazon.com Slides
Amazon Financial Reports
- See Amazon.com's 2007 Annual Report
- See excerpted income statement Amazon07IncomeStatement.pdf (page 46 of 2007 Annual Report)
- See Amazon historical financials
How Amazon Got Started
Sources: Applegate (2002)1 and Burgelman and Meza2
- Noted inefficiencies in traditional distribution
- High costs of retail space and staff in stores
- Generous returns policy
- Hard to get demographic and behavioral data about customer, limiting the potential for direct marketing and personalized service
- Founded in July 1994
- Ran at a loss for years
- How that works - the concept of financing
- Estimated that 15% of retail commerce might move online
- Some financial terms
- Positive cash flow from operations
- Positive net income
- IPO in May 1997
- Stock was offered for $2 at IPO
- Was worth $60 per share by December 97
Dealing with Competition
- Strategy - get big fast
- Growth strategy, new businesses
- Economies of scale
- Selling web services
- Second hand books
- Barnes and Noble - bn.com
- Cannibalization
Amazon reported strong results in Q1 093 in a difficult environment for retailers. The company's strategy of deep discounting seems especially attractive in a recession
Business Model and Growth Strategy
The Company believes that its success will depend in large part on its ability to (i) extend its brand position, (ii) provide its customers with outstanding value and a superior shopping experience, and (iii) achieve sufficient sales volume to realize economies of scale. Accordingly, the Company intends to invest heavily in marketing and promotion, site development and technology and operating infrastructure development. The Company also intends to offer attractive pricing programs, which will reduce its gross margins. Because the Company has relatively low product gross margins, achieving profitability given planned investment levels depends upon the Company's ability to generate and sustain substantially increased revenue levels. As a result, the Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significantly from current levels.4
Financing
Amazon.com's SEC filing for an Initial Public Offering (IPO)
Note that they were very forthcoming about the risks of investing:
the Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significantly from current levels5
Amazon sold 30 million shares at $18 each at its IPO, raising $54 million in capital.
Marketing Strategy
Value Proposition - Why People Buy
- Distinct value proposition
- Lower prices
- See price comparison spreadsheet: Book prices
- Wider selection
- Faster search
- More reviews
- Convenience (1-Click shopping)
- Lower prices
Free Shipping on Orders over $25
Jeff Bezos explained6 how Amazon.com arrived at free super saver shipping:
Look at something like free super saver shipping—our free shipping on orders over $25. That is something we very methodically experimented with for a full year. At first, orders over $99 would ship free, and then orders over $49 would ship free, and then orders over $25 would ship free. We knew that customers would like that, so it was a question of, would it drive enough sales to make it worthwhile? We compared it with a television advertising campaign: We picked two markets, Minneapolis and Portland, Oreg., and for a year we did television advertising just in those markets. We wanted to see if we would get a sufficient lift in sales to justify television advertising, and to compare that with giving the money directly to the customers in the form of free shipping instead of to the television networks. That's a very customer-experience-focused experiment, and when we were done we decided we would make the $25 free shipping indefinite. It's been in place now for almost two years.
Promotion
- Invested heavily in building the brand, but spent less than other online retailers
- Significant word of mouth - no advertising in first year
- Used Amazon associates program to drive referrals
- Associates can write their own reviews and include a link to the book on Amazon
- $176 million in sales and marketing in 1999, representing 10.4% of sales
- Customer acquisition costs of $15 to $18 per customer in 2000
- Average sales per customer of $124
- Estimated contribution of 11% per order
- By Q499 about two thirds of sales were to repeat customers
Amazon Services
Amazon provides services to sellers, competing with Yahoo!Stores and eBay.