Amazon.com Case: Strategic Audit

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Please see response below which was revived for clarification (original attached), including two supporting articles. I hope this helps and take care.

RESPONSE: (Revised June 12, 2009)

Jeff started Amazon.com, Inc. in 1994 in his garage in a Seattle suburb, wrapping orders and then delivering them to the post office in the family car. The company opened its virtual doors in July 1995 and went public on May 15, 1997 (The IPO price was $18.00, $1.50 adjusted for the 2-for-1 stock split payable on September 1, 1999). Jeff Bezos and his family own over 50% of Amazon.com. Amazon.com is listed on the NASDAQ as AMZN. The company recorded revenues of $6.9 billion during the fiscal year ended December 2004, an increase of 31.5% over 2003. The operating profit of the company during fiscal 2004 was $440.4 million, an increase of 62.7% over fiscal 2003. The net profit was $588.5 million during fiscal year 2004 compared to a net profit of $35.3 million in 2003. * NOTE: All financial figures for fiscal 2004 are unaudited.http://www.cbronline.com/companyprofile.asp?guid=2B52E1D8-E964-4D7F-8B1B-C48DBC97815F

The following excerpt has some value information to consider for this assignment.

EXCERPT:

Introduction to Amazon.com (article excerpt)

The Internet has changed the way that we perceive business and the way that we as consumers may make our purchases. In fact, the online consumer today knows the convenience of purchasing a book online and having it delivered to their door in a matter of a few days. There is no more need to fight crowds, find a parking spot, and deal with traffic (E-Commerce, 2000). The high street and mail order systems still have a place in the mix of purchase routes, however it is no longer the only method of making purchases. The Internet revolution has seen a massive increase in the long distance purchases made by consumers, as geographical barriers are no longer as important as they were. The lack of geographical importance has influenced the strategy of Internet companies. One of the first companies that took advantage of this was the online bookshop Amazon.com.

Amazon.com is an organization that offers a broad range of services to consumers and is considered an online leader of pure-plays - pure online merchants. Amazon.com was founded in July of 1995 with a mission to fully utilize the Internet to make book buying fast, easy, and all in all, a very enjoyable experience. They currently have 29 million customers in 160 different countries, making Amazon.com one of the leading online merchants. It is rated third in business-to-consumer online revenue as of June 20, 2000 (Interactive Week 7, 2000). Amazon.com represents the ideal e-Commerce company. It was one of the first to demonstrate the potential for "virtual" upstarts and turned the market on end - even leading the "bricks and mortar" companies. In the book selling industry, Barnes & Noble has been the market leader with 1011 "bricks and mortar" stores with Borders a close second. Barnes & Noble has fought back vigorously on its own and Amazon.com's turf, while Borders has taken a go-slow approach.

The continued success of Amazon.com can be attributed to its diversity in terms of geography as well as it's diverse selection of merchandise, ranging from media such as books, CD's, and videos to online auctions and house wares. Amazon.com currently operates four international websites in France, Britain, Germany and Japan giving it global Internet exposure. One of several factors that has proven Amazon.com successful is that it has the first mover advantage (Thompson, 1998.) Not only was it first in its industry, it has also been successfully marketed. But as with any Internet site, the actual presentation and processing are seen as a result of the underlying technology and the way the company uses it (Sullivan, 1999).

Industry Sector

Competition today in the online retail business is fierce, and Amazon.com has some of the toughest competition in the World. Among the most prominent competition are Barnes & Noble and Time Warner publishing which although is new to the scene, has an abundance of capital to back its venture into the online retail book business. "Independent bookstores are rapidly disappearing amid the dominance of superstores such as Borders and Barnes & Noble." (Magazine & Bookseller 56, 2000) As recent as five years ago, there were over 5,500 independent bookstores in the United States. Presently, there are only approximately 3,300 according to a Book Industry Study Group Inc. report.

In April of 2001, Amazon.com announced that it would be re-launching Borders.com - the second-largest bookseller in the United States - powered by Amazon.com's e-commerce platform. The deal will allow Borders to maintain an online presence without having to develop and maintain the eCommerce infrastructure and content itself. ``Amazon.com has worked hard to provide its customers with the best possible shopping experience, and we are incredibly pleased to power and manage the new Borders.com,'' said Jeff Bezos, CEO and founder of Amazon.com. ``This alliance allows Borders to offer our customers the convenience of an online shopping option with the added benefits that will emerge through our new association with Amazon.com, the world's recognized eCommerce leader,'' said Borders Group President and CEO Greg Josefowicz. Under the agreement, customers of the co-branded site will provide access to Amazon.com's editorial reviews, personalization features and recommendations, 1-Click ordering, and other Amazon.com features.

The company also reduced staff numbers and consolidated its fulfillment and customer service networks. But even though Amazon.com has taken these steps to streamline its operations, Steve Riggio of Barnes & Noble.com says that his company is gaining some of Amazon.com's market share.

Amazon.com also became embroiled in a legal battle against Wal-Mart who alleged that Amazon.com had stolen many of their trade secrets by hiring away Wal-Mart IT personnel in large numbers. This has relevance since Amazon.com must expand into other product lines in order to maintain the growth called for by its very high valuation. One example of this expansion is in pharmaceuticals, and Amazon.com had managed to hire two key Wal-Mart Executives from this area. ...