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mido Abstract: Amazon.com is an On-line retailer of, originally, books. The company was established as a micro enterprise in the US in 1994. Since then it has enjoyed rapid expansion in all aspects of its operations, including business turnover, and a spectacular rise in share value since public floatation in 1997. New on-line sites based in Germany and UK and a distribution centre in Amsterdam were established in 1998 to cater for European markets. On August 30, 2000 Amzon.com launched its third site outside the US, Amazon.fr in France. Amazon.com sells only on-line and is essentially an information broker. It holds a relatively small, though increasing, inventory and outsources most aspects of its operations (but not IT). The key to its operation is to offer value added and sophisticated customised services, a continuously expanding catalogue of products in terms of both quantity and range, and deep discounts. Alliances and partnerships with publishers, other on-line retailers and technology providers are therefore strategic. The ambition of the company today is to become a premier general on-line retailer by leveraging on its existing brand and business model. When founder and CEO Jeff Bezos studied retailing opportunities on the Internet, he decided on books because there was a broad field of book publishers but too many titles to be carried by a single store. Everyone reads books but has different preferences about what s/he wants to read. Although Jeff Bezos had no previous experience in the book trade, he saw a business opportunity in selling books solely on the Web. He started the company out of his garage in a Seattle suburb, wrapping orders and then delivering them to the post office in the family car. The characteristics of the books retailing industry make it amenable to electronic commerce: a great variety of products and consumer tastes, and tastes which hanker after a lot of information about the products. Moreover, there is room for bringing down margins, i.e. offering customers deep discounts. Jeff Bezos picked the name Amazon because it is the biggest river on earth. He wanted his on-line bookstore to become "Earth's Biggest Bookstore", but without the need to stock vast quantities of books. Amazon.com would be lean, fit but hungry. A screenshot of Amazon.com's very first homepage Amazon.com opened its virtual doors in July 1995 with 1.1 million titles, almost ten times the number of books carried by an average bookstore. Amazon quickly became the largest online seller of books and has since parlayed that lead and leveraged its large customer base (17 million and growing) to rapidly expand into additional retail categories. Today, Amzon.com is considered the largest and most aggressive pure-play consumer e-commerce company, offering its customer an estimated 18 million unique products : books, music, videos, toys, electronics, software, home improvement products, auctions and on-line greetingcards. Amazon has pioneered a powerful new business model for electronic commerce, one which could potentially be applied to many different consumer products. It has transformed the book trade from a commodity-based, supplier-driven industry into a service-based book-buying community - a community which gives a greater influence not just to the book-buying public but also the independent publishers and authors. Amazon.com did more than just sell books; it offered a unique, customised service : information about books that are of relevance to the individual potential customers. These include synopses, excerpts, reviews including reviews submitted by readers. Amazon.com has built-up an extensive community of buyers through positive feedback. In addition, Amazon.com accumulated a substantial database of customers' preferences and buying patterns, tied to their email and postal addresses. Such information has enabled Amazon.com to build-up a large community of - loyal - customers, generating an impressive 'repeat orders' rate of over 70 percent. The new business model has also revolutionised the supply side of the market. Amazon.com has pioneered syndicate selling on the Web - Web sites passing clients onto each other by implementing links and taking a commission on sales. Secondly, the business model has broken the principle of critical mass for the book market. For the first time, small and independent publishers as well as authors could place their products directly in a (on-line) store with global reach and without investments (except paying for transporting books to Amazon.com's distribution centre). As Jeff Bezos stated, "Ultimately, we're an information broker. On the left side we have lots of products, on the right side we have lots of customers. We're in the middle making the connections. The consequence is that we have two sets of customers: consumers looking for books and publishers looking for consumers. Readers find books or books find readers." By applying the same model to other products, such as CD's, video's, toys etc. Amazon.com has become the largest company in the online shopping space. Some of the expansions away from its core books have been highly successful, namely music and video, while others still fail to make a significant impact (greeting cards and auctions for ex.). Either way, Amazon.com continues to add new retail categories to its offer and is well underway to achieve its goal of becoming a place where anyone can buy anything anytime they wish. Amazon.com markets via high visibility on-line presence. Despite a relatively short corporate history, Amazon.com has built up a powerful brand name. Today Amazon.com may still be synonymous with on-line book selling but it is quickly becoming known as "the place to shop online...for anything". The company's marketing strategy is to leverage its brand name to become a broad-based on-line retailer. Setting-up a virtual store is relative inexpensive and hence competition rising (especially with offline retailers starting on-line), but whoever wants to compete with Amazon will find it difficult and prohibitively expensive to build-up a similar level of brand awareness and shopping traffic. The Amazon.com brand name is mainly derived from two areas: · A large product selection complemented with additional information about these products. · A pricing policy which offers considerable discounts for many of its products. On-line retailing is a low-margin affair and the ease with which comparison-shopping can be done on the Internet will always keep prices low. In a low-margin business, the companies that ultimately succeed are those that can keep operating costs low. Amazon, being the largest, is in the process of building efficiencies of scale. This means not only cost savings in terms of its massive bulk buying power with suppliers but also in terms of the fast and efficient distribution system Amazon has set-up. Cost savings that Amazon can pass on to its consumers and which ultimately should lead the company to a profit. (Today Amazon has significant losses and is not expected to become profitable any time soon). Amazon.com only sells on-line via its Web sites. The company currently operates four Web sites for selling: www.Amazon.com, www.Amazon.co.uk, www.Amazon.de and since August 30, 2000 www.Amazon.fr. (Amazon is expected to face severe competition in France from well-established competitors such as Fnac.com and Alapage.com. With Internet access less widespread in France than in other major markets and a far higher density of bricks-and-mortar bookstores than the U.S., some analysts predict that Amazon will have little scope to lure buyers). The company offers a comprehensive product cataloguing system, integrated with a range of searching mechanisms, which enable customers to select products with precision. Selling is enhanced by additional product information (synopses, excerpts, reviews) from various sources. Matching services between customers and products (in accordance with customer preferences) are also available, as are a series of recommendation services. Ordering is via a simple shopping cart. Customers are given a choice of secure or standard servers. Order confirmation is sent to customers via email. Amazon.com automatically opens an account for a customer on placing first order. Future ordering by a customer is simplified by "1-Click" (TM) express shopping, which automatically invokes all the relevant customer details. Customers pay by using credit card, cheque/postal money order (denominated in the currency of the country of the Website), or gift certificates. Amazon.com does not accept purchase orders. Amazon.com charges the customer's credit card when an order is shipped. Where an order is via cheque or postal order, shipment is released after clearance of funds. Interesting to note is that Amazon actually has a negative cash conversion cycle. This means that Amazon is able to collect its sales dollars from customers before it pays its distributors and vendors. Amazon.com states that it can ship to virtually any address in the world. Shipping options are available at different fees. Amazon.com has sought to improve the availability time for its products by stocking more products itself. Amazon has recently invested heavily in automated distribution centres across the States and oversees. With these warehouses Amazon has the infrastructure to fill customer orders faster than the competition, especially in peak periods like the holidays. While expensive to build in the first place, analysts agree that this infrastructure will give Amazon tremendous competitive advantage against other on-line competitors. Plus, operating a handful of automated warehouses is still far cheaper and easier than operating a thousand retails stores. Amazon.com offers comprehensive help files on its Web sites. It also offers a menu of dedicated email addresses to deal with customers' queries, including: order modification, assistance for finding an item, technical problems, typographical errors in catalogue, feedback, general suggestion, suggestion concerning music stores, advertising/marketing opportunities, associates program (see below). Amzon recently opened a customer service in The Hague (Netherlands), to offer multi-lingual support from a pan-European call centre. Another key feature of the Amazon brand is the information that it provides on its products. This includes synopses, excerpts, reviews, news, recommendations, even scanned images of book covers. Contents are not only provided by Amazon.com's own editorial staff: everyone - including publishers, authors, and readers - are invited to contribute reviews and feedback on everything that Amazon.com sells. In addition to positive feedback, Amazon.com seeks to maximise customised services by providing fast acknowledgement of orders, fast responses on customer queries, a range of personalised notification and updates services. There is also a round-the-clock telephone service, which customers can ring up and customers can track the status of their orders on the Web by consulting their account information. Amazon.com also launched Amazon Friends & Favorites, an area that gives its community of millions of customers the opportunity to help each other discover products and services. Other features of Amazon Friends & Favorites include 'About You' pages, discussion boards, purchase circles and refer-a-friend, all examples of Amazon.com's customer-centric approach to individualising the shopping experience for, and relationship with, its customers Given a large enough marketing budget, any company can attract customers at least once. Retaining customers is another story. With a "repeat sales" rate of over 70 %, Amazon seems to be well on the way to become what it calls "the most customer-oriented company on the planet". Amazon.com offers an Advantage program to encourage independent publishers and authors of books or music CDs to market their titles directly via the company's Web sites. Enrolment to this program is by email and is free. Amazon.com takes a stock of the approved titles. It monitors the inventory and automatically re-orders via email when the stock becomes low. Amazon.com pays an Advantage member 45% of the list price. Payment for copies sold is automatically sent by cheque at the end of the following month (no invoicing is involved). Amazon.com specifies that all communications with an Advantage partner is via email. The company also operates an Associate Program. An Associate earns a referral fee for linking to Amazon.com's Home Page or searching facility (5% for every product sold through the link) or to Amazon.com's specific products (15% for books and 5% for other merchandise sold through the link). An Associate displays a specific icon on its site to identify itself as such. An Associate receives a status report on referrals weekly and referral payment by cheque every quarter (no invoicing is involved). Amazon.com provides on-line help pages to (potential) Associates to set up links. Recently Amzon has started offering other Internet merchants the ability to sell items on the Amzon.com site. The most salient example is Drugstore.com, which is paying Amzon some USD 105 million USD over three yeas to have a tab on Amzon's site. Similar deals have been struck with other sites, which all together guarantee Amazon some USD 500 million in marketing revenue over the next five years. It looks like Amazon.com is evolving from a "go-to" side to a "go through" site which brings it in competition with portal sites such as the Altavista's and Yahoo's of this world. Amazon has been an aggressive investor in upstart "dot-com" retailers, acting as a sort of Internet venture capitalist, funding other online retailing companies. The list of investees is extensive and includes Drugstore.com, HomeGrocer.com, Pets.com, sports equipment provider Gear.com etc. Amazon has also been extremely active in acquiring other firms such as the Internet Movie Database, rare items site Exchange.com, online payment company Accept.com, live auction site LiveBid.com, online calendar and reminder service PlanteAll.com, marketing information gatherer Alexa, and in the meantime some may have been added. Simply said, Amazon aims to have its tentacles in numerous different areas and its investments illustrate how confident Amazon is in the fate of e-commerce. Due to the low barriers to entry, Amazon will always have meaningful competition, certainly with more and more offline companies are coming online. Until recently bricks-and-mortar retailers had rarely shown a coherent online strategy, but this is changing fast. The major competitor to Amazon.com's book business is Barnesandnoble.com, operated by Barnes & Noble, Inc., which came on-line in 1997. Where Amazon's book business generate USD 317 million revenue in Q4 1999, Barnes & noble only generated USD 96 million in revenue in the same period. Amazon is also the largest on-line CD and video store. While Amazon is not (yet) the largest toy seller in the online space, the fact that the company was able to go, in less than six months, from zero to USD 95 million in quarterly sales is impressive and illustrates the way Amazon is able to leverage its customer base into new areas. The one area where Amazon has not been as successful is the on-line auction business where eBay is by far the number one. Equally, electronics and Amazon's other new retail categories such as software and tools have so far failed to make a substantial impact. Doing business at an international level Amazon.com has identified various risks inherent in an international on-line business: · Unexpected changes in regulatory requirements (see below) · Difficulties in staffing and managing foreign operations · Fluctuations in currency exchange rates · Seasonal reductions in business activity in other parts of the world · Potentially adverse tax consequences Given current developments concerning the regulation of domain names, there is a risk that Amazon.com may not be able to acquire or maintain relevant domain names in all the countries that it conducts, or intends to conduct, business. Amazon.com is not currently subject to direct regulation by any US or foreign governmental agency, other than regulations applicable to businesses generally and laws or regulations directly applicable to access to online commerce. There is a concern that the adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for Amazon.com's products and services and increase its cost of doing business. Amazon.com has pointed out that the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Moreover, legislation in US as well as foreign jurisdictions with respect to the Internet or other online services in such areas as content, privacy, network security, encryption or distribution may have a direct impact on Amazon.com's business. Software and technology are the real assets of Amzon.com. New technologies and the expansion of existing technologies will increase competitive pressures on all online retailers, e.g. shopping agent technologies, which enable customers to quickly compare prices from different retailers. To remain competitive, Amazon.com needs to continue to enhance and improve the responsiveness, functionality and features of the Amazon.com online store. Amazon.com has a continuous programme to add additional software and hardware and further develop and upgrade its existing technology, transaction-processing systems and network infrastructure. This need is particularly acute given the increasing traffic on its Web site and expanding sales volume through its transaction-processing systems. The company recognises that any inability to do so may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality and speed of order fulfilment, or delays in reporting accurate financial information. Proprietary system developed by Amazon.com. Proprietary system developed by Amazon.com using NetPerceptions GroupLens collaborative filtering technology. Amazon.com automatically opens an account for a customer on placing first order. Via his customer account, a customer can review the status of any order that has been placed, track shipment, cancel order (before shipment), update subscription and preferences details. Customer account is accessible by passwords. Several people can have accounts, differentiated by different passwords, on the same email address. Amazon has developed a proprietary technology called "1-Click" (TM), which automatically invokes all the relevant customer details (addressing, payment method and account information, preferred shipping options) by one click of the mouse on repeat orders. Amazon.com undertakes that every transaction made "will be 100% safe". According to Amazon.com, customers pay nothing if unauthorised charges are made to credit cards. In the US, the Fair Credit Billing Act, a bank cannot hold a cardholder liable for more than $50 of fraudulent charges. Customers are given the option to phone / fax in their full credit card numbers. In the UK, Amazon.co.uk, covers liability up to £50. Amazon.com's privacy statement details what information it collects from users when placing an order or signing onto a specific service. When Amazon recently (September 2000) changed its privacy policy, it decided to inform all its customers proactively by e-mail, rather than just updating the policy on site, as is common Web practice. Substantially all of Amazon.com's computer and communications hardware is located at its physical site in Seattle, USA. Amazon.com uses an internally developed system for its Website and substantially all aspects of transaction processing, including: Amazon.com uses Netscape Secure Commerce Server over SSL for order and customer accounts management. Customers' credit card information is stored in a separate machine connected to the Commerce Server via a proprietary one-way interface. It runs a RealAudio Server over TCP with media stream transmission via UDP for supplying sound clips. DHL, Purolator, UPS and US Postal Service. Bibliography:

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