Transcript Document 7115953

AMAZON.COM - Inc.
2004
Dustin Nadeau, Donatas Sumyla,
David Deprey and Jaime Rodriguez
Bus 411, April 2006
Case-Study Overview
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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
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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
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
Key facts
• Index Membership: S&P 500, S&P 1500, Super Comp
NASDAQ 100
• Sector: Technology
• Industry: Internet Software & Services
• 2002: Number 492 in the Fortune 500 list
• Full Time Employees:7,800
• 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)
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.
Acquisitions/
Partnerships
• Acquisitions:
– Bookpages (April 1998,
Amazon.co.uk)
– Telebuch (Telebook) Inc. (April
1998, Amazon.co.de)
– Paid $200M to acquire eNiche, Inc., Music Find,
Accept.com, and Alexia
Internet Company (1999)
– Introduced zShops;
Amazon.com’s online mall
(1999)
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Partnerships:
– Bought 46% of Drugstore.com
(1999)
– Bought 50% of Pets.com (1999)
– Gained a 1.7% stake in Sotheby’s
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)
Historical Product Introduction and
Geographical Diversification
Company Structure
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.
Stock Price Performance
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.
Compared to S&P 500
Compare to Industry
Economic Performance
Top Internet Retailing Sites in terms
of Unique Visitors
(Source: Media Matrix)
Goals & Objectives
• We seek to be Earth's most customercentric company, where customers can
find and discover anything they might want
to buy online, and endeavor to offer
customers the lowest possible prices.
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.
Mission Statement
• The company’s 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’.
Proposed Vision
• To continue expanding in all countries with
Internet access, while maximizing total
commitment in becoming the number one
company in Internet transactions.
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.
External opportunities and
threats
• OPPORTUNITIES:
• THREATS:
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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
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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
EFE Matrix
Direct Competitors Comparison
(2006)
AMZN = Amazon Inc.
BKS = Barnes & Noble Inc.
EBAY = eBay Inc.
Industry = Internet Software & Services
(Source: http://finance.yahoo.com)
Competitive Profile Matrix (CPM)
Internal strengths and weaknesses
• STRENGTHS:
• WEAKNESSES:
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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 ecommerce.
In the process of building efficiencies of
scale
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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
company’s brand
Company’s offered free shipping might
affect future financial outcome
Certain products (high volume/weight)
have high shipping costs which could
confront with local offline retailers
IFE Matrix
Amazon Key Ratios (2006)
Overall Key Ratios (2006)
SWOT Analysis
SPACE Matrix
* Y axis: - Financial Strength:
+3
- Environmental Stability: - 2
* X axis: - Competitive Advantage: - 1
- Industry Strength:
+6
=> Y coordinate: + 1
=> X coordinate: + 5
STRATEGY: AGGRESIVE
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
Business Structure
Gross Profit (2003)
North America
International
31%
69%
Net Sales (2003)
North America
International
38%
62%
Sales: Amazon vs eBay
Net Sales (2003)
$ Millions
6,000
5,000
4,000
3,000
2,000
1,000
International0
North America
Amazon
eBay
BCG Matrix
North America
International
INTNL: 31%
QUESTION MARKS
30
20
10
0
1
0.8
0.6
0.4
0.2
0
-10
-20
-30
CASH COWS
-40
Relative Market Share (X)
DOGS
Industry Sales Growth Rate (%) (Y)
NA: 69%
40
STARS
IE Matrix
The Grand Strategy Matrix
Potential Strategies:
- Market Development
- Market Penetration
- Product Development
- Backward Integration
- Concentric
Diversification
Matrix Analysis
QSPM
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
Showing Cost: EPS-EBIT Analysis
Implementation
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Objectives:
1. Increase net income by 5% in the first year and 15%
in the overall period of 3 years
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Increase the net profit margin to 5%
Increase total revenue in Asian market by 30%
2. Decrease long–term debt
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Use increased income to pay down long-term debt
Keep operating costs low (efficiencies of scales)
3. Create different website versions based on the five
most common language in Asian region
4. Focus marketing strategies on customer feedback to
find out what Asian customers tend to buy
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 weren’t accomplished
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)
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)
Thank you!
• Questions?
• Comments?