Case 9 Amazon.com, Inc. Retailing Giant to High-Tech Player? Alan N. Hoffman Bentley University OVERVIEW 1 Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon) was incorporated in the state of Washington in July 1994 and sold its first book in July 1995. In May 1997, Amazon (AMZN) completed its initial public offering, and its common stock was listed on the NASDAQ Global Select Market. Amazon quickly grew from an online bookstore to the world's largest online retailer, greatly expanding its product and service offerings through a series of acquisitions, alliances, partnerships, and exclusivity agreements. Amazon's financial objective was to achieve long-term sustainable growth and profitability. To attain this objective, Amazon maintained a lean culture focused on increasing its operating income through continually increasing revenue and efficiently managing its working capital and capital expenditures, while tightly managing operating costs. 2 The name "Amazon" was evocative for founder Jeff Bezos of his vision of Amazon as a huge natural phenomenon, like the longest river in the world. The company would be "Earth's most customer- centric company . . . a place where people can come to find and discover anything they might want to buy online."13 By 2008 Amazon had become a global brand (see Exhibit 1), with web sites in Canada, the United Kingdom, Germany, France, China, and Japan, with order fulfillment in more than 200 countries. Its operations were organized into two principal segments: North America and International Operations, which grew to include Italy in 2010 and Spain in 2011. By 2012, Amazon employed more than 56,200 people around the world working in the corporate office in Seattle and in software development, order fulfillment, and customer service centers in North America, Latin America, Europe, and Asia. RETAIL OPERATIONS/AMAZON'S SUPERIOR WEB SITE 4 As people became more comfortable shopping online, Amazon developed its web site to take advantage of increased Internet traffic and to serve its customers most effectively.3 The hallmarks of Amazon's appeal were ease of use; speedy, accurate search results; selection, price, and convenience; a trustworthy transaction environment; timely customer service; and fast, reliable fulfillment4; all enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. The site, which offered a huge array 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. EXHIBIT 1 Amazon's Online Visitor BreakoutCountry Percent of Visitors United States 66.8% India 2.6% United Kingdom 2.2% Canada 2.1% Japan 1.4% China 14% Australia 13% Germany 13%% Mexico 13% Venezuela 1.2% Source: Alexa.com The author would like to thank Barbara Gotfried, Jodi Germann, Lauren- Ashley Higson, Faith Naymie, Faina Shakarova, Jamal Ait Hammou, Muntasir Alam, Shaheel Dholakia, Xinxin Zhu, and Will Hoffman for their research and contributions to this case. Please address all correspondence to: Dr. Alan N. Hoffman, Dept. of Management, Bentley University, 175 Forest Street, Waltham, MA 02452-4705, voice (781) 891- 2287, ahoffman@bentley.edu. Printed by permission of Alan N. Hoffman. 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 Marketing 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."5 This simple systemis 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 trafc and modifying the web site accordingly. Amazon particularly excelled at customer tracking, collecting data from every visit to its web site. Utilizing the information, Amazon then directed users to products it surmised they might be interested in because the item was either:6 . similar to what the user was currently searching for (on-the-y recommendations) . related to what the user had searched for or clicked on at any time in the past, or - had been purchased by other people who had searched or bought the same item the user was searching for. 7 Recommendations were also customized based on the information customers provided about themselves and their interests, and their ratings of prior purchases. Amazon also collected data on those who had never visited any of its web sites, but who had received gifts from those who had used the site. 8 One of Amazon's most distinctive features was the community created based on the ratings/reviews provided by private individuals to help others make more informed purchasing decisions. Anyone could provide a narrative review and rate a product on a scale of 15 stars, and/or comment on others' reviews. Individuals could also create their own \"So You'd Like . . .\" guides and \"Listmania\" lists based on Amazon's products offerings and post them or send them to friends and family. To streamline customer research, Amazon also consolidated different versions of a product (i.e., DVD, VHS, Blu- Ray of a video) into a single product available for commentary that simplied commentary and user accessibility? 9 To further target potential customers Amazon engaged in permission marketing, eliciting permission to e-mail customers regarding specic production promotions based on prior purchases on the assumption that a targeted email was more likely to be read than a blanket e-mail. This strategy was hugely appreciated by Amazon customers, further contributing to Amazon's success. 10 In addition, Amazon purchased pay-per-click 11 12 advertisements on search engines such as Google to direct browsing customers to its web sites. The ads appeared on the left-hand side of the search list results, and Amazon paid a fee for each visitor who clicked on its sponsored link. At the same time, as \"TV and billboard ads were roughly ten times less effective when compared to direct or online marketing when concerning customer acquisition costs,\"8 according to the Marketing Plan, Amazon reduced its ofine marketing. The strategy was simple: as customers shopped online, online marketing was key. However, in 2010, Amazon initiated a small television advertising campaign to increase brand awareness. Finally, to round out its customer care, Amazon expedited shipping by strategically locating its fulllment centers near airports9 where rents were also cheaper, giving Amazon the two-pronged advantage of speed and low cost over its competitors. Furthermore, in the United States, the United Kingdom, Germany, and Japan, Amazon offered subscribers to Amazon Prime the added convenience of free express shipping. Amazon Prime's 2-day delivery endeared it to Amazon customers, again contributing to the customer loyalty that was key to Amazon's success. Amazon Prime cost $79 annually to join and included free access to Amazon Instant Video. The overarching objective of the company was to offer low prices, convenience, and a wide selection of merchandise, a pared-down, yet wide-reaching strategy that made Amazon such a huge success. DIVERSIFIED PRODUCT OFFERINGS 13 Amazon diversied its product portfolio well beyond simply offering books, which in turn allowed it to diversify its customer mix. In 2007, Amazon successfully launched the Kindle, its $79 e- book reader, which offered users more than one million reasonably priced books and newspapers easily accessed on its handheld device. Competitor Apple, Inc., then introduced the iPad, the rst tablet computer, in January 2010, sparking further development of mobile e-readers. E-book sales took off immediately, increasing by more than 100 percent, according to the Association of American Publishers. Eager to compete in a market for which it was uniquely positioned, Amazon quickly developed its own low-cost tablet, the Kindle Fire, an Android-based tablet with a color touch screen priced at $199, more than $300 lower than the iPad, sacricing prot margins in search of sales volume and market-share gains. Other tech giants such as RIMM and HP were unable to compete with the iPad. Only the Sony Nook, the Amazon Kindle and Kindle Fire, and the Samsung Galaxy and Series 7 tablets challenged Apple's consistent 60 percent market share. Ultimately, however, Amazon's huge groxh derived not simply from the sale of Kindle hardware and the growth of e-book sales, but from its diversification and the continual expansion of the easy web site access created by mobile devices. 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 benefited 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. PARTNERSHIPS 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 nonweb site, nontechnological 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." Linking to Amazon created visibility for these retailers and individual sellers, adding value to their web sites, increasing their sales, and enabling them to take advantage of Amazon's convenience and fast delivery. Sellers shipped their products to an Amazon warehouse or fulfillment center, where the company stored it for a fee, and when an order was placed, shipped out the product on the seller's behalf.This form of affiliate marketing came at nearly no cost to Amazon. Affiliates used straight text links leading directly to a product page, and they also offered a range of dynamic banners, which featured different content. WEB SERVICES 18 As a major tech player, Amazon developed a number of Web services, including e-commerce, database, payment and billing, Web traffic, and computing. These Web services provided access to technology infrastructure that developers were able to utilize to enable various types of virtual businesses. The Web services (many of which were free) created a reliable, scalable, and inexpensive computing platform that revolutionized small business' online presence. For instance, Amazon's e-commerce Fulfillment By Amazon (FBA) program allowed merchants to direct inventory to Amazon's fulfillment centers; after products were purchased, Amazon packed and shipped. This freed merchant from a complex ordering 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. EXHIBIT 1 Fulfillment by Amazon FULFILLMENT byamazon* -How it Works... tem You Send Amazon Customers Amazon Amazon Products to Stores Products Purchase Products Picks & Packs Ships Products Amazon Products to Customers Source: Amazon.com 19 In 2012, Amazon announced a cloud storagesolution (Amazon Glacier) from Amazon Web Senices (AWS), 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 signicant 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 rst come into prominence in 2009, amidst competitors such as Rackspace and Microsoft offering their own solutions. 20 By 2012, Amazon Web Services were a crucial facet of Amazon's prot base, and Amazon was one of the lead players in the fastgrowing retail ecommerce market. Seeing huge growth potential Amazon made the decision to expand Amazon Web Senices (AWS) internationally and invested heavily in technology infrastructure to support the rapid growth in AWS. Though its investments in e commerce threatened to suppress its near-term margin growth, Amazon expected to benet in the long term, given the signicant growth potential in domestic and, even more so, in international e- commerce. ANIAZON'S ACQUISITION OF ZAPPOS, QUIDSI, LIVINGSOCIAL, AND LOVEFILIVI 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 marketing 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.\"12 22011 November 8= 2010= Amazon announced the acquisition of Quidsi, the parent company of Diaperscom, an online baby care specialty site= and Soap.com, an online site for everyday essentials. Amazon paid $500 million in cash and assumed $45 million in debt and other obligations. As Je' Bezos explained= \"This acquisition brings together two companies 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 expensivefJZ 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 Lovelm for 200 million, a 1.6-million-subscriber-strong European Web-based DVD rental service based in London. Lovelm had followed Netix's business model, offering unlimited DVD rentals by mail for a monthly subscription fee of 9.99, but planned to challenge Netix and expand its digital media business by entering the live-streaming subscription business. C ONIPETITORS 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 furnishings, 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.com, 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 iTunes and Netflix, and media companies such as the New York Times. Many of the company's competitors had greater resources (eBay), longer histories (Barnes & Noble), more customers (Apple), or greater brand recognition (iTunes). 26 The companies offering the most direct threat to Amazon were eBay and Metro AG. Pierre Omidyar founded eBay in 1995, a web site that connected individual buyers and sellers including small businesses to buy and sell virtually anything. In 2010, the total value of goods sold on eBay was $62 billion, making eBay the world's largest online marketplace serving 39 markets with more than 97 million active users worldwide. eBay and Amazon subscribed to similar growth strategies: each acquired a broad spectrum of companies. Over the 15 years from 1995-2010 eBay acquired PayPal, Shopping.com, StubHub, and Bill Me Later, which have brought new e-commerce efficiencies to eBay. EXHIBIT 3 Frustration Free Packaging GrowthFrustration-Free Packaging 4.0 million 1.3 million 250,000 2008 2009 2010 Total Frustration-Free units shipped "Excludes Amazon-branded products Source: Amazon. com IOQ 27 Metro AG, headquartered in Dusseldorf, Germany, one of the world's leading international retail and wholesale companies, was formed through the merger of retail companies Asko Deutsche Kaufhaus AG, Kaufhof Holding AG, and Deutsche SB-Kauf AG. In 2010, the total value of goods sold by Metro AG was C67 billion.13 Serving 33 countries, Metro AG offered a comprehensive range of products and services designed to meet the specific shopping needs of private and professional customers. Metro AG, like Amazon, focused on customer orientation, efficiency, sustainability, and innovation. 28 Amazon had to be vigilant, negotiating more favorable terms from suppliers, adopting more aggressive pricing, and devoting more resources to technology, infrastructure, fulfillment, and marketing. To maintain competitiveness, Amazon also strengthened its edge by entering into alliances with other businesses (i.e., Amazon Marketplace). Nevertheless, growing competition from global and domestic players continually threatened to erode Amazon's desired share of the market. Across the industries in which it competed, however, Amazon fought to maintain its edge based on its core principles of "selection, price, availability, convenience, information, discovery, brand546 of 788 recognition, personalized services, accessibility, customer service, reliability, speed of fulllment, ease of use, and ability to adapt to changing conditions, as well as . . . customers' overall experience and trust.\"'4 FRUSTRATION FREE PACKAGING 29 To stay current, Amazon took the initiative to reduce its carbon footprint by implementing a \"Frustration Free Packaging\" program. Recyclable came without excess packaging such as hard plastic clamshell casings, plastic bindings, and wire ties (see Exhibit 2) and was designed to be opened \"without . . . a box cutter or knife.\"15 Amazon then went one step further and worked with the original manufacturers to package products in Frustration Free Packaging right off the assembly line, further reducing the use of plastic and paper. Units shipped that utilized Frustration Free Packaging have increased very rapidly, from 1.3 million in 2009 to 4.0 million in 201016 (see Exhibit 3). Amazon also utilized software to determine the right size box for any product the company shipped, achieving a dramatic reduction in the number of packages shipped in oversized boxes and signicantly reducing waste. EXHIBIT 4a Income Statement and Balance Sheet Income Statement Currency In (Millions of US Dollars) As of: Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011 Revenues 19,166.0 24.509.0 34,204.0 48,077.0 Total Revenues 19. 166.0 24,509.0 34,204.0 48,077.0 Cost of Goods Sokl 14.896.0 18,978.0 26,561.0 37,288.0 Gross Profit 4,270.0 5,531.0 7,643.0 10,789.0 Selling General & Admin Expenses, Total 2,419.0 3,060.0 4,397.0 6,864.0 R&D Expenses 1,033.0 1,240.0 1,734.0 2,909.0 Other Operating Expenses 29.0 51.0 106.0 154.0 Other Operating Expenses, Total 3,481.0 4,351.0 6,237.0 9,927.0 Operating Income 789.0 1,180.0 1,406.0 862.0 Interest Expense -71.0 -34.0 -39.0 -65.0 Interest and Investment income 83.0 37.0 51.0 61.0 Net Interest Expense 12.0 3.0 12.0 -4.0 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 1,202.0 1,503.0 918.0 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 892.0 1.155.0 1.504.0 922.0 Income Tax Expense 247.0 253.0 352.0 291.0 Eamings from Continuing Operations 645.0 902.0 1,152.0 631.0 Net Income 645.0 902.0 1,152.0 631.0 Net Income to Common Including Extra Items 645.0 902.0 1,152.0 631.0 Net Income to Common Excluding Extra Items 645.0 902.0 1,152.0 631.0 EXHIBIT 4b Balance Sheet Balance Sheet Currency in Millions of US Dollars As of: Dec 31 2008 Dec 31 2009 Dec 31 2010 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 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 -1,075.04:23 X 524584085.pdf 4 Balance Sheet Currency in Millions of US Dollars As of: Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011 Net Property Plant And Equipment 682.0 1.099,0 2.182.0 4,068.0 Goodwill 438.0 1,234.0 1,349.0 1,955.0 Deferred Tax Assets, Long Term 145.0 18.0 22.0 28.0 Other Intangibles 332.0 758.0 795.0 996.0 Other Long-Term Assets 560.0 907.0 702.0 741.0 Total Assets 8,314.0 13,813.0 18,797.0 25,278.0 Liabilities & Equity Accounts Payable 3,594.0 5,605.0 8,051.0 11,145.0 Accrued Expenses 632.0 901.0 1,357.0 2,106.0 Current Portion of Long-Term Debt/Capital Lease 59.0 395.0 Current Portion of Capital Lease Obligations 395.0 Unearned Revenue, Current 461.0 858.0 964.0 1,250.0 Total Current Liabilities 4.746.0 7,364.0 10,372.0 14,896.0 Long-Term Debt 409.0 109.0 184.0 255.0 Capital 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 Retained Earnings 730.0 172.0 1,324.0 1,955.0 Treasury Stock 600.0 600.0 600.0 877.0 Comprehensive 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 25.278.0 FINANCIAL 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 availability, 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 million, 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 result of (1) selling Kindle hardware at a market price slightly below the cost of manufacture; (2) increased spending on technology infrastructure; Open in Google DriveX 4:23 . 'SCJ' 524584085.pdf @3, m and (3) increased payroll expenses. CHALLENGES FOR AWON 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 U5. Supreme Court. However, in 2012, states began to consider superseding the Supreme Court decision.18 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.\"19 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: 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 \"1th decits 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. Amazonwhich for years resisted such e'ortshas ofces. distribution centers, or other operations in all of those states. (June 6, [1" Open in Google Drive 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 like Best Buy and Target as well as local retailers. However, there were no guarantees of the profitability of same-day delivery given the added warehouse and delivery costs. 2. With the new social trend of "buying local," Amazon faced the threat of some regular consumers preferring to buy from their local stores rather than from an online retailer. 20 3. Amazon always had to grapple with the threat of customer preference for instant gratification, customer desire to get a product immediately in the store, rather than waiting several days for the product to be shipped to them. EXHIBIT 5 Corporate Officers and Board of Directors 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 customer-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 can4:24 X 524584085.pdf 4 better continue exploring the solar system. Bezos graduated summa cum laude, Phi Beta Kappa in electrical engineering and computer science from Princeton University in 1986 and was named TIME Magazine's Person of the Year in 1999. Senior Vice President, Business Development Jeffrey M. Blackburn 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 November 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 Infrastructure organization for Amazon.com. AWS is a subsidiary of Amazon.com that provides software developers and businesses with cloud- based infrastructure services that are inexpensive, 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 degree in computer science Open in Google Drivefrom Dartmouth College and an MBA from Stanford's Graduate School of Business. Senior Vice President, Worldwide Operations Marc A. Onetto Mr. Onetto has served as Senior Vice President, Worldwide Operations, since joining Amazon.com in December 2006. Prior to joining Amazon.com, Mr. Onetto was Executive Vice President, Worldwide Operations, at Solectron Corporation, an electronics manufacturing and technology company, from June 2003 to June 2006, and, prior to Solectron, he held various positions at GE, including Vice President, European Operations, GE Europe. Senior Vice President, International Consumer Business Diego Piacentini Mr. Piacentini has served as Senior Vice President, International Consumer Business, since February 2012. From January 2007 until February 2012, Mr. Piacentini served as Senior Vice President, International Retail, and from November 2001 until December 2006, he served as Senior Vice President, Worldwide Retail and Marketing. Vice President, Worldwide Controller and Principal Accounting Officer Shelley L. Reynolds Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting Officer since April 2007. From February 2006 to April 2007, she was Vice President, Finance and Controller. Senior Vice President and Chief Financial Officer Thomas J. Szkutak After more than 20 years with GE, Mr. Szkutak joined Amazon.com in October 2002 to serve as the company's chief financial officer and senior vice president. As CFO he oversees the company's overall financial activities, including controllership, tax, treasury, analysis, investorrelations, internal audit, and financial operations. Before joining Amazon.com, Szkutak served as CFO for GE Lighting. Senior Vice President, Ecommerce Platform H. Brian Valentine Mr. Valentine has served as Senior Vice President, E- commerce Platform since joining Amazon.com in September 2006. Prior to joining Amazon.com, Mr. Valentine held various positions with Microsoft Corporation, including Senior Vice President, Windows Core Operating System Division, from January 2004 to September 2006 and Senior Vice President, Windows, from December 1999 to January 2004. Senior Vice President, Consumer Business Jeffrey A. Wilke Mr. Wilke has served as Senior Vice President, Consumer Business, since February 2012. From January 2007 until February 2012, Mr. Wilke served as Senior Vice President, North American Retail, and from January 2002 until December 2006, he was Senior Vice President, Worldwide Operations. Jeff Wilke joined Amazon.com as Vice President and General Manager, Operations in September, 1999. Senior Vice President, General Counsel, Secretary L. Michelle Wilson Ms. Wilson joined Amazon.com in March 1999 as Associate General Counsel for finance and mergers and acquisitions. In July 1999, Michelle was promoted to become Amazon.com's Vice President and General Counsel, overseeing all legal and policy affairs. Michelle also serves as the Corporate Secretary. Board of Directors Jeffrey P. Bezos550 of 788 President, Chief Executive Officer, and Chairman of the Board Jeffrey P. Bezos has been Chairman of the Board since founding the Company in 1994 and Chief Executive Officer since May 1996. Mr. Bezos served as President from founding until June 1999 and again from October 2000 to the present. Tom A. Alberg 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 Ingram Micro Inc. Jonathan Rubinstein Former Chairman and CEO, Palm, Inc. Thomas O. Ryder Former Chairman and CEO, Reader's Digest Association, Inc. Patricia Q. Stonesifer Smithsonian Institution 4. Breaches of security from outside parties trying to gain access to its information or data were a continual threat for Amazon. As of 2012, Amazon had systems and processes in place that were designed to counter such attempts; however, failure to maintain these systems or processes could beon detrimental to the operations of the company. As more media products were sold in digital formats, Amazon's relatively low-cost physical warehouses and distribution capabilities no longer provided the same competitive advantages. In addition, Amazon had felt that its worldwide free shipping o'ers and Amazon Prime were effective worldwide marketing tools and intended to oer them indefinitely, yet it began to suu 'om soaring shipping expenses cutting into prots. In quarter three of 2011, Amazon's shipping fees generated $360 million in revenue= which was dwarfed by $918 million in shipping expenses. Amazon had to contend with absorbing losses from its unsuccessful ventures such as its A9 search engine, Amazon Auctions, and Unbox, Amazons original \\ideo-ondemand service. Recent hires from Microsoft, Robert Williams, former senior program manager, and Brandon Watson, head of Windows Phone development, prompted speculation that Amazon was developing a smartphone, possibly a Kindle- branded device. Bloomberg reported that Amazon had gone so far as to strike a manufacturing deal with Foxconn, the controversial Taiwanese company responsible for assembling Apple's iPhone and Google Android devices. Amazon has not commented on the reports. A smartphone would have given Amazon another mobile device to sell, but some analysts felt it wouldn't have made sense for Amazon to enter into the already crowded smartphone arena. \"Since tablets skew more heavily toward media consumption than smartphones, they are a natural t for Amazon's commerce and media platform,\" said Baird 8: Co. analyst Colin Sebastian in a research note. \"In contrast, smartphones require specialized native apps (e.g., maps, voice, search, email) 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, suggesting Amazon hoped the Kindle Fire would more than pay for itself by boosting sales of e-books and other digital content.22 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 34 By 2012, Bezos had assembled a small, experienced leadership team to help him take Amazon to become the world's largest retailer. Those members of his leadership team are described in Exhibit 5. They soon found that Amazon was at a crossroads. It needed to decide if it should invest in the infrastructure for same-day delivery and take on local retailers, or invest in high technology and compete at a deeper level with Sony, Apple, and Samsung. Amazon.com FAQs. December 2011. http://phx.corporate- ir.net/phoenix.zhtml?c=97664&p=irol-faq 2D. Chaffey. Amazon.com Case Study. http://www.davechaffey.com/E-commerce-Internet- marketing-case-studies/Amazon-case-study/ 3Mind Tools. PEST Analysis-Problem-Solving Training from MindTools.com. Management Training, Leadership Training and Career Training. Mind Tools Ltd. December 12, 2011. http://www.mindtools.com/pages/articleewTMC_09.htm 4D. Chaffey. Amazon.com Case Study. http://www.davechaffey.com/E-commerce-Internet