Evolving the Amazon.

com Business
Model [1995-2000]
Case analysis of the evolving business strategy and the porter’s analysis of amazon in the year 2000

Authored by: Rajith Attupurath

Student No: 3221477
Introduction
Jeff Bezos incorporated the company in July 1994, and the site went online as amazon.com in 1995.
Amazon.com started as an online bookstore, but soon diversified, selling DVDs, CDs, MP3 downloads,
software, video games, electronics, apparel, furniture, food, toys, and jewellery. The time line of
amazon.com until 2000 is mentioned below

Porter’s Analysis

As per the balance sheet of amazon.com at 2000, they were in a loss of almost $1billion. The business
situation of amazon at the 2000 is analysed here using the tool porter’s analysis. This analysis is useful
because it helps understanding both the strength of competitive position and factors affecting the strategic
development. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute
products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical'
competition: the bargaining power of suppliers and the bargaining power of customers
Bargaining power of supplier

On the one hand amazon.com has marked advantages with most of their providers (books, audio,
technology) for the reason that these companies do not charge their products until the moment that
amazon.com sell them. On top of that, amazon.com pays suppliers for those products only 35 days after that
the item has been sold, nevertheless companies are prepared and ready to provide services and products to
amazon.com.

For small companies and publishers, amazon.com keeps a maximum of five items in their stock in order to
reduce costs. Amazon charges other merchants a monthly fee to sell their wares on the Web site. zShops
have higher profit margins than the company's own direct sales. Merchants who sell their products through
zShops pay Amazon a monthly fee of $39.99 and a closing fee of 5 percent on items sold for $25 or less. Also
the after sale of electronic items was a big challenge for Amazon. Long lasting relationship with customers
and copy right of songs during those periods was a big challenge for Amazon. After testing several price
points, Amazon eliminates shipping fees for orders of more than $25, its lowest price point yet. Although it
costs the company in additional shipping expenses, the move boosts sales and Amazon decides to maintain
the offer indefinitely.

Amazon lists the merchandise on its Web site, it does not actually take control of the inventory; the
individual vendors are responsible for fulfilling their orders. Amazon, however, receives a cut from the sales.
Amazon's sales from third-party vendors are still a small percentage of its total revenue, but the margins are
higher.

Bargaining power of customers

Initially consumers that buy goods in amazon.com tend to become regular clients due to the low prices that
amazon.com can offer. At Amazon.com almost all books are discounted. Bestsellers are sold at a 30 to 40
precent discount and the other books at a 10 precent discount. In addition these prices can be hard to reach
by the competence. Customers can create lists of the products that they want from Amazon.com and save
the list for online viewing by others.

The innovation from amazon about introducing of new items made the customers more choice of product
selection and customization of website per geographical location made customers somewhat satisfied.
Amazon lets customers submit feedback on books and other products sold on the site. It becomes a popular
online feature as consumers flock to share their thoughts with millions.

Low prices is the principal attraction that amazon.com offers to each individual buyer. Moreover the low
average of clients switching from amazon.com products and services to those of the competence is
satisfactory.

Competitive rivalry with in an industry

Amazon.com is one of the first companies into the e-commerce field. This gives to amazon.com a certain
level of tranquillity into the market. The entry of rivals like e-bay was a big challenge for amazon. Also
napster and Sony were too strong in the areas of music’s. The innovation from e-bay’s forced the Amazon to
invest on the bidding site shows a strong competitive rivalry in the industry. Amazon.com settles a lawsuit
brought by Wal-Mart, agreeing to reassign employees who had knowledge of the Arkansas retailer's
computer systems. Nevertheless amazon.com has innovated along the years reaching highest levels of
customer’s satisfaction which can assure their position into the market for future years.

Threat of substitution

Amazon.com has innovated their services and products along the years and the name of amazon.com is well
recognized and trusted into the field. The presence of retail segments and the popularity of internet in
various countries was a big challenge for Amazon. Some people especially in Europe have cultural factors
and online banking penetration was a possible substitution option. Also the emergence of new players like e-
bay and plenty of musical stores was also a possible substitution.

Threat of New Entry

Internet has shown to us that a simple idea well developed can offer extraordinary results, examples such as
e-bay, online music stores and so forth, these companies have developed their web sites in a short period of
time with incredible final results. This can be the proof that a threat of new entries into the market is
possible.

Issues Happened with Amazon

 Amazon agrees to buy 50 percent of the online pet supply store. Less than two years later, Pets.com
says it will close after failing to raise additional financing. Its stock is worth 22 cents a share after it
announces its closure.
 Amazon invests $60 million in the company, which home delivers videos and snacks ordered on the
Internet. (Fellow Seattle Company Starbucks Corp. is also an investor.)Kozmo.com announces it will
close less than a year-and-a-half later after it cannot obtain additional funding.
 Amazon invests in the online home furnishing store and agreed to add a Living.com tab on its Web
site in return for $145 million over five years. Just six months later, Living.com announces that it
would file for Chapter 7 bankruptcy protection. Living.com is now the Web site for the Fine Living
television channel.

Conclusion
Amazon becomes successful in the fourth quarter of 2002. But to do so, it has had to continually drive sales
and refine its changing business. The company launched a free shipping promotion that eliminated the fee
for orders of more than $99. After several tests, the company settled on a $25 price point last year. And it
continues to offer discounts on merchandise, offering consumers personalized daily deals on everything
from kitchenware to computer hardware. In the past few months, Amazon has rapidly expanded the number
of product categories on its site. It added four new stores, currently in beta, just before the holiday season:
sporting goods, gourmet foods, jewellery, and health and beauty. Customers can now buy everything from
soccer balls to Alaska smoked salmon to three-stone sapphire rings.

The company will also likely unveil new technology developments like customers search for words that
appear in books and view the text. The company might also look overseas to grow its business, opening new
stores on its international Web sites or launch Amazon in other Asia-Pacific and European countries where it
does not currently exist.