Amazon Case

AMAZON CASE

Arun Sundar Ravichandran (Section 2, Group 83)

Akshay Sachdev (Section 1, Group 83)

April 25th , 2013.

Q1. Regarding the long-term viability of Amazon's business per the case:

Q1.1 What was Amazon’s original business model? (2 pts)

Amazon’s original business model is characterized by its activities between 1994 and 1997, from its founding through the period following its IPO. The company opened its online bookstore in 1995. By focusing on a large selection of books, technological developments which led to high quality service and ease of use for customers, as well as competitive pricing, Amazon was a first-mover in the online book shopping space. In order to gain market share rapidly, the company incurred losses during this period. It developed strong relationships with wholesalers of books, maintained very low levels of inventory (“sell all, carry few”), ensured high customer satisfaction and thus created a strong brand in the early stages of its existence.

Q1.2 How and why did Amazon change its model? How did the new model intend to add value for customers? How sustainable is the new model, and why? (2 pts)

In May 1997 Barnes & Noble, Amazon’s biggest competitor, opened its own online store. The former claimed that it would leverage its distribution network to gain a competitive advantage over Amazon. It did this by purchasing books not from publishers, but rather from wholesalers, thereby reducing its cost of goods sold significantly and gaining control over the order fulfillment process by operating its own distribution centers. Responding to the competition, Amazon changed its business model in that it invested capital into adding its own warehouses. Also, it expanded its product offering to CDs, DVDs, video games, toys, software, hardware (tools), and customer electronics, thereby leveraging its online platform. Further, the company entered new geographical markets and launched its online services in Germany and the...