Strategic Management Assignment 3

RETAIL OPERATIONS! AMAZON'S SUPERIOR WEB SITE

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Alan N. Hoffman B ntl y Un v

OVERVIEW

1 Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon) was in 'OI'pOi Ih'd II state of Washington in July 1994 and sold its first book in July 1995. In May 11)1)/, III (AMZN) completed its initial public offering, and its common stock was lil-oll'dIII NASDAQ Global Select Market. Amazon quickly grew from an online hook. 1111I world's largest online retailer, greatly expanding its product and service olfcrin '1-0111111 series of acquisitions, alliances, partnerships, and exclusivity agreements. A 11111/1111, I cial objective was to achieve long-term sustainable growth and profitability. '1\) 11111111 objective, Amazon maintained a lean culture focused on increasing its op '1'lIlill~ III through continually increasing revenue and efficiently managing its workin ' (,lIpllll\ capital expenditures, while tightly managing operating costs.

2 The name "Amazon" was evocative for founder Jeff Bezos of his vision of AIIIIII a huge natural phenomenon, like the longest river in the world. The compun wlIlIl "Earth's most'customer-centric company ... a place where people can COlli' III 111111 discover anything they might want to buy online.":

3 By 2008 Amazon had become a global brand (see Exhibit 1), with web sit '1'0 ill 'III the United Kingdom, Germany, France, China, and Japan, with order fulfilluu-nl hi I than 200 countries.' Its operations were organized into two principal sc '111\'111N America and International Operations, which grew to include Italy in 20 I0 IIlItI,'I' 2011. By 2012, Amazon employed more than 56,200 people around the world Will I the corporate office in Seattle and in software development, order fulfillment. und \ II I service centers in North America, Latin America, Europe, and Asia.

4 As people became more comfortable shopping online, Amazon develop d its w\'" take advantage of increased Internet traffic and to serve its customer most '1'1'\'VllVI' I hallmarks of Amazon's appeal were ease of use; speedy, accurate search r 'SIIII.~, \,1

The author would like to thank Barbara, Gotfried, Jodi Germann, Lauren-Ashley Higson, 1'1/1/11 Nili'll/II III Shakarova, Jamal Ad Hammou, Muntasir Alam, Shaheel Dholakia, Xinxin Zhu, and Willll(~l1'l/l/l/ /11/ Iii, II research and contributions to this case. Please address all correspondence to: D,: Alan N. 11(~1111/1I1I, 111/1/ of Management, Bentley University, 175 Forest Street, Waltham, MA 02452-4705, voice (781) 81) 1 I 18 [email protected]. Printed by permission of Alan N. Hoffman.

'Amazon.corn FAQs. December 2011. http://phx.corporate-ir.net/phoenix.zhtllll?c=976648qJ lrul 1111/ 'D. Chaffey. Amazon.com Case Study. http://www.davechaffey.collllFl-collllllcrcc-lnICml:I-llllll'kl'IIII'' III I Amazon-case-study/ 'Mind Tools. PEST Analysis-s-Probiem- olving 71'(1illillg.fIYilIi M!I/f/'liI/lI,I', ('II/II , MIlIlIII'I'IIH'11i '1'111111111/' Leadership Training and arccr Training, Mind 'I\lols I.ld, I )1'1'1',,111]1,I I, '0 II, Iillp:llww\\I,llllllillllill' 111111 pag 's/urli'l 'In 'wTM 09.1i1i11

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price, and convenience; a trustworthy transaction environment; timely customer service; and fast, reliable fulfillment'; all enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. The site, which offered a huge arr~y of products sold both by itself and by third parties, was particularly designed to create a personalized shopping experience that helped customers discover new products and make efficient, informed buying decisions.

5 Key to Amazon's success was continual web site improvement. A huge part of the technological work done for Amazon was dedicated to identifying problems, developing solutions, and enhancing customers' online experience. Jacob Lepley, in his "Amazon Mar- keting Strategy: Report One," notes that, "when you visit Amazon ... you can use [it] to find just about any item on the market at an extremely low price. Amazon has made it very simple for customers to purchase items with a simple click of the mouse .... When you have everything you need, you make just one payment and your orders are processed." This simple system is the same whether a customer purchases directly from Amazon or from one of its associates.

6 Pursuing perfection, Amazon was aggressive in 'analyzing its web site's traffic and modifying the web site accordingly. Amazon particularly excelled at customer tracking,

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7 Recommendations were also customized based on the information .ustouu-u plO I about themselves and their interests, and their ratings of prior purchas 'S, AlllllwlIlIl \I lected data on those who had never visited any of its web sites, but who had l'l'vl'lwtl from those who had used the site.

S One of Amazon's most distinctive features was the community created hllNl,1I1111 ratingsireviews provided by private individuals to help others make more inform 'II pili I ing decisions. Anyone could provide a narrative review and rate a product on '1sl'ull' III I stars, and/or comment on others' reviews. Individuals could also create their own "SII \I Like ... " guides and "Listmania" lists based on Amazon's products offerings and pi I 1111 or send them to friends and family. To streamline customer research, Amazon IIlsl1 I soli dated different versions of a product (i.e., DVD, VHS, Blu-Ray of a video) into u III product available for commentary that simplified commentary and user accessibility.'

9 To further target potential customers Amazon engaged in permission marketin " I'll ing permission to e-mail customersregardingspecificproductionpromotionshaM.1I I prior purchases on the assumption that a targeted e-mail was more likely to be read tlnm blanket e-mail. This strategy was hugely appreciated by Amazon customers, further '1111 tributing to Amazon's success.

10 In addition, Amazon purchased pay-per-click advertisements on search engines Sill'll II Google to direct browsing customers to its web sites. The ads appeared on the left-hand Hid,' II the search list results, and Amazon paid a fee for each visitor who clicked on its sponsor d lln

11 At the same time, as "TV and billboard ads were roughly ten times less effective wh I compared to direct or online marketing when concerning customer acquisition cost. .' according to the Marketing Plan, Amazon reduced its offline marketing. The strutc was simple: as customers shopped online, online marketing was key. However, in 20 I", Amazon initiated a small television advertising campaign to increase brand awareness.

12 Finally, to round out its customer care, Amazon expedited shipping by strategical! locating its fulfillment centers near airports? where rents were also cheaper, giving Amazon the two-pronged advantage of speed and low cost over its competitors. Furthermore, in III United States, the United Kingdom, Germany, and Japan, Amazon offered subscribers III Amazon Prime the added convenience of free express shipping. Amazon Prime's 2-du delivery endeared it to Amazon customers, again contributing to the customer loyalty thul was key to Amazon's success. Amazon Prime cost $79 annually to join and included fn:' access to Amazon Instant Video. The overarching objective of the company was to offct low prices, convenience, and a wide selection of merchandise, a pared-down, yet wide reaching strategy that made Amazon such a huge success.

6D. Chaffey. Amazon.com Case Study. hhp:llwww.davechaffey.com/E-eommeree-Internet-marketing-ease-studiesl Amazon-ease-studyl ' 71. Layton. How Amazon Works. Retrieved from How Stuff Works, http://monsy.howstuffworks.eom/amazon3 'Marketing Plan. Marketing Strategies of Amazon.com. http://www.marketingplan.neti amazon-com-marketing-strategiesl 9Amazon.com. 2010 Annual Report. April 201 I.

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14 By 2010, 43 percent of Amazon net sales were from media, including books, music, DVDs/video products, magazine subscriptions, digital downloads, and video games. More than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies.

15 Amazon also offered its own credit card, a form of co-branding, which benefited all parties: Amazon, the credit card company (Chase Bank), and the consumer. Amazon ben- efited because it received money from the credit card company both directly from Amazon purchases and indirectly from fees generated from non-Amazon purchases. In addition Amazon benefited from the company loyalty generated by having its own credit card the consumer sees and uses every day. The credit card company gained from Amazon's high visibility, increasing its potential customer base and transactions. And the consumer earned credit toward gift certificates with each use of the card.

I ARTNERSHIPS 16 Amazon leveraged its expertise in online order taking and order fulfillment (see Exhibit 2)

and developed partnerships with many retailers whose .web sites it hosted and managed, including (currently Or in the past) Target, Sears Canada, Bebe Stores, Timex Corporation, and Marks & Spencer. Amazon offered services comparable to those it offered customers on its own web sites, thus freeing those retailers to focus on the non web site, nontechno- logical aspects of their operations. 10 '

17 In addition, Amazon Marketplace allowed independent retailers and third-party sellers to sell their products on Amazon by placing links on their web sites to Amazon.com or to specific Amazon products. Amazon was "not the seller of record in these transactions, but instead earn [ed] fixed fees, revenue share fees, per-unit activity fees, or some combination thereof." I I Linking to Amazon created visibility for these retailers and individual sellers, adding

"Marketing Plan. Marketing Strategies of Amazon.com: http://www.marketingplan.net! arnazon-com-marketing-strategiesl "Amazon.corn. 201014nnual Report. April 2011.

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value to their web sites, increasing their sales, and enabling them to take advantu ' ' , Amazon's convenience and fast delivery. Sellers shipped their products to an AlII 1/01 warehouse or fulfillment center, where the company stored it for a fee, and when an Old was placed, shipped out the product on the seller's behalf. This form of affiliate murk I ing came at nearly no cost to Amazon. Affiliates used straight text links leading dirt'l'tl to a product page, and they also offered a range of dynamic banners, which featured till ferent content.

WEB SERVICES

18 As a major tech player, Amazon developed a number of Web services, including e-COIII merce, database, payment and billing, Web traffic, and computing. These Web servi 'l', provided access to technology infrastructure that developers were able to utilize to enahl ' various types of virtual businesses. The Web services (many of which were free) created II reliable, scalable, and inexpensive computing platform that revolutionized small business' online presence. For instance, Amazon's e-commerce Fulfillment By Amazon (FBA) pro gram allowed merchants to direct inventory to Amazon's fulfillment centers; after products were purchased, Amazon packed and shipped. This freed merchant from a complex order- ing process while allowing them control over their inventory. Amazon's Fulfillment Web Service (FWS) added to FBA's program. FWS let retailers embed FBA capabilities straight into their own sites, vastly enhancing their business capabilities.

19 In 2012, Amazon announced a cloud storage solution (Amazon Glacier) from Amazon Web Services CAWS), a low-cost solution for data archiving, backups, and other long-term storage projects where data not accessed frequently could be retained for future reference. Companies often incurred significant costs for data archiving in anticipation of growing backup demand, which led to underutilized capacity and wasted money. With Amazon Glacier, companies were able to keep costs in line with actual usage, so managers could know the exact cost of their storage systems at all times. With Amazon Glacier, Amazon continued to dominate the space of cold storage, which had first come into prominence in 2009, amidst competitors such as Rackspace and Microsoft offering their own solutions.

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COMPETITO 25

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MAZON'S ACQUISITION OF ZAPPOS, QUIDSI, LlVINGSOCIAL, N LOVEFILM

21 On July 22, 2009, Amazon acquired Zappos, the online shoe and clothing retailer, for $1.2 billion. At that time Zappos was reporting over $1 billion in annual sales without any mar- keting or advertising. According to founder Tony Hsieh, the secret to Zappos' success was superior customer service, from its 365-day return guarantee to the company tours with which it regaled visitors, picking them up at the airport, then returning them to the airport afterward. Zappos' employees were also very well treated, earning it a place at the top of the list of the "best companies to work for." Announcing Zappos' acquisition by Amazon, Tony Hsieh told his employees that he was excited because it was "a huge opportunity to accelerate the growth of the Zappos brand and culture, and ... Amazon is the best partner to help us get there faster."?

22 On November 8, 2010, Amazon announced the acquisition of Quidsi, the parent com- pany of Diapers.corn, an online baby care specialty site, and Soap.corn, an online site for everyday essentials. Amazon paid $500 million in cash and assumed $45 million in debt and other obligations. As Jeff Bezos explained, "This acquisition brings together two com- panies who are committed to providing great prices and fast delivery to parents, making one of the chores of being a parent a little easier and less expensive.l'"

23 On December 2,2010, Amazon announced that it had invested $175 million in Groupon competitor LivingSocial, a site whose up-to-the-minute research offered users immediate access to the hottest restaurants, shops, activities, and services in a given area while saving them 50 percent to 70 percent through special site deals.

24 On January 20, 2011, Amazon acquired Lovefilm for £200 million, a 1.6-million-sub- scriber-strong European Web-based DVD rental service based in London. Lovefilm had followed Netflix's business model, offering unlimited DVD rentals by mail for a monthly subscription fee of £9.99, but planned to challenge Netftix and expand its digital media business by entering the live-streaming subscription business.

COMPETITORS

25 Competition was fierce for Amazon on all fronts, from catalogue and mail-order houses to retail stores, from book, music, and video stores to retailers of electronics, home fur- nishings, auto parts, and sporting goods. Amazon's' Kindle contended with Apple's iPad among many lesser competitors. And Amazon's competitors in the service sector included other e-commerce and Web service providers. The company faced direct competition from companies such as eBay, Apple, Barnes & Noble, Overstock.corn, MediaBay, Priceline. com, PCMall.com, and RedEnvelope.com. Amazon had to compete with companies that provided their own products or services, sites that sold or distributed digital content such as

r "From the "Letter to Shareholders" by Jeff Bezos in the 2009 and 2010 Amazon Annual Reports, respectively.

-------------~rll II I I HI!I I I l'I'S includiuu :-,1111111hllSl!ll'SSl'SII) 1111Ilild s 'II vh 11111111111litlll} , III '010 1111III goods sold 011 'Buy wus $6_ hilliou, IIIaI ill' 'Buy IIIl' wurkl'« IlIq'\'NIIIIIIIIII III serving 39 markets with more than 97 million u .tivc us 'I'S worldwhh'. 1'1111\1111 subscribed to similar growth strategies: cach acquired a broad SIll'('IIIIIIIIII Over the 15 years from 1995-2010 eBay acquired I ayf'ul, Shoppiug.cnru, 11111 Bill Me Later, which have brought new e-comrnerce efficiencies 10 'UII ,

27 Metro AG, headquartered in Dusseldorf, Germany, on or the worlil'« 1i'lIIlIlI tional retail and wholesale companies, was formed through th m 1" 'I' or 1i'11I1\I Asko Deutsche Kaufhaus AG, Kaufhof Holding AG, and Deutsche SB-I(I\III the total value of goods sold by Metro AG was €67 billion. 13 Servin' , " r01l1l11l AG offered a comprehensive range of products and services designed 10 IlIi' 'I III shopping needs of private and professional customers. Metro AG, lik Alll:IIIIII, III customer orientation, efficiency, sustainability, and innovation.

28 Amazon had to be vigilant, negotiating more favorable terms from supplh'l ,11I1 more aggressive pricing, and devoting more resources to technology, ini't'lIsllIllllI fillment, and marketing. To maintain competitiveness, Amazon also strcn >Jitl'llI'd\I by entering into alliances with other businesses (i.e., Amazon Marketplace). N"l'illll growing competition from global and domestic players continually threat 'IH'" hI Amazon's desired share of the market. Across the industries in which it COlllPI'It'd ever, Amazon fought to maintain its edge based on its core principles of "sckx-tlnn I availability, convenience, information, discovery, brand recognition, personal iI',xl II accessibility, customer-service, reliability, speed of fulfillment, ease of use, and 1111111 adapt to changing conditions, as well as ... customers' overall experience and 11'11,I' I

FRUSTRATION FREE PACKAGING

29 To stay current, Amazon took the initiative to reduce its carbon footprint by impll'lli ing a "Frustration Free Packaging" program. Recyclable Frustration Free Packagin I without excess packaging such as hard plastic clamshell casings, plastic bindings, 11I11\ ties (see Exhibit 2) and was designed to be opened "without ... a box cutter or ~1I11 Amazon then went one step further and worked with the original manufacturers to Plll'~" products in Frustration Free Packaging right off the assembly line, further reducing IIII'\I of plastic and paper. Units shipped that utilized Frustration Free Packaging have incrru very rapidly, from 1.3 million in 2009 to 4.0 million in 201016 (see Exhibit 3). 1\11111/1 also utilized software to determine the right size box for any product the company .'hip" I achieving a dramatic reduction in the number of packages shipped in oversized boxes 1111 significantly reducing waste.

"Metro Group. Corporate Srategy. 2011. http://www.metrogroup.de/internetfsite/metrogroup/nodeIl078111.1.1I/ index.html !4D. Chaffey. Amazon. com Case Study. http://www.davechaffey.comlE-coll)merce-lnternet-marketing-case-sludh' I Amazon-case-study/ "Amazon.com. Amazon Certified Frusturation-Free Packaging FAQ (2011). http://www.amazon.com/gp/h 'Ipl customer/display.ht1J11?nodeld=200285450 . r "Amazon.com. Amazon Annual Meeting of Shareholders Presentation (lOQ). June 2011. http.z/phx.corporateh net/phoenix.zhtml?c=97664&p=irol-presentations

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Source: Amazon.corn 10Q

INANCIAL OPERATIONS

30 Amazon sales doubled from 2009 to 2011, growing from $24,509 million (2009) to $48,077 million (2011) (see Exhibits 4a and 4b), growth attributable especially to increased sales in electronics and other general merchandise, and the adoption of a new accounting standard update, reduced prices including free shipping offers, increased in stock inventory avail- ability, and the impact of the acquisition of Zappos in 2009.17

31 Amazon's annual net income for 2009, 2010, and 2011 was $902 million, $1,152 mil- lion, and $631 million respectively. The significant increase from 2009 to 2010 was due in large part to aggressive net sales growth and a large portion of its expenses and investments being fixed. Management explained that net income decreased from 2010 to 2011 as a re- sult of (1) selling Kindle hardware at a market price slightly below the cost of manufacture; (2) increased spending on technology infrastructure; and (3) increased payroll expenses.

CHALLENGES FOR AMAZON

32 Amazon developed very quickly into a major player in the online retail market, yet challenges hovered:

1. From its inception Amazon was not required to collect state or local sales or use taxes, an exemption upheld by the U.S. Supreme Court. However, in 2012, states began to con- sider superseding the Supreme Court decision. IS If the states were to prevail, Amazon would be forced to collect sales and use tax, creating administrative burdens for it and putting it at a competitive disadvantage "if similar obligations are not imposed on all of its online competitors, potentially decreasing its future sales,"!" Massachusetts and other states were motivated both by the desire to tap into new sources of revenues for their state budgets and to protect local retailers. According to the Boston Globe:

"Amazon.com. 2010 Annual Report. April 2011. "Arnazon.corn. 2010 Annual Report. Pp. 13-14. April 201 1. 19 Amazon.corn. 2010 Annual Report. P. 14. April 2011.

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Gross Profit 4,270.0 5,531.0 7,643.0 Selling General & Admin Expenses, Total 2,419.0 3,060.0 4,397.0 R&D Expenses 1,033.0 1,24G.0 1,734,0 Other Operating Expenses 29.0 51.0 106.0 Other Operating Expenses, Total 3,481.0 4,351.0 6,237.0 Operating Income 789.0 1,180.0 1,406.0

Interest Expense -71.0 -34.0 -39.0 6 Interest and Investment Income 83.0 37.0 51.0 61, Net Interest Expense 12.0 3.0 12.0 4. Income (Loss) on Equity Investments -9.0 -6.0 7.0 -12,0 Currency Exchange Gains (Loss) 23.0 26.0 75.0 64,0 Other Non-Operating Income (Expenses) 22.0 -1.0 3.0 8,0 Ebt, Excluding Unusual Items 837.0 1,262.0 1,503.0 9nS,O Gain (Loss) on Sale of Investments 2.0 4.0 1.0 4.0 Gain (Loss) on Sale of Assets 53.0 Other Unusual Items, Total -51.0 Legal Settlements -51.0 EBT, Including Unusual Items 1,155.0 1,504.0 922.0 Income Tax Expense 253.0 352.0 291,0 Earnings from Continuing Operations 902.0 1,152.0 631.0 Net Income 902.0 1,152:0 631.0 Net Income to Common Including Extra Items 902.0 1,152.0 631.0 Net Income to Common Excluding Extra Items 902.0 1,15~.0 631.0

EXHIBIT 4b Balance Sheet

Balance Sheet Currency in Millions of US Dollars As of: Dec 312008 Dec 312009 Dec 312010 Dec 31 2011

Assets Cash and Equivalents 2,769.0 3,444.0 3,777.0 5,269.0 Short-Term Investments 958.0 2,922.0 4,985.0 4,307.0 Total Cash And Short Term Investments 3,727.0 6,366.0 8,762.0 9,576.0 Accounts Receivable 827.0 988.0 1,587.0 2,571.0 Total Receivables 827.0 988.0 1,587.0 2,571.0 Inventory w 1,399.0 2,171.0 3,202.0 4,992.0 Deferred Tax Assets, Current 204.0 272.0 196.0 351.0 Total Current Assets 6,157.0, 9,797,0 13,747.0 17,490.0

Gross Property Plant and Equipment 1,078.0 1,517.0 2,769.0 5,143.0 Accumulated Depreciation -396.0 -418.0 -587.0 -1,0?5.0

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lf1t I Assets 8,314.0 13,813.0 18,797.0 25,278.0

l lnbllleles & Equity I counts Payable 3,594.0 5,605.0 8,051.0 11,145.0

Ac (Ill d Expenses 632.0 901.0 1,357.0 2,106.0 ( IItr nt Portion of Long-Term Debt/Capital Lease 59.0 395.0 ( urr nt Portion of CapitalLease Obligations 395.0 I Jil(' rned Revenue, Current 461.0 858.0 964.0 1,250.0 lotal Current Liabilities 4,746.0 7,364.0 10,372.0 14,896.0 I onq- Tejm Debt 409.0 n09.0 184.0 255.0 r .ipital Leases 124.0 143.0 457.0 1,160.0 Other Non-Current Liabilities 363.0 940.0 920.0 1,210.0 Total Liabilities 5,642.0 8,556.0 11,933.0 17,521.0 Common Stock 4.0 5.0 5.0 5.0 Additional Paid in Capital 4,121.0 5,736.0 6,325.0 6,990.0 I{etained Earnings -730.0 172.0 1,324.0 1,955.0 II asury Sto.~k -600.0 -600.0 . ~600.0 -877.0

omprehensive Income and Other -123.0 -56.0 -190.0 -316.0 Total Common Equity 2,672.0 5,257.0 6,864.0 7,757.0 Total Equity 2,672.0 5,257.0 6,864.0 7,757.0 Total Liabilities and Equity 8,314.0 13,813.0 18,797.0 25,278.0i

Massachusetts Governor Deval Patrick may require Amazon.com to start collecting sales tax on purchases made in Massachusetts, a move that would raise prices for online shoppers, but generate as much as $45 million in annual revenue for the state, according to several people briefed on the matter. Traditional shop owners say Amazon's exemption has put them at a competitive disadvantage by providing online customers with a built-in discount. Other states grappling with deficits have looked to Amazon, the world's largest Internet retailer, as a source of additional revenue. Last week, the Seattle-based company said it would begin collecting and paying state sales tax in New Jersey, and the merchant recently struck deals to do the same in Indiana, Nevada, South Carolina, Tennessee, and Virginia. Amazon-which for years resisted such efforts-has offices, distribution centers, or ot~er operations in all of those states. (June 6,2012)

In 2012 reports had it that Amazon was making deals to collect sales tax in all 50 states so that it could open warehouses near population centers and provide same-day delivery, a major shift in its business model that would ratchet up competition with big box stores

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4. Br aches of security from outside parties trying to gain access to its inlonuutiun o: dillII were a continual threat for Amazon." A of 2012, Amazon had syst 'ms IIl1dIWOI',' in place that were designed to counter such attempts; however, failure to muintuiu till' systems or processes could be detrimental to the operations of the company.

5. As more media products were sold in digital formats, Amazon's relatively low l'lI 1 physical warehouses and distribution capabilities no longer provided the sarnc '01111''II tive advantages. In addition, Amazon had felt that its worldwide free shipping offers 11I111 Amazon Prime were effective worldwide marketing tools and intended to offer tlu-m indefinitely, yet it began to suffer from soaring shipping expenses cutting into profits. III quarterthree of 2011, Amazon's shipping fees generated $360 million in revenu , will 'II was dwarfed by $918 million in shipping expenses.

6. Amazon had to contend with absorbing losses from its unsuccessful ventures such as il A9 search engine, Amazon Auctions, and Unbox, Amazon's original video-on-denuuul service.

7, Recent hires from Microsoft, Robert Williams, former senior program manager, ami Brandon Watson, head of Windows Phone development, prompted speculation thut Amazon was developing a smartphone, possibly a Kindle-branded device. Bloornbcr reported that Amazon had gone so far as to strike a manufacturing deal with FOXCOIIII, the controversial Taiwanese company responsible for assembling Apple's iPhone und Google Android devices. Amazon has not commented on the reports. A smartphonc would have given Amazon another mobile device to sell, but some analysts felt il wouldn't have made sense for Amazon to enter into the already crowded smartph 0Ill' arena. "Since tablets skew more heavily toward media consumption than smartphoncs, they are a natural fit for Amazon's commerce and media platform," said Baird & Co. analyst Colin Sebastian in a research note. "In contrast, smartphones require special- ized native apps (e.g., maps, voice, search, e-mail) that would be costly for Amazon to replicate." Sebastian also noted that hardware is a low-margin business. Amazon's Kindle Fire sold for $199, a price that some analysts believed was below cost, suggest- ing Amazon hoped the Kindle Fire would more than pay for itself by boosting sales or e-books and other digital content."

33 Thus, by 2012 Amazon had proved itself as a retail giant, yet as with any vibrant company, faced continual challenges, particularly regarding the overarching questions of whether to spend its money developing media products such as the Kindle smartphone, or to stick with its strengths as an online retailer, perhaps acquiring more holdings such as Zappos, and pushing for same-day delivery despite the added cost to compete with other online retailers and with the big box stores as well.

2°John Tozzi. "To Beat Recession, Indies Launch Buy-Local Push." Businessweek. Bloomberg L.P., February 2009. http://www.businessweek.com/smallbiz/content/feb2009/sb20090226_752622.htm 2'Amazon.com. 2010 Annual Report. P. 15. Apri12011. 22Colin Sebastian, Senior Research Analyst, Baird 2012 Research Note 011 Amazon. com.

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Corporate Officers

Jeffrey P.Bezos President, Chief Executive Officer and Chairman of the Board

Jeff Bezos founded Amazon.com in 1994. Amazon's mission is to be Earth's most cus- tomer-centric company. Amazon offers low prices and fast delivery on millions of items, designs and builds the best-selling Kindle hardware, and empowers companies and governments in over 190 countries around the world with the leading cloud computing infrastructure through its Amazon Web Services offering. Bezos is also the founder of aerospace company Blue Origin, which is working to lower the cost and increase the safety of space flight so that humans can better continue exploring the solar system.

Bezos graduated summa cum laude, Phi Beta Kappa in electrical engineering and com- puter science from Princeton University in 1986 and was named TIME Magazine's Person of the Year in 1999.

Senior Vice President. Business Development I Jeffrey M. Hlackburn

,ii '

Mr. Blackburn .has served as Senior Vice President Business Development, since April 2006. From June 2004 to April 2006, he was Vice President, Business Development; from July 2003 to June 2004, he was Vice President, European Customer Service; and from No- vember 2002 to July 2003, he was Vice President, Operations Integration.

Sebastian J. Gunningham Senior Vice President, Seller Services

Senior Vice President, Amazon Web Services Andrew R. Jassy

Andy Jassy leads the Amazon Web Services business (AWS) and the Technology Infrastruc- ture organization for Amazon.com. AWS is a subsidiary of Amazon.com that provides software developers and businesses with cloud-based infrastructure services that are inex- pensive, reliable, scalable, comprehensive, and flexible.

Senior Vice President, Worldwide Digital Media Steven Kessel

Mr. Kessel has served as Senior Vice President. Worldwide Digital Media, since April 2006. From April 2004 to April 2006, he was Vice President, Digital and from July 2002 to April 2004, he was Vice President, U.S. Books,Music, Video, and DVD. Prior to joining Amazon.com in 1999, Mr. Kessel was a consultant to Internet companies.

Kessel received his bachelor's degnee !ncomputer science from Dartmouth College and an I MBA from Starford's Graduate School of Business.

Senior Vice President, Worldwide Operations Marc A. Onetto

(Continued)

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10m A. Alb rg Madrona Venture Group

John Seely Brown Visiting Scholar and Advisor to the Provost at USC

William B. (Bing) Gordon Kleiner Perkins Caufield & Byers

Jamie S. Gorelick Wilmer Cutler Pickering Hale and Dorr LLP

Blake G. Krikorian id8 Group Productions, Inc.

Alain Monie It Ingram Micro

ThormasO.Ry~~r:::" " Former Chairman and CEO, Reader's DigestA

Patricia Q. Stonesifer Smithsonian Institution