Amazon.com Case Analysis the Intent

Amazon.com Case Analysis The intent of this analysis of Amazon.com is to first evaluate and critique the company's business models' evolution from 1999 to 2003, in addition to how the business model has responded during that period of time to increasing globalization pressures as well. Amazon.com's maturation from an online bookstore to a business model that encompasses both products and services is also analyzed and critiqued in this paper.

One of the dominant trends that is impacting the growth of Amazon.com both during the 1999-2003 time period and today is the reliance both manufacturers and retailers are relying on multichannel retailing. As this factor is also leading to consolidation in the online retailing industry, the potential acquisition of Amazon.com by Wal-Mart has been mentioned as a global strategy for the mass merchandiser to attain a needed online channel in Amazon.com.

If Wal-Mart does choose to acquire Amazon.com the price paid will be several times the online retailers' annual revenues, as the value of this online channel to Wal-Marts' multichannel strategy is significant. With revenue multipliers on many acquisitions in online retailing averaging 2 to 5 times earnings, it would be entirely feasible for Amazon.com to command at last a 10X multiple of their annual revenues for an asking price to Wal-Mart.

This alone makes the acquisition, despite the high value of the online channel Amazon.com would provide, difficult to justify from a Wal-Mart standpoint. The multichannel implications for Wal-Mart of acquiring Amazon.com are discussed from a process integration and multichannel management standpoint. Amazon.com's Business Model: 1999-2003 From its incorporation in 1994 to the first launched website being opened in July, 1995 through the IPO completed in May, 1997, Amazon.com's business model through the period of 1999-2003 was defined by the decisions made during its initial development as a corporation.

The concentration on scalable supply chain and order management systems, integration to book distributors including the Ingram Book Company and the development of supplier integration technologies would dominate spending of both initial investment funds and the proceeds from the company's IPO. As the company had invested heavily in a scalable it platform, the business models' objectives and direction in the 1999-2003 timeframe was specifically focused on both product breadth expansion and international markets expansion.

Amazon.com focused on expansion on both product- and geography-based sides of their business was a critical concern during the years mentioned. The core business model for Amazon.com during the time period of interest was primarily based on reselling products the company takes ownership and holds as inventory, then resellers at a mark-up that is based on the convenience of purchasing online.

In many respect the business model was comparable to traditional retailers yet accentuated the wider selection available and the fact products could be purchased on a 24/7 basis with a high level of convenience, for those shopping from home or work. During the 1999-2003 timeframe on average every two years the company would incrementally add product lined as well, which is analyzed later in this paper.

At the close of 2000, the company's dual growth strategy of selling both a wider variety of products in more geographic regions had been successful in penetrating six countries including the U.S. The unique competitive advantages that the it infrastructure provided also gave Amazon.com in 2001 the opportunity to move into merchants and marketplace programs including a merchant.com program that included syndicated stores.

This period of the business plans' growth marked the first time that an online retailer had grown to become a full channel intermediary in the product categories they competed in globally. With marketplace services (third-party sellers) successful in the U.S., England, Germany, and Japan, Amazon.com's business model began to transform from a pure-play retailer to a more unique approach to selling and earning commissions. This would become a significant percentage of total revenues from its launch in 2001 through 2003.

The company further differentiated sales regions as North America and International. Within each of these regions, the company began also reporting sales in each of the product categories:: Media (books, music, DVD & video, magazine subscriptions, software, and video games), Electronics and other general merchandise (all non-Media products), and Other (revenues from non-Amazon.com related sales such as Merchant.com, syndicated sales, and other promotional activities).

Table 1 provides an overview of the dominant four businesses that comprised Amazon.com's business model during the 1999-2003 timeframe (SEC, 2007) Table 1: Amazon.com's Business Model 1999-20003 (Source: SEC [online] (2007) Based on the analysis of the Amazon.com business model and the inherent strengths and weaknesses of the company from a process-centric and systems-based analysis, Amazon.com is a potential acquisition for Wal-Mart, yet it is not a natural extension of the mass merchandisers' strategies.

First, Wal-Marts' supply chain strategy has been to successively trim the number of suppliers and drive them down on price, while Amazon.com has a much greater variety of suppliers, many of which provide only a small percentage of their total sales. Where Wal-Mart competes on price, Amazon.com competes on variety. Second, the products that Wal-Mart sells are more commodity-like and therefore are not amendable to differentiation through statements of benefits or value; the majority of Wal-Mart customers shop there due to the prices being so low.

For Amazon.com the converse is true; people shop their online to get unique books and products are often willing to pay an increased price to get precisely the item they are looking for. Next, Wal-Mart likes to play the low price leader on selected products at the most popular times of a given products' seasonal popularity. This is evidenced by the fact that Wal-Mart will take 100 of the most popular toys and heavily discount them during the holiday season to drive up sales.

Amazon.com on the other hand differentiates by bundling in free shipping and other offers to their most loyal customers. In addition to all these differences, Wal-Mart is not attuned from a core business standpoint to the most attractive potential areas of Amazon.com's growth, and these include the offering of merchant services, development of trading platforms and the eventual development of Web Services in the next five years.

The bottom line is that Amazon.com, while having significant expertise in the area of online retailing, is not a natural acquisition for Wal-Mart, as each of these company's business models are going in significantly different directions. Based on the analytical constructs as defined by Ansoff (1984, pgs. 34, 110) the reliance on its it infrastructure as a critical differentiator has created a unique set of strengths Amazon.com relies on to overcome external threats and take advantage of opportunities.

Additional questions Is the Amazon.com business model the right model looking ahead 5 or more years? Having created a highly unique approach to e-tailing that is predicated on extensive systems development and integration in the supply chain and order management areas of their business, Amazon.com's core strength is the ability to execute orders rapidly for its millions of customers daily. Amazon.com's business model today is in a state of transition from traditional online retailer to an organization capable of delivering exceptional services as well.

The foundation of systems and processes in place today can be used as the foundation for entirely new businesses in the future. Amazon.com typically completes two-year planning horizons (Amazon, 2006). This pattern is especially seen in the two-year cycles for free shipping initiatives, third party business support, and the two-year offer of price discounts on key merchandise. In fact new services introductions including the company's move into Tools and Hardware also follow this two-year pattern. Figure 1, taken from an analysis of Amazon.com by investment analysis ABN-Ambro (2000, pg.

3) taken from Amazon.com records, show the company's progression into various businesses. Figure 1: Amazon.com's Progression of Business Launches (Source: ABN-Ambro, 2000) From an analysis of these series of introductions it's clear that the progression in the next five years will be in bi-yearly increments and will capitalize on the extensive it infrastructure the company has created since the inception of its first online store in July, 1995.

The business model in the immediate two years from today is the offer of online stores and online selling websites based on the core technologies Amazon.com continues to perfect for supply chain and distributed order management. The launch of third party seller platforms internationally has been mentioned by many of the financial analysts who track the company, in addition to being mentioned in the financial statements Amazon.com has filed with the Securities and Exchange Commission (2007).

These third party seller platforms are in beta testing today and will be officially launched within 2007 according to industry and financial analysts. Within the four-year timeframe Amazon.com plans to revolutionize online sales of digital products including video, music, books, and all other forms of digital media content. The concentration on this initiative will be on creating a platform for managing all forms of digital assets including software licenses and other forms of digitized rights management for products available in traditional retailers as well.

Amazon.com has often remarked on the critical need for having exceptional support for Digital Rights Management (DRM) and the sale of all forms of digital content through their site. Within four years it is anticipated at Amazon.com will, by capitalizing on their extensive it infrastructure, be able to manage the development of entirely new DRM approaches to profitably selling many forms of digital content from their many sites.

Finally, with the extensive it infrastructure the company has today, the natural extension of their business model is into the area of Web Services. This projection of the Amazon.com business model is entirely consistent with the theories of how knowledge can change an organizations' structure as defined by Grant (1996, pgs. 110-121) in addition the creation of competitive advantage through the use of better system and information integration (De Wit & Meyer, 2005, pgs,. 120-140).

The concept of distributed order management Web Services, in conjunction with their approach to managing and propagating selling sites globally through their Merchant Services that is being tested today will lead Amazon.com to be one of the leading enterprise services providers for mass merchandising on the Internet. Web Services to the level of complexity and scalability to manage distributed order management over many sites would give Amazon.com a commanding advantage in the e-commerce services marketplace globally.

The move by Amazon.com into the area of Web Services will have major implications for the use of it services throughout enterprises that rely on online retailing as well, transforming the role of the CIO. In fact the role of the CIO is already changing to be more process-centric, less technologically-based, and this move by Amazon.com compliments that change (Earl & Scott, 1999, pgs. 30-38).

Within five years Amazon.com, following the progression of these developments, could feasibly become the leading provider of hosted distributed order management Web Services for online retailers globally. The business model for Web Services would resemble the Software-as-a-Service (SaaS) business model being used by salesforce.com today. From this annuity-based revenue stream, Amazon.com could feasibly grow into a leading e-commerce services provider in addition to be one of the world's most dominant online retailers today.

The build-out of this strategy over time would give Amazon.com an opportunity to capitalize on the unique and increasingly powerful capabilities derived from their extensive experience and investments in their it infrastructure. Discuss the question: Can Amazon.com become the Wal-Mart of the Internet? Having invested heavily in their supply chain, distributed order management, fulfillment and services operations since their launch as a business in 1995, Amazon.com has concentrated more on creating a scalable e-commerce and services architecture vs. concentrating only on promotion and advertising.

This latter strategy was a major mistake its early competitors, no many of them gone from the e-business landscape, made. Concentrating on the core business process areas and systems that need to work in conjunction with each other to fulfill customer requirements was where Amazon.com invested the majority of its initial venture capital investment funds.

The result today is that the e-commerce and services architecture has been able to successfully scale across online sales of dozens of product categories in addition to offering services both to cross-channel intermediaries in addition to consumers. The extensive use of knowledge repositories by Amazon.com to further differentiate itself has lead to a lasting competitive advantage through the company's ability to learn (Brown, J.S. And Duguid, P., 1998, pg. 91).

In responding to the question of whether Amazon.com can become the Wal-Mart of the Internet it's important to look at the commonalities each company has in the development of systems first, the integration of those systems to respond to customer demand efficiently second, and the proven synchronization of those.