Cas eAmaz on. com I n1994,wi t hahandf ulofprogr amm mmer sandaf ewt housanddol l arsi nwor kst at i onsand ser vers ,JeffBezoss etoutt ochangetheret ai lwor l dwhenhecr eat edAmazon. com ( t i c ker: AMZN) .ShelKaphan,Amaz on’ sfir s tpr ogr ammer ,as s i s t edbyo t her s ,i nc l udi ngPaulBar t o nDav i s,us e daco l l ec t i onoft oo l st oc r e a t eWe Webpa ge sba s e donada t aba s eof1mi l l i o n bookt i t l esco mpi l edf ro mt heLi braryofCongressandBooksi nPri ntdat abases.Kaphan not est hat“ Amazonwa wasdependentoncomm mmer c i alandf r eedat abases ys t ems ms,aswel las HTTPs er vers of t waref r om c omm mmer c i alandf r ees ourc es .Manyoft hepro gr amm mmi ngt ool s we r ef r e es of t wa r e ”[ Co l l e t t2 00 2] .I nJ ul y19 95,Ama z o no pe nedi t sWe Webs i t ef o rs a l e s .Us i ngheavi l ydi sc ount edbookpri ces( 20t o30perce ntbel owcomm mmonre t ai lpri ces ) ;Amazon a dv e rt i s e dhea vi l yandbe c ame met hel e adi ngc e l e br i t yo ft heI nt er neta nde co m mm mer c e .
Sal esandRel at i onshi ps Amaz onmadei t si ni t i almar ks el l i ngbooks ,andmanypeopl es t i l lt hi nkoft hec ompanyi n t erms msofbooks.Howeve r ,al mos tf r om t hest art ,t heco mpanyhaswor kedt oexpandi nt o addi t i o nalar e a s t r i v i ngt obe c ome meagl o balre t a i l e ro fa l mo s ta ny t hi ng.So meo me ft hema ma i n —s e v ent si nc l ude:1 995bo oks,1 998mus i ca ndDVD/ v i de o ,1 999auc t i o ns,e l ec t ro ni c s ,t o y s, zShops/ Market Pl ace,home mei mprov eme ment ,so f t ware,andvi deogames[ 1999annualr eport ] . Byt heendof1999,t hec omp mpanyhadf or gedpart ner shi pswi t hse ver alot heronl i ne s t o r es ,i nc l udi ngAs hf o r d. co m m, ,Audi b l e,De l l a . co m m, ,dr ugs t o r e. co m m, ,Ge a r. co m m, ,Gr e enl i ght . co m,Home meGro cer . co m,Kozmo mo. co m,l i vi ng. co m,Next Card. co m,Pet s. co m,andSot hebys.Ofcourse ,mostoft hosefirms msandWebsi t esl aterdi edi nt hedot co m cr ashof 2000/ 2001. Amaz onal s oes t abl i s hedpar t ner s hi pswi t hs ever all ar ger e t ai l er s ,i nc l udi ngTar ge t , To y s‘ R’Us,Ba bi e s‘ R’Us,a ndCi r c ui tCi t y.Effec t i ve l y,Ama z o nb eca m me eas e r v i c eo r g ani z a t i o nt oma manag et heo nl i nepr e s e nc eo ft he s el ar g er e t a i l e r s .Ho we v er ,i tal s ous e si t sdi s t r i b ut i ons y st em t ode l i v ert hepr o duc t s.TheCi r c ui tCi t yar r a nge m me e ntwa ss l i g ht l ydi ffe r ent f rom t heot hers u st o me me r sc o ul dpi c kupt he i ri t e msdi ms re c t l yf r o mt he i rl o c a ls t o r e s[ He un —c Augus t2001] .Af t erCi r c ui tCi t ywentunder ,t her el at i ons hi pended . Bymi mi d2003,t heWe Websal esandf ul fil l mentse rvi c esamo mount edt o20per c entofAma. z o n’ ss al e s Be z o spo i nt so utt ha tmo mo s tco m mp pa ni e sr e al i z et ha to nl yas ma ma l lf r a ct i onoft he i r t ot alsal es( 5t o10perce nt )wi l lco mef rom onl i nesys t ems ms,soi tmakessenset ohaveAmazo nrunt hos eport i ons[ Mur phy2003] . I n2001,Amazont ookovert heWe Websi t erunbyi t sbri c ksandmort arr i valBor ders . I n2000,Bo r d er sl o s t$18. 4mi mi l l i o no nt o t alo nl i nes a l e so f$27 . 4mi mi l l i o n[ He unApr i l2001 ] . Al s oi n2001,Amaz onpar t ner edwi t hExpedi at ooffert r avels er vi c esdi r ec t l yf r om t heAma z o ns i t e.Ho we v er ,i nt hi sc as e ,t heAma z o npor t i onc o n s i s t so fl i t t l emo mo r et hanana dv e rt i s i ngl i nkt ot heEx pe di as e r v i c e s[ Ko nt z e r2 00 1] .Thedea l si n2 001co nt i nuedwi t hat wi s t whenAmazonl i c ensedi t ss ear c ht ec hnol ogyt oAOL.AOLi nves t ed$100mi l l i oni nAmazon a ndpa y e danundi s c l o s e dl i ce ns ef e et ous et hes ear c ha ndper s o na l i z a ti ons e r v i c eon Shop@AOL[ HeunJul y2001] .I n2003,Amazonl aunc hedasubsi di aryj us tt os el li t sWe Websal esandf ul fil l mentt ec hnol ogyt oot herfirms ms.Bezo snot edt hatAmazonspendsabout$200 mi l l i onaye aro ni nf or m ma at i ont e c hno l o g y( at o t alof$ 900mi l l i ont omi mi d2 00 3) .Thepur p o s e o ft hes ubs i di ar yi st ohe l pr e c o v e rs o meo me ft ho s ec o s t s l t houghBezosbel i evest heywere —a c r i t i ca l l yne c e s s a r ye xpe ndi t ur e s[ Murp hy20 03 ] .
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Wi t hsomanydi vers epro duct s,andre l ati onshi ps,i tmi ghtbet empt i ngtokeepeveryt hi ngsepar ate.However ,Amazonperce i vesadvant agesf rom showi ngt heent i res i t et o c us t o me r sa sas i ng l e ,br o a de nt i t y .Ye s ,c us t o me r sc l i c kt ot hev ar i o uss t o r e st ofindi ndi v i dua li t e ms .But ,r unas e ar c ha ndy o uwi l lq ui c kl ys e et ha ti ti de nt i fie sp r o duc t sf r o ma ny di v i s i o n.Addi t i o nal l y ,t hec o mpanyi se x pe r i me nt i ngwi t hc r o s ss a l e s .I n2 002,t hePr o j e c t Rubytes tsi t ebegansel l i ngnamebrandcl ot hi ngandacc ess ori es.Cust omer swhospent$50 ormor eonapparelrec ei veda$30gi f tcer t i ficat ef oruseanywhereel seo nAmazon[ Hayes 2002] . By2004,25perce ntofAmazon’ ssal eswer ef ori t spart ner s.But ,oneofAmazon’ s maj orr el at i onshi pst ookare al l ybadt ur ni n2004whenToy s‘ R’ Uss uedAmazonandAma z o nc o unt e r s u ed.Thec o mpl a i ntb yTo y s‘ R’Usa l l e g e st ha ti tha ds i g ne dat e ny e are x c l usi vi t ycontr actwi t hAmazonandhadsof arpai dAmazon$200mi l l i onf ort her i ghtt obet he exc l usi vesuppl i eroft oysatAmazon. com.Davi dSc hwart z,seni orVPandgener alco unsel f o rTo y s‘ R’ Uss t at e dt hat“ Wedo n’ ti nt e ndt opa yf o re x c l us i v i t ywe ’ r eno tg e t t i ng ”[ Ca l burnMay2004] .Amazon’ si ni t i alr es ponsewast hat“ Webel i evewecanhavemul t i pl e s e l l e r si nt het o yc at e go r y ,i nc r e as es e l e c t i o n,ando ffe rpr o duc t st hat( To y s‘ R’Us )do e s n’ t . have”[ Cl abur nMay2004] Thel awsui tco unt er st hatatl eastoneproduct( aMonopol y g ame )a ppe ar st obef o rs a l ebyt hi r d pa r t ysuppl i e r sa swe l la sTo y s‘ R’Us A nt hl at er , . mo Amaz onc ount er s ued,al l egi ngt hatTo ys‘ R’ Use xper i enc ed“ c hr oni cf ai l ur e”t omai nt ai n s uffic i ents t oc kt omee tdemand.Thec ourtdocument snot edt hatToy s‘ R’Ushadbeenout ofst oc kon20per centofi t smostpopul arproduct s[ Cl aburnJune2004] .Al t hought hedi sput esoundsdamagi ng,i ti sc oncei vabl et hatbot hpart i esareusi ngt hecourt sasameanst o r e ne go t i at et heb as ec o nt r a c t . Smal lmer c hant sacc el er at edashi f tt oAmazon’ smarket pl acet ec hnol ogy.By2007, Amaz onwass i mpl yt hel ar ges tmar ke t pl ac eont heWeb.Fore xampl e,JohnWi eberwas s e l l i ng$1mi l l i o nay ea ri nr e f ur b i s he dc o mput e r st hr o ug he Ba y .Buti nc r e as e dc o mpe t i t i o n a ndeBa y’ sr i s i ngpr i c e sc o n vi nc e dhi mt os wi t c ht odi r e c ts a l e st hr o ug hAma z o n.Si mi l a r smal lmer c hant snot edt hatal t hought hef eesonAmazonarehef t y ,t heydonothavet opay al i s t i ngf e e .Pl us ,e Ba ys ho ppe r so nl ywantt obuyt hi ng sa tb ar g a i nb as e me ntpr i c e s ( Mangal i ndan2005) . I n2010,Targetendedi t sc ont r actwi t hAmazonandl aunc hedi t so wnWebser ver s. Amaz ondoesno tr epor ts al ess epar at el yf ori t spar t ner ss uc hasTar get ,s oi ti sdi ffic ul tt o det er mi newhati mpac tt hec hangemi ghthaveo nAmaz on.Ho we ve r ,Amaz onhasmany o t he rs e l l e r swhoo ffe rs i mi l arp r o duc t s .
Di g i t alCo nt e nt Amaz onhasbeene xpandi ngi t soffer i ngsi ndi gi t alc ont ent nmanyway se xt endi ngc om—i pe t i t i o na ga i ns tAppl e ,b uta l s ol e adi ngt hewa yi ndi g i t a lb oo ks .Al t ho ug hi twa sno tt he fir s tma nuf a c t ur e r ,Ama z o ni sre p o r t e dl ythel a r g e s ts e l l e ro fe r e a de r swi t ht heKi ndl e . Amaz ondoesno tr epor ts al ess epar at el yf ort heKi ndl e.Amaz onal s ono t edi n2011t hatebooksf ori t sKi ndl ereaderhaveovert akensal esofpaper backbooksast hemostpopul ar f ormat.Theebookshadal re adyexc eededhardco verbookst heyearbef or e[ Wu2011] .For manyoft hes ere asons,Bor ders ,abri c ksandmor t arc ompet i t ort oAmazonwentunderi n . 2 0 1 1
Amaz oni sal s owor ki ngt oe xpands al esofmus i c .TheWebs i t ehasr el at i vel ys t andardpri ci ngoncurre ntsongs,butof t enoffersdi sc ount sonol deral bums.By2011,Amazon wasal sot ryi ngt oexpandi nt ovi deost reami ng.Cust omerswhopay$79ayeart oj oi nt he 3
Pr i mep r ogr a mg ai nf a s t e rs hi ppi ng ,a ndal s oa cc e s st oal i b r a r yo fdi g i t a lmo v i e sa ndTV s ho ws .Unf o r t unat e l y ,wi t hl i mi t e dt i e st ot hemo v i es t udi o s ,t heo ffe r i ng si ni t i a l l ywe r e r e l a t i v e l yt hi n.Ho we v e r ,o t he rv i de os t r e a mi ngs i t e s ,i nc l udi ngNe t fli xa ndHul u,we r eal s o st ruggl i ngt odevel opl ongt erm cont r act swi t hst udi os.I nSept ember2011,Amazonannounc edadealwi t hFoxt oo ffermovi esandTVshowsownedbyt hes t udi o.Att hes ame t i me,Net fli xannouncedasi mi l ardealwi t ht heDreamwor kss t udi o.I twi l lt aket i mef or st udi ost odet ermi nest rat egi esonst reami ngvi deoser vi cesandf orc onsumerst omake c hoi c es[ WooandKung2011] . I nl ate2011,Amazonre l easedi t so wnvers i onofat abl etco mput er .Thec ompany c o nt i nue dt os e l lt heKi ndl ee b o okr e a de r ,b utt het a bl e tf o c us e do na udi oandv i de o ,us i ng ac o l o rLCD di s p l a ys c r e e nwi t hat o uc hi nt e r f a c e .Al t ho ug hi tl a c k edf e at ur e sa v a i l a bl eon t hema r k e t l e a di ngAppl e ti Pa d,t heKi ndl et a bl ec a r r i e dapr i c et ha twa sab outha l ft hato f t hei Pa da ndo t he rc o mpe t i t o r s( $ 20 0) .Theo b vi o usg o a lwa st opr o v i deade v i c et ha te n co ur agesc ust omerst opurc hasemor edi gi t alc ont entdi r ect l yf rom Amazon[ Peer s2011] .
Sal esTaxes Sal est axeshavebeenal ongt er mi ss uewi t hAmazon.TheAnnualReportnot est hatse ver alst ate sfil edf ormalc ompl ai nt swi t ht hecompanyi nMarc h2003.Thebasi sf ort hei ndi v i duals ui t si sno tde t ai l e d,butt hebas i cl e g alpo s i t i o ni st hatanyc o mpanyt hathasa phy s i c a lpr e s e nc ei nas t a t e( “ ne x us ”b yt het e r msofaU. S SupremeCourtrul i ng) ,i ssu b . j ec tt ot hats t at e’ sl awsandmus tt henc ol l ec tt her equi r eds al est axesandr emi tt hem t o t hes t a t e .Thec h al l e ng ei st ha tt hel e v e lo fpr e s e nc eha sne v e rb e e nc l e a r l yde fine d.Ama z o na r g ue st ha ti tha snoph ys i c a lpr e s e nc ei nmo s ts t a t e sa ndi st he r e f o r eno tr e q ui r e dt o c o l l e c tt ax es Themostre ce ntc hal l engesarebasedonAmazon’ s“ affi l i at e”pro gram A . . ma zo npaysasmal lc ommi ss i ont opeopl ewhorunWebsi t esandr edi r ec tt r affict ot heAmazon s i t e .Fo ri ns t a nc e ,as i t emi g htme nt i o nabo o ka ndt h eni nc l udeal i nkt ot heb oo ko nt he Amaz ons i t e.Se ver als t at eshavepas s edl awsc l ai mi ngt hatt hes er el at i ons hi psc ons t i t ut ea “ sal esf or ce ”andopenupAmazont ot axat i onwi t hi nanyst atewher et heseaffil i atesres i de. I nr e s po ns e ,Ama z o ndr o p pe dt heaffil i a t epr o g r a mi ns e v e r a ls t a t e s ,ha si ni t i a t e dal e g al c hal l engei nt hest ateofNew Yor k,andi n2011,negot i at edanew dealsi gnedi nt ol aw i n Cal i f o r ni a[ Le t z i ng2011] .I nt heCal i f o r ni ade al ,Amaz o no bt ai ne dade l a yi nc o l l e c t i ngt a xe sf o ratl e as tay e ar ,i ne x c hang ef o rl o c a t i ngane w di s t r i but i o nc e nt e ri nt hes t at eand c r e at i ngatl e as t10, 000f ul l t i mej o bs .Amaz o ni sa l s oa s ki ngt heU. S.Co ngr e s st oc r e at ea ne wf e de r a ll a wt ode a lwi t ht hes al e s t a xi s s u e.Ho we v e r ,b e c aus et hes t a t esa l e st axi s s u e i sdr i v e nb yt hei nt e r s t a t eco mme r c ec l a us ei nt heU. S.Co ns t i t ut i o n,as i mpl el a w wi l lno t al t e rt heunde r l y i ngpr i nc i pl e s .Ho we v e r ,i fCo ngr e s sd e s i r e d,i tmi g htc r e at eaFe de r a l Sal est axl aw wi t hso memet hodofapport i oni ngt hemoneyt ost at es.But ,donotbetonany ma j o rt a xl a wsdur i ngaPr e s i de nt i a le l e c t i o ny e ar .
I nf or mat i onTec hnol ogy I nt hefir s ty e ar s ,Ama z o ni nt e nt i o na l l yke p ti t sWe bs i t es y s t e mss e p ar a t ef r o mi t so r de r f ul fil l mentsys t em.Theseparat i onwaspart l yduet ot hef actt hatt heprogrammersdi dnot havet het ec hni calabi l i t yt oc onnectt hem,andpart l ybec auset hec ompanywant edtoi mprov esec ur i t ybykeepi ngt heor dersys t emsofft heWeb . By1997,Amazon’ ss al eshadr eached$148mi l l i onf ort heyear Thebi gbookdat . a b as ewa sbe i ngr uno nDi g i t a lAl phas e r v e r s .Appl i c a t i o nswe r es t i l lc us t o m wr i t t e ni n
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house.Byearl y2000,t hec ompanyhadover100separ at edat abasei ns t anc esr unni ngona . v ar i e t yo fs e r v er s ndl i ngte r a by t e so fda t a —ha I n2000,Amazondeci dedt oove r hauli t sent i r es ys t em.Thec ompanyspent$200 mi l l i o no nne w appl i c a t i o ns ,i nc l udi nganal y s i ss o f t war ef r o m E. pi phany ,l o gi s t i c sf r o m Manugi s t i c s ,andanewDBMSf r om Or ac l e.Thec ompanyal sosi gneddeal swi t hSASf or da t ami ni nganda na l y s i s[ Co l l e t t2 00 2] .But ,o neofi t sbi g ge s tde al swa swi t hEx c e l o nf o r b us i ne s s t o b us i ne s si nt e g r at i o ns y s t e ms .Thesy s t e me na bl e ss uppl i e r st oc o mmuni c a t ei n r e a lt i me ,e v e ni ft he ydono tha ves o phi s t i c a t e dI Tde par t me nt s .I tpr o v i de sadi r e c tc o nnec t i ont oAmazon’ sERPs ys t em ei t hert hr oughpro gr ammi ngco nnec t i onsort hr ougha Webbr ows er[ Koni c ki2000] . Aboutt hes amet i me( Ma y2000) ,Amaz oni nkedadealwi t hHPt os uppl yne ws er ver sandI Tse rvi c es[ Goodri dgeandNel so n2000] .Thenewsys t emsr ant heopenso ur c e Li nuxoper at i ngsys t em.Al r eadybyt het hi r dquart erof2001,Amazonwasabl et or educe i t sI Tcos t sby24perce ntf ro mt hesamequart eri n2000[ Col l et t2002] . By20 04 ,t hes uppl yc ha i ns y s t e ma tAma z onwa sac r i t i c a lf a c t o ri ni t ss u c c e s s .J ef f re yWi l ke,Seni orVPofwor l dwi deoper at i ons,observedt hat“ Whenwet hi nkabouthow we ’ r eg o i ngt ogr o wo urc o mpany ,wef o c uso npr i c e ,s e l e c t i o n,anda v ai l abi l i t y .Al lt hr e ede pe ndc r i t i c a l l yo nt hesuppl yc ha i n”[ Ba c he l do r2 00 4 A ] mos tt heent i r es ys t em wasbui l t .l f rom sc rat c h,cust omi zedt oAmazon’ sneeds Whenacus t omerpl acesanor der ,t hesys t em . i mme di a t e l yc o nne c t st ot hedi s t r i b ut i o nc e nt e r s ,de t e r mi ne st hebe s twa yt os hi pt hepr o d uc t ,a ndpr o v i de st hede t a i l st ot hec us t o me ri nunde rt womi nut e s .Thee nt i r ep r o c e s si s a ut o ma t i c . Dr .Rus se l lAl l gormov edf r om Baye rChemi c alt oAmazonandbui l tan800, 000equati onco mput ermodeloft hec ompany’ ss prawl i ngoper ati on Wheni mpl ement ed,t he . goaloft hemodelwast ohel pacc ompl i shal mostever yt hi ngf ro m sc hedul i ngChri st mas o v e r t i met or e r o ut i ngt r uc k si nas no ws t o r m A l gor ’ spr el i mi nar ywor kf oc us edononeof .l Amaz on’ smos tve xi ngpr obl ems :Ho wt okeepi nvent or yatami ni mum,whi l eens ur i ngt hat whensomeoneor der sse ver alproduc t s,t heycanbeshi ppedi nasi ngl ebox,pre f er abl yf rom t hewar ehouse— t hec ompanyhadsi x— t hati snear es tt hecust omer[ Hansel l ,2001] .Dr . Al l gor ’ sanal ys i si ss i mpl e,buther et i c alt oAmaz onve t er ans .Amaz ons houl di nc r eas ei t s ho l di ngsofbe s ts e l l e r sands t o pho l di ngs l o ws e l l i ngt i t l e s.I two ul ds t i l ls e l lt he s et i t l e sbut or dert hem af t ert hecust omerdoes .LynBl ake,avi c epr es i dentwhoprevi ousl yranAmazon’ sbookdepart mentandnowover se esc ompanyr el at i onswi t hmanuf act ure r s,di sagre es wi t ht hi spe r s pe c t i v e .“ Iwo r r yab outt hec us t o me r ’ spe r s pe c t i v ei fwes udde nl yha v eal o to f i t e mst hatar eno ta vai l abl ef o rqui c kde l i v e r y . ” Amaz on’ smer c hantandMar ke t Pl ac es ys t emsar epo wer f ult ool st hatenabl es mal l er s t o r e st os e l lt he i rpr o d uc t st hr o ug hAma z o n’ ss y s t e m A z onc ont i nual l ywor kst oi m. ma provet hec onnec t i onsont hosesys t ems.Thi ss yst em causedprobl emsi n2001 hemai n —t i ss uewast hatt hedat aont hemer c hantWebsi t eswasbei ngupdat edonl yonc eeve ryei ght hours .Themer c hant ’ sl i nkt oAmazon’ smai ndat abaseserver s,andi nt ernalappl i cat i ons t ransf ert hedataont ot hedi spl ayedpageasr eques t ed.Asc ust omerspurc hasedi t ems,t he i nv e nt o r yqua nt i t i e swe r ea l t e r e di nt hema i ns e r v e r s ,butt hecur r e ntt o t a l swe r eno t t r a ns f e r r e dt ot h edi s p l a ypa ge sunt i ls e v e r a lh our sl a t e r .Co ns e q ue nt l y ,c us t o me r swo ul d b et o l dt ha ta ni t e m wa si ns t o c k ,e v e ni tha ds o l do uts e v e r a lho ur sa go .Tos o l v et hepr o b m,Amazoni nst al l edExce l on’ sObj ec t St oredat abasei n2002.Thesys t em f unct i onsasa l e c achemanagementse rve r ,r educ i ngt heupdat et i mesf r om ei ghthour sdowntot wo
5
mi nut es PaulKot as,engi neer i ngdi rec t orf ort heMer c hant s@Groupnot edthat“ wi t ht he . . g r o wt ho ft hi sb us i ne s s ,wene e de daz e r o l a t e nc ys o l ut i o n”[ Whi t i ng20 02 ] I n2003,Amazonaddedasi mpl eobj ec tacc es spro t oc ol( SOAP)gat ewaysot hatr et ai l er sc oul deasi l ybui l daut omat edc onnect i onst ot hesys t em.Datai spass edasXMLdocument sandaut omat i c al l yc onvert edt oAmazon’ sf or mat[ Babc oc k2003] . Oneo ft hemo s ts uc c e s s f ult e c h no l o g i e si nt r o d uc e db yAma z oni st hea ffini t yl i s t . Whenso meo nepurc has esani t em,s ys t em makesr ec ommendat i onsbas edonsi mi l ari t ems pur c ha s e db yo t he rc us t o me r s .Thes y s t e m us e sb as i cd at ami ni ngands t a t i s t i c a lt o o l st o qui c kl yruncor re l ati onsanddi spl ayt hesuggest edproduct s.Kaphannot est hat“ Therewas al waysavi si ont omaket heservi ceasusef ulasposs i bl et oeac huserandt ot akeadvant age o ft heab i l i t yoft heco mput e rt ohe l pa na l y z eal o to fda t at os ho w pe o pl et hi ng st he ywe r e . mo s tl i ke l yt obei nt e r e s t e di n”[ Co l l e t t2002] Thes ys t em al sor emember sev er ypur c hase madebyac us t omer .So,t heAmazonprogr ammer sc r eat edt heI ns t antOr derUpdat ef eat ure ,t hatr emi ndsc ust omer si ft heyhaveal re adypurc hasedani t em i nt hei rc art .Bezo not est hat“ Cust omersl eadbusyl i vesandcannotal waysr ememberi ft hey’ veal re adypur c hasedapart i c ul ari t em. ”Heal soo bser vedt hat“ Whenwel aunc hedInst antOr derUpdat e, wewe r ea bl et ome as ur ewi t hs t at i s t i c a ls i g ni fic a nc et hatt hef e at ur es l i g ht l yr e duc e ds al e s . Goodf orcust omer s?Defini t el y Goodf orshar eowner s?Yes ,i nt hel ongrun”[ 2003annual . r epo rt ] . Capi t alexpendi t ure sf ors of t wareandWebsi t edevel opmentarenotc heap:$176 mi l l i o n,$ 14 6mi l l i o n,a nd$ 12 8mi l l i o nf o r2 01 0,2 00 9,a nd2 008r e s p ec t i v e l y( 2 01 0Annual Re po r t ) .But ,i nc o mpa r i s o n,i n2 01 0,ne ti nc o met a xpr o v i s i o nswe r e$ 35 2mi l l i o n.
NewSer vi c es Amaz onr equi r eshugedat ac ent er sandhi ghs peedI nt er ne tc onnec t i onst or uni t ss ys t ems . Thr o ug hv as te c o no mi e so fs c a l e ,Ama z o ni sa bl et oac h i e v ei nc r e di b l yl o w pr i c e sf o rd at a st or ageandbandwi dth.Around2005,t hec ompanydeci dedt hati tcoul dl ever aget hosel ow c o s t si nt oane wb us i ne s ss e l l i ngI n t e r ne t b as e ds e rv i c e s .Thec o mpa nyo ffe r sa no nl i neda t a s t o r a g es e r v i c ec a l l e dS3 .Fo ramo nt hl yf e eo fa bo ut1 5c e nt spe rg i g ab yt est o r e dpl us15 c e nt sp e rg i g ab yt eo fda t at r a ns f e r r e d,a nype r s o no rc o mpa nyc a nt r a ns f e ra nds t o r edat a onAmazonser ver s[ Mar koff2006] .Thr oughasi mi l ars er vi c e( EC2) ,anyco mpanyc anuse t hec o mpa ny ’ sWe bs e r v e r st ode l i v e rd i g i t a lc o nt e ntt oc us t o me r s .Thec o mpa nye s s e nt i a l l y s e r v e sa saWe bho s t ,b uti ns t e ado fpa y i ngfix e dc o s t s ,y o upa y10c e nt sp e rv i r t uals e r v e r perhourpl usbandwi dt hco s t A s z on’ sne t wor kc anhandl ebur s t supt o1gi gabi tpers e . ma co nd.Thesys t em cr eat esvi rt ualser vers, runni ngt heLi nuxkernel ,andyoucanrunany sof t wareyouwant[ Gr al l a2006] .By2011,t hecompanyhadse ver all ocat i onsprovi di ngS3 a ndEC2We bs e r v i c e s . I ta l s oo ffe r e donl i nere l a t i o na lda t a ba s es e r v i c e sus i ngei t he r MySQLort heOr ac l eDBMS.Anyonec anpayt os t or edat ai nt heDBMS,wi t hchar gesbei ngl e v i e dpe rho ur ,pe rd at as t o r e d ,a ndpe rd at at r ans f e r r e d .Thepo i nti st ha tAma z o n handl esal loft hemai nt enanc eandot herc ompani esavoi dfixedcos t s.Evengover nment a ge nc i e sar ea do p t i ngt hebe ne fit so fs t o r i ngda t ai nt he s ecl o uds e r v i c e s nc l udi ngt ho s e —i r unbyAmazon.Forexampl e,t heU. S.Tr eas ur yDepart mentmov edi spubl i cWebsi t est o t heAmazonc l oud.[ Pr at t2011] . Per hapst hemos tunusualse rvi cei sMt ur k.Thenameder i vesf r om an18c ent ury j okewher ea“ mec hani c al ”c hes s pl ayi ngmac hi nes ur pr i s edEur opeanl eader sandr o yal t y bybeat i ngmanyexper tpl aye r s.Thet r i c kwast hatahumanwashi ddenundert heboar d andmove dt hepi ec eswi t hmagnet s.Amazon’ st r i c ki st ousehumanpowert oso l veprob6
l ems.Compani espostpro j ec t sont heMt ur ksi t eandoffert opayapri cef orpi ecemealwor k. Anyi ndi vi dualc ans i gnupandper f or m at as kandge tpai dbas edont heamountofwor k c ompl et ed.Amazont akesa10perc entc ommi ss i onabovet hef ee.Forexampl e,t hec ompany Cast i ngWor dspl acesaudi ofil esont hesi t eandpayspeopl e42cent st ot ransc ri beonemi nut eofaudi ofil esi nt ot ext[ Markoff2006] . TheAmaz onEC2andS3s er vi c ess uffer eds omepr obl emsi nt hes ummerof2011.A c o nfig ur a t i o ne r r o rd ur i nganupg r a dei nt heEa s tCo a s tf a c i l i t yt r i g ge r e dac a s c a det ha t de l a y edal ls e r v i c e si nt hef ac i l i t y.I nt e r ne ts e r v i c e si nc l udi ngFo ur s q uar eandRe ddi tt hat use dt hef aci l i t ywer ei mpac t edbyt hepr obl emsf oral mos taweek[ Ti bken2011] .Amazon engi neer sl earnedal otf rom t heprobl emsandt hesamei ss uei sunl i kel yt oocc uragai n [ ht t p: / / a ws . amaz o n. c o m/ me s s a ge / 65648/ ] .But ,t heo ut ag epo i nt so utt her i s ksi nv o l v e di n anyce nt ral i zedsys t em.I ro ni cal l y,t hemai npro bl emswerec ausedbyal gori t hmsdesi gned t oc o pydat at omul t i pl es e r v e r st or e d uc er i s ks .Ont heo t h erhand,wi t hmul t i pl ef ac i l i t i e s , Amaz onpr o vi dest heabi l i t yt os pr eadc ont entandr i s kac r os smul t i pl el oc at i ons . Adam Sel i ps ky ,vi c epr es i dentofpr oduc tmanagementandde vel operr e l at i onsat Amaz onWebSer vi c esobs er vedt hat“ " Amaz oni sf undament al l yat ec hnol ogyc ompany; we ’ v es pe ntmo r et ha no neandaha l fb i l l i o ndo l l a r si nv e s t i ngi nt e c h no l o g ya ndc o n t e nt . Webeganbyre t ai l i ngbooks,buti twasneveri nourbusi nesspl ant ost aywi t ht hat ” [ Gr a l l a2006] .
Fi nanci alPerf ormanc e WhenAmazons t art ed,i tspenthugeamount sofmoneynotonl ybui l di ngi nf ras t ruct ur e, butal sobuyi ngmarketshare.I tt ookAmazonni neyearst oachi eveprofit abi l i t y.Andt he pr o fit ss t a r t e dt oa r r i v eo nl yaf t e rt hec o mpa nyc ha ng e di t sp r i c i ngmo de l o c us i ngo nr e —f t ai lpr i c e sf o rpo pul ari t e msa nds mal l e rd i s c o unt sf o ra l lbo o ks .I nt hepr o c e s s ,t hec o mpanyl ostal most$3bi l l i on.I twasnotunt i l2009t hatAmazonhadgenerat edenoughpro f i t s t oc o ve ral lo fi t spr i o rl o s s es( i gno r i ngi nt e r es tr at e sandde bt ) . Year 2 0 1 0 2 0 0 9 2 0 0 8 2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 4 2 0 0 3
NetSal es
3 4, 2 04 2 4, 5 09 19, 166 1 4, 8 35 1 0, 7 11 8, 490 6, 921 5, 264 3, 933 3 , 1 22 2, 762 1 , 6 4 0
NetI ncome Debt( LT)
1 , 1 52 9 0 2
1 , 5 61 1 , 1 92
6 4 5
8 9 6
4 7 6
1 , 2 82 1 , 2 47 1 , 4 80 1 , 835 1 , 919 2, 277 2, 156 2, 127 1 , 466
1 9 0 3 5 9 5 8 8 3 5
( 149) ( 567) 2 0 0 1 ( 1 , 411) 2 0 0 0 ( 720) 1 9 9 9 ( 1 2 5 ) 1 9 9 8 6 1 0 ( 31 ) 1 9 9 7 1 4 8 ( 6) 1 9 9 6 1 6 0. 5 ( 0. 3) 1 9 9 5 ( $ Mi l l i o n.So ur c e :Annua lRe po r t s . ) 2 0 0 2
3 4 8
Equi t y
6 , 8 64 5 , 2 57 2, 672 1 , 1 97 4 3 1 2 4 6 ( 227) ( 1 , 036) ( 1 , 353) ( 1 , 440) ( 967) 2 6 6 1 3 9
77
2 9
0
3
0
1
Empl oyee s
3 3, 7 00 2 4, 3 00 20, 700 1 7 , 0 00 1 3, 9 00 1 2, 0 00 9, 000 7 , 800 7 , 500 7 , 800 9, 000 7 , 600 2, 100 6 1 4
7
. Thec ompany’ sfinanci alposi t i onhasi mprovedsi nce2000 Mos toft hei mpr ove ment i sd uet oi nc r e as e si ns a l e s —whi c hi sg o o d.But ,t ho s es al e si nc r e as e dl ar g e l ybys e l l i ng produc t sf orot herfirms,andf r om onemor et wi s t .Amazonnol ongerdi sc ount smos toft he b o okst ha ti ts e l l s .I nf a c t ,i ti sge ne r a l l ymo r ee x pe ns i v et op ur c ha s ebo o ksf r o m Ama z o n t ha nt obuyt h e mf r o my o url o c a lb o oks t o r e .Fo rc o mpe t i t i v eo nl i nepr i c i ng ,c h ec k www. c a mpus i . c o m,whi c hs e ar c he smul t i pl eWe bs i t e sf o rt heb e s tpr i c e ,butt hes e l e c t i o n mi g htno tb easl a r g e . Ano t hers our c eofi nc r eas eds al esi st hei nt er nat i onalmar ke t( l ar gel yBr i t ai n,Eur o p eandJ apa n) .No t i c ei nt het a bl et ha tme di as a l e s( b oo ks ,a udi o ,a ndmo v i e s )ar eh i g he r i nt heI nt er nat i onalmarkett hani nNor t hAmer i c a.Mor eproduc t sar es ol di nNor t hAmer i c a ,butc l e ar l yt hegr o wt hpat hi st hei nt e r nat i o nalma r ke t .
NetSal es2010 Nor t hAmer i c a Medi a $6, 881 El e c t r o ni c s+g e n.me r c h. 1 0, 9 98 Ot her 8 2 8 ( $Mi l l i on.Sourc e:2010AnnualReport )
I nt er nat i onal $8, 007 7 , 3 65 1 2 5
Outofcuri osi t y,wheredi dal loft hatmoneygo?I n2003,Bezosnot edt hat$900mi l l i o nwe ntt ob us i ne s st e c h no l o g y;$ 30 0mi l l i o nwa ss pe nto nt hef ul fil l me ntc e nt e r s ;and $700mi l l i ononmarket i ngandcust omeracqui si t i on[ Murphy2003] .Thatl astpartl argel y r e pr e s e nt ss e l l i ngbo o ksa tal o s so ro ffe r i ngf r e es hi ppi ngwhi l et r y i ngt oa t t r a c tc us t o me r s . Thosenumbersaddupt ot he$1. 9bi l l i ondebt ,butwhathappenedt ot heot her$1bi l l i oni n ne tl o s s e s ?I nt e r e s t i ng l y ,a c c o r di ngtot he20 10Annua lRe po r t ,Ama z ons t i l lr unsal o s so n s hi ppi ng .I n2 01 0,t hec o mpa nyde c l a r e ds hi ppi ngr e v e nueo f$ 1. 2bi l l i o n,a ga i ns to ut b o und s hi ppi ngc o s t sof$2. 6bi l l i o n,f o rane tl o sso f$ 1. 4bi l l i o n! Amaz onc ont i nuest oexpandaggr es s i vel y .I n2011,Amaz ones t i mat edr e venuei ncr easesof2839per centbuti nc reasedoper at i ngexpensesbyabout38per cent .Tom Szkut ak,Amazon’ sfinanc ec hi efnot edt hat“ Whenyouaddsomet hi ngt ot hemagni t udeof 2 3f ul fil l me ntc e nt e r s ,mo s t l yi nt hec o ur s eo ft hes e co ndha l fo fl a s tye a r ,y o uha v ea dde d c o s t sa ndy o u’ r eno ta spr o d uc t i v eo nt ho s ea s s e t sf o rs o met i me , ”[ Wu2 01 1] . Fo rt hel o ng e rt e r m,Ama z o n’ sl e a de r sc l e ar l yi ndi c a t et ha tt he yar ea wa r eo ft he s t i ffc o mpe t i t i o n—b o t hf r o mb r i c ks a ndmo r t a rr e t a i l e r sa ndf r o mo nl i ner i v al si nc l udi ng s ma l ls t a r t upsande s t a bl i s he dr i v al si nc l udi ngAppl eandGo o g l e .
CaseQues t i ons 1 .Whoar eAmaz on’ sc ompet i t or s ? 2 .Whywoul dcust omer ss hopatAmazoni ft heyc anfindbet t erpri c esel se wher e?
.Whydi dAmazoncr eat emos tofi t sownt ec hnol ogyf r om s c r at c h? 3 4 .I fAmazo nbuyspr oduct sf r om o t herfir msands i mpl yshi pst hem t oc ust omer s ,why
do e si tne e ds oma nyofi t sowndi s t r i b ut i o nc e nt e r s ?
8
.Wi l lot herr et ai l er sbuyorl easet heWebsof t wareandser vi c esf r om Amazon?Can 5 Amaz onmakeenoughmone yf r om s el l i ngt hes es er vi c es ? .Wr i t ear eportt omanagementt hatdesc r i best hepri maryc auseoft heprobl ems,a 6 det ai l edpl ant osol vet hem,andshow how t hepl ansol vest heprobl emsanddescr i be anyo t he rbe ne fit si twi l lpr o v i de .
