Amazon Case

Summary page 1 – 4

2017 operating profits of Amazon: 4.1$ billion

2017 sales of Amazon: 178$ billion

Jeff Bezos prioritized to reinvest profit in new business areas: strength of Amazon.
Consequently, few dividends but an important stock appreciation (2nd company most valuable
in the world behind Apple and ahead of Google).

Initially, Jeff Bezos founded Amazon to sell books online. He decided to sell book online
because in 1990’s, for an author’s book to reach a retail store, the book typically had to go
through four intermediaries: agents, publishers, distributors, and wholesalers.

Bezos launched Amazon in 1995.

He chose Seattle to install its headquarters for 3 reasons: Low taxes, its technology cluster and
its proximity to Ingram, the largest book wholesaler in 1990’s.

Strategy of Bezos at the beginning: Develop a web-site attractive, secure and easy for first-
time online buyer. Amazon had a large selection of books, largest that in all other physically
library, at a discount price due to low tax and few intermediaries.

1995: annual sales equal to 511,000$. As the demand was increasing, he decided to build a
50,000 -square-foot distribution centre.

A brilliant idea to increase the traffic on the web-site in 1996 with Amazon associate. The aim
was that individuals could earn money, a commission between 3 and 8% if the visitor of the
website would buy the article on amazon thanks to the link which was on the website of the
individuals. It enabled Amazon to spend only 10% of the sales in marketing.

In 1996, Amazon recorded sales of $15.7 million and an operating loss of $6.0 million

In May 1997, Amazon went public at $18 a share, raising $54 million and valuing the company
at $438 million.22 By December of 1997, Amazon’s stock had risen to $59 per share. The
company recorded sales of $148 million in 1997 and operating losses of $29 million

In 1998, Amazon began to expand internationally, acquiring Bookpages (U.K.) and Telebook
(Germany).

In 1999, diversification because the company entered more categories, including toys and
electronics (July), home improvement and tools (November), video games and software
(November), and patio furniture and kitchenware (December).
Still in 1999, Amazon opened Zshop that allowed to smaller merchants to loan a space in order
to sell their goods. In exchange, these smaller merchants had to pay a rent each month (9.99$)
+ a commission based on the final sale price (between 2.5% and 5%).

1999: Amazon opened several distribution and warehouse centres (mainly in USA, 1 in
Germany and 1 in UK) in order to increase the storage’s capacity of their products.
Amazon also opened 6 customer service centres: very important to provide value for
customer, and for that you to be close to your clients. (after-sale service, questions about
products…).

Strategy focused on market share and revenue growth over profitability. That’s why investors
were wary. Despite the turnover reached 1.6$ billion, Amazon loss increased to reach $606
million in 1999.

In 2000, Amazon invested a lot in high-potential start-up (for instance drugstore.com to list
directly pharmaceuticals products from drugstore on Amazon website).

2000: Amazon in trouble: because of the dot com crisis, a lot of Amazon partner cut their
payments to Amazon. Amazon hold also a lot of equity of these companies, and the value of
Amazon portfolio decreased from $370 million in December 1999 to $300 million in June 2000.
Moreover, a lot of analyst were sceptical about Amazon, and the share price dropped, from
$100 at the beginning of the year to $20 at the end of the 2000. But Jeff Bezos stayed positive…

November 2000: Amazon decided to stop zShops and to launch AmazonMarketplace, which
allowed sellers to sell new and used items next to Amazon’s product selection rather than
separately through zShops.
Moreover, Jeff Bezos decided to strengthen the management team and hired a lot of good
managers.

Bezos remarked also that prior to 2000, he failed to create a more formal strategic planning
process. There was a lake of structure, which is very important in a big company to keep the
control of things, to have a clear vision.