Amazon.com's Business Model and its Evolution
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Case Code: BSTR486 Case Length: 22 Pages Period: 1996-2016 Pub Date: 2016 Teaching Note: Available |
Price: Rs.600 Organization: Amazon.com Industry: E-commerce Countries: US; Global Themes: Business Model Innovation, Blue Ocean Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background Note
Amazon was founded in June 1994 by Bezos. At that time, the internet was gaining popularity and was being considered as a potential business medium. To cash in on this trend, Bezos came up with the idea of selling books to a mass audience through the internet. In June 1995, Bezos launched his online bookstore, Amazon.com, named after the river Amazon. Amazon officially opened for business on July 6, 1995. At the beginning, Amazon's business model was based on the "sell all, carry few" strategy wherein Amazon offered more than a million books online, though it actually stocked only about 2000. The remaining titles were sourced predominantly through drop-shipping wherein Amazon forwarded customer orders to book publishers, who then shipped the products directly to the consumers. By the end of 1996, Amazon was offering about 2.5 million book titles. In 1996, the company's net sales were about US$ 15.7 million and it reported a net loss of US$ 5.7 million.
To attract customers, Amazon launched the Amazon Associates Program in July 1996. This was an affiliate marketing program which allowed smaller websites to sell books through a link to Amazon posted on their sites. These sites in turn received a commission of 15% for any referred purchase and 5% for any other purchase made by that consumer. The program was successful as was evident from the fact that about 800,000 associates had signed up with Amazon by September 2002. As the scale of Amazon's operations grew, its partners found it difficult to fulfill the company's quick shipment promise. As a result, Amazon began to build its own warehouses. In 1997, sales grew to US$ 147.8 million, an 838% increase compared to the previous year. Customer accounts too increased from 180,000 to 1,510,000, a 738% increase over the preceding year....
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