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From Books to From Books to ServicesServices
Seungeun Baeck, Jerome Coste, Seungeun Baeck, Jerome Coste,
Mugun Gil, Steven Granese, Helen Mugun Gil, Steven Granese, Helen Han,Han,
Jung Chule Kim, Sam LeeJung Chule Kim, Sam Lee
OverviewOverview IntroductionIntroduction Internal AnalysisInternal Analysis
Business ModelBusiness Model FinancialsFinancials Value ChainValue Chain ITIT
External AnalysisExternal Analysis Competitive Competitive
StructureStructure Industry StructureIndustry Structure
Summary AnalysisSummary Analysis SWOTSWOT
ConclusionConclusion Q&AQ&A
Source: AnnOnline
IntroductionIntroductionKey FactsKey Facts
Amazon.com is Amazon.com is headquartered in headquartered in Seattle, Seattle, Washington and Washington and founded by Jeff founded by Jeff Bezos in 1995, who Bezos in 1995, who graduated from graduated from Princeton Princeton University with University with Computer Science Computer Science and Electrical and Electrical Engineering Engineering degree.degree.
IntroductionIntroductionHistory HighlightsHistory Highlights
1995 - 1995 - BookBook
1997 - 1997 - IPOIPO
1998 - 1998 - Music, DVD, VMusic, DVD, Videoideo, , GermanyGermany, UK, UK
1999 -1999 - ToyToy, , electronicelectronic, home , home improvementimprovement, , software,software, and and videovideo gamesgames; ; Amazon.com Amazon.com AuctionsAuctions
2000 - 2000 - Online Online bargainbargain stores, France, stores, France, JapanJapan
2001 - 2001 - Partnership with Target and Circuit Partnership with Target and Circuit City, Office Deport, acquired Egghead.com, City, Office Deport, acquired Egghead.com,
first quarterly profit of 5.8 millions in 4th first quarterly profit of 5.8 millions in 4th quarterquarter
2002 - 2002 - Third-party content Third-party content incorporationincorporation
Source: Annual Stockholder Meeting, 5/28/03
Business Model Business Model Mission & VisionMission & Vision
Mission: “To become Earth’s most Mission: “To become Earth’s most customer- customer- centric company” centric company”
Vision: To become Earth’s biggest Vision: To become Earth’s biggest storestore
Source: Annual Stockholder Meeting, 5/28/03
Business Model Business Model Value PropositionValue Proposition
Source: Amazon.com, Target.com
Business ModelBusiness ModelRevenue ModelRevenue Model
Retail:Retail: Virtual Merchant Virtual Merchant
ModelModel Service: Service:
Market Creator Market Creator Model: Marketplace, Model: Marketplace, Zshops, and Zshops, and Amazon.com AuctionsAmazon.com Auctions
Affiliate Model: Affiliate Model: Merchant@ and Merchant@ and Merchant.com Merchant.com programsprograms
Source: Finance Yahoo
FinancialStock Price
Five year performance Range:15.06 - 47.75 Market Cap:18.47B EPS :-0.23
FinancialSales vs. Operating Expense
(in Billions)
0.0150.1480.61
1.64
2.763.12
3.93
-0.567-0.149-0.72-0.006-0.031-0.125
-1.411-2
-1
0
1
2
3
4
5
1995 1996 1997 1998 1999 2000 2001 2002
Net Sales
Operating Expense
FinancialInterest Expense vs. Net Loss
(in Billions)
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
1998 1999 2000 2001 2002
Interest Exp.
Net Loss
FinancialFinancialSales Business Unit Sales Business Unit
Sizing 2002Sizing 200227%
44%15%
6%
8%
International BMVD ETK Services Shipping
Projected to grow to 33% of
Total Sales
• JIT inventoryJIT inventory• Virtual inventory Virtual inventory stored in database stored in database
Suppliers
Operations• Relatively low overheadRelatively low overhead• Track consumer demandTrack consumer demand• IT maintenance IT maintenance • 24/7 world wide24/7 world wide operation operation Distribution
• Routing optimizationRouting optimization• Customer integrationCustomer integration with suppliers with suppliers
Customers•Automated customer serviceAutomated customer service
Value ChainPrimary Activities
Huge Database, High R&D Spending
In house, online purchasing software
High quality IT infrastructure; Major focus on cutting costs
Technology
Procurement
Human Resource
Infrastructure
Expensive technical talent; High Sales/Employee ratio
Supporting Activities
Primary Activities
Value ChainSupporting Activities
Source: Business 2.0
Significant Investment in Information Significant Investment in Information TechnologyTechnology
Spent over $1 Billion on ITSpent over $1 Billion on IT Recruit the top computer scientists and Recruit the top computer scientists and engineersengineers Pioneer in innovative e-tailing featuresPioneer in innovative e-tailing features
“ “One-Click” buyingOne-Click” buying Customized shopping experienceCustomized shopping experience Product suggestionsProduct suggestions Cross and up-sellingCross and up-selling Speedy checkout procedureSpeedy checkout procedure
ITITOriginal Focus: SpendingOriginal Focus: Spending
Source: Business 2.0
Reduced IT spending from 11 to 6 Reduced IT spending from 11 to 6 cents for every dollar of salescents for every dollar of sales Custom software = customized business Custom software = customized business processesprocessesHeavy reliance upon Open SourceHeavy reliance upon Open Source
2001: switched to all Linux servers on HP 2001: switched to all Linux servers on HP machines, which cut expenses from $71 to machines, which cut expenses from $71 to $54 million$54 million Linux provides many benefitsLinux provides many benefits
ITITNew Focus: SavingNew Focus: Saving
0
50
100
150
200
250
300
1998 1999 2000 2001 2002
ITITTechnology SpendingTechnology Spending
(in millions)(in millions)
Source: Wired
ITITBecoming an IT Development Becoming an IT Development
ShopShop Created web services (XML) tools for Created web services (XML) tools for
3rd party developers3rd party developers Spun off subsidiary “Amazon Spun off subsidiary “Amazon
Services” to leverage use of their Services” to leverage use of their proprietary ITproprietary IT
Retailers can access Amazon’s products Retailers can access Amazon’s products (Toys R Us)(Toys R Us)
Amazon can build and maintain a branded Amazon can build and maintain a branded site (Target)site (Target)
Fastest growing part of their businessFastest growing part of their business Accounts for 19% or salesAccounts for 19% or sales Possible because of brand namePossible because of brand name
OverviewOverview IntroductionIntroduction Internal AnalysisInternal Analysis
Business ModelBusiness Model FinancialsFinancials Value ChainValue Chain ITIT
External AnalysisExternal Analysis Competitive Competitive
StructureStructure Industry StructureIndustry Structure
Summary AnalysisSummary Analysis SWOTSWOT
ConclusionConclusion Q&AQ&A
Source: Sandeep Krishnamurthy
Competitive StructureCompetitive StructureTop e-Tailing Sites, in Terms of Top e-Tailing Sites, in Terms of
Unique VisitorsUnique Visitors
Source: Sandeep Krishnamurthy
Competitive StructureCompetitive StructureTop e-Tailing Sites in Books, Top e-Tailing Sites in Books,
Toys, Videos and MusicToys, Videos and Music
(-) Products available in offline stores(-) Online order, offline pickup
(+) Installed customer base creates high barrier to entry(+) Amazon services create valuable marketplaces(-) E-tailing can be replicated
(-) Internet offers direct selling(+) Amazon’s brand reduces supplier’s bargaining power(+) Little differentiation of products(+) High volume decreases suppliers’ bargaining power
SuppliersIndustry
Competitors
•Barnes and Noble•Buy.com
•Walmart.com•eBay
(-) Strong competition on price(-) Duplication of each other’s features
Buyers
(-) Price search engines increases buyers’ power (+) Amazon’s features increase switching costs
Threat of Substitute
Entry Barriers
Industry Structure
OverviewOverview IntroductionIntroduction Internal AnalysisInternal Analysis
Business ModelBusiness Model FinancialsFinancials Value ChainValue Chain ITIT
External AnalysisExternal Analysis Competitive Competitive
StructureStructure Industry StructureIndustry Structure
Summary AnalysisSummary Analysis SWOTSWOT
ConclusionConclusion Q&AQ&A
StrengthsStrengths WeaknessesWeaknessesInnovative in-house IT:Innovative in-house IT:
One-click patentLarge selection of virtual productsPersonalization of websiteGreat search accuracyRelated product matchingCustomer reviews
Strong BrandStrong BrandFirst mover and dotcom hypePositive WOMAffiliated with other companies
Huge customer databaseHuge customer databaseHigh rate of repeat High rate of repeat customers: 78%customers: 78%One-stop-shopping and One-stop-shopping and cross-sellingcross-sellingHigh inventory turnover for High inventory turnover for booksbooksManagement team stayed Management team stayed focused with visionfocused with visionServices are growing Services are growing (19% of Sales as of second (19% of Sales as of second quarter, expected to be quarter, expected to be 33% for the year)33% for the year)
Time delay distributionTime delay distributionNo exclusive accesses to primary content
High COGS for productsHigh COGS for productsHigh advertising costsHigh advertising costsDifficult relationship with Difficult relationship with manufacturermanufacturerssStrategy used to be too Strategy used to be too vague: Get Big Fastvague: Get Big FastSpreading themselves too Spreading themselves too thinthinNo Profit Yet, but No Profit Yet, but expected for 2003expected for 2003
OpportunitiesOpportunities ThreatsThreatsExpansion of other Expansion of other product groupsproduct groupsInternational International expansionexpansionStrategy shifts to Strategy shifts to servicesservices
Merchant.com: Powered by Amazon.comMerchant@ProgramAuctions: C2C market createrZ-shops: B2C market creater
Brick & Mortar Brick & Mortar competitors are going competitors are going onlineonlineExisting Internet Existing Internet competitorscompetitorsLow Financial Low Financial flexibilityflexibilityOnly two major Only two major supplierssuppliersTechnological Technological innovationsinnovations
E-booksMp3 p2p servicesMPEG4
Price search enginesPrice search engines
OverviewOverview IntroductionIntroduction Internal AnalysisInternal Analysis
Business ModelBusiness Model FinancialsFinancials Value ChainValue Chain ITIT
External AnalysisExternal Analysis Competitive Competitive
StructureStructure Industry StructureIndustry Structure
Summary AnalysisSummary Analysis SWOTSWOT
ConclusionConclusion Q&AQ&A
ConclusionConclusion
First mover in e-commerce retail First mover in e-commerce retail industryindustry
Built a strong brand with a loyal Built a strong brand with a loyal followingfollowing
Struggled to make a profitStruggled to make a profit Focused on reducing costsFocused on reducing costs Leveraged brand to launch service Leveraged brand to launch service
modelmodel Expected to become profitableExpected to become profitable