Sales: $3.9 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: AMZN
NAIC: 45411 Electronic Shopping and Mail-Order Houses
Considered a pioneer in online retailing, Amazon.com, Inc. expanded during the late 1990s to offer the “Earth’s Biggest Selection” of books, CDs, videos, DVDs, electronics, toys, tools, home furnishings and housewares, apparel, and kitchen gadgets. Through third-party agreements, Amazon.com also sells products from well-known retailers including Toysrus.com Inc., Target Corporation, Circuit City Stores Inc., the Borders Group, Waterstones, Expedia Inc., Hotwire, National Leisure Group Inc., and Virgin Wines. Sometimes criticized for its focus on market share over profits, Amazon.com put investor fears to rest when it secured its first net profit during the fourth quarter of 2001.
The Early 1990s: Beginnings
Throughout the 1990s, the popularity of the Internet and World Wide Web swept across the world, and personal computers in most businesses and households got hooked up in some form or another to Internet providers and Web browser software. As use of the Internet became more prevalent in society, companies began looking to the Web as a new avenue for commerce. Selling products over the Internet offered a variety of choices and opportunities. One of the pioneers of e-commerce was Jeff Bezos, founder of Amazon.com.
In 1994, Bezos left his job as vice-president of the Wall Street firm D.E. Shaw, moved to Seattle, and began to work out a business plan for what would become Amazon.com. After reading a report that projected annual Web growth at 2,300 percent, Bezos drew up a list of 20 products that could be sold on the Internet. He narrowed the list to what he felt were the five most promising: compact discs, computer hardware, computer software, videos, and books. Bezos eventually decided that his venture would sell books over the Web, due to the large worldwide market for literature, the low price that could be offered for books, and the tremendous selection of titles that were available in print. He chose Seattle as the company headquarters due to its large high-tech work force and its proximity to a large book distribution center in Oregon. Bezos then worked to raise funds for the company while also working with software developers to build the company’s web site. The web site debuted in July 1995 and quickly became the number one book-related site on the Web.
In just four months of operation, Amazon.com became a very popular site on the Web, making high marks on several Internet rankings. It generated recognition as the sixth best site on Point Communications’ “top ten” list, and was almost immediately placed on Yahoo’s “what’s cool list” and Netscape’s “what’s new list.” The site opened with a searchable database of over one million titles. Customers could enter search information, prompting the system to sift through the company database and find the desired titles. The program then displayed information about the selection on a customer’s computer screen, and gave the customer the option to order the books with a credit card and have the books shipped in a just a few days.
Unlike its large competitors, such as Barnes & Noble and Borders, Amazon.com carried only about 2,000 titles in stock in its Seattle warehouse. Most orders through Amazon.com were placed directly through wholesalers and publishers, so no warehouse was needed. Amazon.com would simply receive the books from the other sources, then ship them to the customer. At first, the company operated out of Bezos’ garage, until it was clear that it was going to be a success, necessitating a move to a Seattle office, which served as the customer support, shipping, and receiving area. It was interesting that, because of the Internet, such a small venture could realize such a broad scope so quickly; within a month of launching the web site, Bezos and Amazon.com had filled orders from all 50 states and 45 other countries.
As a pioneer in the world of Internet commerce, Amazon.com strived to set the standard for web businesses. With that goal in mind, Bezos went to work on making the web site as customer friendly as possible and relating the site to all types of customers. For those people who knew what book they were looking for and just wanted quick performance and low cost, Amazon.com offered powerful search capabilities of its expanded 1.5 million-title database. The company also began offering 10 to 30 percent discounts on most titles, making the prices extremely affordable. For other customers who were just looking for something to read in a general area of interest, Amazon.com offered topic areas to browse, as well as lists of bestsellers, award winners, and titles that were recently featured in the media. Finally, for people who could not decide, Amazon.com offered a recommendation center. There a customer could find books based on his or her mood, reading habits, or preferences. The recommendation center also offered titles based on records of books the customer had purchased in the past, if they were return customers to the site.
Other hits with customers were the little touches, such as optional gift wrapping of packages, and the “eye” notification service, which sent customers e-mails alerting them when a new book in their favorite subject or by their favorite author came into stock. The site also offered the ability for customers not only to write their comments about different books and have them published on the site, but to read other customers’ comments about books they were interested in buying.
Going Public in 1997
After less than two years of operation, Amazon.com became a public company in May 1997 with an initial public offering (IPO) of three million shares of common stock. With the proceeds from the IPO, Bezos went to work on improving the already productive web site and on bettering the company’s distribution capabilities.
To help broaden the company’s distribution capabilities, and to ease the strain on the existing distribution center that came from such a high volume of orders, in September 1997 Bezos announced that Amazon.com would be opening an East Coast distribution center in New Castle, Delaware. There was also a 70 percent expansion of the company’s Seattle center. The improvements increased the company’s stocking and shipping capabilities and reduced the time it took to fill customers’ orders. The Delaware site not only got Amazon.com closer to East Coast customers, but also to East Coast publishers, which decreased Amazon.com’s receiving time. With the new centers in place, Bezos set a goal for the company of 95 percent same day shipping of in-stock orders, getting orders to the customers much faster than before.
Another growth area for Amazon.com was the success of its “Associate’ program. Established in July 1996, the program allowed individuals with their own web sites to choose books of interest and place ads for them on their own sites, allowing visitors to purchase those books. The customer was linked to Amazon.com, which took care of all the orders. Associates were sent reports on their sales and made a 3 to 8 percent commission from books sold on their sites. The Associates program really began to take off in mid-1997, when Amazon.com formed partnerships with Yahoo, Inc. and America Online, Inc. Both companies agreed to give Amazon.com broad promotional capabilities on their sites, two of the most visited sites on the Web. As the success continued, Amazon also struck deals with many other popular sites, including Netscape, GeoCities, Excite, and AltaVista.
As the company continued to grow in 1997, Bezos announced in October that Amazon.com would be the first Internet retailer to reach the milestone of one million customers. With customers in all 50 states and now 160 countries worldwide, what had started in a Seattle garage was now a company with $147.8 million in yearly sales.
Further Expansion in 1998
As Amazon.com ventured into 1998, the company continued to grow. By February, the Associates program had reached 30,000 members, who now earned up to 15 percent for recommending and selling books from their web sites. Four months later, the number of Associates had doubled to 60,000.
The company’s customer database continued to grow as well, with cumulative customer accounts reaching 2.26 million in March, an increase of 50 percent in just three months, and of 564 percent over the previous year. In other words, it took Amazon.com 27 months to serve its first million customers and only six months to serve the second million. This feat made Amazon.com the third largest bookseller in the United States.
Financed by a $75 million credit facility secured in late 1997, Amazon.com continued to reshape its services in 1998. To its catalog of over 2.5 million titles, the company added Amazon.com Advantage, a program to help the sales of independent authors and publishers, and Amazon.com Kids, a service providing over 100,000 titles for younger children and teenagers.
We seek to offer the Earth’s Biggest Selection and to be the Earth’s most customer-centric company, where customers can find and discover anything they may want to buy online.
Amazon.com also expanded its business through a trio of acquisitions in early 1998. Two of the companies were acquired to further expand Amazon.com’s business into Europe. Bookpages, one of the largest online booksellers in the United Kingdom, gave Amazon.com access to the U.K. market. Tele-book, the largest online bookseller in Germany, added its German titles to the mix. Both companies not only gave Amazon.com access to new customers in Europe, but it also gave existing Amazon.com customers access to more books from around the world. The Internet Movie Database (IMD), the third acquisition, was used to support plans for its move into online video sales. The tremendous resources and information of the IMD served as a valuable asset in the construction of a customer-friendly and informative web site for video sales.
Another big change in 1998 was the announcement of the company’s decision to enter into the online music business. Bezos again wanted to make the site as useful as possible for his customers, so he appealed to them for help. Several months before officially opening its music site, Amazon.com asked its bookstore customers and members of the music profession to help design the new web site.
The music store opened in June 1998, with over 125,000 music titles available. The new site, which began operations at the same time that Amazon.com debuted a redesigned book site, offered many of the same helpful services available at the company’s book site. The database was searchable by artist, song title, or label, and customers were able to listen to more than 225,000 sound clips before making their selection.
Amazon.com ended the second quarter of 1998 as strong as ever. Cumulative customer accounts broke the three million mark, and as sales figures for Amazon.com continued to rise, and more products and titles were added, the future looked bright for this pioneer in the Internet commerce marketplace. With music as a part of the company mix, and video sales on the horizon, Bezos seemed to have accomplished his goal of gathering a strong market share in the online sales arena. As Bezos told Fortune magazine in December 1996: “By the year 2000, there could be two or three big online bookstores. We need to be one of them.”
Growth Continues: 1999 and Beyond
As such, the company’s focus on growth continued. In 1999, it launched an online auction service entitled Amazon Auctions. It also began offering toys and electronics and then divided its product offerings into individual stores on its site to make it easier for customers to shop for certain items. During the holiday season that year, the firm ordered 181 acres of holiday wrapping paper and 2,494 miles of red ribbon, a sign that Bezos expected holiday shoppers to flock to his site as they had in the two past years. Sure enough, sales climbed to $1.6 billion proving that the founder’s efforts to create an online powerhouse had indeed paid off. In 1999, Bezos reached the upper echelon of the corporate world when Time magazine honored him with its prestigious “Person of the Year” award.
While Amazon.com’s growth story was remarkable, Bezos’ focus on market share over profits had made Wall Street uneasy and left analysts speculating whether the company would ever be able to turn a profit. Sales continued to grow as the company added new products to its site—including lawn and patio furniture and kitchen wares. The company however, continued to post net losses. To top it off, the “dot-com boom” of the late 1990s came to a crashing halt in the early years of the new millenium as many startups declared bankruptcy amid intense competition and weakening economies.
Bezos remained optimistic, even as Amazon.com’s share price faltered. During 2001, the company focused on cutting costs. It laid off 1,300 employees and closed a distribution facility. The company also added price reduction to its business strategy, which had traditionally been centered on vast selection and convenience. Amazon.com inked lucrative third-party deals with such well-known retailers as Target Corporation and America Online, Inc. By now, products from Toysrus.com Inc., Circuit City Stores Inc., the Borders Group, and a host of other retailers were available on the Amazon.com site.
Amazon.com’s strategy worked. In 2001, sales grew to $3.12 billion, an increase of 13 percent over the previous year. During the fourth quarter, Amazon.com reached a milestone that many had regarded as unlikely; it secured a net profit of $5 million. In 2002, the company launched its apparel store, which included clothing from retailers The Gap and Lands’ End. Overall, the company reported a net loss of $149 million for the year, an improvement from the $567 million loss reported in 2001. In the fourth quarter of 2002 however, the firm secured a quarterly net profit of $3 million—the second net profit in its history.
While securing quarterly net profits was a major turning point for the young company, a July 2002 Business Week article warned, “after seven years and more than $1 billion in losses, Amazon is still a work in process.” Indeed, the company’s foray into providing the “Earth’s Biggest Selection” had yet to prove it could provide profits on a long-term basis. Nevertheless, Bezos and his Amazon team remained confident that the firm was on the right track. With $3.9 billion in annual sales, Amazon.com had without a doubt come a long way from its start as an online book seller.
Amazon Global Resources, Inc.; Amazon.com.dedc, LLC; FulfiUco.ksdc, Inc.; Amazon.com.kydc, Inc.; Amazon.com Commerce Services, Inc.; Amazon.com Holdings, Inc.; Amazon.com International Sales, Inc.; Amazon.com LLC; Amazon.com Payments, Inc.; NV Services, Inc.; Amazon Fulfillment Services, Inc.; [email protected], Inc.
Barnes & Noble Inc.; CDNow Inc.; eBay Inc.
- Amazon.com debuts on the Web.
- The company goes public; Amazon.com becomes the first Internet retailer to secure one million customers.
- Amazon.com enters the online music and video business; companies are acquired in the United Kingdom and Germany.
- The firm expands into selling toys, electronics, tools, and hardware; Bezos is named Time Magazine’s “Person of the Year.”
- Amazon.com reports its first net profit during the fourth quarter.
“Chewing the Sashimi with Jeff Bezos,” Business Week, July 15, 2002.
Colker, David, “Amazon Delivers Profit for the Second Time,” Los Angeles Times, January 24, 2003.
Green, Lee, “Net Profits,” Spirit Magazine, March 1998, pp. 52–54, 126–28.
Haines, Thomas, “Amazon.com Sales Grow While Loss Widens,” Seattle Times, January 23, 1998, p. C1.
Hansell, Saul, “Amazon’s Risky Christmas,” New York Times, November 28, 1999.
Hazleton, Lesley, “Jeff Bezos: How He Built a Billion Dollar Net Worth Before His Company Even Turned A Profit,” Success, July 1998, pp. 58–60.
“How Amazon Cleared the Profitability Hurdle,” Business Week, February 4, 2002.
“Jeffrey Bezos,” Chain Store Age Executive, December 1997, p. 124.
Jeffrey, Don, “Amazon.com Eyes Retailing Music Online,” Billboard, January 31, 1998, pp. 8–9.
Martin, Michael, “The Next Big Thing: A Bookstore,” Fortune, December 9, 1996, pp. 168–70.
Perez, Elizabeth, “Store On Internet Is Open Book: Amazon.com Boasts More Than 1 Million Titles On The Web,” Seattle Times, September 19, 1995, p. E1.
Rose, Cynthia, “Site-Seeing,” Seattle Times, March 10, 1996.
Soto, Monica, “Amazon Layoffs: What’s It All Mean?,” Seattle Times, February 5, 2001.
Zito, Kelly, “Amazon CEO Tells of Life at the Top,” San Francisco Chronicle, December 23, 1999, p. B1.
—Robert Alan Passage
—update: Christina M. Stansell
Sales: $147.8 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: AMZN
SICs: 5961 Catalog & Mail-Order Houses
Amazon.com, Inc. is the world’s biggest book and music store, offering more than 3 million book and music titles over the internet. The leading online shopping site by the end of the 1990s, Amazon.com possesses virtually unlimited online shelf space and offers its vast selection of retail items to customers through efficient search and browse features. A pioneer in the relatively new business of internet commerce, Amazon.com offers customers features such as 1-Click ordering, secure credit card payment, and direct shipping.
The Beginnings of Amazon.com
Throughout the 1990s, the popularity of the world wide web and the internet swept across the world, and personal computers in most businesses and households got hooked up in some form or another to internet providers and web browser software. As use of the internet became more prevalent in society, companies began looking to the web as a new avenue for commerce. Selling products over the internet offered a variety of choices and opportunities. One of the pioneers of business on the internet was Jeff Bezos, founder of Amazon.com.
In 1994, Bezos left his job as vice-president of the Wall Street firm D.E. Shaw, moved to Seattle, Washington, and began to work out a plan for the company that would become Amazon.com. After reading a report that projected annual web growth at 2,300 percent, Bezos drew up a list of twenty products that could be sold on the net. He narrowed the list to what he felt were the five most promising: compact discs, computer hardware, computer software, videos, and books. Bezos eventually decided that his venture would sell books over the web, due to the large worldwide market for literature, the low price that could be offered for books, and the tremendous selection of titles that were available in print. He chose Seattle as the company headquarters due to its large high-tech workforce and its proximity to a large book distribution center in Oregon. Bezos then worked to raise funds for the company while also working with software developers to build the company’s web site. The web site debuted in July 1995 and quickly became the number one book-related site on the web.
In just four months of operation, Amazon.com became a very popular site on the web, making high marks on several internet rankings. It generated recognition as the sixth best site on Point Communications’ “top ten” list, and was almost immediately placed on Yahoo’s “what’s cool list” and Netscape’s “what’s new list”. The site opened with a searchable database of over one million titles. Customers could enter search information, prompting the system to sift through the company database and find the desired titles. The program then displayed information about the selection on a customer’s computer screen, and gave the customer the option to order the books with a credit card and have the books shipped to them in a just a few days.
Unlike its large competitors, such as Barnes & Noble and Borders, Amazon.com carried only about 2,000 titles in stock in its Seattle warehouse. Most orders through Amazon.com were placed directly through wholesalers and publishers, so no warehouse was needed. Amazon.com would simply receive the books from the other sources, then ship them to the customer. At first, the company operated out of Bezos’ garage, until it was clear that it was going to be a success and the company decided to move to a Seattle office, which served as the customer support, shipping and receiving area. It was interesting that such a small venture realized such a broad scope so quickly; for example, within a month of launching the web site, Bezos and Amazon.com filled orders from all fifty states and 45 other countries. This feat was attributed to the large geographic range that the internet gave access to a retailer such as Bezos.
Making the Site Customer Friendly
As a pioneer in the world of Internet commerce, Amazon.com strived to set the standard for web businesses. With that goal in mind, Bezos went to work on making the web site as customer friendly as possible, and relating the site to all types of customers. For those people who knew what book they were looking for and just wanted quick performance and low cost, Amazon.com offered powerful search capabilities of its expanded 1.5 million-title database. The company also began offering ten to thirty percent discounts on most titles, making the prices extremely affordable. For other customers who were just looking for something to read in a general area of interest, Amazon.com offered topic areas to browse, as well as lists of Bestsellers, Award winners, and titles that were recently featured in the media. Finally, for people who were just in the mood to read anything, Amazon.com offered a recommendation center. There a customer could find books based on his or her mood, reading habits, or preferences. The recommendation center also offered titles based on records of books the customer had purchased in the past, if they were return customers to the site.
Other hits with customers were the little touches, such as optional gift wrapping of packages, and the “eye” notification service, which acted to send customers e-mails alerting them when a new book in their favorite subject or by their favorite author came into stock. The site also offered the ability for customers not only to write their comments about different books and have them published on the site, but to read other customers’ comments about books they were interested in buying.
Public Offering in 1997
After less than two years of operation, Amazon.com became a public company in May 1997 with an initial public offering of 3,000,000 shares of Common Stock. With the proceeds from the IPO, Bezos went to work on improving the already productive web site and on bettering the company’s distribution capabilities.
To help broaden the company’s distribution capabilities, and to ease the strain on the existing distribution center that came from such a high volume of orders, in September 1997 Bezos announced that Amazon.com would be opening an East Coast distribution center in New Castle, Delaware. There was also a seventy percent expansion of the company’s Seattle center. The improvements increased the company’s stocking and shipping capabilities and reduced the time it took to fill customers’ orders. The Delaware site not only got Amazon.com closer to East Coast customers, but also to East Coast publishers, which decreased Amazon.com’s receiving time. With the new centers in place, Bezos set a goal for the company of 95 percent same-day shipping of in-stock orders, getting orders to the customers much faster than before.
Another growth area for Amazon.com was the success of its ‘Associate’ program. Established in July 1996, the program allowed individuals with their own web sites to choose books of interest and place them on their own sites, then allowed visitors to purchase those books. The customer was then connected to Amazon.com, who took care of all the orders. Associates were sent reports on their sales and made a three to eight percent commission from books sold on their sites. The Associates program really began to take off in mid-1997 when Amazon.com formed partnerships with Yahoo, Inc. and America Online, Inc. Both companies agreed to give Amazon.com broad promotional capabilities on two of the most visited sites on the Web. As the success continued, Amazon also struck deals with many other popular sites, including Netscape, GeoCities, Excite, and AltaVista.
As the company continued to grow in 1997, Bezos announced in October that Amazon.com would be the first Internet retailer to reach the milestone of one million customers. With customers in all fifty states and now 160 countries worldwide, what had started in a Seattle garage was now a company with $147.8 million in yearly sales.
Further Expansion in 1998
As Amazon.com ventured into 1998, the company continued to grow. By February, the Associates program had reached 30,000 members, who now earned up to 15 percent for recommending and selling books from their web sites. Four months later, the number of associates had astonishingly doubled to 60,000.
The company’s customer database continued to grow also, with cumulative customer accounts reaching 2,260,000 in March, an increase of 50 percent in just 3 months, and of 564 percent throughout the previous year. In other words, it took Amazon.com 27 months to serve its first million customers and only six months to serve the second million. This feat made Amazon.com the third largest bookseller in the United States.
Financed by a $75 million credit facility secured in late 1997, Amazon.com continued to reshape its services in 1998. To its catalog of over 2.5 million titles, the company added Amazon.com Advantage, a program to help the sales of independent authors and publishers, and Amazon.com Kids, a service providing over 100,000 titles for younger children and teenagers.
We opened our virtual doors in July 1995 with a mission to use the Internet to offer products that educate, inform, and inspire. We decided to build an online store that would be customer-friendly and easy to navigate and would offer the broadest possible selection.
Amazon.com also expanded its business through a trio of acquisitions in early 1998. Two of the companies were acquired to expand Amazon.com’s business into Europe. Bookpages, one of the largest online booksellers in the United Kingdom, gave Amazon.com access to the U.K.’s market. Telebook, the largest online bookseller in Germany, added its German titles to the mix. Both companies not only gave Amazon.com access to new customers in Europe, but it also gave existing Amazon.com customers access to more books from around the world. The Internet Movie Database, the third acquisition, was used to support plans for an eventual move into online video sales. The tremendous resources and information of the IMD served as a valuable asset in the construction of a customer-friendly and informative web site for video sales.
Another big change in 1998 was the announcement of the company’s decision to enter into the online music business. Bezos again wanted to make the site as useful as possible for his customers, so he appealed to them for help. Several months before officially opening its music site, Amazon.com asked its bookstore customers and members of the music profession to help design the new Web-site.
The music store opened in June 1998, with over 125,000 music titles available. The new site, which opened at the same time that Amazon.com had also redesigned it book site, offered many of the same helpful services available at the company’s book site. The database was searchable by artist, song title, or label, and customers were able to listen to more than 225,000 sound clips before making their selection.
Amazon.com ended the second quarter of 1998 as strong as ever. Cumulative customer accounts broke the three million mark, and as sales figures for Amazon.com continued to rise, and more products and titles were added, the future looked bright for this pioneer in the internet commerce marketplace. With music as a part of the company mix, and video sales on the horizon, Bezos seemed to have accomplished his goal of gathering a strong market share in the online sales arena. As Bezos told Fortune magazine in December 1996, “By the year 2000, there could be two or three big online bookstores. We need to be one of them.” As it approached the end of the decade, Amazon.com already appeared to be one of the biggest online retail operations, if not the biggest of all.
Green, Lee, “Net Profits,” Spirit Magazine, March 1998, pp. 52–54, 126–128.
Haines, Thomas, “Amazon.com Sales Grow While Loss Widens,” The Seattle Times, January 23, 1998, p. C1.
Hazleton, Lesley, “Jeff Bezos: How He Built a Billion Dollar Net Worth Before His Company Even Turned A Profit,” Success, July 1998, pp. 58–60
“Jeffrey Bezos,” Chain Store Age Executive, December 1997, p. 124.
Jeffrey, Don, “Amazon.com Eyes Retailing Music Online,” Billboard, January 31, 1998, pp. 8–9.
Martin, Michael, “The Next Big Thing: A Bookstore,” Fortune, December 9, 1996, pp. 168–170.
Perez, Elizabeth, “Store On Internet Is Open Book: Amazon.com Boasts More Than 1 Million Titles On The Web,” The Seattle Times, September 19, 1995, p. E1.
Rose, Cynthia, “Site-Seeing,” The Seattle Times, March 10, 1996.
—Robert Alan Passage
Although Amazon.com built its reputation as an online bookstore, the Seattle-based company has pursued a strategy of offering a wide assortment of products, which it promotes as "Earth's Biggest Selection." An early 2001 version of the company's home page offered links to several categories, among them books, electronics, toys, video, music, health and beauty, wireless phones, camera and photo, computer and video games, software, tools and hardware, lawn and patio, cars, auctions, and gifts.
Amazon.com went online in July 1995 and quickly set the standard for other e-tailers. The company changed the way people buy books by staying open 24 hours a day, seven days a week. It also developed its own user-friendly ordering system and provided reviews and other information about the books it sold that no traditional bookstore could match. Amazon.com 's head start on other booksellers helped it to dominate the online book market. Barnes and Noble, the largest traditional book retailer, had a market value of $2 billion in 1998, compared to $5.8 billion for Amazon.com.
Amazon.com was founded by Jeff Bezos. Bezos determined that books, videos, computer software and hardware, and CDs would be the easiest products to sell online. They were items that a customer did not necessarily need to see or handle before ordering, and they were easy to pack and ship. Without the physical space limitations of a bricks-and-mortar store, Bezos realized that an online store could offer a wider selection of those items.
In the beginning, Amazon.com was aided by the established wholesale network for books that already existed. The company didn't need a big inventory to start with. One reason Amazon.com chose Seattle, Washington, as its base was that it would be near the world's largest book wholesaler, which was based in Oregon. Seattle also offered a well-educated employment pool. Amazon.com added a warehouse in Delaware in 1997, but the company began in Bezos's garage and then moved its shipping operation into a 20-by-20-foot space. After nearly two years in this small space, the company finally began using a large warehouse in Seattle. In 1998 Amazon.com began selling CDs and computer games in addition to its selection of 3 million books.
THE FIRST E-HOLIDAY SHOPPING SEASON, 1998
The fourth quarter of 1998 was the first holiday shopping season in the United States that had substantial retail sales over the Internet. The Boston Consulting Group estimated that American consumers spent about $4 billion buying goods and services online during the fourth quarter of 1998, and nearly $10 billion throughout the year. While that amounted to less than one percent of all U.S. retail sales, e-commerce sales more than tripled from 1997. The same report estimated that more than 8 million U.S. households made an online purchase during 1998.
In the fourth quarter of 1998 America Online (AOL) was the Internet's most popular shopping mall, but Amazon.com was the number one e-tailer. It sold a variety of books, CDs, videos, and gifts, including a selection of 185 toys. It also spent heavily on marketing and advertising—$29 on average to acquire a new customer, which is one reason the company had yet to turn a profit.
EXPANSION INTO NEW MARKETS, 1999
In June 1999 Amazon.com formed an alliance with auction house Sotheby's Holdings Inc. to launch a joint auction site specializing in art, antiques, and collectibles. Amazon.com agreed to invest $45 million in Sotheby's. Amazon planned to host the site as part of its growing auction page, which offered 20 different categories of auctions. All of the property would be offered by Sotheby's and other dealers. In addition, the authenticity and condition of each item would be guaranteed. The site also planned to conduct online auctions in conjunction with live auctions from Sotheby's in New York. The site (www.sothebys.com Amazon.com) launched in November 1999.
By mid-1999, Amazon.com was valued at $22 billion, according to Newsweek. In two years its customer base had grown from 2 million to 11 million. Not only was Amazon the dominant bookseller, it had become the biggest music retailer on the Internet. The company also sold toys and consumer electronics. However, although Amazon was a flagship for e-commerce, it had yet to turn a profit. The company explained that revenue was being used to build the business, and that they eventually planned to offer anything and everything online.
For the 1999 holiday shopping season, Amazon.com added four new stores to its site: home improvement, software, video games, and gift ideas. It was part of the firm's strategy to offer a large selection of items across multiple product lines. Amazon.com had introduced online auctions in spring 1999, followed by its zShops marketplace, which let customers sell their own items for a set price or by auction.
NEW PARTNERS HELP TO INCREASE REVENUE
During 2000 Amazon.com entered into new partnerships designed to increase the firm's revenue and make it profitable. Amazon.com had spent heavily to attract customers. Now it was entering into agreements with other dot-coms to give them access to its base of 16 million customers in exchange for a fee and an ownership interest. The agreements also were part of Amazon.com 's strategy to offer the widest possible assortment of products through its Web site. Each agreement would add to Amazon.com 's operating income, offsetting a projected loss of $41.7 million for 2001.
In January 2001 Amazon.com invested an additional $30 million in Drugstore.com, increasing its ownership interest in the dot-com to 28 percent. In return, Amazon.com would receive $105 million over three years to display Drugstore.com prominently on its Web site by giving the site its own category tab on Amazon.com 's home page. Amazon.com also invested an undisclosed amount for a five-percent interest in Greenlight.com, which sold cars online. Green-light.com agreed to pay Amazon.com $82.5 million over five years for promoting its site to Amazon.com customers.
Other partnerships involved such dot-coms as Ashford.com, a seller of luxury goods; NextCard, which was creating a co-branded MasterCard and Visa credit card; and Gear.com, which sold sporting goods at a discount. During the year additional links were added to Pets.com and Homegrocer.com As the year progressed, the Internet economy weakened and several dot-coms reorganized or went out of business. One casualty was Living.com, which had promised to pay Amazon.com $145 million over five years to be its home-furnishings partner. That revenue stream was lost when Living.com closed up in August 2000. Weakening support for dot-coms also caused Amazon.com to rearrange its terms with several other partners who were part of the Amazon Commerce Network, including Greenlight.com and Drug-store.com, again reducing the company's revenue.
Although management's strategy was aimed at achieving certain operating income levels rather than revenue growth, Amazon.com continued to lose money during 2000. For the second quarter ending June 30, Amazon.com reported a loss of $115.7 million on revenue of $578 million. Customer accounts rose by 2.5 million during the quarter to reach a total of 22.5 million customers. Repeat orders made up 78 percent of Amazon.com 's total, up from 70 percent a year earlier. The company also noted that its book and video sales had finally become profitable. Its electronics division posted the biggest gain during the quarter, while its U.S. book, music, and DVD sales totaled $385.28 million, with a profit of $10.06 million. The company also announced it expected to end the year with about $1 billion in cash. Investors expressed concern about Amazon.com 's rising debt load, which increased from $1.5 billion at the end of 1999 to $2.1 billion at the end of June. Servicing its debt cost Amazon.com an estimated $150 million annually.
Through its agreement with Greenlight.com, Amazon.com added cars to its product offerings in August 2000. The new link presented information on automobiles and trucks in the standard Amazon.com format. They were listed on Amazon.com 's new ventures section, which included all of Amazon.com 's non-media products. Amazon.com was able to offer new car and truck sales in 27 metro markets through affiliated dealers, including three of the top dealership networks.
After less than a year online, Amazon.com 's co-branded auction site with Sotheby's auction house was closed in October 2000. The listings from Sothebys.Amazon.com were consolidated on Sothebys.com, the auction house's primary Web site. The reason given for the consolidation was the need to achieve a larger scale and offer customers a much deeper selection in a single site. The consolidation also made it easier for Sothebys.com 's 5,000 associates to conduct business online.
Amazon.com also expanded internationally during 2000, opening sites in France and Japan in addition to its existing sites in Germany and the United Kingdom. The Japanese-language site was launched in November 2000 and focused on books. Japan already was Amazon.com 's largest export market, with nearly 200,000 Japanese customers ordering $34 million in products each year from the company's U.S.-based site. The Japanese site was supported by a corporate office in Tokyo, a distribution center in Ichikawa, and a customer service center in Sapporo, Hokkaido. Although Japanese publishing regulations prevented the e-tailer from offering large discounts on Japanese-language books, it could continue to discount its English-language titles up to 30 percent. For the rest of 2000 the Japanese site offered free shipping as an incentive.
A November 2000 report compiled by Forrester Research revealed a tight three-way race among online booksellers. For the first time, Borders.com passed Amazon.com as the top online bookseller, with Barnesandnoble.com a close third. Forrester's PowerRankings of major U.S. e-commerce sites, which were based on consumer surveys followed by its own online shopping tests, gave Borders.com a 66.83 rating, compared to 66.76 for Amazon.com and 65.46 for Barnesandnoble.com. The results demonstrated that while Amazon.com was focused on branching out into other product lines, Borders.com and Barnesandnoble.com were working hard to sell books over the Internet. In the Forrester survey, Borders was tops in the categories of transaction efficiency, cost, and delivery/returns, while Barnesandnoble.com led in ease of use and customer service. Subsequently, in April 2001 Borders announced its exit from online retailing and turned over the operation of Borders.com to Amazon.com, for which Amazon.com received a one-time payment and a percentage of revenue from sales.
A December 2000 report by Jupiter Media Metrix revealed the strength of Amazon.com 's international appeal. It was the most visited e-tailer in Australia, Canada, the United Kingdom, and the United States. In addition, Amazon.com was among the top five online retailers in Brazil, Denmark, France, and Japan. In the United Kingdom the company actually ranked first and second, with its U.K. site attracting 1.75 million unique visitors in November, while its U.S. site attracted 993,000 visitors. The U.S. site reported 1.22 million visitors during November from Canada and 461,000 from Australia.
Amazon.com DOMINATED THE HOLIDAY SHOPPING SEASON, 2000
According to AdRelevance, Amazon.com was the most advertised company on the Internet for eight out of nine weeks during the 2000 holiday shopping season. Its $61.8 million ad budget for December led the pack in Internet advertising, with nearly 3 billion ad impressions. Barnesandnoble.com was a distant second with $23.8 million spent on Internet advertising in December. Amazon.com advertised on more than 100 Web sites, but it made an effort to dominate on the top sites. The top five sites it advertised on were MSN, AOL, Netscape, Juno, and Excite, where it was the number one advertiser on four of those sites and the number three advertiser on Excite.
Amazon.com employed brand recognition as well as direct marketing advertisements in its campaign. Before the holiday season, only 5.3 million of the company's 275.3 million ad impressions were direct marketing impressions. By the end of November, Amazon.com had begun to place more emphasis on direct marketing impressions. During the last week of November, Amazon.com ran 320 million branding impressions, compared to 212.8 direct marketing impressions, in an effort to achieve immediate results. Each direct marketing ad had 4 million impressions, while each branding ad had 750,000 impressions.
Perhaps Amazon.com 's most important partnership of 2000 was its online joint venture with Toys 'R' Us, which had been struggling to develop its own online strategy. For the 2000 holiday shopping season, Amazon.com and bricks-and-mortar retailer Toys 'R' Us joined forces to create Toysrus.com. The alliance was announced in August 2000, with the newly created Toysrus.com to select and purchase the toys using its parent company's clout, while Amazon.com would run the store on its Web site, ship the products, and handle customer service. The venture played to the strengths of both companies, and it paid off in a big way for the 2000 holiday shopping season. According to a report by Nielsen/NetRatings, the joint site was the number one online shopping site during the holiday season with 123 million visitors. Coming in second with 21.12 million shopping visits during the season was rival eToys, followed by Dell.com with 21 million visitors, Barnesandnoble.com with 20.25 million visits, CDNow.com with 20 million, and Walmart.com with 18 million.
FOCUSED ON PROFITABILITY, 2001
Amazon.com continued to outpace its online competition in January 2001, registering 2.3 million projected buyers according to a report from PC Data—nearly double the number for January 2000. Although Amazon.com beat Wall Street's estimates for the fourth quarter of 2000, the company announced at the end of January that it would lay off 1,300 workers, or 15 percent of its workforce. Other cost-cutting measures included closing a distribution center in Georgia and a customer service center in Seattle. The company also lowered revenue estimates for 2001, mainly due to the slowdown of the overall economy toward the end of 2000. Amazon.com projected that sales would grow from 20 to 30 percent in 2001 to $3.3 to $3.6 billion. Still, the company maintained that it would reach operating profitability by the end of 2001, and that it would have about $900 million in cash and marketable securities at the end of the year.
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"Amazon in New E-tail Deals." Puget Sound Business Journal. January 28, 2000.
Dembeck, Chet. "Amazon and Sotheby's Launch Upscale Auction Site." E-Commerce Times. November 19, 1999. Available from www.ecommercetimes.com.
"Double Play." Business Week. October 23, 2000.
Enos, Lori. "Amazon Ranked as Net Ad Champ." E-Commerce Times. December 14, 2000. Available from www.ecommercetimes.com.
"Inside the First e-Christmas." Fortune. February 1, 1999.
Macaluso, Nora. "Amazon and Toys 'R' Us Take E-Holiday Prize." E-Commerce Times. January 2, 2001. Available from www.ecommercetimes.com.
Rabinovitz, Jonathan. "Santa Monica, Calif.-Based Internet Entrepreneur Sells Toys." Knight-Ridder/Tribune Business News. October 25, 1998.
Saliba, Clare. "Report: Amazon Smashed E-tail Competition in January." E-Commerce Times. February 14, 2001. Available from www.ecommercetimes.com.
"We Have Lift-off." The Economist (US). February 3, 2001.
"Wired for the Bottom Line." Newsweek. September 20, 1999.
SEE ALSO: Barnesandnoble.com; Bezos, Jeff; Business-to-Consumer (B2C) E-Commerce
headquarters: 1200 12th ave. s, suite 1200
seattle, wa 98144 phone: (206)266-1000 fax: (206)266-1821 toll free: (800)201-7575 url: http://www.amazon.com
When first launched in July 1995, Amazon.com set out to give book buyers a faster, easier, and more enjoyable way to do their shopping. The company's product line in its early years included recordings and videos as well as books. Although Amazon has widely expanded its product offerings in the years since it first went online, the company remains committed to its original goals of customer satisfaction and making the online shopping experience both educational and inspiring. Literally millions of products are now available from Amazon.com's Web sites. These include consumer electronics, toys, computer and video games, tools and other hardware, lawn and garden supplies, kitchen products, cameras, and computer software.
In addition to its broad selection of retail products, the company hosts on its Web site Amazon Marketplace, Auctions, and zShops, which provide a virtual marketplace where individuals and businesses can offer for sale virtually any product to Amazon's millions of customers. In addition to its U.S.-based Web site (http://www. amazon.com) the company operates four internationally-oriented sites: http://www.amazon.co.uk, based in the United Kingdom; http://www.amazon.de, based in Germany; http://www.amazon.fr, based in France; and http://www.amazon.co.jp, based in Japan.
In the early years after it opened its virtual doors for business in 1995, Amazon.com focused on winning market share at the expense of fast profits, in the hope that wide customer recognition of the company's quality operations would eventually pay off in sound financial performance. More recently the company has turned its attention to profits. Despite the depressed economy of 2001, Amazon managed to sharply reduce its net loss from that recorded in the previous year. For 2001 the company reported a net loss of $567.3 million on revenue of $3.1 billion, against a 2000 net loss of $1.4 billion on revenue of nearly $2.8 billion. In 1999, Amazon posted a net loss of $720 million on revenue of slightly more than $1.6 billion.
What was truly remarkable about Amazon's performance in 2001 was its profit of $5.1 million in the fourth quarter. Not only was it the first such profit ever posted by the Internet's largest retailer, it was achieved in the downbeat economic climate at the time; a year earlier, the company had recorded a loss of $545 million in the fourth quarter. Helping tip the scales toward profitability was a decision by Amazon to cut book prices for the Christmas selling season. Commenting on this "first," Diego Piacentini, senior vice president of Amazon.com International, said, "Clearly we are pleased, but the business has reached only one milestone. Now we have to make profits for the full year."
Although total revenue has steadily increased, net sales for Amazon's U.S. books, music, and DVD/video segment declined slightly in 2001, dropping to $1.69 billion from $1.70 billion the previous year. In 2000 sales for this segment had climbed nearly 30 percent over the $1.31 billion reported in 1999.
Far more promising was the 2001 performance of Amazon's U.S. electronics, tools, and kitchen segment, where net sales climbed 13 percent to $547 million from $484 million in 2000. Amazon's sales in this market segment didn't begin until the second half of 1999, when net sales totaled $151 million.
For Amazon's services segment, net sales in 2001 climbed 13 percent to $225 million from $198 million in 2000. The services segment didn't begin operations until late 1999, when net sales totaled only $13 million.
Amazon's fastest growing market segment in 2001 was international, which includes the retail sales of the company's foreign-based Web sites. Net sales for international total $661 million, an increase of 74 percent over $381 million in 2000. Net sales for the international segment totaled $168 million in 1999.
For the year ended December 31, 2001, the stock of Amazon.com traded in a range of $6.01 to $21.88, off sharply from 2000, when it traded in a range of $14.88 to $91.50. The sharp decline reflects the malaise that afflicted almost all dot-com stocks beginning in the latter half of 2000.
Some security analysts who follow the dot-com stocks were clearly underwhelmed by Amazon's $5.1 million profit in the fourth quarter of 2001. Holly Becker, an analyst with Lehman Brothers, Inc., expressed doubt that Amazon could duplicate its profit-making experience of the fourth quarter and suggested that the company's stock might be substantially overvalued. Also somewhat skeptical was Dan Gleiman, an analyst with McAdams Wright Ragen of Seattle. Gleiman observed: "It looks like volume-wise, they might be doing okay. But the understanding is that customers are buying lower-priced items, so they are going after value." According to a survey published in the Toronto Star in April 2002, ten of the 24 Wall Street analysts tracked by Bloomberg rate Amazon's stock a "buy," 12 say "hold," and only two rate it a "sell."
FAST FACTS: About Amazon.com, Inc.
Ownership: Amazon.com is a publicly owned company traded on the NASDAQ Stock Exchange.
Ticker Symbol: AMZN
Officers: Jefffrey P. Bezos, Chmn., Pres., and CEO, 38; Richard L. Dalzell, Sr., SVP and CIO, 44
Principal Subsidiary Companies: As one of the most prominent online retailers, Amazon.com, Inc. has participated in the ownership and operation, frequently with partners, of several other online retail operations. Prominent among these are drugstore .com and Back to Basics Toys. Amazon also owned a substantial portion of HomeGrocer.com, which in September 2000 was acquired by Webvan, although Amazon reportedly retained a six percent share in the online grocery retailer.
Chief Competitors: Major competitors for Amazon's original product line of books, CDs, DVDs, and videos are Barnes & Noble and CDnow. Amazon's entry into the online auction market puts it head to head with such powerhouses in the Internet auction field as eBay.com and uBid.com.
Although Lehman Brothers' Becker questioned the valuation of Amazon.com stock, suggesting that the company was too dependent on the sales of its international and services segments, which she said were "more risky and less valuable," she was not without praise for some aspects of the company's operation. In a March 2002 research report, she wrote that Amazon's performance in the fourth quarter of 2001 had put the company "out of the woods" as far as any risk of bankruptcy. She credited the company's turnaround to its decision in August 2001 to slash prices on all books priced over $20. As for Amazon's closely-watched cash position, Becker reported that the company had finished fourth quarter 2001 with nearly $1 billion in cash and marketable securities and predicted that its operations for all of 2002 promise to generate positive cash flow.
Jeffrey P. Bezos, a Wall Street brainstormer who was convinced early on that the Internet would transform the world of retailing, left his job New York and headed west in the mid-1990s with a dream of opening an online bookstore. With wife MacKenzie, Bezos flew from New York to Fort Worth, Texas, where he bid goodbye to his parents and then drove to Seattle in a 1988 Chevrolet Blazer. As his wife drove northwestward, Bezos worked feverishly on a laptop computer to draft a business plan. His original name for the venture, "Cadabra," was soon abandoned in favor of Amazon.com.
In the Seattle suburb of Bellevue, Bezos and his wife rented a modest two-bedroom home, which quickly became the headquarters for Bezos' start-up venture. The home's garage was converted into an office, and Bezos brought in three Sun work stations on which to continue building his dream, closely aided by veteran programmer Shel Kaphan. By June 1995 the team had created a primitive test site on the Internet and invited friends and family members to test it out. Less than two months later, Amazon.com went live. In its first month online, the company sold books in all 50 states and more than 40 foreign countries. Bezos later told Time, "Within the first few days, I knew this was going to be huge. It was obvious we were on to something much bigger than we ever dared to hope."
After its phenomenally successful launch, it was almost inevitable that Amazon.com would become one of the forerunners of the new dot-com revolution. Despite repeated losses, the company expanded rapidly, broadening its product lineup and establishing a foreign presence with sites in France, Germany, Japan, and the United Kingdom.
The company has yet to post an annual profit, although a glimmer of hope appeared in late 2001 when Amazon.com reported its first-ever quarterly profit. Most remarkably, despite its sizeable losses over several years and its heavy debt load, the company has managed to survive in a hostile climate that has chewed up and spit out so many other once-promising Internet ventures.
As defined in Amazon.com's 2001 Annual Report, the company's goal is "to offer the Earth's biggest selection and to be the Earth's most customer-centric company, where customers can find and discover anything they may want to buy online." To realize this goal, Amazon.com has developed three sales channels: online retail; marketplace and other; and third-party sellers.
The company's online retail sales channel includes its several Web sites, all of which offer a wide range of products, including Amazon's original core products (books, music, and videos) as well as consumer electronics, tools, hardware, kitchen products, and services. This network of Web sites includes, as stated, Amazon's four foreign-based online outlets in France, Germany, Japan, and the United Kingdom. The majority of the products Amazon sells through its online retail sales channel are purchased by Amazon from outside vendors and held in Amazon order fulfillment centers until orders are received. In some cases, the company's vendors are asked to fulfill the orders directly. Amazon indicates that it hopes to continue expanding the range of products available through this sales channel.
Amazon's marketplace and other sales channel, made up of Amazon Marketplace, Auctions, zShops, and certain of the company's other non-retail Web sites, provides a marketplace where individuals and other businesses can offer new and used products, many of which supplement Amazon's product offerings on its retail sales channel. Amazon Auctions allows buyers and sellers to do business in a simple auction format, while zShops provides both individuals and businesses with an opportunity to set up mini-shops online to offer popular items as well as products that otherwise might be hard to find.
With its third-party sellers channel, Amazon provides an array of e-commerce services and tools that allows other companies to market their goods and services. As of late 2001, Amazon had third-party seller arrangements with Circuit City Stores, Inc.; Toys-rus.com, Inc.; Waterstones; Expedia, Inc.; the Borders Group; Hotwire; National Leisure Group, Inc.; Virgin Wines; Target Corporation; and other companies. Among the tools and services Amazon provides to its third-party sellers are technology infrastructure, a strong global brand recognition, Web merchandising, customer service, and global fulfillment.
Amazon.com has faced and will continue to face some very formidable challenges. Not the least of these is competition. The overall retail market for most of the products sold by Amazon is extremely competitive and even more intensely competitive online. Amazon.com has sought to answer this challenge by making the Amazon.com shopping experience as quick and trouble-free as possible for its customers, giving them an online shopping experience rewarding enough to ensure their return for future shopping trips. Another important element in Amazon's strategy has been the expansion of its network of alliance with third-party sellers and the addition of auction-type sales to its online marketplace.
Growth through strategic alliances with third-party sellers would seem to be a promising way for Amazon.com to continue expanding its overall business. To that end, the company in 2001 introduced three new services to better serve its third-party sellers and also give Amazon's customers an even greater selection of products from which to choose. The new services for third-party sellers include the [email protected] program, which allows outside companies to offer their products for sale in one of Amazon's online retail stores or in co-branded stores situated on the Amazon Web site. Customers may order products from these third-party sellers as well as products from Amazon itself with a single checkout transaction. Under this program, Amazon also offers to provide fulfillment-related services to third-party sellers.
Another service for Amazon's third-party sellers is the Merchant Program. Under this arrangement, third-party sellers can utilize Amazon technology and features at their own e-commerce Web site. The seller then pays Amazon fixed fees, sales commissions, and/or per-unit activity fees for products sold through this arrangement. Amazon also offers fulfillment-related services to third-party sellers operating in the Merchant Program.
The final service for third-party sellers is Amazon's Syndicated Stores Program, under which the third-party seller's e-commerce Web site utilizes Amazon's services and tools and also offers Amazon's product selection. Under this program, Amazon is responsible for providing both customer and fulfillment services. Amazon is the seller of record for such transactions and remits a commission to the third-party seller.
Amazon's products cover a broad range of goods, beginning, of course, with its original core product group—books, music, and videos. To better showcase its e-book offerings, the company in 2000 opened an e-Books store, which features downloadable e-audiobooks from Audible, Inc. as well as e-books in Microsoft Reader format for PCs and laptops. Amazon.com also launched Bargain Music, Latin, and Box Set stores, and a Music Accessories store, which offers blank media and MP3 players. For videos and DVDs, the company opened more than 30 genre or franchise stores, covering such categories as Fitness, Bargain, Cult, and European Cinema.
CHRONOLOGY: Key Dates for Amazon.com
Amazon.com launches Web site
Company launches Associate program
Amazon.com goes public
Company enters online music business
Amazon.com posts first quarterly profit
The rest of Amazon's product offerings are grouped in its early-stage businesses and other segments. Within this segment, one of the biggest-and most promising-categories is other U.S. retail, which includes the electronics business, home improvements, and kitchen products. In 2000 the selection of products available to customers was further expanded with the launch of Amazon Marketplace and Amazon Outlet. Amazon Marketplace enables customers to buy and sell second-hand, rare, and collectible merchandise alongside Amazon's offering of the corresponding new product. Amazon Outlet offers year-round bargains on thousand of products from all segments of Amazon's product line.
Other important products in Amazon's lineup include its auction-format sales, including Amazon Auctions and Amazon zShops, and its other services offered through third-party sellers.
Amazon.com operates on an international scale and has long sought to make a positive contribution to the world. To help environmentally friendly sites on the occasion of Earth Day 2001, the company launched its honor system "Earth Day Every Day" section. The special section provided visitors links to participating sites, all of which provided a variety of content for people interested in learning more about protecting the environment, recycling, and energy conservation. The program also provided a way in which visitors to participating sites could tip one dollar or more in exchange for the valuable content such sites provided.
Amazon also teamed in 2001 with the Red Hot Organization (RHO), the entertainment industry's leading organization devoted to fighting AIDS through popular culture. RHO provided content for Amazon's Free Music Downloads area. The downloads area also featured Amazon's "virtual tipping" technology that allows users to leave an online donation after listening to a free, full-length download. RHO provided 36 MP3 files from Red Hot's catalog of popular songs recorded during the previous decade.
Amazon maintains a significant international presence through its four foreign-based Web sites: http://www.amazon.co.uk in the United Kingdom, http://www.amazon.de in Germany, http://www.amazon.fr in France, and http://www.amazon.co.jp in Japan. All of the company's foreign sites feature essentially the same technology and customer services that have made the domestic site so popular with customers.
AMAZON.COM POPULAR ABROAD
One of the fastest growing segments of Amazon .com's business is the international market. The company's international segment recorded net sales of $661 million in 2001, a stunning increase of 73 percent over the $381 million in sales posted in 2000. In 1991, sales of the International segment totaled $168 million. The company operates four Web sites in the international market. Each offers essentially the same shopping experience as offered by Amazon's flagship American site but is localized in terms of language, products, customer service, and fulfillment. The four international sites are based in France, Germany, Japan, and the United Kingdom.
The Japanese site, launched in November 2000, had attracted 800,000 visitors by March 2002, confounding skeptics who predicted an e-commerce scheme such as Amazon's wouldn't make it in Japan because of the consumer preference for shopping in large department stores. The company was predicting the Japanese site's sales would top $100 million in 2002. So well has Amazon done outside the United States that further expansion abroad is expected, although the company has been close-mouthed about which country might be next. Diego Piacentini, senior vice president of worldwide retail and marketing, said, "Our international expansion is not a matter of if but when."
As of December 31, 2001, Amazon.com employed about 7,800 full and part-time employees. The company also employs temporary personnel on a seasonal basis and independent contractors as needed. None of the company's employees are unionized. Amazon.com believes that the company's future success depends in large part on its continued ability to attract, hire, and retain qualified personnel.
SOURCES OF INFORMATION
amazon.com 2000 annual report. seattle: amazon.com, inc., 2001.
amazon.com 2001 annual report. seattle: amazon.com, inc., 2002.
amazon.com home page, 2002. available at http://www.amazon.com.
"amazon.com, inc." hoover's online, 2002. available at http://www.hoovers.com.
"amazon down 4 percent after lehman analyst questions value." associated press, 27 march 2002.
"amazon profitable, but at what price?" toronto star, 1 april 2002.
cope, nigel. "amazon in profit at last after $3 billion losses." independent, 23 january 2002.
fishman, charles. "face time with jeff bezos." fast company, 1 february 2001.
hillis, scott. "santa seen delivering amazon.com's first profit." reuters business report, 21 december 2001.
quittner, joshua. "person of the year/jeff bezos." time, 27 december 1999.
For an annual report:
write: amazon.com, investor relations, po box 81226, seattle, wa 98108-1226
For additional industry research:
investigate companies by their standard industrial classification codes, also known as sics. amazon.com's primary sic is:
5961 catalog and mail-order houses
also investigate companies by their north american industry classification system codes, also known as naics codes. amazon.com's primary naics code is:
454110 electronic shopping and mail-order houses
When Amazon.com opened its cyber doors in July 1995 as an Internet bookseller, it did not even merit a mention in Time magazine. During the next four years, however, the company became not only a driving force in American business, it emerged as a shining example of how to turn an Internet start-up into a corporate empire. Because of its amazing success, Time named company founder Jeff Bezos its "Person of the Year" for 1999.
Today, Amazon.com is a household name thanks to an enormous amount of publicity and a customer base of twenty-five million. It has weathered ups and downs to become the nation's largest bookstore and one of the top businesses in the country. In addition to millions of book titles, the company also offers a wide variety of other goods, from CDs and DVDs to kitchenware, electronics, toys and games, automobiles, and computers.
Forming a Plan
In 1994, Jeff Bezos left his $1 million a year job as an investment manager at the New York City firm of D. E. Shaw & Company with the intent of starting a business to take advantage of the 2,300 percent-a-year growth of the Internet. In a story he has told in numerous interviews, Bezos said he drew up a list of the best products to sell on-line and books topped the list, primarily because of the millions of titles in print.
Once the product was decided on, Bezos and his wife moved from Texas to the Seattle, Washington, area, home to dozens of computer software companies, including the Microsoft Corporation (see entry). Bezos figured that there he would have access to a large pool of high-tech professionals. With his wife, MacKenzie, driving their 1988 Chevy Blazer west from Texas, Bezos wrote a business plan on his laptop computer. The plan included naming the company Amazon, after the world's largest river. The symbolism proved to be amazingly prophetic.
Bezos soon rented a two-bedroom house in the Seattle suburb of Bellevue and set up operations in his garage with four employees. A computer programmer, Shel Kaplan, was the first person he hired; Kaplan was given the task of developing the company's Web site. A beta, or test version, of the Amazon.com Web site was put in place in June 1995.
Bezos financed the operation with his own money and a $300,000 loan from his parents. But realizing he needed much more, Bezos contacted former co-workers and family friends and convinced fifteen of them to invest in his start-up, bringing his total capital to $1 million. With his initial investment, and after a month of successfully beta testing the Web site, Bezos was ready for business.
Amazon.com at a Glance
- Employees: 7,700
- CEO: Jeff Bezos
- Major Competitors: barnesandnoble.com
The Company Is Launched
Amazon.com officially opened for business on July 6, 1995. For the first few days, orders came mostly from family and friends. Ten days later, the first "real" customer ordered an obscure science book, Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought, by Douglas R. Hofstadter.
From then on, orders began pouring in despite little publicity. Within a month, Amazon.com had sales in all fifty states and forty-five countries. Most had heard about the company by word of mouth or stumbled across it while surfing the Internet.
Bezos, his wife, and a small group of employees did all of their work from the garage. To save money, Bezos built desks, bookcases, and other office furniture out of old doors and pieces of used lumber. To help supply electricity, he used power cables to bring electricity from the house to the garage. Once a customer placed an order, the staff would immediately request the title from one of their book suppliers. Employees had to crouch or kneel on the garage floor to pack books in shipping cartons. Everyone took turns packing books for shipment, sometimes staying up until two or three o'clock in the morning.
- Jeff Bezos opens Amazon.com on the Internet, offering one million titles.
- Number of titles grows to 2.5 million; company has 151 employees.
- Amazon.com offers its stock to the public for the first time.
- Amazon.com expands to Germany and the United Kingdom.
- Workforce grows to nine thousand; more than three million titles available.
- Company lays off thirteen hundred workers and closes one of eleven warehouses.
- Amazon.com posts its first profit, $5.1 million in the fourth quarter.
- Warren Jensen resigns as chief financial officer.
One Million Titles
Part of Amazon's early success can be attributed to the company offering one million new and used titles. Of these, 300,000 were available for shipment within forty-eight hours while the remaining required four to six weeks for shipment. This far exceeded the traditional bookstore that typically stocks 30,000 to 175,000 titles. Also unlike traditional bookstores, Amazon.com was open twenty-four hours a day, seven days a week. Customers could complete their transactions without ever leaving their home or office.
Another key to the company's rise was its use of the "secure sockets layer," a format developed by Netscape Communications Corporation (see entry) that encrypts (scrambles) and protects data, such as credit card information. It is built into most Web browsers, such as Netscape Navigator and Microsoft Internet Explorer, and most major Web servers. It allows credit card and other information to be securely sent from a customer's computer to Amazon.com.
Customer Is Top Priority
At about the same time Amazon.com was starting, the search engine Yahoo.com was establishing itself on the Internet as a major presence. Internet users entered key words or short phrases and were given a list of Web sites that matched their input or query. Yahoo contacted Bezos about listing Amazon.com in its "What's Cool" section. With this free publicity, Amazon.com book sales immediately skyrocketed.
As Amazon.com's sales increased, Bezos realized it was more important than ever to stick to his core philosophy of what makes a successful company: the customer is the single most important priority, regardless of the cost. This often resulted in the company spending more to ship a book to the customer than the price of the book itself. Amazon.com absorbed the added costs to ensure that the customer received the book in the time frame originally promised.
Jeff Bezos spent months coming up with the company name for Amazon. He discarded his original idea, "Cadabra," when, in a telephone conversation, his attorney thought he said "cadaver."
Amazon.com quickly became know for its excellent service and also for its "customer-friendly" Web site, where consumers could rate and post their own reviews of books, and authors could host question and answer pages. A particularly successful feature of the company's site is that it "remembers" past customers and automatically makes recommendations based on past purchases. For example, someone whose previous purchases included science fiction books would be shown a list of similar and recently published books in that genre during their next visit to the site.
Growth Spurs Move
While Amazon.com posted net sales of $511,000 during its nearly six months of operation in 1995, after paying operating expenses it actually had a net loss of $303,000. This would be the first in a series of unprofitable years for the company. Bezos, however, was not discouraged and remained confident that his fledgling business would be a success.
At the beginning of 1996, Amazon employed eleven people and moved to new headquarters, a small warehouse not far from Bezos's home. To help keep costs down, the company carried little inventory (products on-hand) and relied on speedy shipments from its suppliers. By the end of 1996, Amazon.com's growth was phenomenal. It offered 2.5 million titles although it still carried minimal inventory. To accommodate its 151 employees, it relocated to a larger building in downtown Seattle. Its 1996 revenues showed $15.7 million in net sales and a net loss of $5.7 million. During the same year, several on-line competitors surfaced, including Book Stacks, BookZone, and Internet Book Shop.
The company's growth continued in 1997. In May, Amazon.com began offering its stock for sale to the public with an initial offering of three million shares. Opening at $18 a share, Amazon.com stock rose to $30 before closing for the day at $23.25. In one day, the stock sale raised $54 million for the company.
Lawsuits Plague Company
Two other developments proved noteworthy in 1997, both involving the nation's largest traditional bookseller, Barnes & Noble. On May 12, Barnes & Noble unveiled its own Web site and filed a lawsuit challenging Amazon.com's claim to be the world's largest bookstore. "[It] isn't a bookstore at all," the suit stated. "It's a book broker."
An out-of-court settlement (where both parties agree to settle their dispute without the help of the court system) was reached in October. Details were not released, but Amazon.com continues to call itself the world's largest bookstore. According to its Web site, Amazon offers the Earth's Biggest Selection T M of products.
The Barnes & Noble lawsuit proved to be only the first of several legal challenges to Amazon.com. On October 16, 1998, Wal-Mart Stores, Inc. (see entry) filed suit against the company charging it with stealing distribution and merchandising trade secrets by hiring Wal-Mart executives. The two business giants reached an out-of-court settlement eighteen months later, which legal analysts saw as a victory for Amazon.com. Under the agreement, one Amazon.com employee was reassigned and all fifteen employees named in the suit were restricted in their duties relating to information systems.
In 1997 and 1998, Amazon.com's stocks shot up as sales dramatically increased. Still, the company continued posting quarterly losses. By the end of 1998, Amazon.com offered 3.1 million titles. It reported total sales of $610 million, up 312 percent over 1997. It also had a net loss of $124 million, a 301 percent increase from 1997.
Amazon.com's sales were boosted by expansion into the United Kingdom and Germany, as well as the addition of music, video, and gift "stores" to its Internet site. It also introduced its associates program, which allowed other Web sites to sell books through a link to Amazon.com. In addition, beginning in 1998, the company began to partially or totally take over a number of companies, including Junglee (a Web technology firm), Drugstore.com, Pets.com, HomeGrocer.com, Overstock.com, and Della.com (wedding gifts and registry.)
By the end of 2000, Amazon.com was an unquestionable force in American commerce. It partnered with Toys R Us, expanded it range of merchandise well beyond its core line of books, music, and videos, and added new technology that improved customer interaction. It also launched sites in France and Japan.
Losses Force job Cuts
Yet the more Amazon grew, the more money it lost. Early in 2000, the company announced its first-ever job cuts: 150 employees would be laid off. Net sales for the year were $2.76 billion but the company posted a net loss of $1.4 billion. Wall Street analysts said that unless Amazon.com began to show a profit, its future was uncertain. Investors and stockholders started to become nervous.
Bezos heard Wall Street's warnings loud and clear. In late January 2001, Amazon.com announced it would lay off thirteen hundred of its nine thousand workers and close its McDonough, Georgia, warehouse, one of eleven across the country. It also announced that they would eliminate a customer service center in Seattle, and operate its Seattle distribution center only during the holiday season. Finally, it also closed a distribution center in the Netherlands. Amazon.com rebounded in 2001 posting a fourth quarter net profit of $5.1 million on net sales of $1.12 billion. For the year, it reported net sales of $3.12 billion and a net loss of $567 million.
As it started 2002, Amazon.com offered more than two dozen on-line "stores," which sold products ranging from cameras, cars, and computers, to tools, toys, and travel. It also operated its own auction shop and partnered with the Target Corporation (see entry) and Circuit City. Even traditional bookseller Borders signed an agreement for Amazon.com to sell books on its behalf on-line. It expected to start selling clothing, and movie, concert, and event tickets by the end of the year. In March, Warren Jenson resigned as chief financial officer (CFO). He joined the company in 1999 and is credited with helping Amazon.com achieve its first quarterly profit.
Wall Street analysts are split over whether Amazon.com can sustain its profitability. Bezos predicts the company will stay profitable by continuing to expand its merchandise line, keeping its commitment to customer service, and operating more efficiently. "What we want to become is something completely new," Bezos said in a January 2002 interview with CNET.com. "And our vision hasn't changed at all the last few years. We want to be a place where people can come to find and discover anything they might want to buy on-line."
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AMAZON THEATER CAMPAIGN
Amazon.com, Inc., entered the retail marketplace as a pioneering online bookseller in 1995, and though it had been steadily diversifying its product offerings all along, by 2004 most consumers still thought of the website only in connection with books and music. Having recently made the transition, thanks to years of capital-intensive investment, from dot-com trendsetter to actual profit maker, Amazon wanted its customers to begin thinking of its site whenever they needed anything. Unconvinced that television and other traditional forms of advertising could translate into online sales, Amazon and its founder and CEO, Jeff Bezos, enlisted Fallon Worldwide's Minneapolis office, a leader in online branded entertainment, to spread the message about Amazon's breadth of products via Amazon.com itself.
The result was "Amazon Theater," a series of five short films starring well-known Hollywood actors and integrating products available for purchase on Amazon.com. The films, sponsored by JP Morgan Chase & Co., cost approximately $2.5 million to produce. Timed to coincide with peak holiday traffic, they premiered on Amazon.com each Tuesday between November 9 and December 7, 2004, and were packaged as a free "holiday gift" to customers. Though the featured Amazon products were folded into the stories without fanfare, they were listed as starring players in an interactive credit roll at the end of each movie, allowing viewers to click and go to linked Amazon pages to make immediate purchases.
This innovative integration of entertainment and shopping attracted industry and media attention and pointed the way to future explorations of interactive advertising. Amazon continued to experiment with the inclusion of entertainment on its website by partnering with the Tribeca Film Festival in 2005 to stage a short-film competition. Candidate films were available for free viewing on the website, and Amazon customers selected the winner.
Inspired by a statistic claiming that Internet usage was growing at a rate of 2,300 percent a year, entrepreneur Bezos launched Amazon in July 1995 as an online bookseller. By doing away with the costs associated with the building and operation of traditional retail stores, the pioneering Web business was able to offer consumers lower prices than its physical-world counterparts while still delivering a high level of customer service. As the Web population grew exponentially in the late 1990s, so did Amazon. It went public in 1997; extended its product range to music, videos, toys, and electronics in 1998; began a concerted effort to buy up other dot-coms and to offer a wider range of online services; and increasingly established an international presence by 2000, with websites serving England, Germany, France, and Japan. In 2002 Amazon partnered with hundreds of clothing retailers. In 2003, after years of steady investment aimed at allowing it to boast "Earth's biggest selection" and to claim to be "Earth's most customer-centric company," Amazon posted its first yearly profit.
By 2004, despite the fact that Amazon's product selection rivaled that of Wal-Mart, most consumers still thought of the online retail powerhouse as a site strictly for buying books and music. Amazon wanted to change this perception, but it had almost entirely quit investing in traditional media advertising, choosing instead to keep prices low and offer free shipping. The company had, however, already experimented with branded entertainment on its site. During the 2003 holiday season Amazon had enlisted celebrities Jack Black, Bruce Springsteen, Hillary Clinton, and Tom Brokaw, among others, to offer exclusive content and gift recommendations on its site. Because Amazon represented "a hybrid between stores and a media outlet," according to branding consultant Allen Adamson, the promotion also served the interests of the celebrities, who contributed their content and recommendations free of charge.
Amazon's interest in continuing to experiment with online branded entertainment made it a logical match for Fallon Worldwide, the agency widely credited with inventing the category. In 2002 Fallon's Minneapolis office had teamed up with successful feature-film directors, including Ang Lee, John Frankenheimer, and Guy Ritchie, to create short, online action films starring BMW cars. The BMW films won several major awards and helped boost the carmaker's sales by 8 percent in 2003. Though the BMW films seemed to herald the arrival of a dynamic new outlet for marketers, the dot-com slump, together with the fact that a majority of Web surfers still did not have the high-speed Internet connections required to watch video footage efficiently, kept the category from becoming viable for most companies.
Because it could air the "Amazon Theater" films in a prominent place on its own site, Amazon had a built-in audience that was available to few other Web advertisers. "Amazon enjoys real critical mass," Fallon's Rob Buchner told Adweek. "They are a network unto themselves." At the time of the campaign's launch, more than 30 million Americans were visiting Amazon.com each month, and the site had more than 44 million registered members. During the holiday season Amazon, like most retailers, saw its traffic spike significantly, so Fallon chose the 2004 holidays as the ideal time to undertake a branding effort.
The majority of Amazon's customers were affluent and college educated, and they generally felt comfortable with new technologies and media. They were accustomed to having their shopping experience include free entertainment and informational content, such as the previous holiday season's celebrity contributions, customer reviews of Amazon's products, and recommendations based on previous purchases.
The "Amazon Theater" films did not try to push products or the Amazon brand in a traditionally aggressive way; rather, they were intended to be a natural extension of the ongoing effort to improve the overall customer experience, which the company viewed as an important way of promoting loyalty. Though the films integrated products for sale on Amazon.com and offered links for purchasing those products in their credit sequences, there was no mention of or reference to Amazon at all. Amazon received no product-placement fees and did not make product names or logos easy to spot. Instead, the films were offered as a gift to customers. As founder and CEO Bezos said, "It's a great example of Amazon's relentless commitment to finding new and innovative ways to surprise and delight customers and deliver an unparalleled online experience."
CHOOSE YOUR OWN ENDING
Although all of the "Amazon Theater" films had interactive credits, "Do Geese See God," directed by David Slade and starring Blair Underwood, took even further advantage of its medium of distribution by making the story itself interactive. The movie's title, a palindrome, mirrored the structure of the story, which circled back on itself endlessly unless viewers participated by choosing one of several alternate endings, thereby freeing Underwood's character from the story's otherwise infinite loop.
As an online book and music vendor, Amazon was far ahead of its competitors during this time. Its nearest bookselling competitor was barnesandnoble.com, the online complement to the category-leading bookstore Barnes and Noble. Like Barnes and Noble, barnesand-noble.com used features such as magazine subscriptions and author events to attract customers. Although Amazon had a larger selection of book titles, barnesandnoble.com had a larger inventory on hand at any given time.
The online auction site eBay, with nearly 50 million visitors per month in the fall of 2004, generated more monthly traffic than any other Internet commerce site. Although its business model differed from Amazon's—it allowed individuals to buy and sell their own items and derived income from user fees and advertising—it rivaled Amazon as an online stop for purchasing almost anything at all. After a two-year advertising campaign that promoted its range of products and featured average people singing show tunes, eBay shifted to a "People Are Good" message in 2004. The campaign ran on TV, in magazines, and online, and, in conjunction with a newly established buyer-protection program, it endeavored to reassure consumers about the merits of doing business with strangers.
As a superstore Amazon fell far short, in sales, of the behemoth bricks-and-mortar retailer Wal-Mart, which was the world's largest company of its kind. With about 75 percent of its 5,700 stores located in the United States, Wal-Mart was, during this time, expanding its international presence while projecting sustained U.S. growth for the coming decade. Criticized for its employment practices and battling dozens of lawsuits, Wal-Mart undertook a national newspaper campaign to repair its image.
Although Bezos and Amazon wanted the emphasis to be on entertainment—the presiding idea being that the "Amazon Theater" films were meant as a gift to customers—Fallon was charged with the goal of making customers aware that the website was more than just a place to shop for books and CDs; it was a one-stop online destination for virtually any product imaginable. Fallon's creative team thus devised five film scripts loosely organized around the theme of karmic balance, each of which showcased a particular segment of products that consumers did not necessarily associate with Amazon. The agency hired the bicoastal production company RSA USA, run by Hollywood filmmaker brothers Ridley and Tony Scott, to collaborate on the project. RSA USA matched the five scripts with directors from its diverse roster, and actors Minnie Driver, Blair Underwood, Darryl Hannah, and Chris Noth were enlisted to star in the films. Each Tuesday for the five weeks between November 9 and December 7, 2004, a new film, ranging from 5 to 10 minutes, premiered on Amazon.com. The films, the budgets of which were estimated at roughly $500,000 apiece, were sponsored by JP Morgan Chase & Co. The Chase brand appeared throughout the "Amazon Theater" experience, and Chase's Amazon.com platinum Visa card was featured.
"Portrait," featuring Driver as an envious boss and focusing mainly on fashion products, told the story of an overweight female employee whose inner beauty was uncovered when a magical portraitist photographed her. "Agent Orange," directed by Tony Scott, also featured fashion products and was billed as a suspenseful, psychedelic love story in which strangers were brought together on a subway by a goldfish. "Do Geese See God," starring Underwood as a man caught in a futile race against time, highlighted home electronics, while "Tooth Fairy" integrated housewares and appliances into the story of a father (Noth) searching for a tooth hidden by his daughter. The "Amazon Theater" series concluded with "Careful What You Wish For," a tale of comeuppance featuring Hannah and a wide array of jewelry.
So that the product placement did not interfere with the stories, special care was taken to integrate the products seamlessly into each film. Instead of playing up the products' appearances in the narratives themselves, after the manner of traditional product-placement agreements, Fallon and Amazon listed products as though they were actors in the closing credits. The credits, moreover, were interactive. Viewers could click on an actor's or a director's name and go to an "artist boutique" offering gift and philanthropic recommendations and showcasing that artist's other movies, books, and CDs available for sale. Likewise, viewers of "Amazon Theater" films could click on any starring product in the credit roll and go to the appropriate Amazon page for purchasing it. After premiering on Amazon.com and running through the 2004 holiday season, the "Amazon Theater" films ran in theaters prior to featured movies.
Adweek credited the campaign with offering "a glimpse at what the merger of the PC and the TV could mean: a shopping portal within programming," and Advertising Age placed the films at the top of their "10 Best Web Series or Films" list for 2004. But Bezos downplayed the potential of "Amazon Theater" to generate sales, maintaining that the films were meant primarily as entertainment and telling the Wall Street Journal that, if the films were advertising for Amazon, "they're the worst advertising in the world." Amazon was able, of course, to track traffic and purchasing activity related to "Amazon Theater," but the company was unwilling to release any numbers. Both Amazon and Fallon spokespersons claimed that the campaign was a success on all fronts, and Amazon indicated that it would continue looking for new ways to provide interactive entertainment and to incorporate short films on its website.
In March 2005 Amazon partnered with the Tribeca Film Festival and its sponsor, American Express, to announce the "Amazon Theater"/Tribeca Film Festival Short-Film Competition. Amazon invited filmmakers to submit short films of up to seven minutes, and Amazon customers could view them for free on Amazon.com and vote on their favorites. The five that received the most votes were screened at the Tribeca Film Festival, which ran from April 19 to May 1, 2005. The top-rated filmmaker, after another round of customer voting, was given a $50,000 grant for a future film in the form of a prepaid American Express card.
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