Amazon Case

GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY

CASE NUMBER: EC-25 JULY 2001

AMAZON.COM: MARCHING TOWARDS PROFITABILITY

Ouch. It’s been a brutal year for many in the capital markets and certainly for Amazon.com shareholders. As of this writing, our shares are down more than 80% from when I wrote you last year. Nevertheless, by almost any measure, Amazon.com the company is in a stronger position now than at any time in its past… The year 2001 will be an important one in our development. As a first step, we’ve set the goal of achieving a pro forma operating profit in the fourth quarter. While we have a tremendous amount of work to do and there can be no guarantees, we have a plan to get there, it’s our top priority, and every person in this company is committed to helping with that goal. —Jeff Bezos, Founder and CEO, Amazon.com, Letter to Shareholders, April 2001

INTRODUCTION For much of its six-year history, the rallying cry at Amazon.com had been “get big fast.” The company spent many millions of dollars to acquire and service customers. The strategy worked  the company got big fast. Amazon mostly sold books, CDs, and DVDs; but it also offered barbecues, big screen TVs, and many things in between. In 2000, a mere five years after it opened for business, Amazon served 20 million customers, up from 14 million in 1999 (see Exhibit 1), and sales grew from $1.64 billion in 1999 to $2.76 billion in 2000. However, Amazon lost $720 million in 1999 and $1.4 billion in 2000 fueling its phenomenal growth (see Exhibit 2 for selected Amazon financial data). In his first letter to shareholders in Amazon’s 1997 annual report, Bezos explained his company’s strategy and the metrics he cared about most: We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will...