Story of Amazon.com | HackTHatCORE

Amazon.com

Beginning modestly in 1995 as an online bookstore, Amazon.com became one of the first success stories of the early Internet economy (see also e - commerce ). Named for the world’s largest river, Amazon.com was the brainchild of entrepreneur Jeffrey Bezos (see Bezos , Jeffrey P.). Like a number of other entrepreneurs of the early 1990s, Bezos had been searching for a way to market to the growing number of people who were going online. He soon decided that books were a good first product, since they were popular, nonperishable, relatively compact, and easy to ship. Several million books are in print at any one time, with about 275,000 titles or editions added in 2007 in the United States alone. Traditional “brick and mortar” (physical) bookstores might carry a few thousand titles up to perhaps 200,000 for the largest chains. Bookstores in turn stock their shelves mainly through major book distributors that serve as intermediaries between publishers and the public. For an online bookstore such as Amazon.com, however, the number of titles that can be made available is limited only by the amount of warehouse space the store is willing to maintain—and no intermediary between publisher and bookseller is needed. From the start, Amazon.com’s business model has capitalized on this potential for variety and the ability to serve almost any niche interest. Over the years the company’s offerings have expanded beyond books to 34 different categories of merchandise, including software, music, video, electronics, apparel, home furnishings, and even nonperishable gourmet food and groceries. (Amazon.com also entered the online auction market, but remains a distant runner-up to market leader eBay).

Expansion and Profitability

Because of its desire to build a very diverse product line, Amazon.com, unusually for a business startup, did not expect to become profitable for about five years. The growing revenues were largely poured back into expansion. In the heated atmosphere of the Internet boom of the late 1990s, many other Internet-based businesses echoed that philosophy, and many went out of business following the bursting of the so-called dot-com bubble of the early 2000s. Some analysts questioned whether even the hugely popular Amazon.com would ever be able to convert its business volume into an operating profit. However, the company achieved its first profitable year in 2003 (with a modest $35 million surplus). Since then growth has remained steady and generally impressive: In 2005, Amazon.com earned $8.49 billion revenues with a net income of $359 million. By then the company had about 12,000 employees and had been added to the S&P 500 stock index. In 2006 the company maintained its strategy of investing in innovation rather than focusing on short-term profits. Its latest initiatives include selling digital versions of books (e-books) and magazine articles, new arrangements to sell video content, and even a venture into moviemaking. By year end, annual revenue had increased to $10.7 billion. In November 2007 Amazon announced the Kindle, a book reader (see e - books and digital libraries ) with a sharp “paper-like” display. In addition to books, the Kindle can also subscribe to and download magazines, content from newspaper Web sites, and even blogs. As part of its expansion strategy, Amazon.com has acquired other online bookstore sites including Borders.com and Waldenbooks.com. The company has also expanded geographically with retail operations in Canada, the United Kingdom, France, Germany, Japan, and China. Amazon.com has kept a tight rein on its operations even while continually expanding. The company’s leading market position enables it to get favorable terms from publishers and manufacturers. A high degree of warehouse automation and an efficient procurement system keep stock moving quickly rather than taking up space on the shelves.

Information-based Strategies

Amazon.com has skillfully taken advantage of information technology to expand its capabilities and offerings. Examples of such efforts include new search mechanisms, cultivation of customer relationships, and the development of new ways for users to sell their own goods. Amazon’s “Search Inside the Book” feature is a good example of leveraging search technology to take advantage of having a growing amount of text online. If the publisher of a book cooperates, its actual text is made available for online searching. (The amount of text that can be displayed is limited to prevent users from being able to read entire books for free.) Further, one can see a list of books citing (or being cited by) the current book, providing yet another way to explore connections between ideas as used by different authors. Obviously for Amazon.com, the ultimate reason for offering all these useful features is that more potential customers may be able to find and purchase books on even the most obscure topics. Amazon.com’s use of information about customers’ buying histories is based on the idea that the more one knows about what customers have wanted in the past, the more effectively they can be marketed to in the future through customizing their view of the site. Users receive automatically generated recommendations for books or other items based on their previous purchases (see also customer relationship management ). There is even a “plog” or customized Web log that offers postings related to the user’s interests and allows the user to respond. There are other ways in which Amazon.com tries to involve users actively in the marketing process. For example, users are encouraged to review books and other products and to create lists that can be shared with other users. The inclusion of both user and professional reviews in turn makes it easier for prospective purchasers to determine whether a given book or other item is suitable. Authors are given the opportunity through “Amazon Connect” to provide additional information about their books. Finally, in late 2005 Amazon replaced an earlier “discussion board” facility with a wiki system that allows purchasers to create or edit an information page for any product (see wikis and Wikipedia ). The company’s third major means of expansion is to facilitate small businesses and even individual users in the marketing of their own goods. Amazon Marketplace, a service launched in 2001, allows users to sell a variety of items, with no fees charged unless the item is sold. There are also many provisions for merchants to set up online “storefronts” and take advantage of online payment and other services. Another aspect of Amazon’s marketing is its referral net- work. Amazon’s “associates” are independent businesses that provide links from their own sites to products on Amazon. For example, a seller of crafts supplies might include on its site links to books on crafting on the Amazon site. In return, the referring business receives a commission from Amazon.com. Although often admired for its successful business plan, Amazon.com has received criticism from several quarters. Some users have found the company’s customer ser- vice (which is handled almost entirely by e-mail) to be unresponsive. Meanwhile local and specialized bookstores, already suffering in recent years from the competition of large chains such as Borders and Barnes and Noble, have seen in Amazon.com another potent threat to the survival of their business. (The company’s size and economic power have elicited occasional comparisons with Wal-Mart.) Finally, Amazon.com has been criticized by some labor advocates for paying low wages and threatening to terminate workers who sought to unionize.

References:

• Amazon.com Web site. Available online. URL: http://www.amazon. com. Accessed August 28, 2007.
• Daisey, Mike. 21 Dog Years: Doing Time @ Amazon.com. New York: The Free Press, 2002.
• Marcus, James. Amazonia. New York: New Press, 2005.
• Shanahan, Francis. Amazon.com Mashups. New York: Wrox/Wiley, 2007.
• Spector, Robert. Amazon.com: Get Big Fast: Inside the Revolutionary Business Model That Changed the World. New York: Harper- Business, 2002.