Read the attached case on Amazon.com,Inc., then answer the following questions.

RETAILING G Alan N. Hoffman Bentley University IANT TO HIGH-TECH PLAYER?

1. What is Amazons vision statement, andis the company on track to achieveit? Explain. (5 points) 2. Longevity (which in this case meansexisting together for a long time) is usually a good thing. However, why doesit seem like an unfavorable element in Amazons corporate governancestrategy? (5 points) 3. How do partnering with otherretailers, as well as related acquisitions and diversifications help Amazons business model? (10 points) 4. Would you say that Amazons currentratio is adequate for the type of business modelit pursues? (5 points) 5. What are someofthe opportunities that have helped Amazon to become such a successful online giant? (15 points) 6. What recommendations would you make to Amazonto address someofthe challenges outlined in the case? (10 points)

Case:

Founded by Jeff Bezos, online giant Amazon.com,Inc. (Amazon), was incorporated inthestateofWashingtoninJuly, 1994,andsolditsfirstbookinJuly, 1995.InMay 1997, Amazon (AMZN) completedits initial public offering and its common stock

was listed on the NASDAQ Global Select Market. Amazon quickly grew from an on- line bookstore to the worlds largest online retailer, greatly expanding its product and serviceofferingsthroughaseriesofacquisitions,alliances,partnerships,andexclusivity agreements. Amazons financial objective was to achieve long-term sustainable growth and profitability. To attain this objective, Amazon maintained a lean culture focused on increas- ing its operating income through continually increasing revenue andefficiently managing

its working capital and capital expenditures, while tightly managing operating costs. ThenameAmazonwasevocativeforfounderJeffBezosofhisvisionofAmazonasa huge natural phenomenon,like the longest river in the world. He envisioned the company to

be the largest online marketplace on earth someday. By 2008, Amazon had becomea global brand, with websites in Canada,the United Kingdom,

Germany, France, China, and Japan, with orderfulfillment in more than 200 countries.' Its opera- tions were organized into two principal segments: North America and International Operations, which grew to includeItaly in 2010 and Spain in 2011. By 2012, Amazon employed more than 56,200peoplearoundtheworldworkinginthecorporateofficeinSeattle,andinsoftwaredevel- opment,order fulfillment, and customerservice centers in North America, Latin America, Europe, and Asia.

Amazon Corporate Governance

JeffBezosistheChairmanoftheBoardandCEOofAmazonandowns19.4%ofthecompany. Amazon has three board committees of which two are standard: the audit commit- tee and the governance committee. The third committee, the Leadership Development

and Compensation Committee, is uncommon. Most publicly traded companies have a compensation committee; however,it is unusual for the compensation committee to have leadership development as part of its mandate. The Leadership Development and Com- pensation Committee monitors and periodically assesses the continuity of capable man- agement, including succession plans for executive officers.

Amazons board is not populated by CEOsorretired CEOs.It includes several venture capitalists, a number of senior-level executives from varied industries, an eminentscientist, and a representative from the non-profit sector.

Amazons board has served together for a long time. This implies a deeper understanding ofthecompanyandincreasingfamiliarityandevenfriendshipamongstthegroup.Thistends to discourage independentthinking and objectivity.

AllofitisfurtherproofthatJeffBezosisastrongCEOandrunsthecompany.

Retail Operations/Amazons Superior Website

As people became more comfortable shopping on line, Amazon developed its website to take advantage of increased Internettraffic and to serve its customers most effectively. The hall- marks of Amazons appeal were ease of use; speedy, accurate search results; selection, price, and convenience; a trustworthy transaction environment, timely customer service; and fast, reliable fulfillment?all of it enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. Thesite, which offered a huge array of products sold both by itself and by third parties, was particularly designed to create a person- alized shopping experience that helped customers discover new products and makeefficient, informed buying decisions.

Key to Amazons success was continual website improvement. A huge part of the technological work done for Amazon was dedicated to identifying problems, developing solutions, and enhancing customers online experience. Jacob Lepley, in his Amazon MarketingStrategy:ReportOne,notesthat,whenyouvisitAmazon...youcanuse[it] to find just about any item on the market at an extremely low price. Amazon has madeit very simple for customers to purchase items with a simpleclick of the mouse... . When you have everything you need, you make just one paymentand your orders are processed.4 This simple system is the same whether a customer purchases directly from Amazon or from oneofits associates.

Pursuing perfection, Amazon wasaggressive in analyzing its websites traffic and modi- fying the website accordingly. Amazon particularly excelled at customer tracking, collecting data from every visit to its website. Utilizing the information, Amazonthen directed users to products that it surmised they might be interested in because the item was either related to a product that they had previously searched for or purchased by another Amazon customer looking for a similar product.

Recommendations were also customized based on the information customers provided about themselves andtheir interests, and their ratings prior purchased. Amazon also collected data on those who hadnevervisited any of its websites, but who had receivedgifts from those who had usedthesite.

One of Amazons mostdistinctive features was the community created based on the ratings/reviews provided by private individuals to help others make more informed pur- chasing decisions. Anyone could provide a narrative review and rate a product on scale of 1-5 stars, and/or commenton others reviews. Individuals could also create their own So Youd Like . . . guides and Listmanialists based on Amazons products offer- ings and post them or send them to friends and family. To streamline customer research, Amazonalso consolidated different versions of a product (e.g., DVD, VHS, Blu-ray disk) into a single product available for commentary that simplified commentary and user accessibility.>

To further target potential customers, Amazon engaged in permission marketing, elicit- ing permission to e-mail customers regarding specific production promotionsbased on prior purchases on the assumption that a targeted e-mail was morelikely to be read than a blanket e-mail. This strategy was hugely appreciated by Amazon customers, further contributing to Amazons success.

In addition, Amazon purchased pay-per-click advertisements on search engines such as Google to direct browsing customers to its websites. The ads appeared on the left-hand side of the search list results, and Amazon paid a fee for each visitor who clicked onits sponsored link.

At the same time, as TV and billboard ads were roughly ten times less effective when compared to direct or online marketing when concerning customer acquisition costs, Amazon reducedits offline marketing. The strategy was simple: as customers shopped online, online marketing was key. However, in 2010, Amazoninitiated a small television advertising campaign to increase brand awareness.

Finally, to round out its customer care, Amazon expedited shipping bystrategically locat- ing its fulfillment centers near airports where rents were also cheaper, giving Amazonthe two-pronged advantage of speed and low costover its competitors. Furthermore,in the United States, the United Kingdom, Germany, and Japan, Amazon offered subscribers to Amazon the added convenience of free express shipping. Amazon free next-day de- livery endeared it to Amazon customers, again contributing to the customerloyalty that was key to Amazons success. Amazon

cost $79 annually to join and included free access to Amazon Instant Video. The overarching objective of the company wasto offer low prices, convenience, and a wide selection of merchandise, a pared down,yet wide-reachingstrategy that made Amazonsuch a hugesuccess.

Diversified Product Offerings

Amazondiversified its product portfolio well beyond simply offering books, which in turn allowedit to diversify its customer mix. In 2007, Amazon successfully launched the Kindle, its $79 e-book reader, which offered users more than one million reasonably priced books and newspaperseasily accessed on its handheld device. Competitor Apple, Inc., then intro- duced the iPad, the first tablet computer, in January 2010, sparking further development of mobile e-readers. E-booksales took off immediately, increasing by more than 100%, accord- ing to the Association of American Publishers. Eager to compete in a market for which it was uniquely positioned, Amazon quickly developed its own low-cost tablet, the Kindle Fire, an Android-based tablet with a color touchscreen priced at $199, more than $300 lower than the iPad, sacrificing profit margins in search of sales volume and market-share gains. Other tech giants such as RIMM and HP were unable to compete with the iPad. Only the Sony Nook, the Amazon Kindle and Kindle Fire, and the Samsung Galaxy and Series7 tablets challenged Apples consistent 60% of market share. Ultimately, however, Amazons huge growth derived not simply from the sale of Kindle hardware and the growth of e-booksales,

but from its diversification and the continual expansion of the easy website access created by mobile devices.

By 2010, 43% of Amazon net sales were from media, including books, music, DVDs/ video products, magazine subscriptions, digital downloads, and video games. Morethan half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and gar- den supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies.

Amazonalso offered its owncredit card, a form of co-branding that benefitedall parties: Amazon, the credit card company (Chase Bank), and the consumer. Amazon benefited be- cause it received money from the credit card company both directly from Amazon purchases and indirectly from fees generated from non-Amazon purchases. In addition, Amazon ben- efited from the company loyalty generated by having its own credit card the consumersees and usesevery day. The credit card company gained from Amazons highvisibility, increasing its potential customer base and transactions. And the consumerearned credit toward gift cer- tificates with each use of the card.

Partnerships

Amazon leveraged its expertise in online order taking and order fulfillment and developed partnerships with many retailers whose websites it hosted and managed, including (cur- rently or in the past) Target, Sears Canada, Bebe Stores, Timex Corporation, and Marks & Spencer. Amazon offered services comparable to those it offered customers on its own websites, thus freeing thoseretailers to focus on the non-website, non-technological aspects of their operations.

In addition, Amazon Marketplace allowed independentretailers and third-party sellers to sell their products on Amazon byplacing links on their websites to Amazon.com orto specific Amazon products. Amazon was notthe seller of record in these transactions, but instead earn[ed] fixed fees, revenue share fees, per-unit activity fees, or some combination thereof. Linking to Amazoncreated visibility for these retailers and individual sellers, adding value to their websites, increasing their sales, and enabling them to take advantage of Amazons convenience and fast delivery. Sellers shipped their products to an Amazon warehouseor fulfillment center, where the companystored it for a fee, and when an order was placed, shipped out the product onthesellers behalf. This form ofaffiliate market- ing came at nearly no cost to Amazon. Affiliates used straight text links leading directly to a productpage andtheyalso offered a range of dynamic bannersthat featured different content.

Web Services

As a major tech player, Amazon developed a numberof webservices, including ecommerce, database, payment and billing, web traffic, and computing. These web services provided access to technology infrastructure that developers were able to utilize to enable various types of virtual businesses. The web services (many of which werefree) created a reliable, scalable, and inexpensive computing platform that revolutionized the online presence of small busi- nesses. For instance, Amazons e-commerce Fulfillment By Amazon (FBA)program allowed merchantstodirectinventorytoAmazonsfulfillmentcenters;afterproductswerepurchased, Amazon packed and shipped. This freed merchants from a complex ordering process while

allowing them control overtheir inventory. Amazons Fulfillment Web Service (FWS) added to FBAs program. FWSlet retailers embed FBA capabilities straight into their ownsites, vastly enhancing their business capabilities.

In 2012, Amazon announceda cloud storage solution (Amazon Glacier) from Amazon Web Services (AWS), a low-cost solution for data archiving, backups, and other long-term storage projects where data not accessed frequently could be retained for future reference. Companies often incurred significant costs for data archiving in anticipation of growing backup demand, which led to under-utilized capacity and wasted money. With Amazon Glacier, companies were able to keep costs in line with actual usage, so managers could know the exact cost of their storage systemsat all times. With Amazon Glacier, Amazon continued to dominate the space of cold storage, which hadfirst come into prominencein 2009, amidst competitors such as Rackspace (RAX) and Microsoft (MSFT)offering their own solutions.

By 2012, Amazon Web Services were a crucial facet of Amazons profit base, and Amazon was oneofthe lead players in the fast-growing retail ecommerce market. Seeing huge growth potential, Amazon madethe decision to expand Amazon WebServices (AWS) internationally and invested heavily in technologyinfrastructure to support the rapid growth in AWS. Thoughits investments in ecommerce threatened to suppress its near-term margin growth, Amazon expected to benefit in the long term,given the significant growth potential in domestic and, even moreso,in international ecommerce.