Amazon.com's Business Model and its Evolution
Case Code: BSTR486
Case Length: 22 Pages
Pub Date: 2016
Teaching Note: Available
Countries: US; Global
Themes: Business Model Innovation, Blue Ocean Strategy
Abstract Case Intro 1 Case Intro 2 Excerpts
Building and Evolving the Business Model
Over the years, Amazon had disrupted the online retail industry and transformed itself from an e-commerce player to a powerful digital media platform focused on growth and innovation. It constantly reinvented its business model and found new ways to create value for its customers. According to analysts, Amazon's business model was innovative because it combined the company's online retail expertise with its ability to understand the needs of its customers. Amazon moved beyond books to foray into completely new product categories such as e-readers and enterprise cloud computing services...
Amazon's Growth Wheel
In 2001, Bezos and his employees outlined a virtuous cycle called the "Amazon Flywheel", which they believed powered their business. Bezos once invited well-known author and business consultant Jim Collins (Collins) to participate in Amazon’s executive retreat in 2001 to discuss the company's future. As part of the discussions, Collins told Bezos and his executives that they had to decide what they were best at. Drawing on Collins’s concept of a flywheel, Bezos and his executives drew their own virtuous circle placing customer experience at the core of Amazon's flywheel. Internally, it was referred to as Bezos’ napkin diagram as he drew it on a napkin.....
Growth Now, Profits Later
Amazon generated revenues by selling millions of products to customers through its retail website and by charging third party sellers who sold products on Amazon's website. It also served as a platform for independent publishers to publish books on Kindle with a 35% or 70% royalty option. In addition, Amazon generated revenue from its cloud business by providing web technology infrastructure to developers and enterprises. It followed a high fixed costs and low marginal costs business model. According to Eugene Wei, a former Amazon employee,....
Resources and Processes that Support the Strategy
Amazon was one of the most innovative companies in the US. From the beginning, it had been at the forefront of innovation, adding and refining technology and changing the way customers shopped. On invention being a second nature at Amazon, Bezos said, "Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams. That's a big part of what's going on with Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing....
According to industry observers, Amazon over the years had disrupted other online retailers and brick-and-mortar stores and leveraged its e-commerce operations to become a retail Goliath. However, some critics felt that Amazon was too ambitious as it had been growing alarmingly and investing heavily. They felt that the strategy could backfire and that Amazon needed to be selective about the opportunities it pursued as it could not take customers and the competition for granted....
The Road Ahead
Going forward, the company planned to launch new digital products and service categories, build more fulfillment centers, power AWS, and expand the Kindle Fire Ecosystem. The company also planned to hire 100,000 people in North America for the holiday season. In July 2015, Amazon surpassed Wal-Mart as the world’s largest retailer by market value after a surprise second quarter profit that led to a surge in the company's stock value. Amazon shares rose 17%, giving the company a market value of US$262.7 billion, compared to Wal-Mart's market capitalization of US$233.5 billion.....
Exhibit I: Most Valuable S&P 500 Companies (As of July 2015)
Exhibit II: Market Value of Amazon.com
Exhibit III: Amazon.com Consolidated Income Statement
Exhibit IV: Amazon's Business Model Evolution
Exhibit V: Amazon Core Values
Exhibit VI: Features Offered to Consumer Customers
Exhibit VII: Amazon Quarterly Results
Exhibit VIII: Amazon – Net Sales-Amazon - Net Income
Exhibit IX: Stock Price Chart of Amazon (2015)
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