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CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
I. CASE ABSTRACT
Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon) was
incorporated in the state of Washington in July 1994, and sold its first book
in July 1995. Amazon quickly grew from an online bookstore to the world’s
largest online retailer, greatly expanding its product and service offerings
through a series of acquisitions, alliances, partnerships, and exclusivity
agreements. By 2010, 43 percent of Amazon net sales were from media,
including books, music, DVDs/video products, magazine subscriptions, digital
downloads, and video games. More than half of all Amazon sales came from
Decision Date: 2012 FY Sales: $48 billion
FY Net Income: $631 million
II. CASE SUBJECTS AND ISSUES
Industry Analysis
Strategy Formulation Competitive Advantage
Strategy Implementation New Product Development
Core Competencies Market Segmentation
III. STEPS COVERED IN STRATEGIC DECISION–MAKING PROCESS
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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IV. CASE OBJECTIVES
1. To discuss product innovation: eReaders and tablets.
2. To discuss online sales and streaming.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent case for instructor–led discussion.
VI. DISCUSSION QUESTIONS
1. Is Amazon becoming a high-technology company?
2. Does it make sense for Amazon to sell Kindle below its cost?
VII. CASE AUTHOR’S TEACHING NOTE—Not Available
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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VIII. STUDENT STRATEGIC AUDIT
I. Current Situation
A. Current Performance
Based on a selected statistics below, Amazon Net Income and ROI
declined, but the share price increased, which is partially due to
share repurchase program in 2011 (10K).
• Net income declined to $631 million in 2011 from $1,152 in 2010.
B. Strategic Posture
1. The corporation’s mission, strategies, and objectives are detailed
2. Mission
• Company’s Mission Statement: “Earth’s most customer–centric
company…a place where people can come to find and discover
anything they might want to buy online.”
3. Objectives
• To increase sales domestically and internationally.
• Gain and retain the market share in the e-commerce industry.
The objectives are aimed at Amazon’s growth and profitability in an
extremely competitive environment and are in alignment with the mission
statement. They address the nature of the external environment (competition,
price, customer loyalty, and globalization) and internal environment
(technological development, finance, and marketing).
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
4. Strategies
• To increase sales and market share through partnership,
acquisitions, and strategic alliances.
o Allow 3rd party sellers to place links on Amazon web sites.
o Provide hosting and web site maintenance services for
partners.
• Utilize technology/web site capabilities to:
o Analyze website traffic
• Utilize technology to offer customers unique and useful tools and
services.
o Ratings engine
• Continuous adaptation to ever-changing environment.
• Effective online marketing techniques to attract customers and
satisfy partners.
o Pay–per–click advertisements
• Strategic positioning of fulfillment centers (near airports) at
low–costs.
The strategies are consistent with each other as they support the
corporate and business objectives.
5. Policies
• Maintain a lean corporate culture, focused on increasing its
operating income.
6. International Operations
Amazon’s strategic goal is to gain international market share in
e-commerce with the support of technology. The current mission,
objectives, strategies, and policies encourage expansion, including
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
II. Corporate Governance
A. Board of Directors
1. Ten directors: one internal and nine external.
2. The Chairman, Jeffrey Bezos, holds 19 percent of the stock, and the
remaining nine directors hold 0.03 percent of stock collectively.
3. The stock is publicly traded on NASDAQ under AMZN ticker. There is
only one type of stock, the Common Stock.
4. Directors have collective expertise in capital ventures, technology,
media, and law. One of the directors, Alain Monie, is a CEO of a
Table I
Directors
Shares Owned
Served
Since
Industry
Jeffrey P. Bezos
87,963,414
1994
E-commerce
Patricia Q.
Stonesifer
39,549
1997
Art
Thomas O. Ryder
31,579
2002
Media
Tom A. Alberg
28,344
1996
Technology
John Seely Brown
17,566
2004
Academia
William B. Gordon
2003
Venture Capital
Blake G. Krikorian
2011
Technology
Alain Monié
2008
Technology/Wholesale
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
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B. Top Management
1. President, Chairman of the Board, and CEO is Jeffrey Bezos. There
are eleven more officers (See Table II on the following page).
2. The Officers of the company have been a part of Amazon for various
lengths of time. However, all of them have held the position for at
least five years. Management background includes holding managerial
3. Most of the officers have been internal hires. None of the officers
4. The top management has established a systematic approach to
strategic management to support the firm’s mission and objectives.
5. Top management is responsible for strategic development of their
departments, which are co–dependent and together contribute to
6. All employees are encouraged to develop better solutions in their
areas of expertise. Thus, top management relies on lower level
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
7. Ethical and Social Responsibilities
8. Officers’ compensation is a combination of stocks, base salaries,
9. Top management collectively has expertise in key areas, such as
technology, e–commerce, consumer business, and law.
Table II
III. External Environment: Opportunities and Threats (SWOT)
A. Societal–Environmental
1. The following forces are affecting both Amazon and the e–commerce
industry which it competes. These forces present both current and
future threats (T) and opportunities (O).
a. Economy
• Global marketplace (O)
• Disposable income of target population [Economic Boom (O),
Recession (T)]
b. Technological
• Industry–related technology advancement (O)
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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c. Political—Legal
• Patent, License, and Copyright Laws (O / T)
• Increased Risk of Litigation (T)
d. Sociocultural
• Growing comfort with online shopping in different countries
(O)
• Buying local (T)
• Increased demand for immediate product fulfillment (O / T)
2. Since Amazon is a global retailer, it does not have the same
limitations as a brick and mortar retailer, Amazon’s environment
B. Task Environment
1. The following forces drive industry competition for Amazon. These
factors affect Amazon globally at vary degrees depending on the
region in which it is competing.
a. Threats of New Entrants: Low
• Need for high capital investment
b. Bargaining Power of Buyers: High
• Price sensitive customers
c. Threat of Substitutes: High
• High Presence of brick–and-mortar retailers
d. Bargaining Power of Suppliers: Moderate
• Provision of free inventory storage, increased brand presence,
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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• FBA and FWS help ease inventory management for the suppliers.
• Suppliers have options to sell directly to its customers.
e. Rivalry Among Competitors: High
• eBay sales reached 62 billion US$ in 2010, Metro AG 67 billion
euros in sales.
f. Relative Power of Unions and Governments: Low–to– Moderate
• Enforcement of local sales tax collection by the government.
• Not affected by union presence or special interest groups.
2. Competitors, customers, and government are the key factors in the
immediate environment currently affecting Amazon Inc. Each of the
C. Summary of External Factors (See Exhibit I—EFAS Table)
• Volatility of delivery costs is a substantial force.
• Oil and real estate costs are volatile to market forces and will
IV. Internal Environment (SWOT)
A. Corporate Structure
1. Amazon is structured into a business unit and then by functional
unit.
a. The organization tree consists of a board of directors at its
root, followed by officers and top management.
b. The firm is divided into different functional areas with a VP
associated with each. The functional units culminate under one
broad business unit.
B. Corporate Culture
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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1. Encouragement of top management to discuss and share ideas
recommendations, provides an inference about team work.
3. The culture of openness and knowledge sharing can generate more
innovations to better serve its customers. Flexibility and
5. The presence of different websites for multiple countries and
C. Corporate Resources
1. Marketing
a. Objectives
• Growth/Expansion in Target Markets Segments (North America and
International)
Strategies/Programs
• Online Marketing—vital to strategy
• Amazon Website (ease of use as marketing tool)
o Amazon websites were designed to be easy and
simple (e.g. payments for multiple products could
be done once and payments would follow the same
process regardless if the sale was directly from
Amazon or one of its associates).
o Website traffic tracking and analysis allowed
Amazon to direct visitors to items they may be
interested in.
• Pay–Per–Click Advertisements
o Advertisements on search engines such as Google.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
o Membership program that was offered for a $79
annual fee which allowed for free next day
delivery and free access to Amazon Instant Video.
• Television and Radio Advertisements
o Amazon initially reduced television and radio
• Free–shipping Offers/Speedy Delivery
o As part of maintaining its objective of competing
on price, Amazon offered a number of free–shipping
offers.
• Amazon Credit Card (brand recognition marketing tool)
o Amazon also offered its own credit card, co–
branding with Chase Bank.
• Kindle/Kindle Fire
o Kindle was sold below cost as it was expected to
generate increased sales of e–books and other digital
content.
o E-book sales took off and increased by more than
100 percent, according to the Association of
American Publishers. Other products were being
offered in digital formats.
o In 2010, 43 percent of Amazon net sales were from
• Product/Service Selection
• One of Amazon’s core principles is the selection. Amazon
strived to offer a wide selection of merchandise.
• Through Partnership and Acquisitions Amazon has been
able to offer a wide variety of products and service.
o On July 22, 2009, Amazon acquired Zappos, an
online shoe and clothing retailer.
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Amazon.com, Inc: Retailing Giant to High Tech Player?
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o On November 8, 2010, Amazon acquired Quidsi; the
parent company of Diapers.com, an online baby care
specialty site; and Soap.com, an online site for
• Amazon Market Place
o Developed partnerships with many retailers, such
as Target, Sears Canada, Bebe Stores, Timex
i. Amazon’s marketing strategies are clearly stated and are
represented by Amazon’s performance/budget.
• 2011 Figures/Statistics:
o Marketing expenses accounted for 3.4 percent of
net sales ($1,630 million).
o Affected by seasonality, Amazon recognized 36
percent of profits in the 4th Quarter.
• Growth (Since 2009)
o In 2009 marketing expenses were $680 million and
in 2011 were $1,630 million. In 2011 this was a
year–over–year percentage growth of 58 percent.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
ii. Amazon’s marketing strategies, objectives, and mission are
consistent with internal and external environments.
a. In 2012 software development, order fulfillment, and
customer service centers were located in North America, Latin
America, Europe, and Asia and fulfilled orders in 200 countries.
• In 2011, Amazon‘s total sales were represented by 56 percent in
North America and 44 percent International.
i. Trends
• Continued increases in online shopping, as customers have
become more comfortable with shopping online.
ii. Past/Future Performance
• Online sales will continue to grow and Amazon will have to
make adjustments to its capacity.
iii. Past/Pending Strategic Decisions
• Heavy investments in IT Infrastructure to support increased
capacity.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
• Investment in additional facilities to support capacity and to
continue speedy and reliable delivery.
iv. Marketing expands Amazon’s brand recognition and brand
recognition gives Amazon a competitive advantage.
a. Amazon competes with a number of organizations such as
Metro AG, Barnes and Noble, eBay, and Apple.
• Apple currently has 60 percent of the market. The remaining
market share is shared by Sony Nook, Samsun Galaxy, and the
Kindle Fire.
b. Managers are using acceptable marketing concept and techniques by
staying current with e–commerce trends. Amazon using Frustration
Free Packaging, as being environmentally friendly has become a
c. Amazon has dedicated sites for the following countries: Austria,
Canada, China, France, Germany, Italy, Japan, Spain, United
Kingdom, and the United States. This allows Amazon websites to be
customized to local client’s preferences.
d. Marketing Managers decisions greatly impact the logistics and
2. Finance
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
a. Objective
• Achieve long–term sustainable growth and profitability
Strategy
• Amazon objective is to maintain a lean culture focused on
i. Objectives and strategy are clearly stated and implied by
Amazon’s financial performance (see Table III on the following
page).
ii. Amazon’s financial strategies, as stated agree with Amazon’s
b. Financial Performance
(Information from annual filings obtained from www.sec.gov)
(See exhibit IV and V for full summary of financial analysis and
common size income statement)
• Revenues increased from $19,166 million in 2008 to $48,077
million in 2011.
Table III
Dec–
2008
Dec–
2009
Dec–
2010
Dec–
2011
Explanation:
Current Ratio:
1.30
1.33
1.33
1.17
Amazon can cover its short–term
obligations, however, this is
slowly decreasing. A number closer
to 2 would be more desirable.
Investment (ROI)
increasing along with increases in
Operating Costs.
Operating Costs.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
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Net Profit
Margin
3.37%
3.68%
3.37%
1.31%
Reducing as a result of increasing
Operating Expenses.
i. Trends
• Operating expenses increase due to increases in R&D, selling,
and general expenses. This has reduced net profit margin.
o Operating expenses represented 21 percent of revenues in
• Revenues have consistently grown with international sales,
growing each year closer to 50 percent of all sales.
• Inventory levels have increased to keep up with capacity and
speedy delivery.
o Consistent with Amazon’s strategies of speed, Amazon
ii. There is no significant difference between constant or
reported dollars in the statements due to negligible inflation
iii. Past/future performance
Amazon’s decision to sell hardware (Kindle and Kindle Fire)
has reduced Amazon’s profit margin as Electronic Sales have
increased. This has caused Amazon to increase IT and R&D
iv. Past/pending strategic decisions
Financial performance supports Amazon’s position to compete in
hardware and to increase the speed of shipping.
v. Competitive advantage
• Amazon’s heavy investment in Research and Development and
Technology has given Amazon a competitive advantage. It
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
use and customer service, which give Amazon a competitive
advantage.
3. Research and Development
a. Objective
• Continued e-commerce success, which relies heavily on Amazon’s
IT infrastructure.
Strategy
• Invest heavily in technology infrastructure
o Investment in software to support “Frustration Fee
Packaging” program that would help identify appropriate
packaging for each item.
i. Amazon’s R&
ii. D objective and strategy are clearly supported and supported
by Amazon’s budget.
iii. Core principles such as; ease of use; speedy, accurate search
iv. Amazon’s corporate strategies heavily rely on sophisticated
v. A mix of basic, applied, and engineering research is
vi. Research and Development have given Amazon a competitive
b. In 2011, Amazon invested 6 percent of Revenues into R&D. In
addition, sales of electronics and other general merchandise
represented 59 percent of total sales. Investments in R&D will
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
benefit Amazon in the long–run, however, will threaten near term
margin growth.
c. Amazon offers a number of web services and has built a
competitive IT infrastructure to compete. Amazon is competent in
technology transfer.
d. Amazon is threatened by technology discontinuity as not
e. Amazon e–commerce competitors rely heavily on its IT
infrastructure to support its online presence. However, Amazon’s
investment in the Kindle e–book reader/Kindle Fire, Web Services,
and Amazon Glazier has allowed Amazon to compete more
aggressively against e–commerce competitors as well as compete
against Technology giants.
• Kindle e–reader/Kindle Fire
o Kindle e–reader allowed for easy access to e–books and
• Amazon Glacier
o A cloud storage solution that was offered as a low–cost
solution to data archiving.
o Amazon dominated the space of cold storage, which came into
prominence in 2009.
f. Amazon must support each of its International websites. Amazon’s
technology investments must span across all countries, including
supporting its logistics.
4. Operations and Logistics