Case Study 1?1 Amazon in 2019

Answer the five questions at the end of the case. Thepurpose of this case, and others you will be assigned, is toillustrate the application of the concepts covered in the chapter,so be sure to cite relevant concepts to support your answers. Thisis the format for all cases and discussion questions. Answers toquestions should be appropriately labeled.

In the 4^th quarter of 2018, Amazon reported arecord $72.4 billion in revenues, which beat analysts' expectationsas well as its previous year's 4^th quarter earningsof $60.5 billion.ⁱ Net income was $3 billion, whichwas also a record for a quarter, beating the previous year's4^th quarter by over 50%. Since it was opened to thepublic for business selling books in 1995, Amazon has expanded intoother lines of business, blindsided retail stores of virtually allkinds, putting many stores and chains out of business. Amazon hasalso expanded into other lines of business, such as web services,groceries, and media production anddistribution.ⁱⁱ Amazon is currently working onadding several different health?careservices,ⁱⁱⁱ creating “Amazon Go!” stores thatrequire no check?out counters,^iv and even buildingits own product delivery network.^v

It is easy to consider Amazon as a firm having instant success,but it began by targeting bookstores as “Cadabra” in 1994 in aSeattle basement, with initial funding from the parents of then30?year?old CEO Jeffrey Bezos.^vi Within a year,Bezos decided he had to rename the site due to some confusion aboutthe name, and also because of his desire to reflect a strategicvision of Amazon.com becoming “Earth's Biggest Bookstore,” just asAmazon is the Earth's biggest river. By the end of 1996, Amazontallied almost $16 million in sales. After an IPO in 1997, Amazonshipped its 1 millionth order.

While this might not seem to dispel the “instant success,” mythmentioned above, a deeper look is quite interesting. You might besurprised to learn that Amazon operated at a loss for just over 9years.^vii In fact, the losses increased as revenueincreased, which was contrary to expectations at first glance. Adeeper look reveals that the losses resulted from Amazon'sreinvestment that focused on expansion and growth. But how did iteventually recover from what seemed at the time to be losses thatappeared to be spiraling out of control? Is there a secret to itseventual success?

In 2012, Bezos was reported to have changed the vision from“Earth's Biggest Bookstore” to the “Biggest Store onEarth.”^viii Currently, Amazon boasts a moreambitious strategic vision of having “Earth's biggest selection andbeing the Earth's most customer?centric company.”^ix

Bezos has ascribed its success to using a “flywheel”strategy^x where lower prices stimulate sales, whichallows fixed costs to be spread over more items, lowering costs inthe long run. A flywheel is a heavy object, which takes great forceto move it, but once it moves, it has inertia that makes itdifficult to slow or stop it.

Bezos explains that feeding the movement of the flywheel canoccur in many different ways besides merely loweringprices.^xi Procuring the Whole Foods chain not onlybuilds revenues but also provides potential for online grocerysales because the widely dispersed inventories in those stores canenable them to serve as additional distribution centers.

Discussion Questions

1. How does Amazon's Flywheel strategy fits with its evolvingvision statements over the years?
2. Focusing on online product sales, which of the genericstrategies does Amazon appear to be using based on this case?Provide support for your choice.
3. How far could Bezos have gone in Amazon's evolution withoutusing information technology?
4. Assume that there is hypercompetition in product sales. How isAmazon responding to that environment?
5. Are the newly announced endeavors in health care, Amazon Go!stores, and shipping services consistent with Amazon's vision?Defend your position.