Business Information Technology- Assignment
AJ-773
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Information Systems: A Manager’s Guide to Harnessing Technology V 3.0
By John Gallaugher
Chapter 6
Amazon.com: An Empire Stretching from Cardboard Box to Kindle to Cloud
Learning Objectives
Appreciate the breadth of businesses in which Amazon competes.
Understand that Amazon’s financial performance has not been consistent.
Begin to recognize the reasons for this performance inconsistency and set the stage for the examination unfolding in subsequent sections.
Recognize how Amazon’s warehouse technology and systems are designed to quickly and cost-effectively get product from suppliers to customers with a minimum of error.
Understand how high inventory turns and longer accounts payable periods help fuel a negative cash conversion cycle at Amazon, and why this is a good thing.
Gain insight into various advantages that result from the firm’s scale and cost structure.
Appreciate how data can drive advantages not fully available to offline firms, ranging from increased personalization to innovation and service improvements.
Learning Objectives
Identify the two sides in Amazon Marketplace network effects, and why they are important in strengthening the firm’s brand.
Understand the financial advantages of goods sold through marketplace vs. those that Amazon takes possession of and sells itself.
Appreciate how mobile access is influencing opportunities through additional changes in how, where, and when consumers shop.
Understand the motivation behind Amazon’s Kindle business.
Recognize the various ways that Amazon earns money and strengthens its competitiveness via the Kindle platform.
Examine the changes Amazon’s digital media offerings have brought to the traditional publishing industry value chain.
Understand key concepts such as channel conflict, wholesale pricing, and agency pricing.
Learning Objectives
Identify several of Amazon’s personal cloud offerings, how they are used, and the value they provide both users and Amazon.
Understand Amazon’s cloud-computing offerings, the services provided, the firms that use AWS (Amazon Web Services), the size of this business, and the firm’s vision for its future growth.
Recognize why firms use cloud-computing platforms, and some of the risks associated with giving up control of certain infrastructure.
Amazon’s Profitability and Breadth of Business
Postponed profits and concentrated on:
Expanding warehousing capacity.
Building e-commerce operations worldwide.
Developing a cloud computing platform.
Pioneering in eBook readers.
Kindle business:
Mobile computing as a vehicle for media consumption.
Distribution channel for sales and advertising.
Creator of switching costs.
Gathering point for useful data.
AWS (Amazon Web Services) business:
Powerhouse cloud provider.
Generates new competitive assets.
Amazon’s Wheel of Growth
CUSTOMER EXPERIENCE
GROWTH
SELLERS
TRAFFIC
SELECTION
LOWER COST STRUCTURE
LOWER PRICES
Adapted from a Jeff Bezos napkin scribble.
Emperor of E-Commerce
Pillars of the business: Large selection, convenience, and lower prices.
Work together to create additional assets for competitive advantage.
Outstanding customer experience results in repeat customers.
As number of customers increase, more products can be offered.
Caters to third-party sellers.
Fulfillment Operations
New products are prepped for order within hours of arrival.
Problems with incoming shipments are dealt with as they occur.
Mass land: Area where fast-moving items get dropped for fast pick-up.
Shelvers: Place slower-moving items on shelves.
Unique shelf code scanned for the location.
Similar products are stacked at different locations to minimize pickup errors.
Workers use wireless devices to pick up the required items quickly.
Software determines the optimal box size for each order.
Systems stamp names and addresses on sealed boxes.
Warehouse movements and productivity are continuously tracked.
Cash Conversion Cycle
Account payable: Money owed for products and services purchased on credit
Liquidity problems: Arise when organizations cannot easily convert assets to cash
Inventory turns: Number of times inventory is sold or used during a specific period
Period between distributing cash and collecting funds associated with a given operation
Cash Conversion Cycle
INVENTORY
ACCOUNTS RECEIVABLES
CASH
ACCOUNTS PAYABLE
Internet Economics, Scale, and Pricing Power
Quantity: Selling more goods gives better bargaining power with suppliers.
Size: Provides negotiating leverage to secure lower prices and longer payment terms.
Physical presence: Absence of brick-and-mortar stores brings down costs for real-estate, energy, inventory, and security.
Employee efficiency: Greater as shift workers work at constant rates throughout the day.
Amazon’s Customer Obsession
To enhance customer experience, it pioneered:
1-click ordering
Customer reviews and recommendations
Bundles
Look and search inside the book
Where’s my stuff
Free supersaver shipping
Highest rating on the University of Michigan’s American Customer Service Index.
Leveraging the Data Asset
Used to collect data and compare performance among two options studied (A and B).
Cookie
Line of identifying text, assigned and retrieved by a web server, and stored by your browser.
Collaborative filtering
Monitors trends among customer and uses the data to personalize an individual customer’s experience.
A/B testing
Selection and Network Effects
Sellers can warehouse and ship products themselves or use Amazon’s warehouses.
Two-sided network effect: Products get more valuable as two distinct categories of participants expand.
Affiliate program: Firm rewards partners who bring in new business, with a percentage of any resulting sales.
Acquisitions and expansion
Acquisition of other firms and the growth of new internal businesses has enabled it to:
Broaden its product offerings.
Absorb potentially threatening competitors before they get too big.
Experiment with new product offerings and services.
Integrate value-added businesses and technologies.
Amazon’s Kindle Business
Kindle connects customers to the firm’s product offerings and inventory.
Firm’s top-selling product.
Arrives linked to the customer’s Amazon account.
The Kindle’s market position allowed it to undercut competition:
Kindle Fire was offered at half the price of its competition.
Kindle versions are sold at or below costs.
Digital publishing enables titles to enter the market far faster than physical offerings.
Channel Conflict
Amazon’s wholesale pricing was endangered by some publishers switching to agency pricing.
Wholesale pricing: Paying publishers for titles and then selling the books at whatever price it wanted.
Agency pricing: Publisher sets the price and the reseller gets a cut.
When a firm’s potential partners see the firm as a threat, they offer competing products via alternate channels and work closely with threatening competitors.
Amazon and the Cloud
Kindle
Amazon Cloud Drive
Amazon Cloud Player
Amazon Web Services
Goal was to monetize the firm’s expertise in scalability and reliability.
Stores purchase content off-device and can load a customer’s virtual bookshelf on demand.
Offers file storage similar to Dropbox and Google Drive.
Streams music purchases through a web browser or smartphone app.
Allows firms to rent industrial-strength computing capacity on an as-needed basis.
