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Amazon: Transforming E-Commerce

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Jennifer Chang

on 18 November 2014

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Transcript of Amazon: Transforming E-Commerce

Amazon Prime Air
Effort- Current
Amazon: Transforming E-Commerce
Founder and CEO:
Jeff Bezos
Seattle, Washington

Online bookstore, 1994.
Public IPO as online retailer, 1997.
Number of Employees:
Largest Online Retailer...
March 2013: Acquires Goodreads
March 2012: Acquires Kiva System, Inc.
November 2009: Acquires Zappos.com
December 2008: Acquires AbeBooks
June 2008: Acquires Fabric.com
February 2006: Acquires Shopbop.com
April 2005: Acquires BookSurge LLC

Cost Leadership Strategy
Produce products and services at a lower cost than competitors

Economies of scale

This puts Amazon in a unique position
Zero Margin
Ineffective Marketing
Online Presence Only
Labor and Lawsuits
Customer Centric
Fulfillment and Logistic
Amazon customers’ average household income $89,000, compared to the $71,000 average for the US
Still saw growth during recession
Opposite to Walmart
Nordstrom and Apple overlap

Putting videos on webpage to get more hits
Not closing in on niche market – trying to cater to too many people
Impersonal emails
No separation with failures
Fire phone
Channels: associates program, sponsored search, portal advertising, email marketing campaigns

Sales and profitability
Amazon net income: 274 M
Alibaba net income: 23,315 M
Alibaba has no inventory
Alibaba EPS: 2.19
Amazon’s EPS: 1.9
Amazon revenue: 74,452 M, Cost of Revenue 54,181 M
Alibaba revenue 52,504 M,  Cost of Revenue 13,369 M

Acquisition of Goodreads and Audible
Reaching agreements with large publishers
DRM locks on kindle eReaders
Amazon’s monopolizing attempt?

Deaths in fulfillment center
Amazon facing criticism on treatment of employees
Supreme court case
Worker complaints

Amazon lacks a physical presence. (a retail store)

To the detriment of potential buyers/sales

Amazon’s services are completely digital based
Mission Statement

“To be Earth's most customer centric company where people can find and discover anything they want to buy online.

Jeff Bezos - “It’s the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that’s something investors can spend”.  

Mission Statement and Strategies
Revenue, 2013 : $67.9billion
Growth (Year over Year) : 27.1%

Cost of Revenue : $45 billion
Operating Expense : $15 billion
Net Income : $ 274 million ONLY!
Free Cash flow, 2013 : 2.03billion.
Bezos wants to cultivate customer loyalty and drive sales growth.

Cash : $8 billion
A/R & Notes Receivable : $3.5 billion
Inventory : $6 billion

Can be used by independent sellers.
65% rise in number of sellers using FBA.
Fulfillment Expenses – $8.6 billion
Second highest expense after CGS.
Revenue from smaller businesses.

FREE 2 day shipping
60+ strategically located warehouses in the States.
Currently operates 35.6 million square feet in NA
Under tent Strategy

Growth (in 2011, 2012 respectively)
57% and 36% (North America)
68% and 74% (internationally)
$14 billion investment – 50 new warehouses (same-day delivery)

Operating Margin : 0.7%

Return on Revenue : 0.005

“Amazon makes less than a penny for every dollar in revenue.”

Threat: Alibaba
Third highest expense
After CGS and Fulfillment
$3.1 billion in 2013.
Example : Amazon Instant Video
5000 selections (2011) to about 40000 selections (2013)
Original Content + larger mainstream movie selection.
Cheap (Part of Prime Membership)
Deal with HBO to stream content online.

Ineffective Marketing
Net shipping cost
jumped 19% to $1.21 billion
Fulfillment expenses
increased 29% to $2.92 billion
Technology and content costs
(for R&D) increased 38% to $1.86 billion

Increasing Fulfillment Cost
Amazon has $8658 M cash on hand
Emphasize its unique benefit - Prime
Separate failures
Focusing on higher -end market
A Wealthier Clientele
Fire HD
Fastest market to reach $1 billion of gross sales
Second to Flipkart
Investing over $2 billion
Service provider- Limited to AT&T
Price slashed from $199 to $99
Bare mention in earning's release
Longterm aim:
"The Company believes that it will incur substatial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significant from current levels," - Jeff Bezos
Delivers groceries
same day or the next day

Abandoned cost leadership-cost more than Wal-Mart To GO
in LA and SF

Free delivery over $35

Plan to use US postal service
deliver groceries during 3 am to 7 am
helping postal service raise revenue
Customer Reviews

Annual fee increased from $79 to $99

Despite increase in cost, customers increased 7% and third party merchants' sales increased 40%

Easy shopping
Fast and reliable 2 day delivery
Low prices on Amazon
Access to other services like Instant Video
Student discounts

Fulfillment Growth : Sunday Delivery
More warehouses
Increasing Prime Membership

Effort- Expanding Business
Foray into India
Prime Membership
Full transcript