Amazon

1. Consider Amazon's business model and its evolution over time (use Schindehutte et al, Ch 7 and Table 7-1 as the framework for your analysis). Address each of the components and questions from Table 7-1. Prepare a table in the format of Table 7-2. Discuss the evolution of the business model over time?

• See Exhibit 1 (the current state of the Amazon business model as of 2002)

• From the beginning Amazon sought to be a marketplace where anyone could buy practically anything at a competitive price

• Started as a book seller only, but offered the largest selection of titles available

• Added more product categories over time

• Then progressed into a platform from which a merchant could sell directly to customers with fulfillment provided by Amazon (or not) or with Amazon as a complete outsourcer for retailing and fulfillment

• Finally progressed into an integrated marketplace with single product pages from which a buyer could purchase from any merchant

2. Use the Business Model Canvas Template (eLearning Course Materials) (see also the Teaching Note: Introducing the Business Model Canvas and Hypothesis-Driven Entrepreneurship: The Lean Startup) to describe the evolution of Amazon's business model over time: a. Use the BMC Template to describe the Retail Model (use black type) b. Copy the template from (a) above and modify it to show how Amazon's business model changed as it evolved into the Marketplace Model (use "strikethrough" to delete elements and red type to add new elements) c. Copy the template from (b) above and modify it to show how Amazon's business model changed again as it evolved into the Single Store Model (use "strikethrough" to delete elements and blue type to add new elements)

• See Exhibit 2 – Business Model Canvass

3. Consider Amazon's strategy and business model implementation in light of Porter's Strategy and the Internet.

Amazon with early adoption of the Internet in their business model have created an all together a new structure for conducting the business. The use of internet has enabled them to reach out to various corners of the market.

? Instead of incurring the high cost of information gathering, communication, accomplishing transactions, they successfully partnered with the big book distributors which accounted for major portion of their earnings as they had the minimum inventory and low working capital.

? They successfully raised money through IPO of $ 42M. They maintained cash flow through operations.

? Unique customer base creation of 340,000 with a daily visit of 80,000- Customer loyalty was being built.

? Porters Five Forces and Amazon's Approach

Porter's Forces Amazon's Approach

Bargaining Power of Channel: LOW

Bargaining Power of End-User: HIGH Opening of digital marketplace, end-users could always check for products on Amazon as well as other local retailers on one webpage. This made customers less hassle free and Amazon also earned revenues from the other retailers for providing the platform for business. More focus on customer and service resulted in more loyal customers for Amazon.

Threat of Substitute: HIGH

Barriers to entry: LOW Creation of digital marketplace where other retailers could sell either in zShops, or by establishing a Merchant Relationship with Amazon. Although the retailers could take advantage of the high traffic of the Amazon's website, on the other hand Amazon not only gained a portion of the sales made, but also the loyalty of a customer.

Rivalry among competitors: HIGH Since the products such as books, music was Industry standard products, Amazon created a business model by not only integrating the business with third party sellers but also differentiated their business by focusing on customer oriented services. They introduced unique online shopping experiences such as one-click shopping, user-friendly browsing, personalized recommendations, fully integrated customer service, etc. These unique services offered by Amazon helped them to build a sustainable advantage over their competitors by raising the switching cost of the buyer.

How does Amazon blend the ideas and principles of both the "old economy" and "new economy" in the implementation of a successful business strategy?

‘Old Economy' does business by focusing on product quality, features and services. Differentiation was done based on proprietary advantages.

Amazon have successfully implemented the same ‘old economics' of the business with the introduction of internet and used it as an enabler tool which now complements their business model. Establishing the website, customer service, payment processing system and warehousing created a self-sustainable operational model. Making deep investments in e-commerce enabled them to integrate the business and create high standards of security, reliability and achieve economies of scale.

Introduction of the ‘Marketplace Model' helped them to associate themselves with a wide range of product that other retailers brought. They created a symbiotic environment, where the retailers brought in products and Amazon helped them with the huge customer base. The business differentiation on a ‘Single store' delivering the Lowest Price, High stock availability and timely delivery of the product.

Economic value for the organization was created, by widening the gap between the cost and price; reduce expenses by deploying IT & adding to the value chain. Hence it is very much evident that Amazon has not changed the ‘old economy' to ‘new economy' rather they have extended the ‘old economy' with access to the technology.

Has Amazon built a sustainable competitive advantage in the markets in which it competes?

? With the evolvement of IT, online applications played an integral role in reaching out to customer base – Amazon came up with a hassle-free easy to use application.

? Amazon created the market place where all third party retailers conducted business at one place which proved less worrying to the customers.

? Customer service – Amazon have established a dedicated customer care service.

? Transaction Cost- The marketplace were fragmented, the buying & selling power is weak and the benefits are taken by the marketplace. Since the concept is in transitional phase and once the technology and the protocols are well laid off, buyers and sellers can directly transact without the need of an intermediary. This is where Amazon needs to focus and differentiate their model in order to keep their customers coming back.

? Strategic Positioning – Only differentiating either on cost or price to generate higher income is not the only solution. Amazon has established, the image of product authenticity, faster delivery and world standard service which in other words helped customers to buy their ‘peace of mind'.

4. Does Amazon's Single Store model represent a significant change in strategy or merely an augmentation of the Retail and Marketplace models?

Over time, Amazon realized the following challenges in operating online which they have addressed by ‘Single Store' model:

? To help customers find and discover products, research and compare with different price offerings from various sellers. It also catered to the different segments of customers with varied financial needs more conveniently at one place.

? With access to all the 3rd party retailers of the Amazon, uniformity of product standard was maintained.

? Internal organizational re-structuring was done. GM of individual store not only was responsible for Amazon's own products, but also responsible for cash flows due to third party transactions. This consolidation would synergize the operation and thus reduce the cost.

Does it address a different set of customers?

Although this consolidation resulted in creating more convenience for the end users, it was more challenging for the third party sellers to assure the same quality, lower price and at times, offer something that Amazon didn't sell. Such transactions helped Amazon to understand the market and improve upon their product range and cost to reach out to new customers.

What elements of Amazon's historical business model had to change to successfully implement this approach?

The following changes had to be done in the new business model in order to successfully implement the ‘single store' concept:

? It attracted thousands of small merchants and individuals to the site. New tools were developed for easy migration of product catalogue from other tabs which required intensive IT development