Beginning modestly in 1995 as an online bookstore, Ama-
zon.com became one of the first success stories of the early
Internet economy.
Named for the world’s largest river, Amazon.com was
the brainchild of entrepreneur Jeffrey Bezos .Like a number of other entrepreneurs of the
early 1990s, Bezos had been searching for a way to market
to the growing number of people who were going online.
He soon decided that books were a good first product, since
they were popular, nonperishable, relatively compact, and
easy to ship.
Several million books are in print at any one time,
with about 275,000 titles or editions added in 2007 in
the United States alone. Traditional “brick and mortar”
(physical) bookstores might carry a few thousand titles
up to perhaps 200,000 for the largest chains. Bookstores
in turn stock their shelves mainly through major book
distributors that serve as intermediaries between publish-
ers and the public.
For an online bookstore such as Amazon.com, however,
the number of titles that can be made available is limited
only by the amount of warehouse space the store is willing
to maintain—and no intermediary between publisher and
bookseller is needed. From the start, Amazon.com’s busi-
ness model has capitalized on this potential for variety and
the ability to serve almost any niche interest. Over the years
the company’s offerings have expanded beyond books to
34 different categories of merchandise, including software,
music, video, electronics, apparel, home furnishings, and
even nonperishable gourmet food and groceries. (Amazon.
com also entered the online auction market, but remains a
distant runner-up to market leader eBay).
Expansion and Profitability
Because of its desire to build a very diverse product line,
Amazon.com, unusually for a business startup, did not
expect to become profitable for about five years. The grow-
ing revenues were largely poured back into expansion.
In the heated atmosphere of the Internet boom of the
late 1990s, many other Internet-based businesses echoed
that philosophy, and many went out of business follow-
ing the bursting of the so-called dot-com bubble of the
early 2000s. Some analysts questioned whether even the
hugely popular Amazon.com would ever be able to con-
vert its business volume into an operating profit. How-
ever, the company achieved its first profitable year in 2003
(with a modest $35 million surplus). Since then growth
has remained steady and generally impressive: In 2005,
Amazon.com earned $8.49 billion revenues with a net
income of $359 million. By then the company had about
12,000 employees and had been added to the S&P 500
stock index.
In 2006 the company maintained its strategy of invest-
ing in innovation rather than focusing on short-term prof-
its. Its latest initiatives include selling digital versions of
books (e-books) and magazine articles, new arrangements
to sell video content, and even a venture into moviemaking.
By year end, annual revenue had increased to $10.7 billion.
In November 2007 Amazon announced the Kindle, a
book reader with a
sharp “paper-like” display. In addition to books, the Kindle
can also subscribe to and download magazines, content
from newspaper Web sites, and even blogs.
As part of its expansion strategy, Amazon.com has
acquired other online bookstore sites including Borders.com
and Waldenbooks.com. The company has also expanded
geographically with retail operations in Canada, the United
Kingdom, France, Germany, Japan, and China.
Amazon.com has kept a tight rein on its operations even
while continually expanding. The company’s leading mar-
ket position enables it to get favorable terms from publishers
and manufacturers. A high degree of
warehouse automation
and an efficient procurement system keep stock moving
quickly rather than taking up space on the shelves.
Information-Based Strategies
Amazon.com has skillfully taken advantage of information
technology to expand its capabilities and offerings. Exam-
ples of such efforts include new search mechanisms, cul-
tivation of customer relationships, and the development of
new ways for users to sell their own goods.
Amazon’s “Search Inside the Book” feature is a good
example of leveraging search technology to take advantage
of having a growing amount of text online. If the publisher
of a book cooperates, its actual text is made available for
online searching. (The amount of text that can be displayed
is limited to prevent users from being able to read entire
books for free.) Further, one can see a list of books citing
(or being cited by) the current book, providing yet another
way to explore connections between ideas as used by dif-
ferent authors. Obviously for Amazon.com, the ultimate
reason for offering all these useful features is that more
potential customers may be able to find and purchase books
on even the most obscure topics.
Amazon.com’s use of information about customers’
buying histories is based on the idea that the more one
knows about what customers have wanted in the past, the
more effectively they can be marketed to in the future
through customizing their view of the site. Users receive
automatically generated recommendations for books or
other items based on their previous purchases (see also
customer relationship management). There is even a
“plog” or customized Web log that offers postings related
to the user’s interests and allows the user to respond.
There are other ways in which Amazon.com tries to
involve users actively in the marketing process. For exam-
ple, users are encouraged to review books and other prod-
ucts and to create lists that can be shared with other users.
The inclusion of both user and professional reviews in turn
makes it easier for prospective purchasers to determine
whether a given book or other item is suitable. Authors are
given the opportunity through “Amazon Connect” to pro-
vide additional information about their books. Finally, in
late 2005 Amazon replaced an earlier “discussion board”
facility with a wiki system that allows purchasers to cre-
ate or edit an information page for any product
The company’s third major means of expansion is to
facilitate small businesses and even individual users in
the marketing of their own goods. Amazon Marketplace,
a service launched in 2001, allows users to sell a variety of
items, with no fees charged unless the item is sold.
There
are also many provisions for merchants to set up online
“storefronts” and take advantage of online payment and
other services.
Another aspect of Amazon’s marketing is its referral net-
work. Amazon’s “associates” are independent businesses
that provide links from their own sites to products on Ama-
zon. For example, a seller of crafts supplies might include
on its site links to books on crafting on the Amazon site. In
return, the referring business receives a commission from
Amazon.com.
Although often admired for its successful business plan,
Amazon.com has received criticism from several quar-
ters. Some users have found the company’s customer ser-
vice (which is handled almost entirely by e-mail) to be
unresponsive. Meanwhile local and specialized bookstores,
already suffering in recent years from the competition of
large chains such as Borders and Barnes and Noble, have
seen in Amazon.com another potent threat to the survival
of their business. (The company’s size and economic power
have elicited occasional comparisons with Wal-Mart.)
Finally, Amazon.com has been criticized by some labor
advocates for paying low wages and threatening to termi-
nate workers who sought to unionize.
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