CASE 9

Amazon.com, Inc.
Retailing Giant to High-Tech Player?
Alan N. Hoffman
Bentley University

Overview

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. In May
1997, Amazon (AMZN) completed its initial public offering and its common stock
was listed on the NASDAQ Global Select Market. Amazon quickly grew from an on-
line 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. ­Amazon’s financial objective was to achieve long-term sustainable growth and
profitability. To attain this objective, Amazon maintained a lean culture focused on increas-
ing its operating income through continually increasing revenue and efficiently managing
its working capital and capital expenditures, while tightly managing operating costs.
The name “Amazon” was evocative for founder Jeff Bezos of his vision of Amazon as a
huge natural phenomenon, like the longest river in the world. He envisioned the company to
be the largest online marketplace on earth someday.
By 2008, Amazon had become a global brand, with websites in Canada, the United Kingdom,
Germany, France, China, and Japan, with order fulfillment in more than 200 countries.1 Its opera-
tions were organized into two principal segments: North America and International Operations,
which grew to include Italy in 2010 and Spain in 2011. By 2012, Amazon employed more than
56,200 people around the world working in the corporate office in Seattle, and in software devel-
opment, order fulfillment, and customer service centers in North America, Latin America, Europe,
and Asia.

The authors would like to thank Barbara Gottfried, Jodi Germann, Lauren-Ashley Higson, Faith Naymie, Faina
Shakarova, Jamal Ait Hammou, Muntasir Alam, Shaheel Dholakia, Xinxin Zhu, and Will Hoffman for their research
and contributions to this case.
Please address all correspondence to: Dr. Alan N. Hoffman, Dept. of Management, Bentley University, 175 Forest
Street, Waltham, MA 02452-4705, voice (781) 891-2287, [email protected]. Printed by permission of Alan
N. Hoffman.

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Amazon Corporate Governance

Jeff Bezos is the Chairman of the Board and CEO of Amazon and owns 19.4% of the company.
Amazon has three board committees of which two are standard: the audit commit-
tee and the governance committee. The third committee, the Leadership Development
and Compensation Committee, is uncommon. Most publicly traded companies have a
compensation committee; however, it is unusual for the compensation committee to have
leadership development as part of its mandate. The Leadership Development and Com-
pensation Committee “monitors and periodically assesses the continuity of capable man-
agement, including succession plans for executive officers.”
Amazon’s board is not populated by CEOs or retired CEOs. It includes several venture
capitalists, a number of senior-level executives from varied industries, an eminent scientist,
and a representative from the non-profit sector.
Amazon’s board has served together for a long time. This implies a deeper understanding
of the company and increasing familiarity and even friendship amongst the group. This tends
to discourage independent thinking and objectivity.
All of it is further proof that Jeff Bezos is a strong CEO and runs the company.

Retail Operations/Amazon’s Superior Website

As people became more comfortable shopping on line, Amazon developed its website to take
advantage of increased Internet traffic and to serve its customers most effectively.2 The hall-
marks of Amazon’s appeal were ease of use; speedy, accurate search results; selection, price,
and convenience; a trustworthy transaction environment; timely customer service; and fast,
reliable fulfillment3—all of it enabled by the sophisticated technology the company encouraged
its employees to develop to better serve its customers. The site, which offered a huge array of
products sold both by itself and by third parties, was particularly designed to create a person-
alized shopping experience that helped customers discover new products and make efficient,
informed buying decisions.
Key to Amazon’s success was continual website improvement. A huge part of the
technological work done for Amazon was dedicated to identifying problems, developing
solutions, and enhancing customers’ online experience. Jacob Lepley, in his “Amazon
Marketing Strategy: Report One,” notes that, “when you visit Amazon . . . you can use [it]
to find just about any item on the market at an extremely low price. Amazon has made it
very simple for customers to purchase items with a simple click of the mouse. . . . When
you have everything you need, you make just one payment and your orders are processed.”4
This simple system is the same whether a customer purchases directly from Amazon or
from one of its associates.
Pursuing perfection, Amazon was aggressive in analyzing its website’s traffic and modi-
fying the website accordingly. Amazon particularly excelled at customer tracking, collecting
data from every visit to its website. Utilizing the information, Amazon then directed users to
products that it surmised they might be interested in because the item was either related to
a product that they had previously searched for or purchased by another Amazon customer
looking for a similar product.
Recommendations were also customized based on the information customers provided
about themselves and their interests, and their ratings prior purchased. Amazon also collected
data on those who had never visited any of its websites, but who had received gifts from those
who had used the site.

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One of Amazon’s most distinctive features was the community created based on the
ratings/reviews provided by private individuals to help others make more informed pur-
chasing decisions. Anyone could provide a narrative review and rate a product on a scale
of 1–5 stars, and/or comment on others’ reviews. Individuals could also create their own
“So You’d Like . . .” guides and “Listmania” lists based on Amazon’s products offer-
ings and post them or send them to friends and family. To streamline customer research,
Amazon also consolidated different versions of a product (e.g., DVD, VHS, Blu-ray disk)
into a single product available for commentary that simplified commentary and user
accessibility.5
To further target potential customers, Amazon engaged in permission marketing, elicit-
ing permission to e-mail customers regarding specific production promotions based on prior
purchases on the assumption that a targeted e-mail was more likely to be read than a blanket
e-mail. This strategy was hugely appreciated by Amazon customers, further contributing to
Amazon’s success.
In addition, Amazon purchased pay-per-click advertisements on search engines such
as Google to direct browsing customers to its websites. The ads appeared on the left-hand
side of the search list results, and Amazon paid a fee for each visitor who clicked on its
sponsored link.
At the same time, as “TV and billboard ads were roughly ten times less effective
when compared to direct or online marketing when concerning customer acquisition
costs”6, Amazon reduced its offline marketing. The strategy was simple: as customers
shopped online, online marketing was key. However, in 2010, Amazon initiated a small
television advertising campaign to increase brand awareness.
Finally, to round out its customer care, Amazon expedited shipping by strategically locat-
ing its fulfillment centers near airports7 where rents were also cheaper, giving Amazon the
two-pronged advantage of speed and low cost over its competitors. Furthermore, in the United
States, the United Kingdom, Germany, and Japan, Amazon offered subscribers to Amazon
Prime the added convenience of free express shipping. Amazon Prime’s free next-day de-
livery endeared it to Amazon customers, again contributing to the customer loyalty that was
key to Amazon’s success. Amazon Prime cost $79 annually to join and included free access
to Amazon Instant Video. The overarching objective of the company was to offer low prices,
convenience, and a wide selection of merchandise, a pared down, yet wide-reaching strategy
that made Amazon such a huge success.

Diversified Product Offerings

Amazon diversified its product portfolio well beyond simply offering books, which in turn
allowed it to diversify its customer mix. In 2007, Amazon successfully launched the Kindle,
its $79 e-book reader, which offered users more than one million reasonably priced books
and newspapers easily accessed on its handheld device. Competitor Apple, Inc., then intro-
duced the iPad, the first tablet computer, in January 2010, sparking further development of
mobile e-readers. E-book sales took off immediately, increasing by more than 100%, accord-
ing to the Association of American Publishers. Eager to compete in a market for which it was
uniquely positioned, Amazon quickly developed its own low-cost tablet, the Kindle Fire, an
Android-based tablet with a color touchscreen priced at $199, more than $300 lower than
the iPad, sacrificing profit margins in search of sales volume and market-share gains. Other
tech giants such as RIMM and HP were unable to compete with the iPad. Only the Sony
Nook, the Amazon Kindle and Kindle Fire, and the Samsung Galaxy and Series 7 tablets
challenged Apple’s consistent 60% of market share. Ultimately, however, Amazon’s huge
growth derived not simply from the sale of Kindle hardware and the growth of e-book sales,

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but from its diversification and the continual expansion of the easy website access created
by mobile devices.
By 2010, 43% 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 computers, mobile devices including the Kindle, Kindle Fire,
and Kindle Touch, and other electronics, as well as general merchandise from home and gar-
den supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor
equipment, tools, and auto and industrial supplies.
Amazon also offered its own credit card, a form of co-branding that benefited all parties:
Amazon, the credit card company (Chase Bank), and the consumer. Amazon benefited be-
cause it received money from the credit card company both directly from Amazon purchases
and indirectly from fees generated from non-Amazon purchases. In addition, Amazon ben-
efited from the company loyalty generated by having its own credit card the consumer sees
and uses every day. The credit card company gained from Amazon’s high visibility, increasing
its potential customer base and transactions. And the consumer earned credit toward gift cer-
tificates with each use of the card.

Partnerships
Amazon leveraged its expertise in online order taking and order fulfillment and developed
partnerships with many retailers whose websites it hosted and managed, including (cur-
rently or in the past) Target, Sears Canada, Bebe Stores, Timex Corporation, and Marks &
Spencer. Amazon offered services comparable to those it offered customers on its own
­websites, thus freeing those retailers to focus on the non-website, non-technological aspects
of their operations.8
In addition, Amazon Marketplace allowed independent retailers and third-party sellers
to sell their products on Amazon by placing links on their websites to Amazon.com or to
specific Amazon products. Amazon was “not the seller of record in these transactions, but
instead earn[ed] fixed fees, revenue share fees, per-unit activity fees, or some combination
thereof.”9 Linking to Amazon created visibility for these retailers and individual sellers,
adding value to their websites, increasing their sales, and enabling them to take advantage
of Amazon’s convenience and fast delivery. Sellers shipped their products to an Amazon
warehouse or fulfillment center, where the company stored it for a fee, and when an order
was placed, shipped out the product on the seller’s behalf. This form of affiliate market-
ing came at nearly no cost to Amazon. Affiliates used straight text links leading directly
to a product page and they also offered a range of dynamic banners that featured different
content.

Web Services
As a major tech player, Amazon developed a number of web services, including ecommerce,
database, payment and billing, web traffic, and computing. These web services provided
­access to technology infrastructure that developers were able to utilize to enable various types
of virtual businesses. The web services (many of which were free) created a reliable, scalable,
and inexpensive computing platform that revolutionized the online presence of small busi-
nesses. For instance, Amazon’s e-commerce Fulfillment By Amazon (FBA) program allowed
merchants to direct inventory to Amazon’s fulfillment centers; after products were purchased,
Amazon packed and shipped. This freed merchants from a complex ordering process while

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a­ llowing them control over their inventory. Amazon’s Fulfillment Web Service (FWS) added
to FBA’s program. FWS let retailers embed FBA capabilities straight into their own sites,
vastly enhancing their business capabilities.
In 2012, Amazon announced a cloud storage solution (Amazon Glacier) from Amazon
Web Services (AWS), a low-cost solution for data archiving, backups, and other long-term
storage projects where data not accessed frequently could be retained for future reference.
Companies often incurred significant costs for data archiving in anticipation of growing
backup demand, which led to under-utilized capacity and wasted money. With Amazon
Glacier, companies were able to keep costs in line with actual usage, so managers could
know the exact cost of their storage systems at all times. With Amazon Glacier, Amazon
continued to dominate the space of cold storage, which had first come into prominence in
2009, amidst competitors such as Rackspace (RAX) and Microsoft (MSFT) offering their
own solutions.
By 2012, Amazon Web Services were a crucial facet of Amazon’s profit base, and
Amazon was one of the lead players in the fast-growing retail ecommerce market. Seeing
huge growth potential, Amazon made the decision to expand Amazon Web Services (AWS)
internationally and invested heavily in technology infrastructure to support the rapid growth
in AWS. Though its investments in ecommerce threatened to suppress its near-term margin
growth, Amazon expected to benefit in the long term, given the significant growth potential
in domestic and, even more so, in international ecommerce.

Amazon’s Acquisition of Zappos, Quidsi,

Living Social, and Lovefilm
On July 22, 2009, Amazon acquired Zappos, the online shoe and clothing retailer, for
$1.2 billion. At that time, Zappos was reporting over $1 billion in annual sales without any
marketing or advertising. According to founder Tony Hsieh, the secret to Zappos’ success
was superior customer service, from its 365-day return guarantee to the company tours with
which it regaled visitors, picking them up at the airport, then returning them to the airport
afterward. Zappos’ employees were also very well treated, earning it a place at the top of the
list of the “best companies to work for.” Tony Hsieh felt that Amazon was the perfect partner
to fuel Zappo’s sales growth going forward.
On November 8, 2010, Amazon announced the acquisition of Quidsi, the parent company
of Diapers.com, an online baby care specialty site, and Soap.com, an online site for everyday
essentials. Amazon paid $500 million in cash, and assumed $45 million in debt and other ob-
ligations. As Jeff Bezos explained, “This acquisition brings together two companies who are
committed to providing great prices and fast delivery to parents, making one of the chores of
being a parent a little easier and less expensive.”12
On December 2, 2010, Amazon announced that it had invested $175 million in Groupon
competitor LivingSocial, a site whose up-to-the-minute research offered users immediate ­access
to the hottest restaurants, shops, activities, and services in a given area, while saving them 50%
to 70% through special site deals.
On January 20, 2011, Amazon acquired Lovefilm for £200 million, a 1.6-million-­
subscriber-strong European Web-based DVD rental service based in London. Lovefilm had
followed Netflix’s business model, offering unlimited DVD rentals by mail for a monthly
subscription fee of £9.99, but planned to challenge Netflix and expand its digital media busi-
ness by entering the live-streaming subscription business.

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Competitors
Competition was fierce for Amazon on all fronts, from catalogue and mail order houses to
retail stores from book, music, and video stores to retailers of electronics, home furnish-
ings, auto parts, and sporting goods. Amazon’s Kindle contended with Apple’s iPad, among
many lesser competitors. And Amazon’s competitors in the service sector included other
e-commerce and Web service providers. The company faced direct competition from com-
panies such as eBay, Apple, Barnes & Noble, Overstock.com, MediaBay, Priceline.com,
PCMall.com, and RedEnvelope.com. Amazon had to compete with companies that pro-
vided their own products or services, sites that sold or distributed digital content such as
iTunes and Netflix, and media companies such as The New York Times. Many of the com-
pany’s competitors had greater resources (eBay), longer histories (Barnes & Noble), more
customers (Apple), or greater brand recognition (iTunes).
The companies offering the most direct threat to Amazon were eBay and Metro AG.
Pierre Omidyar founded eBay in 1995, a website that connected individual buyers and sellers,
including small businesses to buy and sell virtually anything. In 2010, the total value of goods
sold on eBay was $62 billion, making eBay the world’s largest online marketplace, serving
39 markets with more than 97 million active users worldwide.10 eBay and Amazon subscribed
to similar growth strategies: each acquired a broad spectrum of companies. Over the 15 years
from 1995–2010 eBay acquired PayPal, Shopping.com, StubHub, and Bill Me Later, which
have brought new e-commerce efficiencies to eBay.
Metro AG, headquartered in Dusseldorf, Germany, one of the world’s leading interna-
tional retail and wholesale companies, was formed through the merger of retail companies
Asko Deutsche Kaufhaus AG, Kaufhof Holding AG and Deutsche SB-Kauf AG. In 2010,
the total value of goods sold by Metro AG was €67 billion.11 Serving 33 countries, Metro
AG ­offered a comprehensive range of products and services designed to meet the specific
shopping needs of private and professional customers. Metro AG, like Amazon, focused on
customer orientation, efficiency, sustainability, and innovation.
Amazon had to be vigilant, negotiating more favorable terms from suppliers, adopting
more aggressive pricing and devoting more resources to technology, infrastructure, fulfillment,
and marketing. To maintain competitiveness, Amazon also strengthened its edge by entering
into alliances with other businesses (i.e., Amazon Marketplace). Nevertheless, growing com-
petition from global and domestic players continually threatened to erode Amazon’s desired
share of the market. Across the industries in which it competed, however, Amazon fought to
maintain its edge based on its core principles of “selection, price, availability, convenience, in-
formation, discovery, brand recognition, personalized services, accessibility, customer service,
reliability, speed of fulfillment, ease of use, and ability to adapt to changing conditions, as well
as . . . customers’ overall experience and trust.”12

Frustration-Free Packaging
To stay current, Amazon took the initiative to reduce its carbon footprint by implementing a
“Frustration Free Packaging” program. Recyclable Frustration Free Packaging came without
excess packaging materials such as hard plastic enclosures or wire twists and was designed to
be opened by hand without a scissors or a knife. Amazon then went one further and worked
with the original manufacturers to package products in Frustration Free Packaging right off
the assembly line, further reducing the use of plastic and paper. Units shipped that utilized
Frustration Free Packaging has increased very rapidly, from 1.3 million in 2009 to 4.0 million
in 201013. Amazon also utilized software to determine the right size box for any product the
company shipped, achieving a dramatic reduction in the number of packages shipped in over-
sized boxes and significantly reducing waste.

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Exhibit 1A 
Income Statement

Income Statement Currency in

(Millions of U.S. Dollars) as of: Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011
Revenues 19,166.0 24,509.0 34,204.0 48,077.0
Total Revenues 19,166.0 24,509.0 34,204.0 48,077.0
Cost of Goods Sold 14,896.0 18,978.0 26,561.0 37,288.0
Gross Profit 4,270.0 5,531.0 7,643.0 10,789.0
Selling, General, & Admin
Expenses, Total 2,419.0 3,060.0 4,397.0 6,864.0
R&D Expenses 1,033.0 1,240.0 1,734.0 2,909.0
Other Operating Expenses 29.0 51.0 106.0 154.0
Other Operating Expenses, Total 3,481.0 4,351.0 6,237.0 9,927.0
Operating Income 789.0 1,180.0 1,406.0 862.0
Interest Expense –71.0 –34.0 –39.0 –65.0
Interest and Investment Income 83.0 37.0 51.0 61.0
Net Interest Expense 12.0 3.0 12.0 –4.0
Income (Loss) on Equity Investments –9.0 –6.0 7.0 –12.0
Currency Exchange Gains (Loss) 23.0 26.0 75.0 64.0
Other Non-Operating Income (Expenses) 22.0 –1.0 3.0 8.0
Ebt, Excluding Unusual Items 837.0 1,202.0 1,503.0 918.0
Gain (Loss) on Sale of Investments 2.0 4.0 1.0 4.0
Gain (Loss) on Sale of Assets 53.0 — — —
Other Unusual Items, Total — -51.0 — —
Legal Settlements — -51.0 — —
Ebt, Including Unusual Items 892.0 1,155.0 1,504.0 922.0
Income Tax Expense 247.0 253.0 352.0 291.0
Earnings from Continuing Operations 645.0 902.0 1,152.0 631.0
Net Income 645.0 902.0 1,152.0 631.0
Net Income to Common Including Extra
Items 645.0 902.0 1,152.0 631.0
Net Income to Common Excluding Extra
Items 645.0 902.0 1,152.0 631.0
Report Data Issue

Financial Operations
Amazon sales doubled from 2009 to 2011, growing from $24,509 million (2009) to
$48,077 million (2011) (see Exhibits 1a and 1b), growth attributable especially to in-
creased sales in electronics and other general merchandise, and the adoption of a new
accounting standard update, reduced prices (including free shipping offers), increased
in-stock inventory availability, and the impact of the acquisition of Zappos in 2009.14
Amazon’s annual net income for 2009, 2010, and 2011 were $902 million, $1,152 million,
and $645 million, respectively. The significant increase from 2009 to 2010 was due in large part
to aggressive net sales growth and a large portion of its expenses and investments being fixed.
Management explained that net income decreased from 2010 to 2011 as a result of: (1) selling
Kindle hardware at a market price slightly below the cost of manufacture; (2) increased spend-
ing on technology infrastructure; and (3) increases in payroll expenses.

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Exhibit 1B 
Balance Sheet

Balance Sheet Currency in

Millions of U.S. Dollars as of: Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011
Assets        
Cash and Equivalents 2,769.0 3,444.0 3,777.0 5,269.0
Short-Term Investments 958.0 2,922.0 4,985.0 4,307.0
Total Cash and Short-Term Investments 3,727.0 6,366.0 8,762.0 9,576.0
Accounts Receivable 827.0 988.0 1,587.0 2,571.0
Total Receivables 827.0 988.0 1,587.0 2,571.0
Inventory 1,399.0 2,171.0 3,202.0 4,992.0
Deferred Tax Assets, Current 204.0 272.0 196.0 351.0
Total Current Assets 6,157.0 9,797.0 13,747.0 17,490.0
Gross Property Plant and Equipment 1,078.0 1,517.0 2,769.0 5,143.0
Accumulated Depreciation –396.0 –418.0 –587.0 –1,075.0
Net Property Plant And Equipment 682.0 1,099.0 2,182.0 4,068.0
Goodwill 438.0 1,234.0 1,349.0 1,955.0
Deferred Tax Assets, Long Term 145.0 18.0 22.0 28.0
Other Intangibles 332.0 758.0 795.0 996.0
Other Long-Term Assets 560.0 907.0 702.0 741.0
Total Assets 8,314.0 13,813.0 18,797.0 25,278.0
Liabilities and Equity        
Accounts Payable 3,594.0 5,605.0 8,051.0 11,145.0
Accrued Expenses 632.0 901.0 1,357.0 2,106.0
Current Portion of Long-Term
Debt/Capital Lease 59.0 — — 395.0
Current Portion of Capital
Lease Obligations — — — 395.0
Unearned Revenue, Current 461.0 858.0 964.0 1,250.0
Total Current Liabilities 4,746.0 7,364.0 10,372.0 14,896.0
Long-Term Debt 409.0 109.0 184.0 255.0
Capital Leases 124.0 143.0 457.0 1,160.0
Other Non-Current Liabilities 363.0 940.0 920.0 1,210.0
Total Liabilities 5,642.0 8,556.0 11,933.0 17,521.0
Common Stock 4.0 5.0 5.0 5.0
Additional Paid in Capital 4,121.0 5,736.0 6,325.0 6,990.0
Retained Earnings –730.0 172.0 1,324.0 1,955.0
Treasury Stock –600.0 –600.0 –600.0 –877.0
Comprehensive Income and Other –123.0 –56.0 –190.0 –316.0
Total Common Equity 2,672.0 5,257.0 6,864.0 7,757.0
Total Equity 2,672.0 5,257.0 6,864.0 7,757.0
Total Liabilities and Equity 8,314.0 13,813.0 18,797.0 25,278.0
Report Data Issue

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Challenges for Amazon

Amazon developed very quickly into a major player in the online retail market, yet challenges
remained:
1. From its inception, Amazon was not required to collect state or local sales or use taxes,
an exemption upheld by the U.S. Supreme Court. However, in 2012, states began to con-
sider superseding the Supreme Court decision.15 “If the states were to prevail, Amazon
would be forced to collect sales and use tax, creating administrative burdens for it, and
putting it at a competitive disadvantage if similar obligations are not imposed on all of
its online competitors, potentially decreasing its future sales.”16 Massachusetts and other
states were motivated both by the desire (to tap into new sources of revenues for their
state budgets and to protect local retailers.
In 2012, reports had it that Amazon was making deals to collect sales tax in all 50 states,
so that they could open warehouses near population centers and provide same-day deliv-
ery, a major shift in its business model that would ratchet up competition with big box
stores like Best Buy and Target as well as local retailers. However, there were no guar-
antees of the profitability of same-day delivery, given the added warehouse and delivery
costs.
2. With the new social trend of “buying local,” Amazon faced the threat of some regular
consumers preferring to buy from their local stores rather than from an online retailer.17
3. Amazon always had to grapple with the threat of customer preference for instant gratifi-
cation, the customer’s desire to get a product immediately in the store, rather than waiting
several days for the product to be shipped to them.
4. Breaches of security from outside parties trying to gain access to its information or data
were a continual threat for Amazon.18 As of 2012, Amazon had systems and processes
in place that were designed to counter such attempts; however, failure to maintain these
systems or processes could be detrimental to the operations of the company.
5. As more media products were sold in digital formats, Amazon’s relatively low-cost phys-
ical warehouses and distribution capabilities no longer provided the same competitive
advantages. In addition, Amazon had felt that its worldwide free shipping offers and
Amazon Prime were effective worldwide marketing tools, and intended to offer them
indefinitely, yet it began to suffer from soaring shipping expenses cutting into profits. In
quarter three of 2011, Amazon’s shipping fees generated $360 million in revenue, which
was dwarfed by $918 million in shipping expenses.
6. Amazon had to contend with absorbing losses from its unsuccessful ventures such as its
A9 search engine, Amazon Auctions, and Unbox, Amazon’s original video-on-demand
service.
7. Recent hires from Microsoft, Robert Williams, former senior program manager, and
Brandon Watson, head of Windows Phone development prompted speculation that
Amazon was developing a smartphone, possibly a Kindle-branded device. Bloomberg
reported that Amazon had gone so far as to strike a manufacturing deal with Foxconn,
the controversial Taiwanese company responsible for assembling Apple’s iPhone and
Google Android devices. Amazon has not commented on the reports. A smartphone
would have given Amazon another mobile device to sell, but some analysts felt it
wouldn’t have made sense for Amazon to enter into the already crowded smartphone
arena. “Since tablets skew more heavily toward media consumption than smartphones,
they are a natural fit for Amazon’s commerce and media platform,” said Baird & Co.
analyst Colin Sebastian, in a research note. “In contrast, smartphones require specialized

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 470 C ase 9   Amazon.com, Inc.

native apps (e.g., maps, voice, search, e-mail) that would be costly for Amazon to
replicate.” Sebastian also noted that hardware is a low-margin business. Amazon’s
­Kindle Fire sold for $199, a price that some analysts believed was below cost, suggest-
ing ­Amazon hoped the Kindle Fire would more than pay for itself by boosting sales of
e-books and other digital content. Thus, by 2012 Amazon had proved itself as a retail
giant, yet as with any vibrant company, faced continual challenges, particularly regard-
ing the overarching questions of whether to spend its money developing media products
such as the Kindle Smartphone, or to stick with its strengths as an online retailer, perhaps
acquiring more holdings such as Zappos, and pushing for same-day delivery despite the
added cost to compete with other online retailers, and with the big box stores as well.
In 2012, Amazon was at a crossroads. It needed to decide if it should invest in the infra-
structure for same-day delivery, and take on local retailers, or invest in high-technology and
compete at a deeper level with Sony, Apple, and Samsung.

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Notes
1.
Chaffey, D. Amazon.com Case Study. http://www.davechaffey 9. Amazon.com. 2010 Annual Report. April 2011.
.com/E-commerce-Internet-marketing-case-studies/ 10. eBay Who We Are. 2011. 10 December 2011 http://www.ebayinc
Amazon-case-study/ .com/who
2.
Mind Tools. PEST Analysis – Problem-Solving Training from 11. Metro Group. Corporate Srategy. 2011. http://www.metrogroup
MindTools.com. Management Training, Leadership Training .de/internet/site/metrogroup/node/10781/Len/index.html
and Career Training. Mind Tools Ltd. 12 Dec. 2011. http://www 12. AMAZON.COM, INC., FORM 10-K, For the Fiscal Year
.mindtools.com/pages/article/newTMC_09.htm Ended December 31, 2006, page 6. http://www.sec.gov/
3.
Chaffey, D. Amazon.com Case Study. http://www.davechaffey Archives/edgar/data/1018724/000119312507034081/d10k.htm
.com/E-commerce-Internet-marketing-case-studies/ 13. Amazon.com. Amazon Annual Meeting of Shareholders Pre-
Amazon-case-study/ sentation (10Q). June 2011. http://phx.corporate-ir.net/phoenix
4.
Marketing Plan. Marketing Strategies of Amazon.com. http:// .zhtml?c=97664&p=irol-presentations
www.marketingplan.net/amazon-com-marketing-strategies/ 14. Amazon.com. 2010 Annual Report. April 2011.
5.
Layton, J. How Amazon Works. Retrieved from How Stuff 15. Amazon.com. 2010 Annual Report. Page 13–14. April 2011.
Works. http://money.howstuffworks.com/amazon3 16. Amazon.com. 2010 Annual Report. Page 14. April 2011.
6.
Marketing Plan. Marketing Strategies of Amazon.com. http:// 17. Tozzi, John. To Beat Recession, Indies Launch Buy-Local
www.marketingplan.net/amazon-com-marketing-strategies/ Push. Bloomberg’s Businessweek. Bloomberg L.P., February
7.
Amazon.com. 2010 Annual Report. April 2011. 2009.http://www.businessweek.com/smallbiz/content/feb2009/
8.
Marketing Plan. Marketing Strategies of Amazon.com. http:// sb20090226_752622.htm
www.marketingplan.net/amazon-com-marketing-strategies/ 18. Amazon.com. 2010 Annual Report. Page 15. April 2011.

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