21/01/2015

Case Analysis: Amazon.com:

The brink of Bankruptcy
Submitted by:
Bhuvnesh Prakash (PGP/18/188)
Group No: 6
Section- D

Introduction:

Incorporated in 1994 as the Earths Biggest Bookstore that

characterised the launch of internet commerce. The company has its
Initial Public Offering on May 15 1997. The company expand its operation
from retail bookstore into an online superstore offering books, music,
video and toys etc. Despite the declining stock prices from its high of
$113 to $ 15 in by year end 2000, the number of customer and revenues
continued to rise.

Key Issues Identification and Analysis:

The main issue Amazon.com is
facing is its rising fulfilment costs,
which increased from 11% of
sales in 1998 to 14% in 1999.
Another main issue it is facing is
competitive
threats
from
traditional retailers.
Built with
rapid growth in mind, in late 1999
the
distribution
infrastructure

1. How did the Amazon.com business model evolve from the

companys launch in 1995 to early 2001?
The evolution from a narrowly defined business model to an expanded,
broadly defined business model. It claims to be the cutoer centric
company where customer can find and dixcover anything they want to
buy online rnages from books to electronics, software, videos, toys full
line of kitchen etc.

1999
Auctions and
commerce
network
launched

2000
Living.com
Declares
Bankrupcy

2001
Patnership
with
Toysrus.com

1998
New
1995
Categories
launched &
Amazon.com
entered
Launched
Europe
1995 : Company Bookstore was officially anounced. By september

1995, Compwany was selling over $20,000 per week out of the
founders garage.
1996: It focused on enhancing its product and serives offeriings and
capabilities with sophisticated browsing. Amazon was thre first online
retailers to enable shopping through wireless devices.
1998: It began agressively exapanding into new products categories
and into internationl markets through a series of organic growth and
equity patnrships.
1999: Explore new business models including
marketplacs. It also acted a s a agent- not a retailer.

auctions

and

2000: It patnership with ToysRUs enabled the company to explore a

new business model as a logistics servies provider. By the end 2000, it
was not just an online bookstore, it was an online superstore selling a
wide variety of products in over 160 different countries.

2. What role did IT play in the companys strategy and the

capabilities it built to execute strategy?
Amazon is a first online retail company. IT enables it to reach to large
customer world-wide, with its increasing scale and operations and
increase in customer base year to year was tremendous. The company
has a vision of customer centric company by offering a wide variety of
products and good customer services. It help company to reach worldwide to every customer to offer its products. It built IT structure that
provide 70% to 80 %overcapacity. IT enabled platform enable a company
to launch a new e-commerce business faster, with a higher quality of
customer experience, a lower incremental cost, a higher chance of
success, and a clearer path to scale and profitability than perhaps any
other company. Amazon.com spent over $429 million to build a state-ofthe-art digital business infrastructure and operations that linked nine
distribution centres and six customer service centres located across U.S.
and in Europe and Asia. It also Help in building and launching new product
and new capabilities. It Fosters the business growth and innovation
process. It saves time and reduce Cost.

3. As a member of the companys board of directors, what

advice would you give to Jeff Bezos in early 2001

Strenght

Opportuni
ty

Online retail sales

growing, key growth
segment include toys,
sfotware etc.
Loyal customers and
increasing demand.,

1.
2.
3.
4.
5.
6.

Need to leverage existing

capabilites to enter new
market
Fulfillment and operating
cost rising
Complexity of business
riising

weekness

Visionary, yet pragmatic,

management
Good customer Base
Fisrt mover advantage and
Hih goodwill

Threat

Increased competition from

tradtional retailers
Incresed complexity and
speed of the business strain
resources.

High volume of sales in both Us and international markets

Potential for large market segments
Use IT to reduce fulfilment and operating Cost
Leverage companys scale/scope, could create value for stakeholders
E-commerce model: defensive now, but maybe switch to offensive
Evolving business model: exit retail Toy business & use IT Supply chain.