Amazon as a great e-company

Amazon.com is an American electronic commerce company with headquarters in Seattle, Washington. It is the largest Internet-based retailer in the United States. Amazon.com started as an online bookstore, but soon diversified, selling DVDs, VHSs, CDs, video and MP3 downloads/streaming, software,video games, electronics, apparel, furniture, food, toys, and jewelry. The company also produces consumer electronics—notably, Amazon Kindle e-book readers, Fire tablets,Fire TV and Fire Phone — and is a major provider of cloud computing services. Amazon also sells certain low-end products like USB cables under its inhouse brand AmazonBasics.

Amazon has separate retail websites for United States, United Kingdom & Ireland, France, Canada, Germany, The Netherlands, Italy, Spain, Australia, Brazil, Japan, China, India and Mexico. Amazon also offers international shipping to certain other countries for some of its products. In 2011, it had professed an intention to launch its websites in Poland and Sweden.

Amazon has 237 million active customers. If it were a country, it would the fourth-largest in the world. In the United States, Amazon owns a 30% marketshare in e-commerce … not exactly a niche market.

To what can we attribute Amazon’s growth? After all, they have access to the same tools, people, software and infrastructure as every other retailer. The answer is simple, but trickles down into every nook and cranny of the business: Amazon is built on a culture of innovation.

Amazon continues to defy gravity deep into its second decade. A $40 billion dollar company trading for 70 times next year’s expected earnings just doesn’t seem right. Its third quarter, 2011 profit margin was 58 basis points. It’s as if Amazon is committed to margins below supermarkets.

In 2013, Amazon spent $6.5 billion on research and development. It’s an impressive sum but just five percent of the federal government’s annual R&D spend. It’s fair to say that an investment in R&D doesn’t equate to innovation. The key to innovation isn’t money … it’s a willingness to test relentlessly, fail often and improvise quickly.

Here’s the good news: Amazon’s model is out-dated and, by its very design, anti-social. It is terrific for directed purchases (low margin) and awful for offering engaging shopping experiences (high margin).

Amazon pioneered online directed purchases, training consumers to turn to them first to purchase specific items, guided particularly by price (and later recommendations). It’s undeniably efficient, but it’s almost exclusively transactional. One click and you’re out. Amazon’s anti-shopping model reflects the characteristics of the very people that built it — engineers — who quite frankly are not your typical power shoppers. The fact is that Amazon is just an old mouse trap that doesn’t catch anything but unprofitable mice.

The purpose of this term paper isn’t to praise Amazon. Rather, it’s to examine the practical implications of their innovation in action, specifically with their email marketing.

The average marketing department, email marketing relies heavily on promotional messaging and newsletters. Coupons, sales and content sent to massive lists of customers and prospects, occasionally segmented by purchase history is a shot in the dark.

Amazon takes an entirely different approach. Every email is personalized using every scrap of information they have about their users: on-site behavior, past purchases, amount spent, location, age, gender, etc.

Instead of pulling random examples from our inbox to show you, we created a new Amazon account, made a few purchases and started collecting emails. What we found was really interesting, and really impressive. Below, you’ll find the emails we received along with the context of their arrival (our behavior, purchases, etc.). It’s a study in email-done-right and a template that other business can use send the right emails, at the right time, every time.

Amazon.com plans to open a retail store in the Seattle area in the coming months. The store will supposedly feature Kindle e-readers and tablets as well as other products, and is said to be an experiment to see if a chain of such outlets would make sense.

As a long-time Amazon addict–We suspect we give it more of my money than we do any other single merchant–We instinctively like the idea of an Amazon store.

Amazon is an e-commerce company in everything they do. They have developed all their expertise in full support of e-commerce. In fact they now do e-commerce for many other businesses. They are not hamstrung by an enormous brick and mortar business like Walmart.

 

No internal competition like what Walmart faces day-in day-out. Walmart doesn’t discuss this subject and probably would deny it exists. But it does. No question there. And it yields a gigantic silent advantage for Amazon.

The Amazon sales rank (ASR) provides an indication of the popularity of a product sold on any Amazon locale. It is a relative indicator of popularity that is updated hourly. Effectively, it is a "best sellers list" for the millions of products stocked by Amazon. While the ASR has no direct effect on the sales of a product, it is used by Amazon to determine which products to include in its best-sellers lists. Products that appear in these lists enjoy additional exposure on the Amazon website, and this may lead to an increase in sales. In particular, products that experience large jumps (up or down) in their sales ranks may be included within Amazon's lists of "movers and shakers"; such a listing provides additional exposure that might lead to an increase in sales. For competitive reasons, Amazon does not release actual sales figures to the public. However, Amazon has now begun to release point of sale data via the Nielsen BookScan service to verified authors. While the ASR has been the source of much speculation by publishers, manufacturers and marketers, Amazon itself does not release the details of its sales rank calculation algorithm. In addition, it states:

Please keep in mind that our sales rank figures are simply meant to be a guide of general interest for the customer and not definitive sales information for publishers—we assume you have this information regularly from your distribution sources

—Amazon.com Help, 

Customer Relationship Management (CRM) and Information Management (IM) support Amazon’s business strategy. The core technology that keeps Amazon running is Linux-based. As of 2005, Amazon had the world’s three largest Linux databases, with capacities of 7.8 TB, 18.5 TB, and 24.7 TB. The central data warehouse of Amazon is made of 28 Hewlett Packard servers with four CPUs per node running Oracle database software. Amazon’s technology architecture handles millions of back-end operations every day, as well as queries from more than half a million third-party sellers. With hundreds of thousands of people sending their credit card numbers to Amazon’s servers every day, security becomes a major concern. Amazon employs Netscape Secure Commerce Server using the Secure Socket Layer protocol which stores all credit card details in a separate database. The company also records data on customer buyer behavior which enables them to offer or recommend to an individual specific item, or bundles of items based upon preferences demonstrated through purchases or items visited.

On January 31, 2013 Amazon experienced an outage that lasted approximately 49 minutes, leaving its site inaccessible to some customers.

On May 5, 2014 Amazon unveiled a partnership with Twitter. Twitter users can link their accounts to an Amazon account and automatically add items to their shopping carts by responding to any tweet with an Amazon product link bearing the hashtag #AmazonCart. Customers never leave the Twitter feed, and the product is waiting for them when they go to the Amazon website.

Amazon employs a multi-level e-commerce strategy. Amazon started off by focusing on Business-to-Consumer relationships between itself and its customers, and Business-to-Business relationships between itself and its suppliers but it then moved to incorporate Customer-to-Business transactions as it realized the value of customer reviews as part of the product descriptions. It now also facilitates customer to customer with the provision of the Amazon marketplace which act as an intermediary to facilitate consumer to consumer transactions. The company lets almost anyone sell almost anything using its platform. In addition to affiliate program that lets anybody post Amazon links and earn a commission on click through sales, there is now a program which let those affiliates build entire websites based on Amazon’s platform.

Some other large e-commerce sellers use Amazon to sell their products in addition to selling them through their own websites. The sales are processed through Amazon.com and end up at individual sellers for processing and order fulfillment and Amazon leases space for these retailers. Small sellers of used and new goods go to Amazon Marketplace to offer goods at a fixed price. Amazon also employs the use of drop shippers or meta sellers. These are members or entities that advertise goods on Amazon who order these goods direct from other competing websites but usually from other Amazon members. These meta sellers may have millions of products listed, have large transaction numbers and are grouped alongside other less prolific members giving them credibility as just someone who has been in business for a long time. Markup is anywhere from 50% to 100% and sometimes more, these sellers maintain that items are in stock when the opposite is true. As Amazon increases their dominance in the marketplace these drop shippers have become more and more commonplace in recent years.

Is Amazon a Value Innovation Company?:

It has many of the hallmarks:

1. Jeff Bezos founded the company July 5, 1994 and remains the CEO today.

2. The vision and strategy have been clear and consistent for 20 years

3. Bezos IS the innovation champion

4. Has brought a totally new business model to the retail world

5. Brings exceptional value to the consumer (Amazon’s Most Important Customer)

6. Is the benchmark for ordering on-line (Make it as easy as Amazon)

7. Is growing fast, net sales in 2014, $89B (#35 on the Fortune 500)

8. Not afraid of developing and introducing new products.  Has had successes, e.g, Kindle and failures, e. g., the Fire smartphone.