Amazon.

com, 2018

Victor Adelanwa
Skinner School of Business and Technology, Trevecca Nazarene University
BUS 8000-0014: Introduction to Business Doctoral Studies
Dr. Kathy Dunning
August 27, 2024

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 Case Overview: Amazon.com, 2018

Amazon.com is a company born out of a need to provide internet retail solutions to

consumers with an initial focus on book retaining. The business of book retailing at the time

involved convoluted and disjointed interactions across authors, agents, publishers, distributors,

wholesalers and retailers before eventually getting to the consumer (Wells et al., 2018, p. 3).

There was the need for a “useful, easy-to-search, easy-to-browse format in a store open 365 days

a year, 24 hours a day” (Wells et al., 2018, p. 3). Identifying this need, Jeff Bezos quit his job as

a programmer for the hedge fund D. E. Shaw and started Amazon.com in Seattle in 1994. He

leveraged no sales taxes, easy access to wholesale book distribution and the technology expertise

that the city offered into intrinsic value that could help achieve the goal of the company (Wells et

al., 2018, p. 2).

The main mission of the company was to “offer customers compelling value” (Wells et

al., 2018, p. 2). The leadership of Amazon understood that to succeed, they needed to create

customer value (Magretta & Stone, 2013, p. 28). Reduced pricing and ease of book ordering

made Amazon affordable compared to physical retail stores. This increased sales, necessitating

the need to move to their first distribution center built in 1995. The launch of Amazon Associates

also allowed Amazon to generate sales through traffic from third party sites via embedded, with

the third parties earning a commission for these sales. By the end of 1995, annual sales were

$511,000, increasing to $15.7 million by 1996. This was leveraged to generate equity financing

in their May 1997 IPO, with the company raising $54 million and company valuation growing to

$438 million (Wells et al., 2018, p. 3).

The acquisitions of Bookpages (U.K.), Telebook (Germany) and IMDB and the launch of

Amazon.com Advantage and Amazon.com Kids among other initiatives in 1998 and 1999 also

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increased their international presence and generated more revenue. The launch of zShops (1999)

also allowed partnership with and protection for smaller merchants by providing online rental

space. Digital and physical infrastructure investments resulted in 10 distribution centers and 6

customer service centers across the US, UK and Germany by early 2000, generating value

through efficiency. By this point, sales had grown to $1.6 billion against an operating loss of

$606 million (Wells et al., 2018, p. 4).

Amazon continued creating value through partnerships with/acquisitions of companies

such as Living.com and Drugstore.com (2000), Shopbop (2006), Diapers.com (2010), Whole

Foods Market (2017); launching value streams like Amazon Marketplace (November 2000),

AmazonFresh (2007), Rivet and Stone & Beam (2017); restructuring its product mix, inventory,

shipping and vendors to increase efficiency (2001); organizational restructuring (2001); and

providing e-commerce solutions to third party clients. The introduction of several values streams

such as Amazon Prime (2005), Amazon Web Services Kindle Direct Publishing and Kindle

(2007), Amazon Studios (2010), Amazon Appstore, Amazon Music (2014), Twitch (2014),

Amazon Fire TV (2014), Prime Air (2016) has only served to increase the value of the company

from both the manufacturing and the marketing mindset.

Value Creation Strategies

Amazon leveraged both the manufacturing and marketing mindsets in creating value for

customers. Some of the ways vale was created are through discounts and ease of use,

partnerships and acquisitions, and through the creation of multiple value streams

Discounts and Ease of use:

An early strategy Amazon used to generate value was through the offering of significant

discounts and ease of book ordering with minimal requirements. This gave them an edge over

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physical retail stores. They would later replicate this by offering free shipping for orders over

$100. Amazon Web Services also cut prices aggressively within the first 10 years of its launch

even while adding on more features. The continuous vertical and horizontal integration that

Amazon engaged in over the years created a platform that became a one-stop-shop for most

products and services that consumers use in their daily life. As a result, customers were able to

go on their main site and related sites and buy anything from diapers to school supplies to

medication.

Horizontal and Vertical Partnerships and Acquisitions:

Amazon’s understanding of the importance of the integration of the entire economic

process and the value chain model is evident in how they strategically leveraged partnerships and

acquisitions to vastly broaden their product offerings. They engaged in vertical and horizontal

integration to facilitate efficiency as a value add. This is evident in such instances as making

deals through contemporary online shopping platforms such as Living.com, Greenlight and

Drugstore.com to offer home store goods, car purchase capability and pharmaceutical products

respectively. There were also multiple acquisitions such as IMDB, Bookpages, Telebook,

Shopbop, Twitch, Zappos, Diapers.com and Whole Foods Market, which also made it possible to

get just about anything through Amazon.com. This created multiple sources of revenue and also

helped shore up the company against negative market impact on any one revenue source.

Multiple Value streams:

Amazon also recognized the opportunity in diversifying its portfolio and creating value

by creating multiple value streams that catered to different tiers of business and customer

interests. For example, customers could either buy from Amazon directly or through Amazon

Marketplace which allowed sellers to sell used and new items on Amazon.com. Amazon Web

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Services was available for server and computing space on an as-needed basis for a fee.

Consumers of digital content could get e-books or stream digital content through Amazon’s

multiple digital platforms. E-commerce solutions were also available to conventional retailers

through one of three programs: [email protected], the Merchant program and Syndicated

Stores Program. The company made itself indispensable to many areas of consumer demand by

focusing on creating intrinsic customer value and leveraging economies of scale to increase

efficiency.

Current Financial Health

Over the last three years (2014-2017), the market share of Amazon.com in overall and

non-store retailing has more than doubled while most other retailers have remained stable or

dropped (Wells et al., 2018, p. 22, 23). Amazon.com now has 45.8% market share of internet

retailing (Wells et al., 2018, p. 24). Revenue has grown by almost 100% from $90 billion in

2014 to $177 billion in 2017 and operating profit has grown from less than $1 billion in 2014 to

above $4 billion in 2017 (Wells et al., 2018, p. 30). Debt to capital ratio has remained fairly

constant around 0.8 between 2014-2017(Wells et al., 2018, p. 33). Net income has also grown

exponentially from around a loss of $0.25 billion in 2014 to a profit of $3 billion in 2017 (Wells

et al., 2018, p. 32). As a whole, the company is increasing its market share and leveraging this

into increased profitability.

References

Magretta, J. & Stone, N. (2013). What management is. London, UK: Free Press.

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Wells, J. R., Danskin, G., & Ellsworth, G. (2018). Amazon.com, 2018. HBS No. 9-716-

402, 1-40