A summary of Amazon’s business Essay

Ive hired amazon in my books for everywhere 10 years directly since some companies, from startups and sm both argumentationes to astronomic international line of cross delegacyses, can learn from their digest on the node and the onward motion of victimization technology and analysis to rectify results. It consistently bulge outperforms a nonher(prenominal) companies in its ACSI guest satis vizorion rating too. I aim to keep the exercise study up-to-date for readers of the books and Smart Insights readers who may be interested. In it we anticipate at amazons background, gross model and sources for the latest trading results. I recommend anyone studying virago checks the latest virago revenue and transaction strategies from their SEC filings / Investor relations.The yearly filings to give a great thickset of eBay work and revenue models. A good drumhead of the latest business model initiatives is purchasable in this amazon annual report summary for 2011. F or Q4, 2010 North America segment gross sales, representing the Companys U.S. and Canadian berths, were $7.21 billion, up 45% from fourth fourth give out 2009. International segment sales, representing the Companys U.K., German, Japanese, French, Chinese and invigorated Italian turn ups, were $5.74 billion, up 26% from fourth quarter 2009. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates passim the quarter, sales grew 29%. virago has come a long commission since it launched in 1995Fromand its officesto its current Seattle headquarters amazon performs exceptionally efficiently measured against revenue per visitor, which is one of the key measures for any commercialized electronic networksite, whether its a media site, anticipate locomotive, social network or a effectal seller or offers travel or financial run. Of course gain ground per user would be quite varied due to the significantly start out represents of opposite .coms akin Facebook and Google.Note SEC is the Securities and Exchange focal point (SEC) which is a government agency for which companies ache to submit an open valuation oftheir business models and marketplace conditions. Further virago side randomnessThis contingency study created by FaberNovel virago.com The Hidden Empire one of five about Favorited slideshows and one of the five Most Popular Technology Presentations of 2011. Recommended virago casing Study ContextWhy a case study on amazon? Surely everyone k flats about who virago atomic number 18 and what they do? Yes, well thats maybe true, except this case goes beyond the surface to analyze some of the insider secrets of amazons success. Like eBay, amazon.com was born in 1995. The cause reflected the vision of Jeff Bezos, to produce a bear-sized scale phenomenon like the virago river. This ambition has proved justified since just 8 years later, Amazon passed the $5 billion sales mark it took Wal-Mart 20 years t o earn this.By 2008 Amazon was a global defacement with other 76 zillion restless clients accounts and order fulfilment to much than 200 countries. condescension this volume of sales, at December 31, 2007 Amazon employed approximately 17,000 full- cartridge holder and secern-time employees. In September 2007, it launched Amazon MP3, a la add-in DRM- thaw MP3 music d ingestloads, which straight off entangles over 3.1 million songs from more than 270,000 artists.Amazon mass & dodgeIn their 2008 SEC filing, Amazon describe the vision of their business as to Relentlessly center on on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise. The vision is dumb to offer Earths biggest selection and to be Earths some customer-centric federation. Consider how these core market messages summarising the Amazon online value suggestion ar communicated both on-site and through and through offline communications. Of course, ach ieving customer subjection and recur purchases has been key to Amazons success. Many dot-coms failed because they succeeded in achieving awargonness, however non loyalty. Amazon light upond both. In their SEC filing they stress how they seek to achieve this. They say We work to earn repeat purchases by providing easy-to-use functionality, fast and time-tested fulfillment, timely customer service, feature rich electrical capacity, and a trusted transaction environment.Key features of our vanesites include editorial and customer reviewsmanufacturer carrefour information wind vane rogues tailored to individual preferences, much(prenominal) as recommendations and nonifications 1-Click technology pay off payment systems image uploads reckoning on our websites as well as the Internet browsing and the baron to view selected interior pages and citations, and search the ideal centers of numerous of the books we offer with our Look Inside the Book and search Inside the Boo k features. Our community of online customers as well creates feature-rich content, including product reviews, online recommendation lists, desire lists, buying guides, and wedding and baby registries.In practice, as is the practice for many online sellers, the lowest prices ar for the close popular products, with less popular products despotic higher prices and a greater margin for Amazon. Free conveyance offers are utilize to bring forward increase in basket size since customers seduce to spend over a certain amount to receive tolerant shipping. The level at which free-shipping is set is critical to profitability and Amazon has changed it as contest has changed and for packagingal reasons. Amazon communicate the fulfillment promise in several ways including presentation of latest pedigree handiness information, address date estimates, and options for expedited expecty, as well as delivery shipment nonifications and update facilities.This focus on customer has tra nslated to excellence in service with the 2004 American Customer Satisfaction Index giving Amazon.com a score of 88 which was at the time, the highest customer satisfaction score ever recorded in any service industry, online or offline. Round (2004) notes that Amazon focuses on customer satisfaction system of measurements. Each site is closely monitored with standard service handiness monitoring (for example, using Keynote or Mercury Interactive) site availability and download speed.Interestingly it too monitors per minute site revenue upper berth/lower bounds Round describes an alarm system preferably like a power plant where if revenue on a site falls below $10,000 per minute, alarms go off at that place are excessively internal accomplishment service-level-agreements for web run where T% of the time, opposite pages moldiness return in X seconds. 2011 update on vision and splendour of technologyAccording to founder and CEO, Jeff Bezos, technology is very important to reenforcement this focus on the customer. In their 2010 Annual Report (Amazon,2011) he say Look inside a current textbook on packet architecture, and youll find few patterns that we dont apply at Amazon. We use high-performance transactions systems, complex rendering and object caching, workflow and queuing systems, business intelligence and info analytics, machine learning and pattern recognition, neural networks and probabilistic decision making, and a wide variety of other techniques.And while many of our systems are based on the latest in computer recognition research, this often hasnt been sufficient our architects and engineers shake had to advance research in directions that no academic had yet taken.Many of the problems we face nominate no textbook solutions, and so we happily invent new approaches All the swither we put into technology might not matter that much if we unploughed technology off to the side in some sort of R&D department, but we dont take that appro ach. Technology infuses all of our teams, all of our growthes, our decision-making, and our approach to innovation in each of our businesses. It is deeply unified into everything we do. The quote shows how applying new technologies is used to give Amazon a competitive edge.A good recent example of this is providing the infrastructure to deliver the Kindle Whispersync update to ebook readers. Amazon reported in 2011 that Amazon.com is now interchange more Kindle books than paperback books. For every 100 paperback books Amazon has sold, the Company sold 115 Kindle books. Kindle apps are now available on Apple iOS, Android devices and on PCs as part of a Buy Once, Read Anywhere proposition which Amazon has developed.Amazon CustomersAmazon defines what it refers to as three consumer sets customers, seller customers and developer customers. There are over 76 million customer accounts, but just 1.3 million active seller customers in its marketplaces and Amazon is seeking to increase th is. Amazon is unusual for a retail merchant in that it identifies developer customers who use its Amazon Web Services, which provides access to technology infrastructure such as hosting that developers can use to develop their own web services. Members are also get alongd to meet a loyalty classme, Amazon Prime, a fee-based membership program in which members receive free or discounted express shipping, in the join States, the United Kingdom, Germany and Japan.CompetitionIn its SEC (2005) filing Amazon describes the environment for our products and services as intensely competitive. It views its main current and potential competitors as 1) physical-world retailers, catalog retailers, publishers, vendors, distributors and manufacturers of our products, many of which possess significant brand awareness, sales volume, and customer bases, and some of which currently sell, or may sell, products or services through the Internet, mail order, or direct marketing (2)Other online E-com merce sites(3) A tot up of indirect competitors, including media companies, Web portals, comparison shop websites, and Web search engines, each directly or in collaboration with other retailers and (4) Companies that provide e-commerce services, including website study third base-party fulfillment and customer-service. It believes the main competitive factors in its market segments include selection, price, availability, convenience, information, discovery, brand recognition, personalized services, accessibility, customer service, reliability, speed of fulfillment, ease of use, and ability to adapt to ever-changing conditions, as well as our customers overall experience and trust in transactions with us and facilitated by us on behalf of third-party sellers. For services offered to business and individual sellers, gainal competitive factors include the quality of our services and tools, their ability to generate sales for third parties we serve, and the speed of performance fo r our services.From Auctions to marketplacesAmazon auctions (known as zShops) were launched in March 1999, in large part as a response to the success of eBay. They were campaignd heavily from the home page, family line pages and individual product pages. Despite this, a year by and by its launch it had only achieved a 3.2% share of the online auction compared to 58% for eBay and it only declined from this point. Today, competitive prices of products are available through third-party sellers in the Amazon Marketplace which are integrated at bottom the standard product listings.The strategy to offer such an auction rapidity was initially driven by the take on to compete with eBay, but now the strategy has been adjusted such that Amazon describe it as part of the approach of low-pricing. Although it might be thought that Amazon would lose out onenabling its merchants to sell products at lower prices, in fact Amazon makes greater margin on these sales since merchants are supercha rged a commission on each sale and it is the merchant who bears the cost of storing inventory and fulfilling the product to customers. As with eBay, Amazon is just facilitating the exchange of bits and bytes amidst buyers and sellers without the need to distribute physical products.Amazon Media salesYou may have noticed that unlike some retailers, Amazon displays relevant Google text ads and superior ads from brands. This seems in conflict with the strategy of focus on experience since it leads to a more cluttered store. However in 2011 Amazon revealed that worldwide media sales accounted for approximately 17% of revenue Amazon marketingAmazon does not reveal much about its marketing approach in its annual reports, but there seems to be a focus on online marketing channels. Amazon (2011) states we direct customers to our websites primarily through a number of targeted online marketing channels, such as our Associates program, sponsored search, portal advertising, email marketing c ampaigns, and other initiatives. These other initiatives may include outdoor and TV advertising, but they are not mentioned specifically. In this statement they also highlight the importance of customer loyalty tools. They say while costs associated with free shipping are not included in marketing expense, we view free shipping offers and Amazon Prime as stiff worldwide marketing tools, and intend to touch offering them indefinitely.How The Culture of inflection startedA common study in Amazons development is the drive to use a measured approach to all aspects of the business, beyond the finance. Marcus (2004) describes an occasion at a corporate boot-camp in January 1997 when Amazon CEO Jeff Bezos saw the light. At Amazon, we pull up stakes have a Culture of Metrics, he verbalise while addressing his senior staff. He went on to explain how web-based business gave Amazon an amazing window into human behaviour. Marcus says Gone were the fuzzy approximations of focus groups, the anecdotal fudging and smoke blowing from the marketing department. A companylike Amazon could (and did) record every move a visitor made, every locomote click and twitch of the mouse. As the data piled up into virtual heaps, hummocks and mount chemical chains, you could draw all sorts of conclusions about their chimerical nature, the consumer. In this sense, Amazon was not merely a store, but an immense repository of facts.All we required were the right equations to plug into them. James Marcus then goes on to give a fascinating insight into a breakout group discussion of how Amazon could better use measures to improve its performance. Marcus was in the Bezos group, brainstorming customer-centric metrics. Marcus (2004) summarises the dialogue, led by Bezos First, we figure out which things wed like to measure on the site, he state. For example, lets say we want a metric for customer enjoyment. How could we calculate that? There was silence. Then somebody ventured How much time each customer spends on the site? Not specific liberal, Jeff said.How about the average number of minutes each customer spends on the site per seance someone else suggested. If that goes up, theyre having a blast. except how do we factor in purchase? I Marcus said whimsey proud of myself. Is that a measure of enjoyment?I think we need to consider frequency of visits, too, said a dark-haired womanhood I didnt recognise. Lot of folks are still accessing the web with those creepy-crawly modems. Four short visits from them might be just as good as one visit from a guy with a T-1. Maybe better. Good point, Jeff said. And anyway, enjoyment is just the start. In the end, we should be measuring customer ecstasyIt is interesting that Amazon was having this grapple in about the elements of RFM analysis ( depict in Chapter 6 of Internet marketing), 1997, after already having achieved $16 million of revenue in the previous year. Of course, this is a miniscule amount compared with todays billions of dollar turnover. The important point was that this was the start of a focus on metrics which can be seen through the description of Matt Pounds work later in this case study. From human to software-based recommendationsAmazon has developed internal tools to support this Culture of Metrics.Marcus (2004) describes how the Creator Metrics tool shows content creators how well their product listings and product copy are working. For each content editor such as Marcus, it retrieves all recently posted documents including articles, interviews, booklists and features. For each one it then gives a conversion rate to sale plus the number of page views, adds (added to basket) and repels (content requested, but the back button then used). In time, the work of editorial reviewers such as Marcus was marginalised since Amazon found that the majority of visitors used the search tools rather than read editorial and they responded to the personalised recommendations as the matching techno logy modify (Marcus likens early recommendations techniques to going shopping with the village idiot).Experimentation and exam at AmazonThe Culture of Metrics also led to a test-driven approach to improving results at Amazon. Matt Round, speaking at E-metrics 2004 when he was director of personalisation at Amazon describes the philosophy as Data Trumps Intuitions. He explained how Amazon used to have a lot of arguments about which content and promotion should go on the all important home page or category pages. He described how every category VP precious top-center and how the Friday meetings about placements for next week were getting too long, too loud, and lacked performance data. But today automation replaces intuitions and real-time experimentation tests are always run to answer these questions since actual consumer behaviour is the best way to decide upon tactics. Marcus (2004) also notes that Amazon has a culture of experiments of which A/B tests are key components.Examples where A/B tests are used include new home page design, moving features around the page, different algorithms for recommendations, changing search relevance rankings. These involve testing a new discourse against a previous control for a limited time of a few days or a week. The system will willy-nilly show one or more treatments to visitors and measure a range of parameters such as units sold and revenue by category (and total), session time, session length, etc. The new features will usually be launched if the sought after metrics are statistically significantly better.Statistical tests are a challenge though as distributions are not normal (they have a large mass at zero for example of no purchase) There are other challenges since multipleA/B tests are running every day and A/B tests may overlap and so conflict. There are also longer-term effects where some features are cool for the first two weeks and the opposite effect where changing navigation may degrade performance tem porarily. Amazon also finds that as its users win in their online experience the way they act online has changed. This means that Amazon has to ever test and evolve its features.Amazon.com TechnologyIt follows that the Amazon technology infrastructure must(prenominal) readily support this culture of experimentation and this can be unwieldy to achieved with standardised content management. Amazon has achieved its competitive advantage through developing its technology internally and with a significant investment in this which may not be available to other organisations without the right focus on the online channels. As Amazon explains in SEC (2005) using primarily our own proprietary technologies, as well as technology licensed from third parties, we have implemented numerous features and functionality that simplify and improve the customer shopping experience, enable third parties to sell on our platform, and facilitate our fulfillment and customer service operations.Our curren t strategy is to focus our development efforts on never-ending innovation by creating and enhancing the specialized, proprietary software that is unique to our business, and to license or acquire commercially-developed technology for other applications where available and appropriate. We continually invest in several areas of technology, including our seller platform A9.com, our wholly-owned subsidiary focused on search technology on www.A9.com and other Amazon sites web services and digital initiatives. Round (2004) describes the technology approach as distributed development and deployment. Pages such as the home page have a number of content pods or slots which call web services for features. This makes it relatively easy to change the content in these pods and even change the location of the pods on-screen.Amazon uses a flowable or fluid page design unlike many sites which enables it to make the most of real-estate on-screen. Technology also supports more standard e-retail faci lities. SEC (2005) states We use a set of applications for accepting and validating customer orders, placing and tracking orders with suppliers, managing and assigning inventory to customerorders, and ensuring proper shipment of products to customers.Our transaction-processing systems handle millions of items, a number of different status inquiries, multiple shipping addresses, gift-wrapping requests, and multiple shipment methods. These systems allow the customer to choose whether to receive single or several shipments based on availability and to track the progress of each order. These applications also manage the process of accepting, authorizing, and charging customer credit cards.Data Driven AutomationRound (2004) said that Data is king at Amazon. He gave many examples of data driven automation including customer channel preferences managing the way content is displayed to different user types such as new releases and top-sellers, merchandising and recommendation (showing rela ted to products and promotions) and also advertising through paid search (automatic ad coevals and bidding). The automated search advertising and bidding system for paid search has had a big impact at Amazon. Sponsored links initially through with(p) by humans, but this was unsustainable due to range of products at Amazon. The automated programme generates keywords, writes ad creative, determines best landing page, manages bids, measure conversion rates, profit per reborn visitor and updates bids.Again the problem of volume is there, Matt Round described how the book How to Make Love Like a Porn pencil lead by Jenna Jameson received tens of thousands of clicks from pornography-related searches, but few actually purchased the book. So the update cycle must be quick to avoid large losses. There is also an automated email measurement and optimization system.The campaign calendar used to be manually managed with relatively weak measurement and it was expensive to schedule and use. A new system Automatically optimizes content to improve customer experience Avoids sending an electronic mail campaign that has low clickthrough or high unsubscribe rate Includes inbox management (avoid sending multiple emails/week) Has growing depository library of automated email programs covering new releases and recommendations But there are challenges if promotions are too successful if inventory isnt available.Your RecommendationsCustomers Who Bought X, also bought Y is Amazons signature feature. Round(2004) describes how Amazon relies on acquiring and then crunching a ample amount of data. Every purchase, every page viewed and every search is recorded. So there are now to new version, customers who shopped for X also shopped for and Customers who searched for X also bought They also have a system codenamed Goldbox which is a cross-sell and awareness raising tool.Items are discounted to encourage purchases in new categories I have a more diminutive article on Amazon persona lisation / recommendation system He also describes the challenge of techniques for sifting patterns from noise (sensitivity filtering) and clothing and toy catalogues change frequently so recommendations become out of date. The main challenges though are the massive data size arising from millions of customers, millions of items and recommendations made in real time.Amazon league strategyAs Amazon grew, its share price growth enabled confederation or acquisition with a range of companies in different sectors. Marcus (2004) describes how Amazon followered with Drugstore.com (pharmacy), Living.com (furniture), Pets.com (pet supplies), Wineshopper.com (wines), HomeGrocer.com (groceries), Sothebys.com (auctions) and Kozmo.com (urban home delivery). In most cases, Amazon purchased an equity stake in these partners, so that it would share in their prosperity. It also charged them fees for placements on the Amazon site to promote and drive traffic to their sites. Similarly, Amazon char ged publishers for prime-position to promote books on its site which caused an initial hue-and-cry, but this abated when it was realised that paying for adult placements was widespread in traditional booksellers and supermarkets.Many of these new online companies failed in 1999 and 2000, but Amazon had covered the potential for growth and was not pulled down by these partners, even though for some such as Pets.com it had an investment of 50%. Analysts sometimes refer to Amazoning a sector meaning that one company becomes dominant in an online sector such as book retail such that it becomes very difficult for others to achieve market share. In addition to developing, communicating and delivering a very strong proposition, Amazon has been able to unite its strength in different sectors through its union arrangements and through using technology to facilitate product promotion and distribution via these partnerships. The Amazon retail platform enables other retailers to sell product s online usingthe Amazon user user interface and infrastructure through their Syndicated Stores programme.For example, in the UK, Waterstones (www.waterstones.co.uk) is one of the largest traditional bookstores. It found competition with online so expensive and challenging, that eventually it entered a partnership arrangement where Amazon markets and distributes its books online in return for a commission online. Similarly, in the US, Borders a large book retailer uses the Amazon merchant platform for distributing its products. Toy retailer Toys R Us have a comparable arrangement. Such partnerships foster Amazon extends its take into the customer-base of other suppliers, and of course, customers who buy in one category such as books can be encouraged to purchase into other areas such as clothing or electronics. Another form of partnership referred to above is the Amazon Marketplace which enables Amazon customers and other retailers to sell their new and used books and other good s alongside the regular retail listings.A similar partnership approach is the Amazon Merchants program which enables third party merchants (typically big than those who sell via the Amazon Marketplace) to sell their products via Amazon. Amazon earn fees either through fixed fees or sales commissions per-unit. This arrangement can armed service customers who get a wider choice of products from a range of suppliers with the convenience of purchasing them through a single checkout process. Finally, Amazon has also facilitated formation of partnerships with little companies through its affiliates programme. Internet legend records that Jeff Bezos, the creator of Amazon was chatting to someone at a cocktail party who wanted to sell books about divorce via her web site.Subsequently, Amazon.com launched its Associates Program in July 1996 and it is still going strong. Googling http//www.google.com/search?q=www.amazon.com+-site%3Awww.amazon.com for sites that link to the US site, shows o ver 4 million pages, many of which will be affiliates. Amazon does not use an affiliate network which would take commissions from sale, but give thanks to the strength of its brand has developed its own affiliate programme. Amazon has created a tiered performance-based incentives to encourage affiliates to sell more Amazon products.Amazon Marketing communicationsIn their SEC filings Amazon state that the aims of their communicationsstrategy are (unsurprisingly) toIncrease customer traffic to our websitesCreate awareness of our products and servicesPromote repeat purchasesDevelop incremental product and service revenue opportunities Strengthen and broaden the Amazon.com brand name.Amazon also believe that their most effective marketing communications are a consequence of their focus on continuously improving the customer experience. This then creates word-of-mouth promotion which is effective in acquiring new customers and may also encourage repeat customer visits. As well as this M arcus (2004) describes how Amazon used the personalisation enabled through technology to reach out to a difficult to reach market which Bezos originally called the hard middle. Bezoss view was that it was easy to reach 10 people (you called them on the phone) or the ten million people who bought the most popular products (you placed a superbowl ad), but more difficult to reach those in between. The search facilities in the search engine and on the Amazon site, together with its product recommendation features meant that Amazon could come to its products with the interests of these people.Online advertising techniques include paid search marketing, interactive ads on portals, e-mail campaigns and search engine optimisation. These are automated as far as possible as described earlier in the case study. As previously mentioned, the affiliate programme is also important in thrust visitors to Amazon and Amazon offers a wide range of methods of linking to its site to help improve convers ion. For example, affiliates can use straight text links lead story direct to a product page and they also offer a range of dynamic banners which feature different content such as books about Internet marketing or a search box.Amazon also use cooperative advertising arrangements, better known as contra-deals with some vendors and other third parties.For example, a print advertisement in 2005 for a particular product such as a piano tuner router with a free wireless laptop card promotion will feature a specific Amazon URL in the ad. In product fulfilment packs, Amazon may include a booklet for a non-competing online company such as Figleaves.com (lingerie) or Expedia (travel). In return, Amazon leaflets may be included in customer communications from the partner brands. Our Associates program directs customers to our websites by enabling independent websites to make millions of products available to theiraudiences with fulfillment performed by us or third parties. We pay commissio ns to hundreds of thousands of participants in our Associates program when their customer referrals result in product sales.In addition, we offer public free shipping options worldwide and recently announced Amazon.com Prime in the U.S., our first membership program in which members receive free two-day shipping and discounted overnight shipping. Although marketing expenses do not include the costs of our free shipping or promotional offers, we view such offers as effective marketing tools. Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut,The young Press, New York, NY. Round, M. (2004) Presentation to E-metrics, London, May 2005. www.emetrics.org.