Introduction to the World Wide Web
	Instructor: Lindsay Grace

Full 45 page document available at http://faculty.washington.edu/sandeep/d/Amazon.pdf

Excerpts from Sandeep Krishnamurthy’s Case Study of Amazon.com

Background

The story of the formation of Amazon.com is often repeated and is now an
urban legend. The company was founded by Jeff Bezos, a computer science
and electrical engineering graduate from Princeton University. Bezos had
moved to Seattle after resigning as the senior vice-president at D.E.Shaw, a
Wall Street investment bank. He did not know much about the Internet.
But, he came across a statistic that the Internet was growing at 2300%,
which convinced him that this was a large growth opportunity. Not knowing
much more, he plunged into the world of E-Commerce with no prior retailing
experience.

He chose to locate the company in Seattle because it had a large pool of
technical talent and since it was close to one of the largest book wholesalers
located in Roseburg, Oregon. Clearly, he was thinking of the company as a
bookseller at the beginning. Moreover, the sales tax laws for online retailers
state that one has to charge sales tax in the state in which one is
incorporated. This means that for all transactions from that state the price
would be increased by the sales tax rate leading to a competitive
disadvantage. Therefore, it was logical to locate in a small state and be uncompetitive on a smaller number of transactions rather than in a big state
such as California or New York.

The company went on-line in July 1995. The company went public in May
1997. As a symbol of the company’s frugality, Jeff and the first team built
desks out of doors and four-by-fours. The company was started in a garage.
Ironically, initial business meetings were conducted at a local Barnes and
Noble store.
Bezos’ first choice for the company name was Cadabra. He quickly dropped this name when a lawyer he contacted mistook it for cadaver. He picked
Amazon because it started with the letter A, signified something big and it
was easy to spell.
For his contribution, Jeff Bezos was picked as the 1999 Time person of the year at the age of 35 making him the fourth-youngest person of the year.
Describing why it choose Bezos, Time magazine said, “Bezos’ vision of the
online retailing universe was so complete, his Amazon.com site so elegant
and appealing that it became from Day One the point of reference for anyone
who had anything to sell online”3.

Vision and Value

Jeff Bezos was one of the few people to understand the special nature of
Internet Retailing and E-Commerce. This is how he compares E-Tailing to
traditional retailing4-
Look at e-retailing. The key trade that we make is that we trade real estate
for technology. Real estate is the key cost of physical retailers. That's why
there's the old saw: location, location, location. Real estate gets more
expensive every year, and technology gets cheaper every year. And it gets
cheaper fast.

There were really two elements to his vision-
1. He wanted to build the world’s most customer-centric company
2. He wanted to establish a place where customers could buy anything.

This is how he characterizes his vision of customer-centrism-5
Our goal is to be Earth's most customer-centric company. I will leave it to
others to say if we've achieved that. But why? The answer is three things:
The first is that customer-centric means figuring out what your customers
want by asking them, then figuring out how to give it to them, and then
giving it to them. That's the traditional meaning of customer-centric, and
we're focused on it. The second is innovating on behalf of customers, figuring out what they don't know they want and giving it to them. The third meaning, unique to the Internet, is the idea of personalization: Redecorating the store for each and every individual customer. If we have 10.7 million customers, as we did at the end of the last quarter, then we should have 10.7 million stores.

Interestingly, Amazon.com recently launched a “Your Store” service, thus
translating this vision into a reality.

He strived to understand what was unique about the Internet in developing a customer-centric company-

“In the online world, businesses have the opportunity to develop very deep
relationships with customers, both through accepting preferences of
customers and then observing their purchase behavior over time, so that you
can get that individualized knowledge of the customer and use that
individualized knowledge of the customer to accelerate their discovery
process. If we can do that, then the customers are going to feel a deep loyalty
to us, because we know them so well”.

The value elements Amazon.com sought to deliver are illustrated in this
Bezos quote-

"Bill Gates laid it out in a magazine interview. He said, "I buy all my books at
Amazon.com because I'm busy and it's convenient. They have a big selection,
and they've been reliable." Those are three of our four core value propositions:
convenience, selection, service. The only one he left out is price: we are the
broadest discounters in the world in any product category. But maybe price
isn't so important to Bill Gates".

Some of Bezos’ critics have said that the extent of customer-centricism of the
company is about the same as any other company. In other words, Bezos has
been seen as generating hype and nothing much.
Bezos’ vision has been translated into a large customer base and loyalty rate. Amazon.com‘s customer base has grown rapidly over the past several years. Customer accounts grew from 1.5 million in December 1997 to 24.7 million in December 2001. The percentage of repeat customers increased from 64% in 1998 to 78% in 2000. In the fourth quarter of 2001, Amazon spent $7 to
acquire a new customer and the average customer spending was $123.

In addition to customer-centricism, Jeff Bezos wanted Amazon.com to be the place where you could buy anything and everything online. While the
company started out as the world’s biggest bookstore, it wanted to become the
world’s biggest store in the long run. The company has made some progress
along these lines by expanding into new product categories such as cookware
and tools and also providing new services such as Auctions. However, he has
conceded that this is a “multi-decade proposition”.