By Matthew Murphy
By 2000, Amazon.com was the 48th most valuable brand name in the world valued at over $4.5 billion by Interbrand analysts. It was recognized by over 75 percent of U.S. consumers. Its stellar IPO and soaring stock price had made it a household name of the new “dot com” economy. Yet, Amazon still struggled to attain profitability.
By 2000, Amazon.com was the 48th most valuable brand name in the world valued at over $4.5 billion by Interbrand analysts. It was recognized by over 75 percent of U.S. consumers. Its stellar IPO and soaring stock price had made it a household name of the new “dot com” economy. Yet, Amazon still struggled to attain profitability.
Founder Jeff Bezos fought to make Amazon.com the ultimate
consumer online retail platform and brand recognition went a long way toward
attaining that strategic vision. But
Bezos knew that he would need to leverage Amazon’s strategic position within a
network of customers, suppliers, and partners and IT played a significant role
in both the company's strategy and the capabilities it built to execute that strategy.
Amazon expanded from its origins as a simple online retail
bookstore into an online superstore, or e-tailer, offering everything from books,
music, videos, toys, videogames, consumer electronics, software, and kitchen/home improvement products.
Amazon took ownership of its inventory, it was not simply a
reseller. This created tremendous
demands on its warehousing, inventory management, distribution, and fulfillment
activities as its product lines expanded.
The most labor intensive activity for retailers, "picking-and-packing"
was supported by technology that Bezos believed would reduce Amazon’s fulfillment
costs as a percentage of sales to under 10% as soon as they were operating at
scale. These supposed economies of scale and enormous built-in
overcapacity were behind Bezos’ mantra to “get big fast.”
All of this was made possible by Amazon’s heavy IT
investment to develop a “best-in-class” retailing, fulfillment, and customer
service capability to support its diverse and expanding product lines. Its state-of-the-art infrastructure linked nine
distribution centers and six customer service centers located across the United
States and in Europe and Asia. Its distribution infrastructure was planned and
built to meet future growth expectations and therefore in 1999 provided 70
percent to 80 percent overcapacity.
Bezos and Amazon.com aligned a business strategy of customer
facing processes (shopping, buying, paying, and customer service) and an IT strategy
of back-end processes (supply chain, inventory, and order fulfillment) and created
a sustainable competitive advantage.
Importantly, Amazon.com entered into a series of
partnerships with leading online retailers.
By so doing, it was able to leverage its proprietary online retail
infrastructure to provide more than simply an expanded sales portal or
increased product lines. It entered a
new market segment of “Platform as a Service” (PaaS) provider.
Robb (2008) describes a business platform as follows:
A platform is merely a collection of services and capabilities that are common to a wide variety of activities aggregated in a way that makes them exceedingly easy to access. The benefit of this approach is that it becomes easier for end users of this platform to build solutions because they don't need to re-create the wheel in order to build a new service, and it is easier for participants to coordinate and interconnect their activities.
There are three main platform attributes:
- Transparency. Platform mechanisms, both static and dynamic, must be viewable by external parties.
- Two way. All the participants connected by the platform must have the ability to interact with it as both a consumer and a provider of services (both demand and supply).
- Openness. The platform must be open to all comers, in that any and all parties that want to provide innovations should be able to access the system to do so. (Robb, 2008).
Amazon vastly expanded its opportunities when it sought to
make its superior infrastructure and business processes available to others
operating in multiple product lines. (In
fact, competitor Borders Books and Music contracted with Amazon to provide its
own online store.)
This is a very different value proposition that what had
been offered previously. It is no longer
the platform itself that is "sold" to the customer who then must
take responsibility for operating and maintaining it. In the PaaS model, it is the operational
capability of the platform hosting itself that is the main value. This
has far reaching implications to the business model of the PaaS vendor,
Amazon.com, as well as their customers.
Success would depend on two factors, reducing costs of the
supply chain and offering rich, robust,
and easy-to-use platform interfaces.
Amazon’s “best-in-class” supply chain with state of the art distribution
and fulfillment coupled with its extremely easy to use interface and its
platform offering made it a surefire success.
Amazon.com became profitable for the first time in January of 2002 and
since then has grown to be one of the top firms in the world, with a market
capitalization of $150 billion and annual revenue of $100 billion.
References
“Amazon Could Reach $100 Billion Revenue in 2014” By Douglas
A. McIntyre. Wall Street 24/7. December 29, 2013. Retrieved from http://247wallst.com/retail/2013/12/29/amazon-could-reach-100-billion-revenue-in-2014
Comparing Amazon's and Google's Platform-as-a-Service (PaaS)
Offerings. By Dion Hinchcliffe. Enterprise Web 2.0 | April 11, 2008. Retrieved from http://www.zdnet.com/blog/hinchcliffe/comparing-amazons-and-googles-platform-as-a-service-paas-offerings/166
John Robb. Brave New
War. Wiley. (2008).
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