Amazon Service marketing case study

© 1998 S. Vandermerwe, Imperial College Management School, London, UK

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Amazon.com: Marketing a New Electronic Go-Between Service Provider

This case was written by Professor Sandra Vandermerwe, and Dr. Marika Taishoff, Imperial College Management School, London. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources.

© 1998 S. Vandermerwe, Imperial College Management School, London, UK

SE

RING HOU

This case was written by Professor Sandra Vandermerwe, and Dr. Marika Taishoff, Imperial College Management School, London. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources.

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Marketing a New Electronic Go-Between Service Provider

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Amazon.com:

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598-069-1 Case No.

598-069-1

MS9808

Case No.

MS9808

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This case was prepared by Professor Sandra Vandermerwe & Dr. Marika Taishoff, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation.

The debate in the executive classroom had raged on for over an hour, despite the end-of-term Christmas party in full swing just down the corridor. All the other classrooms in the London-based business school had emptied out long ago, as the participants rushed to the party, or to do their last minute Christmas shopping. But not the class debating the strategy Jeff Bezos, founder and CEO of Amazon.com, one of the flag bearers and icons of the e-commerce era, had used to achieve success so fast since he had created the company in 1995. Did the secret to Bezos’ success (he was worth after all, now at the end of 1998, a neat $2 billion) lie in his having spotted a golden technological opportunity, and riding its wave as some executives argued? Or, as others believed, had he come up with the new electronic service business model, which others would have to learn from and in some cases copy in their own businesses areas? Was his strategy fundamentally price based as some participants insisted? Or was there a completely new set of market and economic dynamics at work, which is what another group of delegates believed? Certainly Bezos had effectively created a new way of buying and selling books, and so forever transformed and reshaped the industry. But what would Bezos have to do to sustain its success? The competition had belatedly, yet aggressively, entered the field-especially the two biggest players, Barnes & Noble and Bertelsmann, jointly trying to topple Amazon from its lead position in the on-line book battle. Could the small upstart, which had yet to show a profit despite rapid sales growth, be able to survive the combined competitive onslaught of these leaders from the global publishing and retail worlds? The Early Wake-Up Call

Jeff Bezos probably hadn’t figured on sore knees and an aching back when he had decided, in late 1994, to leave his high-powered job on Wall Street and begin an entirely new career and business. Just thirty, he had until then followed the classic path of the Wall Street whizzkid: a summa cum laude Princeton University graduate in computer science and electrical engineering; the youngest ever Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 1 used or reproduced without permission.

AMAZON.COM: MARKETING A NEW ELECTRONIC GO-BETWEEN SERVICE PROVIDER

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AMAZON.COM: MARKETING A NEW ELECTRONIC GO-BETWEEN SERVICE PROVIDER

This case was prepared by Professor Sandra Vandermerwe & Dr. Marika Taishoff, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation.

The debate in the executive classroom had raged on for over an hour, despite the end-of-term Christmas party in full swing just down the corridor. All the other classrooms in the London-based business school had emptied out long ago, as the participants rushed to the party, or to do their last minute Christmas shopping. But not the class debating the strategy Jeff Bezos, founder and CEO of Amazon.com, one of the flag bearers and icons of the e-commerce era, had used to achieve success so fast since he had created the company in 1995. Did the secret to Bezos’ success (he was worth after all, now at the end of 1998, a neat $2 billion) lie in his having spotted a golden technological opportunity, and riding its wave as some executives argued? Or, as others believed, had he come up with the new electronic service business model, which others would have to learn from and in some cases copy in their own businesses areas? Was his strategy fundamentally price based as some participants insisted? Or was there a completely new set of market and economic dynamics at work, which is what another group of delegates believed? Certainly Bezos had effectively created a new way of buying and selling books, and so forever transformed and reshaped the industry. But what would Bezos have to do to sustain its success? The competition had belatedly, yet aggressively, entered the field-especially the two biggest players, Barnes & Noble and Bertelsmann, jointly trying to topple Amazon from its lead position in the on-line book battle. Could the small upstart, which had yet to show a profit despite rapid sales growth, be able to survive the combined competitive onslaught of these leaders from the global publishing and retail worlds? The Early Wake-Up Call

Jeff Bezos probably hadn’t figured on sore knees and an aching back when he had decided, in late 1994, to leave his high-powered job on Wall Street and begin an entirely new career and business. Just thirty, he had until then followed the classic path of the Wall Street whizzkid: a summa cum laude Princeton University graduate in computer science and electrical engineering; the youngest ever Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 1 used or reproduced without permission.

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senior vice president in a Wall Street investment bank; and fast becoming one of the city’s leading money and hedge fund managers, he was seemingly destined for the corporate fast track. And yet in 1994, everything changed. During a casual read, Jeff Bezos came across a statistic. A statistic which not only led him to radically change careers, but also convinced him that he had to make the big move from the East Coast all the way to Seattle on the West Coast.

senior vice president in a Wall Street investment bank; and fast becoming one of the city’s leading money and hedge fund managers, he was seemingly destined for the corporate fast track. And yet in 1994, everything changed. During a casual read, Jeff Bezos came across a statistic. A statistic which not only led him to radically change careers, but also convinced him that he had to make the big move from the East Coast all the way to Seattle on the West Coast.

The Growth of the Internet The statistic had to do with the Internet: usage of the new medium, according to the statistic, was growing at 2300% per annum. Bezos’ reaction was quick and decisive: “Anything that is growing that fast is going to be ubiquitous very quickly. It was my wake-up call.”i

The Growth of the Internet The statistic had to do with the Internet: usage of the new medium, according to the statistic, was growing at 2300% per annum. Bezos’ reaction was quick and decisive: “Anything that is growing that fast is going to be ubiquitous very quickly. It was my wake-up call.”i

Thanks to the bonuses he had made in his brief yet successful Wall Street career, Jeff Bezos decided to quit his job in order to dedicate himself fully to what he perceived to be a major new market opportunity. The next few months he spent studying the key factors necessary for success on the Net, and investigating the kinds of products which fulfilled those criteria. He soon narrowed his list down from about 20 potential offerings --including videos, computer hardware, and computer software--to just two: music and books.ii Both, he thought, had a competitive advantage for “virtual”, Internet-based selling as opposed to “physical”, retail sales. Possibly because he himself loved reading, possibly because his wife was an aspiring novelist, and definitely given the innumerable hassles involved in the book buying process encountered in any traditional retail outlet by customers, Bezos ultimately decided to start his Internet-based business with books.iii

Thanks to the bonuses he had made in his brief yet successful Wall Street career, Jeff Bezos decided to quit his job in order to dedicate himself fully to what he perceived to be a major new market opportunity. The next few months he spent studying the key factors necessary for success on the Net, and investigating the kinds of products which fulfilled those criteria. He soon narrowed his list down from about 20 potential offerings --including videos, computer hardware, and computer software--to just two: music and books.ii Both, he thought, had a competitive advantage for “virtual”, Internet-based selling as opposed to “physical”, retail sales. Possibly because he himself loved reading, possibly because his wife was an aspiring novelist, and definitely given the innumerable hassles involved in the book buying process encountered in any traditional retail outlet by customers, Bezos ultimately decided to start his Internet-based business with books.iii

Bezos Moves to Seattle In July 1995 Bezos settled in Seattle. It wasn’t that he had wanted to leave New York; he felt he had to. Not only was Seattle home to Microsoft and its numerous suppliers, thriving with software talent, but also the site of one of the world’s biggest book warehouses. And its location on the West Coast gave him proximity to the computer industry gurus and venture capitalists of Silicon Valley, whose combined expertise and funding, he felt, could prove essential to his fledgling business. At about the same time, on the other side of the Atlantic, Darryl Mattocks, a British computer games specialist, also had the idea of creating an on-line bookstore. Because UK venture capitalists at that time saw little potential in the Internet, and so refused to back him, Mattocks financed his business with his credit card and an $80,000 loan from the Blackwell family, founders of the booksellers of the same name.iv From his home in Oxford, the thirty year old set up the Internet Bookshop. He had lived most of his life in the small university town, and didn’t want to leave. However, Oxford was miles away from the nearest book warehouse or distribution centre. Internet Bookshop prices were initially about the same as those of the traditional high street bookstores and, similar to these physical retailers, the Internet Bookshop didn’t sell titles until their British publication dates, in many cases months after the US publishing dates. Still, open 24 hours a day, seven days a week, the Internet Bookshop felt it served a need for time-pressed readers, many of whom were European, not just British, who couldn’t or didn’t want to go to bookstores. Rather than use advertising, the Internet Bookshop relied on word of mouth and Net browsing to create awareness and interest in the site.

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Bezos Moves to Seattle In July 1995 Bezos settled in Seattle. It wasn’t that he had wanted to leave New York; he felt he had to. Not only was Seattle home to Microsoft and its numerous suppliers, thriving with software talent, but also the site of one of the world’s biggest book warehouses. And its location on the West Coast gave him proximity to the computer industry gurus and venture capitalists of Silicon Valley, whose combined expertise and funding, he felt, could prove essential to his fledgling business. At about the same time, on the other side of the Atlantic, Darryl Mattocks, a British computer games specialist, also had the idea of creating an on-line bookstore. Because UK venture capitalists at that time saw little potential in the Internet, and so refused to back him, Mattocks financed his business with his credit card and an $80,000 loan from the Blackwell family, founders of the booksellers of the same name.iv From his home in Oxford, the thirty year old set up the Internet Bookshop. He had lived most of his life in the small university town, and didn’t want to leave. However, Oxford was miles away from the nearest book warehouse or distribution centre. Internet Bookshop prices were initially about the same as those of the traditional high street bookstores and, similar to these physical retailers, the Internet Bookshop didn’t sell titles until their British publication dates, in many cases months after the US publishing dates. Still, open 24 hours a day, seven days a week, the Internet Bookshop felt it served a need for time-pressed readers, many of whom were European, not just British, who couldn’t or didn’t want to go to bookstores. Rather than use advertising, the Internet Bookshop relied on word of mouth and Net browsing to create awareness and interest in the site.

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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New Name, New Game Back in Seattle, Bezos decided on “Amazon” as the name of his new business, after the name of the world’s longest river, for what he intended to be the world’s biggest bookstore. Using some of the $11 million he had managed to raise thanks to his contacts on Wall Street and through his intensive networking amongst the West Coast venture capitalists,v he set up his headquarters in a 400 square foot storeroom, three floors above an art gallery in a slightly seedy street in Seattle.vi It was furnished with a refrigerator-sized box running the computer hardware for the Amazon.com Web site which he had just launched, and with packing tables. But it soon turned out that there were not enough packing tables.

New Name, New Game Back in Seattle, Bezos decided on “Amazon” as the name of his new business, after the name of the world’s longest river, for what he intended to be the world’s biggest bookstore. Using some of the $11 million he had managed to raise thanks to his contacts on Wall Street and through his intensive networking amongst the West Coast venture capitalists,v he set up his headquarters in a 400 square foot storeroom, three floors above an art gallery in a slightly seedy street in Seattle.vi It was furnished with a refrigerator-sized box running the computer hardware for the Amazon.com Web site which he had just launched, and with packing tables. But it soon turned out that there were not enough packing tables.

And so it was that, in the second half of 1995, Bezos and his workers would kneel on the floor, late into the night, packing books to ship off to the growing number of customers buying from the Amazon.com Web site.vii The result was aching backs and sore knees, but Bezos was now convinced that his earlier hunch about buying and selling books differently, and of using the Internet as a “go between” vehicle—linking those who had books, with those who wanted books—had been accurate.

And so it was that, in the second half of 1995, Bezos and his workers would kneel on the floor, late into the night, packing books to ship off to the growing number of customers buying from the Amazon.com Web site.vii The result was aching backs and sore knees, but Bezos was now convinced that his earlier hunch about buying and selling books differently, and of using the Internet as a “go between” vehicle—linking those who had books, with those who wanted books—had been accurate.

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Creating the New Electronic Service Business Model From the outset, Bezos’ objective was to build an on-line store that was customer-friendly and easy to navigate. He was convinced that the Internet had a fundamental edge over traditional retailing: constrained neither by available shelf space nor physical locations, on-line stores could be infinitely big, and so virtually overpower their “bricks and mortar” counterparts. As Bezos reflected in an interview: “The idea of having an exhaustive selection…when Amazon.com started there were smaller on-line bookstores, but none of them had the goal of having every book in print in stock, and that certainly has been our goal from day one…That’s something that matches the on-line environment very well.”viii Creating a Virtual Shopping Experience Also, the idea behind Amazon.com was not just to replicate, or even do better, on the Web what traditional, “bricks and mortar” bookstores did: sell books. It was to provide a different and enhanced experience for customers interested in books, one in which the hassles of bookbuying were identified, and removed. These included: getting to the store; looking for a book; waiting to be served; standing in queues to pay; waiting for weeks for out-of-stock books; not being informed when these books arrived; and, last but not least, paying inflated prices for physical and personnel infrastructures which were doing customers no favours.ix

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Creating the New Electronic Service Business Model From the outset, Bezos’ objective was to build an on-line store that was customer-friendly and easy to navigate. He was convinced that the Internet had a fundamental edge over traditional retailing: constrained neither by available shelf space nor physical locations, on-line stores could be infinitely big, and so virtually overpower their “bricks and mortar” counterparts. As Bezos reflected in an interview: “The idea of having an exhaustive selection…when Amazon.com started there were smaller on-line bookstores, but none of them had the goal of having every book in print in stock, and that certainly has been our goal from day one…That’s something that matches the on-line environment very well.”viii Creating a Virtual Shopping Experience Also, the idea behind Amazon.com was not just to replicate, or even do better, on the Web what traditional, “bricks and mortar” bookstores did: sell books. It was to provide a different and enhanced experience for customers interested in books, one in which the hassles of bookbuying were identified, and removed. These included: getting to the store; looking for a book; waiting to be served; standing in queues to pay; waiting for weeks for out-of-stock books; not being informed when these books arrived; and, last but not least, paying inflated prices for physical and personnel infrastructures which were doing customers no favours.ix

Proximity to Ingram Book in Seattle, one of the world’s largest warehouses—which Amazon.com used as its virtual store--not only meant that Amazon could quickly get its hands on 2.5 million books (more than ten times that of the biggest, “physical” book shopx), but also that volumes could be shipped out to customers in record time. In other words, customers were no longer confined by what was “in stock” or “on the retailer’s floor”. Amazon.com itself kept within its own warehouse the top selling +/-400 titles. Out-of-print or obscure titles were ordered directly from publishers and then routed through its warehouse.

Proximity to Ingram Book in Seattle, one of the world’s largest warehouses—which Amazon.com used as its virtual store--not only meant that Amazon could quickly get its hands on 2.5 million books (more than ten times that of the biggest, “physical” book shopx), but also that volumes could be shipped out to customers in record time. In other words, customers were no longer confined by what was “in stock” or “on the retailer’s floor”. Amazon.com itself kept within its own warehouse the top selling +/-400 titles. Out-of-print or obscure titles were ordered directly from publishers and then routed through its warehouse.

Getting Beyond Price As Amazon saw it, the traditional, physical bookstore was riddled with activities and expenses that had nothing to do with what the customer wanted: these ranged from teams of employees

Getting Beyond Price As Amazon saw it, the traditional, physical bookstore was riddled with activities and expenses that had nothing to do with what the customer wanted: these ranged from teams of employees

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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having to spend time, effort and money looking for prime sites, and then decorating, redesigning and promoting them, to the need for a huge sales staff, distribution network and stock clerks just to man a physical store equivalent to Amazon’s size.

having to spend time, effort and money looking for prime sites, and then decorating, redesigning and promoting them, to the need for a huge sales staff, distribution network and stock clerks just to man a physical store equivalent to Amazon’s size.

Because Amazon had effectively done away with activities and expenses that were not adding value to the customer experience, initially it was able to charge 30% off select hardbacks, and 20% off paperbacks. While being able to offer books for less was an important element in the Amazon strategy, it wouldn’t be enough, Bezos was certain, to ensure that customers came back to the site over and over again. To achieve that meant customers had to feel they were getting superior value. The Amazon.com site not only had an extensive catalogue, but also an assortment of information about the catalogue entries. For instance, clicking onto the Amazon Web site (see Exhibit 1 for an illustration of a sample page) allowed browsers to search for books by author, title, subject, or keyword. More general searches could be done by browsing in predefined subject areas, such as Biographies, History, Recent Fiction, etc. Typically, a brief synopsis of the book selected would be included, as well as reviews—both from the leading journals, such as The New York Times, as well as from other readers.

Because Amazon had effectively done away with activities and expenses that were not adding value to the customer experience, initially it was able to charge 30% off select hardbacks, and 20% off paperbacks. While being able to offer books for less was an important element in the Amazon strategy, it wouldn’t be enough, Bezos was certain, to ensure that customers came back to the site over and over again. To achieve that meant customers had to feel they were getting superior value. The Amazon.com site not only had an extensive catalogue, but also an assortment of information about the catalogue entries. For instance, clicking onto the Amazon Web site (see Exhibit 1 for an illustration of a sample page) allowed browsers to search for books by author, title, subject, or keyword. More general searches could be done by browsing in predefined subject areas, such as Biographies, History, Recent Fiction, etc. Typically, a brief synopsis of the book selected would be included, as well as reviews—both from the leading journals, such as The New York Times, as well as from other readers.

Visitors to the Amazon.com Web site were encouraged to write and submit reviews of books they had read. These reviews then became part of the overall information surrounding the books in the Amazon.com catalogue. Similarly, Amazon included for certain of its books “Author Interviews”. In this case, authors were robotically interviewed by Amazon’s specially designed software.xi For customers with no particular book in mind, but just wanting to see what was available—a typical reason for entering a “physical” bookstore—there was the ability to click on the “Reviewed in the Media” section of Amazon, to see which books were currently in the limelight. Alternatively, they could check out the “Best-sellers” virtual aisle at Amazon, for the hottest books on the market, or the “Award Winners” section to keep track of the literary greats in a variety of fields. Personalising the Offering In addition to the extensive and easy-to-use catalogue, the Amazon site also invited readers to sign up for its personal notification services, called “Eyes”. Readers would indicate what kinds of book - either in terms of subjects or authors - they liked to read. Once signed up for this service, they would receive regular e-mails with reviews of what Amazon’s editors considered “exceptional” books in the categories they were interested in. Customers could modify or add to their personal reading profiles whenever they wanted simply by e-mailing to Amazon’s customer service desk.

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Visitors to the Amazon.com Web site were encouraged to write and submit reviews of books they had read. These reviews then became part of the overall information surrounding the books in the Amazon.com catalogue. Similarly, Amazon included for certain of its books “Author Interviews”. In this case, authors were robotically interviewed by Amazon’s specially designed software.xi For customers with no particular book in mind, but just wanting to see what was available—a typical reason for entering a “physical” bookstore—there was the ability to click on the “Reviewed in the Media” section of Amazon, to see which books were currently in the limelight. Alternatively, they could check out the “Best-sellers” virtual aisle at Amazon, for the hottest books on the market, or the “Award Winners” section to keep track of the literary greats in a variety of fields. Personalising the Offering In addition to the extensive and easy-to-use catalogue, the Amazon site also invited readers to sign up for its personal notification services, called “Eyes”. Readers would indicate what kinds of book - either in terms of subjects or authors - they liked to read. Once signed up for this service, they would receive regular e-mails with reviews of what Amazon’s editors considered “exceptional” books in the categories they were interested in. Customers could modify or add to their personal reading profiles whenever they wanted simply by e-mailing to Amazon’s customer service desk.

Paying for books was done by entering credit card information, which was specially encrypted to ensure privacy and security. The customers’ orders were processed as soon as received, with books in stock packaged and mailed the same day; orders for those not in stock were immediately placed with the appropriate publisher. Customers were then notified by e-mail as soon as their order had been shipped.

Paying for books was done by entering credit card information, which was specially encrypted to ensure privacy and security. The customers’ orders were processed as soon as received, with books in stock packaged and mailed the same day; orders for those not in stock were immediately placed with the appropriate publisher. Customers were then notified by e-mail as soon as their order had been shipped.

Leveraging Network Externalities In July 1996 Bezos pioneered the “Associates” program. He knew that network externalities, one of the precepts of the modern economy, meant that the value of a network increased exponentially as more members joined it. In other words, more meant more--for everyone, including customers.xii The object was to get as many others as possible to join his network, Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 4

Leveraging Network Externalities In July 1996 Bezos pioneered the “Associates” program. He knew that network externalities, one of the precepts of the modern economy, meant that the value of a network increased exponentially as more members joined it. In other words, more meant more--for everyone, including customers.xii The object was to get as many others as possible to join his network, Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 4

used or reproduced without permission.

used or reproduced without permission.

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therefore, rather than keep it exclusive. That way, customers could find exactly what they wanted irrespective of its location on the Web, and get to that site quickly and seamlessly, at the click of an icon. For example, for readers interested in cooking, Amazon provided a direct link to Starchefs, which specialised in books for gourmets.

therefore, rather than keep it exclusive. That way, customers could find exactly what they wanted irrespective of its location on the Web, and get to that site quickly and seamlessly, at the click of an icon. For example, for readers interested in cooking, Amazon provided a direct link to Starchefs, which specialised in books for gourmets.

Through this collaborative marketing concept, Web site owners also recommended books to be purchased at Amazon.com. In return, these Amazon.com associates earned referral fees of up to 15%. The Associate program was free to join, and Amazon.com deliberately did not require that its associates meet any sales quotas.

Through this collaborative marketing concept, Web site owners also recommended books to be purchased at Amazon.com. In return, these Amazon.com associates earned referral fees of up to 15%. The Associate program was free to join, and Amazon.com deliberately did not require that its associates meet any sales quotas.

Up Up and Away

Up Up and Away

By the end of 1995, Amazon’s staff reached 110, of which 14 did nothing but answer e-mail from customers. According to company records, average daily visits to the site by December of that year were approximately 2200. Initially, Amazon.com’s revenues doubled in size every 2.4 months. By August 1996, book sales were growing at 34% a month, and Amazon.com’s inventory was turning 150 times a year, compared to the three or four times a year that physical bookstores turned their inventory.xiii The company was also beginning to pick up some accolades in the press and general market. Time Magazine, for example, rated Amazon one of the “Ten Best Web Sites of 1996”. When Bezos was asked why customers visited and purchased from his site, he responded:

By the end of 1995, Amazon’s staff reached 110, of which 14 did nothing but answer e-mail from customers. According to company records, average daily visits to the site by December of that year were approximately 2200. Initially, Amazon.com’s revenues doubled in size every 2.4 months. By August 1996, book sales were growing at 34% a month, and Amazon.com’s inventory was turning 150 times a year, compared to the three or four times a year that physical bookstores turned their inventory.xiii The company was also beginning to pick up some accolades in the press and general market. Time Magazine, for example, rated Amazon one of the “Ten Best Web Sites of 1996”. When Bezos was asked why customers visited and purchased from his site, he responded:

“Bill Gates laid it out in a magazine interview. He (Bill Gates) said, ‘I buy my books at Amazon.com because I’m busy and it’s convenient. They have a big selection, and they’ve been reliable.’ Those are three of our four core value propositions: convenience, selection, service. The only one he left out is price: we are the broadest discounters in the world in any product category…These value propositions are interrelated, and they all relate to the Web…”xiv By the end of 1996, average daily visits to the Amazon.com web site had grown to 50,000, and repeat customers then accounted for 40% of orders. Company headquarters had by now expanded to two floors: on one, about 25 editorial staff writers wrote the book reviews, and another 25 or so programmers kept the software running smoothly. The next floor was basically a room full of computers, and a classroom full of people being trained to run them. Concentrating on Service One area where Amazon had to spend just as much on staff and overheads as its physical counterparts was in the domain of customer service.xv As Bezos observed:

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“Bill Gates laid it out in a magazine interview. He (Bill Gates) said, ‘I buy my books at Amazon.com because I’m busy and it’s convenient. They have a big selection, and they’ve been reliable.’ Those are three of our four core value propositions: convenience, selection, service. The only one he left out is price: we are the broadest discounters in the world in any product category…These value propositions are interrelated, and they all relate to the Web…”xiv By the end of 1996, average daily visits to the Amazon.com web site had grown to 50,000, and repeat customers then accounted for 40% of orders. Company headquarters had by now expanded to two floors: on one, about 25 editorial staff writers wrote the book reviews, and another 25 or so programmers kept the software running smoothly. The next floor was basically a room full of computers, and a classroom full of people being trained to run them. Concentrating on Service One area where Amazon had to spend just as much on staff and overheads as its physical counterparts was in the domain of customer service.xv As Bezos observed:

“If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6000 friends with one message to a newsgroup. If you make them really happy, they can tell 6000 people about you. You want every customer to become an evangelist for you..... (Being on-line is the same as) a restaurant who has to treat every diner who comes through the door like a potential reviewer for the Michelin guide.” xvi

“If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6000 friends with one message to a newsgroup. If you make them really happy, they can tell 6000 people about you. You want every customer to become an evangelist for you..... (Being on-line is the same as) a restaurant who has to treat every diner who comes through the door like a potential reviewer for the Michelin guide.” xvi

Accordingly, Bezos sought to get to know individuals better. Amazon employees were trained to spend as much time, money and energy on service and building relationships as they did on selling books. They were encouraged to go to greater lengths to exceed expected standards when a customer needed assistance on, say, a query title, a mistaken address and so

Accordingly, Bezos sought to get to know individuals better. Amazon employees were trained to spend as much time, money and energy on service and building relationships as they did on selling books. They were encouraged to go to greater lengths to exceed expected standards when a customer needed assistance on, say, a query title, a mistaken address and so

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on. When a customer needed help, the humans took over from the machines in full force-and 20% of Amazon staff did nothing but answer queries from the e-mail centre.

on. When a customer needed help, the humans took over from the machines in full force-and 20% of Amazon staff did nothing but answer queries from the e-mail centre.

Bezos’ belief in how the business should be run was almost religious. From the very beginning he had dispensed with traditional corporate status symbols. “When I worked at Bankers Trust people measured their self worth by how many ceiling tiles they had in their office. It was counter productive.” At Amazon’s headquarters everyone has desks made of old doors, and their computer monitors were propped up on phone directories. “The door desk is a symbol of the fact that we spend money on things that matter to customers.”xvii

Bezos’ belief in how the business should be run was almost religious. From the very beginning he had dispensed with traditional corporate status symbols. “When I worked at Bankers Trust people measured their self worth by how many ceiling tiles they had in their office. It was counter productive.” At Amazon’s headquarters everyone has desks made of old doors, and their computer monitors were propped up on phone directories. “The door desk is a symbol of the fact that we spend money on things that matter to customers.”xvii

“Getting Big Fast”

“Getting Big Fast”

By the end of 1996-- Amazon.com’s first full year of operations-- sales had grown to almost $16 million. (See Exhibit 2 for operating results for 1995 and 1996). At the same time, and into the first two quarters of 1997, Bezos began building his executive structure. Seven individuals joined the company during that period in top executive positions. For information systems and logistics he found the Vice President in charge of those functions at Wal-Mart, considered the best in this field in the US. By the summer of 1998 this executive had taken 15 employees from Wal-Mart with him. (see Exhibit 3 for a listing and brief biography of the executive officers in addition to Jeff Bezos). Later, Bezos said:

By the end of 1996-- Amazon.com’s first full year of operations-- sales had grown to almost $16 million. (See Exhibit 2 for operating results for 1995 and 1996). At the same time, and into the first two quarters of 1997, Bezos began building his executive structure. Seven individuals joined the company during that period in top executive positions. For information systems and logistics he found the Vice President in charge of those functions at Wal-Mart, considered the best in this field in the US. By the summer of 1998 this executive had taken 15 employees from Wal-Mart with him. (see Exhibit 3 for a listing and brief biography of the executive officers in addition to Jeff Bezos). Later, Bezos said:

“The constraint on our growth is not capital but people bandwidth...smart people, working hard, passionately and smartly...What excites them is changing the world in an important and fundamental way. Our motto is: work hard, have fun, make history.”xviii As 1997 dawned, Bezos was convinced that this was the year he needed to accelerate growth, announcing his mantra as “GBF”, for “Get Big Fast”. Bezos explained: “This is scale business. And what happens is that the fixed costs of doing this business are very high, and the variable costs of doing this business are extremely low. As a result, our major strategic objective has always been GBF….We need that in order to operate successfully what is a scale business. At the same time, we are investing significant amounts of money in advertising and marketing in order to introduce ourselves to as many customers as possible, as soon as possible, as part of this Get Big Fast strategy. We spend marketing dollars at a level which is disproportionate to a company of our size. And we do that because we believe this is a critical category formation time where, roughly speaking, maybe a dollar spent on advertising today is worth $10 spent on advertising next year….”xix

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“The constraint on our growth is not capital but people bandwidth...smart people, working hard, passionately and smartly...What excites them is changing the world in an important and fundamental way. Our motto is: work hard, have fun, make history.”xviii As 1997 dawned, Bezos was convinced that this was the year he needed to accelerate growth, announcing his mantra as “GBF”, for “Get Big Fast”. Bezos explained: “This is scale business. And what happens is that the fixed costs of doing this business are very high, and the variable costs of doing this business are extremely low. As a result, our major strategic objective has always been GBF….We need that in order to operate successfully what is a scale business. At the same time, we are investing significant amounts of money in advertising and marketing in order to introduce ourselves to as many customers as possible, as soon as possible, as part of this Get Big Fast strategy. We spend marketing dollars at a level which is disproportionate to a company of our size. And we do that because we believe this is a critical category formation time where, roughly speaking, maybe a dollar spent on advertising today is worth $10 spent on advertising next year….”xix

Throughout 1997 and into 1998, Amazon.com worked on several levels in order to achieve this objective. It also began tapping outside sources of finance in order to fund its “GBF” growth objectives.

Throughout 1997 and into 1998, Amazon.com worked on several levels in order to achieve this objective. It also began tapping outside sources of finance in order to fund its “GBF” growth objectives.

Going Public In May 1997, Amazon.com went public with an initial public offering of 3,000,000 shares at a price of $18 per share. Keen demand on the first day of trading prompted Deutsche Morgan Grenfell, the IPO’s underwriters , to increase the size of the offer by 20%. The shares then opened 63% higher than the $18 offer price. They closed the day at $23.50. Within a week,

Going Public In May 1997, Amazon.com went public with an initial public offering of 3,000,000 shares at a price of $18 per share. Keen demand on the first day of trading prompted Deutsche Morgan Grenfell, the IPO’s underwriters , to increase the size of the offer by 20%. The shares then opened 63% higher than the $18 offer price. They closed the day at $23.50. Within a week,

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the shares had fallen below the offer price, and throughout the next two months tended to stay at that level even when other high tech were gathering record-breaking gains.xx By early August, however, its price had jumped to $28.75.xxi

the shares had fallen below the offer price, and throughout the next two months tended to stay at that level even when other high tech were gathering record-breaking gains.xx By early August, however, its price had jumped to $28.75.xxi

A few months later, Amazon.com negotiated a $75 million, three year credit facility from a bank consortium led by Deutsche Morgan Grenfell.

A few months later, Amazon.com negotiated a $75 million, three year credit facility from a bank consortium led by Deutsche Morgan Grenfell.

Creating Presence and Accessibility Throughout 1997, in order to grow the customer base, Amazon.com signed a variety of multimillion dollar agreements with leading Internet media and search engine gateway sites, which provided access to Internet services and activities, such as Excite, Yahoo!, and AOL (America On-Line)—three of the six top visited sites. The aim of these agreements was to further expand the reach and visibility of Amazon.com, and to enhance its strategy of providing customers with as many points of access to the Amazon.com store as possible. xxii

Creating Presence and Accessibility Throughout 1997, in order to grow the customer base, Amazon.com signed a variety of multimillion dollar agreements with leading Internet media and search engine gateway sites, which provided access to Internet services and activities, such as Excite, Yahoo!, and AOL (America On-Line)—three of the six top visited sites. The aim of these agreements was to further expand the reach and visibility of Amazon.com, and to enhance its strategy of providing customers with as many points of access to the Amazon.com store as possible. xxii

These exclusive agreements established Amazon.com as the number one bookseller on these sites by giving Amazon.com a permanent, “above-the-fold” front screen button (visible without scrolling down) on the home pages of these Web sites. The button linked users directly to Amazon.com. so that they didn’t have to type in “amazon” and then wait for the searching and connecting to happen. The partnership with AOL gave Amazon.com access to the more than eight million members of AOL; in return, AOL was paid $19 million over three years, with the possibility of additional payments in the event Amazon.com sales revenues exceeded thresholds specified in the agreement. xxiii At about the same time Amazon.com announced a similar, three year, multi-million dollar advertising spot on the Excite search network. (see exhibit 4 for an example of the AOL advertising) Between the last quarter of 1997 and the first quarter of 1998, the Amazon.com Associates program more than doubled, and by February there were more than 30,000 members in the program. By 1998, Amazon.com had also signed multi-year exclusive or premier associate relationships with another two of the six top visited sites on the Web, Netscape and GeoCities, to broaden its access to more customers. Ongoing Innovation In addition to working with Gateway sites, Amazon also worked more closely with other players to provide superior value to customers. For example in 1998 it had launched Amazon.comAdvantage, a program designed to increase the visibility and sales of books from independent, smaller, publishers. The objective was to help these smaller publishers, by ensuring that their books appeared prominently throughout Amazon.com’s catalogue, something which the commercial realities of traditional bookstores didn’t always allow. Bezos was also concerned about offsetting the counter-revolution to his electronic marketing concept. For example, in the early 1990s Borders, a newcomer to the US book scene, was instrumental in creating what would become known as the “cultural superstore”. The idea behind the concept was that the bookstore serve as a sort of social centre, or literary salon, complete with cafes, comfortable sitting areas, music sections, desks, and crèches. In addition to a broad range of books, magazines and periodicals, they also sold videos, CDs, and computer games. Musicians would come into play and writers read from their works. Borders had not only grown multi-fold since its inception, but had rapidly expanded globally in a business long considered to be highly localised. It expected to have 450 stores by the year 2003, designed to appeal to the reading, and music tastes of the over-30’s.xxiv Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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These exclusive agreements established Amazon.com as the number one bookseller on these sites by giving Amazon.com a permanent, “above-the-fold” front screen button (visible without scrolling down) on the home pages of these Web sites. The button linked users directly to Amazon.com. so that they didn’t have to type in “amazon” and then wait for the searching and connecting to happen. The partnership with AOL gave Amazon.com access to the more than eight million members of AOL; in return, AOL was paid $19 million over three years, with the possibility of additional payments in the event Amazon.com sales revenues exceeded thresholds specified in the agreement. xxiii At about the same time Amazon.com announced a similar, three year, multi-million dollar advertising spot on the Excite search network. (see exhibit 4 for an example of the AOL advertising) Between the last quarter of 1997 and the first quarter of 1998, the Amazon.com Associates program more than doubled, and by February there were more than 30,000 members in the program. By 1998, Amazon.com had also signed multi-year exclusive or premier associate relationships with another two of the six top visited sites on the Web, Netscape and GeoCities, to broaden its access to more customers. Ongoing Innovation In addition to working with Gateway sites, Amazon also worked more closely with other players to provide superior value to customers. For example in 1998 it had launched Amazon.comAdvantage, a program designed to increase the visibility and sales of books from independent, smaller, publishers. The objective was to help these smaller publishers, by ensuring that their books appeared prominently throughout Amazon.com’s catalogue, something which the commercial realities of traditional bookstores didn’t always allow. Bezos was also concerned about offsetting the counter-revolution to his electronic marketing concept. For example, in the early 1990s Borders, a newcomer to the US book scene, was instrumental in creating what would become known as the “cultural superstore”. The idea behind the concept was that the bookstore serve as a sort of social centre, or literary salon, complete with cafes, comfortable sitting areas, music sections, desks, and crèches. In addition to a broad range of books, magazines and periodicals, they also sold videos, CDs, and computer games. Musicians would come into play and writers read from their works. Borders had not only grown multi-fold since its inception, but had rapidly expanded globally in a business long considered to be highly localised. It expected to have 450 stores by the year 2003, designed to appeal to the reading, and music tastes of the over-30’s.xxiv Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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One of the drawbacks of an on-line bookstore like Amazon.com was that it could not offer comfy sofas and cappuccinos to those who browsed through its virtual aisles. So Bezos determinedly set about finding innovative ways to enhance the overall customer experience, and get customers to feel “involved” with Amazon.com as a company and brand. For example in announcing the July 1997 agreement with Pulitzer-Prize winning author John Updike—whereby visitors to the Amazon.com Web site would jointly create a story, on the Web, with the best selling novelist over 44 days. The project entailed that Updike write the beginning of an original story (entitled “Murder Makes the Magazine”) exclusively for Amazon.com. Over the next 44 days, visitors to the site could write and submit their own paragraphs to continue the story. The writers of paragraphs selected by the Amazon.com editorial staff to continue the story each received $1000.

One of the drawbacks of an on-line bookstore like Amazon.com was that it could not offer comfy sofas and cappuccinos to those who browsed through its virtual aisles. So Bezos determinedly set about finding innovative ways to enhance the overall customer experience, and get customers to feel “involved” with Amazon.com as a company and brand. For example in announcing the July 1997 agreement with Pulitzer-Prize winning author John Updike—whereby visitors to the Amazon.com Web site would jointly create a story, on the Web, with the best selling novelist over 44 days. The project entailed that Updike write the beginning of an original story (entitled “Murder Makes the Magazine”) exclusively for Amazon.com. Over the next 44 days, visitors to the site could write and submit their own paragraphs to continue the story. The writers of paragraphs selected by the Amazon.com editorial staff to continue the story each received $1000.

Enhancing the Customer Interface Hand in hand with such customer involvement, “fun” initiatives, Amazon.com continuously enhanced and upgraded its customer interface technologies and infrastructures. In the summer of 1997, for example, it launched a new “recommendation center” on its Web site. Features ranged from offering customers personalised book recommendations based upon their specific profiles and interests, and other customer ratings. Since many people didn’t know precisely what they wanted to read next, an “If You Like This Author” selection gave them a suggested list of other authors. Bezos and his team also began working on systems that would help individuals find the precise books that would change the world for them: “If you can do that you are creating real value for the world.”xxv

Enhancing the Customer Interface Hand in hand with such customer involvement, “fun” initiatives, Amazon.com continuously enhanced and upgraded its customer interface technologies and infrastructures. In the summer of 1997, for example, it launched a new “recommendation center” on its Web site. Features ranged from offering customers personalised book recommendations based upon their specific profiles and interests, and other customer ratings. Since many people didn’t know precisely what they wanted to read next, an “If You Like This Author” selection gave them a suggested list of other authors. Bezos and his team also began working on systems that would help individuals find the precise books that would change the world for them: “If you can do that you are creating real value for the world.”xxv

Also, Amazon.com developed and launched a proprietary technology called 1-Click which for the first time gave customers the ability to make purchases on the Web with just one click of the mouse, eliminating the need for customers to fill out order information every time they returned to the site. Bezos claimed that the 1-Click represented a “new standard for ease of buying on or off the Web”.xxvi Readers were not the only ones benefiting from Amazon’s innovations. Authors (accustomed to getting royalty statements once a year from publishers) could check to see how their new book was doing on a daily basis from a globally assembled listing, updated continuously, prepared by Amazon, for what Bezos termed a global “literary stock market.” And students were also using the Amazon lists as reference sites (as one student involved with a project put it, “it’s so much easier than going to the library!”) Stretching the Brand In the early spring of 1998, Amazon.com invited customers, artists, music industry professionals, and music lovers everywhere to help build “the music store of their dreams”. As David Risher, VP of Product Development, put it: “Every day customers give us suggestions about how to improve our bookstore. Many of our most popular features are the result of those suggestions. Our music team is completely focused on building a store that addresses the desires of music lovers.”xxvii Some of the questions visitors to the site answered included “Tell us about your dream music store.: how does it help you find music you like? How does it help you avoid music you won’t? What makes it unique?” Customers were also asked to publish their opinions—both positive and negative-- by reviewing and rating CDs which other potential customers could then read as they made their decisions about what to buy. In appreciation for these suggestions, Amazon.com entered all visitors who offered input Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Also, Amazon.com developed and launched a proprietary technology called 1-Click which for the first time gave customers the ability to make purchases on the Web with just one click of the mouse, eliminating the need for customers to fill out order information every time they returned to the site. Bezos claimed that the 1-Click represented a “new standard for ease of buying on or off the Web”.xxvi Readers were not the only ones benefiting from Amazon’s innovations. Authors (accustomed to getting royalty statements once a year from publishers) could check to see how their new book was doing on a daily basis from a globally assembled listing, updated continuously, prepared by Amazon, for what Bezos termed a global “literary stock market.” And students were also using the Amazon lists as reference sites (as one student involved with a project put it, “it’s so much easier than going to the library!”) Stretching the Brand In the early spring of 1998, Amazon.com invited customers, artists, music industry professionals, and music lovers everywhere to help build “the music store of their dreams”. As David Risher, VP of Product Development, put it: “Every day customers give us suggestions about how to improve our bookstore. Many of our most popular features are the result of those suggestions. Our music team is completely focused on building a store that addresses the desires of music lovers.”xxvii Some of the questions visitors to the site answered included “Tell us about your dream music store.: how does it help you find music you like? How does it help you avoid music you won’t? What makes it unique?” Customers were also asked to publish their opinions—both positive and negative-- by reviewing and rating CDs which other potential customers could then read as they made their decisions about what to buy. In appreciation for these suggestions, Amazon.com entered all visitors who offered input Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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into a drawing for a $1000 gift certificate, redeemable on-line for a purchase of music, books, or both.

into a drawing for a $1000 gift certificate, redeemable on-line for a purchase of music, books, or both.

Bursting into Song Then in June of that year, Amazon.com expanded into music. More than 125000 CDs were offered, ten times the selection of the average music store, at discounts of up to 40%. Similar to the book searching facilities, music fans could search by CD title, artists, song title, or label, and also listen to more than 225,000 songs. There were also expert and customer reviews, interviews with artists, essential lists, news and an updated index of the hottest CDs. A few weeks later the site, at customer request, was expanded to include 42000 classical and opera CDs. The Amazon.com music store now had more than 200,000 CDs, 25 times the selection of the average physical music store. More than just the selection, Amazon underscored that the real difference with the physical stores was that, especially with classical music, “customers want to be able to choose from all the available recordings, yet quickly find the one they want.”xxviii

Bursting into Song Then in June of that year, Amazon.com expanded into music. More than 125000 CDs were offered, ten times the selection of the average music store, at discounts of up to 40%. Similar to the book searching facilities, music fans could search by CD title, artists, song title, or label, and also listen to more than 225,000 songs. There were also expert and customer reviews, interviews with artists, essential lists, news and an updated index of the hottest CDs. A few weeks later the site, at customer request, was expanded to include 42000 classical and opera CDs. The Amazon.com music store now had more than 200,000 CDs, 25 times the selection of the average physical music store. More than just the selection, Amazon underscored that the real difference with the physical stores was that, especially with classical music, “customers want to be able to choose from all the available recordings, yet quickly find the one they want.”xxviii

Also based on demand and feedback from customers, the company launched a “mini store” within the Amazon.com Web site, aimed specifically at children. It was called Amazon.com Kids, and featured a catalogue of more than 100,000 books for children, teens and their parents. In addition, the mini-site had in-depth articles, reviews, interviews, and targeted search and recommendation services. Children’s books had always been amongst the most popular items at Amazon.com. In the second half of 1998, Amazon.com spent $250 million to purchase two Internet companies: PlanetAll, a provider of highly personalised online services for 1.5 million subscribers which enabled customers to automatically update their address books, calendars and reminders on a minute-for-minute basis, and Junglee Corp., a maker of database systems which let customers find any kind of merchandise they were looking for on the Net, and which shared its revenues with the portals who co-branded its services.xxix In reflecting on these purchases, Paul Gillin from Computerworld Magazine had the following to say: “I joined the faithful last month when Amazon magically tracked down a mint edition of a book my father wrote in the 1960s. It had been out of print for 20 years. Barnesandnoble.com had never even heard of the title. Amazon had it for me in a month…..

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Also based on demand and feedback from customers, the company launched a “mini store” within the Amazon.com Web site, aimed specifically at children. It was called Amazon.com Kids, and featured a catalogue of more than 100,000 books for children, teens and their parents. In addition, the mini-site had in-depth articles, reviews, interviews, and targeted search and recommendation services. Children’s books had always been amongst the most popular items at Amazon.com. In the second half of 1998, Amazon.com spent $250 million to purchase two Internet companies: PlanetAll, a provider of highly personalised online services for 1.5 million subscribers which enabled customers to automatically update their address books, calendars and reminders on a minute-for-minute basis, and Junglee Corp., a maker of database systems which let customers find any kind of merchandise they were looking for on the Net, and which shared its revenues with the portals who co-branded its services.xxix In reflecting on these purchases, Paul Gillin from Computerworld Magazine had the following to say: “I joined the faithful last month when Amazon magically tracked down a mint edition of a book my father wrote in the 1960s. It had been out of print for 20 years. Barnesandnoble.com had never even heard of the title. Amazon had it for me in a month…..

The Junglee technology will let Amazon become the middleman between consumers and a wide variety of products consumers might want to buy on the Web. The analogue to Wal-Mart's sprawling discount stores could be Amazon's widely respected brand. Once consumers do business with Amazon, they tend to come back again and again. And there's no reason they'll buy only books.” xxx Said another analyst from a research firm: Amazon is ''a lot more personal than a Wal-Mart is ever going to be”:

The Junglee technology will let Amazon become the middleman between consumers and a wide variety of products consumers might want to buy on the Web. The analogue to Wal-Mart's sprawling discount stores could be Amazon's widely respected brand. Once consumers do business with Amazon, they tend to come back again and again. And there's no reason they'll buy only books.” xxx Said another analyst from a research firm: Amazon is ''a lot more personal than a Wal-Mart is ever going to be”:

“Amazon’s ability to expand beyond its collection of 3 million books and CDs demonstrates one of the Internet's most alluring qualities. On one hand, consumers are attracted to its tremendous convenience. They can shop when it's raining out, don't need to gas up or face grouchy sales clerks. But even more important for business

“Amazon’s ability to expand beyond its collection of 3 million books and CDs demonstrates one of the Internet's most alluring qualities. On one hand, consumers are attracted to its tremendous convenience. They can shop when it's raining out, don't need to gas up or face grouchy sales clerks. But even more important for business

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growth, the ability to automate human tasks, transfer data more efficiently and cut down on errors makes it easier to diversify into other products.”xxxi

growth, the ability to automate human tasks, transfer data more efficiently and cut down on errors makes it easier to diversify into other products.”xxxi Pursuing the International Track

By 1998, 22% of the company’s sales were outside the US, and this figure was growing. Traditionally, readers outside the US had had to wait months before they could find US publications in their local bookstores, due on the one hand to logistical reasons and on the other to regulatory issues. In the UK for instance, readers had to wait for the official UK publication date of American editions, which was frequently half a year after the US publication date. Some publishers and retailers in the UK had threatened to use legislative means to keep Amazon from selling in their home market.

By 1998, 22% of the company’s sales were outside the US, and this figure was growing. Traditionally, readers outside the US had had to wait months before they could find US publications in their local bookstores, due on the one hand to logistical reasons and on the other to regulatory issues. In the UK for instance, readers had to wait for the official UK publication date of American editions, which was frequently half a year after the US publication date. Some publishers and retailers in the UK had threatened to use legislative means to keep Amazon from selling in their home market.

Bezos pursued the international track however:

Bezos pursued the international track however:

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“We want to make it possible for anybody in the world to order a German-language book, a Japanese language book—not just an English language book. So we need to have local customer service operations, local distribution centres, to really service those markets as if we were a local company there….”xxxii Therefore, that same year, Bezos spent $55 million to acquire three European companies: Bookpages, one of the largest on-line bookstores in the UK with access to all 1.2 million books in print in the UK; Telebook, which was Germany’s number one on-line bookstore, with a catalogue of nearly 400,000 German language titles; and Internet Movie Database, a UK based, international movie database service. This last company had an extremely detailed index and comprehensive collection of 150,000 films and TV shows, and had long been a hub for film buffs, journalists and industry insiders. xxxiii Entering the European Market By early October, Amazon formally entered the European market with the launch of two new Web sites, one in the UK--Amazon.co.uk-- and the other in Germany--Amazon.de. Both were the re-branded versions of the two he had purchased earlier in the year. The UK site was headquartered and had a distribution centre in Slough, and carried a complete catalogue of 1.2 million UK titles in print plus easy and fast access to 200,000 US titles. A staff of UK editors was recruited to provide recommendations and reviews. (see exhibit 5 for Home Page) Amazon.de was headquartered and had a distribution centre in Regensburg, and editorial and marketing offices in Munich. Initially featuring 335,000 titles from German publishers, and fast access to 373,000 US titles, which were expected to grow. A Munich-based staff of expert editors would develop reviews and recommendations of German title books. (see exhibit 6 for Home Page)

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Pursuing the International Track

“We want to make it possible for anybody in the world to order a German-language book, a Japanese language book—not just an English language book. So we need to have local customer service operations, local distribution centres, to really service those markets as if we were a local company there….”xxxii Therefore, that same year, Bezos spent $55 million to acquire three European companies: Bookpages, one of the largest on-line bookstores in the UK with access to all 1.2 million books in print in the UK; Telebook, which was Germany’s number one on-line bookstore, with a catalogue of nearly 400,000 German language titles; and Internet Movie Database, a UK based, international movie database service. This last company had an extremely detailed index and comprehensive collection of 150,000 films and TV shows, and had long been a hub for film buffs, journalists and industry insiders. xxxiii Entering the European Market By early October, Amazon formally entered the European market with the launch of two new Web sites, one in the UK--Amazon.co.uk-- and the other in Germany--Amazon.de. Both were the re-branded versions of the two he had purchased earlier in the year. The UK site was headquartered and had a distribution centre in Slough, and carried a complete catalogue of 1.2 million UK titles in print plus easy and fast access to 200,000 US titles. A staff of UK editors was recruited to provide recommendations and reviews. (see exhibit 5 for Home Page) Amazon.de was headquartered and had a distribution centre in Regensburg, and editorial and marketing offices in Munich. Initially featuring 335,000 titles from German publishers, and fast access to 373,000 US titles, which were expected to grow. A Munich-based staff of expert editors would develop reviews and recommendations of German title books. (see exhibit 6 for Home Page)

The Giants Begin to Respond

The Giants Begin to Respond

Bezos had always told his people, “obsess about customers, not competitors”.xxxiv Yet by the spring of 1997, there were some who felt that the competition had finally woken up, and that Amazon.com would have to pay more attention to their moves and motives. Also, the competitive landscape in Europe was in the process of opening up. Great Britain had abolished the Net Book Agreement, which had set the prices at which books could be sold, and basically forbade underpricing. Others in the EU were expected to follow, leading the way to what could become price warfare.

Bezos had always told his people, “obsess about customers, not competitors”.xxxiv Yet by the spring of 1997, there were some who felt that the competition had finally woken up, and that Amazon.com would have to pay more attention to their moves and motives. Also, the competitive landscape in Europe was in the process of opening up. Great Britain had abolished the Net Book Agreement, which had set the prices at which books could be sold, and basically forbade underpricing. Others in the EU were expected to follow, leading the way to what could become price warfare.

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Barnes & Noble Makes the First Move Barnes & Noble was the leading US bookstore, with over 1000 retail outlets spread across the country. Beginning in 1992 it had invested heavily in exploiting the trend towards book “superstores”, and by 1997 had tripled its revenues thanks to this move. In May of that year, it decided to launch its own Web site. The company underscored that “we do not view this as a Barnes & Noble vs. Amazon situation. There are over 500 bookstore sites on the Web.”xxxv Some analysts immediately stacked up Barnes & Nobles’ vital statistics against those of Amazon, and wondered how Amazon could compete. (See Exhibit 7 for key financial differences between Amazon and Barnes & Noble, tallied for the most recent four quarters).

Barnes & Noble Makes the First Move Barnes & Noble was the leading US bookstore, with over 1000 retail outlets spread across the country. Beginning in 1992 it had invested heavily in exploiting the trend towards book “superstores”, and by 1997 had tripled its revenues thanks to this move. In May of that year, it decided to launch its own Web site. The company underscored that “we do not view this as a Barnes & Noble vs. Amazon situation. There are over 500 bookstore sites on the Web.”xxxv Some analysts immediately stacked up Barnes & Nobles’ vital statistics against those of Amazon, and wondered how Amazon could compete. (See Exhibit 7 for key financial differences between Amazon and Barnes & Noble, tallied for the most recent four quarters).

The Barnes & Noble site (called barnesandnoble.com) offered access to 400,000 titles available for next-day delivery to customers’ homes from a 350,000 square foot New Jersey warehouse. Because of its buying power and relationships with 20,000 publishers, Barnes & Noble was able to discount 30% of all hardcovers and 20% off all paperbacks. According to analysts, Barnes & Noble operated at a 40% gross margin, versus 20% for Amazon, meaning it had twenty cents more flexibility to offer for each dollar spent.xxxvi

The Barnes & Noble site (called barnesandnoble.com) offered access to 400,000 titles available for next-day delivery to customers’ homes from a 350,000 square foot New Jersey warehouse. Because of its buying power and relationships with 20,000 publishers, Barnes & Noble was able to discount 30% of all hardcovers and 20% off all paperbacks. According to analysts, Barnes & Noble operated at a 40% gross margin, versus 20% for Amazon, meaning it had twenty cents more flexibility to offer for each dollar spent.xxxvi

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When the Barnes & Noble Web site opened in May, it was accessed at least once by 0.5% of PC households, equal to about 90,000 homes. In June its share was at 0.4%, and in July of 1997 it was 0.3%. Amazon’s audience reach was at 3.1% of all PC households in May; 3.2% in June, and 4% in July. In September, Amazon lowered its prices by offering a selection of 500 books, known as “editors’ picks”, at a 40% discount. Barnes & Noble did not follow.xxxvii Also in September, Amazon.com opened a new, 200,000 square foot distribution centre in Delaware on the East Coast, and completed the 70% expansion of its Seattle distribution centre. Together, these distribution augmentations gave the company nearly six times more floor space than it had previously. In early November 1998 Barnes & Noble made a bid to acquire, for $600 million, the Ingram Books, the largest book distributor in the US with 11 warehouses spread across the country (four out of five book store customers are within easy reach of Ingram’s warehouses). Ingram also supplied 58% of the books sold by Amazon.com.xxxviii The Force of Bertelsmann is Felt In early 1998, the other great giant of the book industry (sometimes called the “800 pound gorilla” of the global book publishing and retail industryxxxix) began to rise to the Internet challenge. The 163 year old, still privately-run German conglomerate Bertelsmann, was the second largest media company in the world (right after Disney, and ahead of Time Warner), with revenues of close to 25 billion Deutsche Mark. A vertically integrated firm, with everything from a printing company to a book club, the global media conglomerate’s interests spanned books (as owner of Doubleday and Random House, it was the largest publisher of English language books in the world) magazines, television, music and--through its 50% ownership of AOL in Europe, which had one of the largest on-line services in Europe--the Internet.xl However, it took a newly appointed CEO to see the critical strategic mistake the company had made in not recognising the synergies between books and the Internet. As he put it:

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When the Barnes & Noble Web site opened in May, it was accessed at least once by 0.5% of PC households, equal to about 90,000 homes. In June its share was at 0.4%, and in July of 1997 it was 0.3%. Amazon’s audience reach was at 3.1% of all PC households in May; 3.2% in June, and 4% in July. In September, Amazon lowered its prices by offering a selection of 500 books, known as “editors’ picks”, at a 40% discount. Barnes & Noble did not follow.xxxvii Also in September, Amazon.com opened a new, 200,000 square foot distribution centre in Delaware on the East Coast, and completed the 70% expansion of its Seattle distribution centre. Together, these distribution augmentations gave the company nearly six times more floor space than it had previously. In early November 1998 Barnes & Noble made a bid to acquire, for $600 million, the Ingram Books, the largest book distributor in the US with 11 warehouses spread across the country (four out of five book store customers are within easy reach of Ingram’s warehouses). Ingram also supplied 58% of the books sold by Amazon.com.xxxviii The Force of Bertelsmann is Felt In early 1998, the other great giant of the book industry (sometimes called the “800 pound gorilla” of the global book publishing and retail industryxxxix) began to rise to the Internet challenge. The 163 year old, still privately-run German conglomerate Bertelsmann, was the second largest media company in the world (right after Disney, and ahead of Time Warner), with revenues of close to 25 billion Deutsche Mark. A vertically integrated firm, with everything from a printing company to a book club, the global media conglomerate’s interests spanned books (as owner of Doubleday and Random House, it was the largest publisher of English language books in the world) magazines, television, music and--through its 50% ownership of AOL in Europe, which had one of the largest on-line services in Europe--the Internet.xl However, it took a newly appointed CEO to see the critical strategic mistake the company had made in not recognising the synergies between books and the Internet. As he put it:

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“[For two years] We had tremendous discussion about book retailing on the Internet. In the meantime Amazon took the market. On the Internet, three months is a year. They have two years’ start on us. That means eight or ten years...”xli

“[For two years] We had tremendous discussion about book retailing on the Internet. In the meantime Amazon took the market. On the Internet, three months is a year. They have two years’ start on us. That means eight or ten years...”xli

Another top executive of the German conglomerate added: “We were late. But not too late. The financial power of Bertelsmann is rather bigger now.”xlii

Another top executive of the German conglomerate added: “We were late. But not too late. The financial power of Bertelsmann is rather bigger now.”xlii

Bertelsmann’s first move into Internet was in November 1997, when it launched Boulevard Online in Germany, with a catalogue of 290000 mainly German language books.xliii A few months later it announced the creation of BooksOnline, a Web site it intended for the US and Europe. The site would sell books from all publishers, not just those owned by Bertelsmann.

Bertelsmann’s first move into Internet was in November 1997, when it launched Boulevard Online in Germany, with a catalogue of 290000 mainly German language books.xliii A few months later it announced the creation of BooksOnline, a Web site it intended for the US and Europe. The site would sell books from all publishers, not just those owned by Bertelsmann.

Bertelsmann planned to spend more than £100 million in its stated quest to capture the majority share of the online book market, and overtake Amazon.com as the leader.xliv At the same time, according to the Seattle Times, Bertelsmann began opening talks with Amazon.com about a possible co-operation in the online book industry.xlv One top executive at the German company stated: “Jeff Bezos has used multimedia technology to create a community atmosphere--the club atmosphere of Bertelsmann in the 1950s.”xlvi In the 1950s, Bertelsmann had pioneered the notion of selling books directly to consumers through the book club concept. By 1998, its book club had 25 million members world-wide, to whom it sold 700,000 volumes daily (making it the world’s largest booksellerxlvii) and its music clubs had close to 10 million members.xlviii In 1997 and 1998, however, results were flat for Bertelsmann, primarily because of a drop in its global book club business.xlix

Bertelsmann planned to spend more than £100 million in its stated quest to capture the majority share of the online book market, and overtake Amazon.com as the leader.xliv At the same time, according to the Seattle Times, Bertelsmann began opening talks with Amazon.com about a possible co-operation in the online book industry.xlv One top executive at the German company stated: “Jeff Bezos has used multimedia technology to create a community atmosphere--the club atmosphere of Bertelsmann in the 1950s.”xlvi In the 1950s, Bertelsmann had pioneered the notion of selling books directly to consumers through the book club concept. By 1998, its book club had 25 million members world-wide, to whom it sold 700,000 volumes daily (making it the world’s largest booksellerxlvii) and its music clubs had close to 10 million members.xlviii In 1997 and 1998, however, results were flat for Bertelsmann, primarily because of a drop in its global book club business.xlix

Bertelsmann Joins Forces With Barnes & Noble Bertelsmann could not reach an agreement with Jeff Bezos. In October 1998, Bertelsmann paid $200 million for 50% of barnesandnoble.com (which had just recently been spun off as an independent company by Barnes & Noble). Because of this, Bertelsmann abandoned its planned launch of BooksOnline in the United States, although it still expected to launch BooksOnline in Europe by the end of the year. By end October 1998, the barnesandnoble.com site had more than four million books, and claimed to have the largest selection of in-stock titles of any bookseller online, with over 650,000 titles in its distribution centre and two million in-stock rare and out-of-print books. The site also had access to over 2.5 million additional titles from more than 50,000 publisher imprints. It had now become the exclusive bookseller to AOL in Europe. Also it had strategic partnerships with 10 of the top 20 Web sites, and paid what it claimed were the highest commissions to its affiliate network. It had also added new features to its site, such as customer reviews, recommendations based on a customer’s past purchases, and free electronic greeting cards.l

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Bertelsmann Joins Forces With Barnes & Noble Bertelsmann could not reach an agreement with Jeff Bezos. In October 1998, Bertelsmann paid $200 million for 50% of barnesandnoble.com (which had just recently been spun off as an independent company by Barnes & Noble). Because of this, Bertelsmann abandoned its planned launch of BooksOnline in the United States, although it still expected to launch BooksOnline in Europe by the end of the year. By end October 1998, the barnesandnoble.com site had more than four million books, and claimed to have the largest selection of in-stock titles of any bookseller online, with over 650,000 titles in its distribution centre and two million in-stock rare and out-of-print books. The site also had access to over 2.5 million additional titles from more than 50,000 publisher imprints. It had now become the exclusive bookseller to AOL in Europe. Also it had strategic partnerships with 10 of the top 20 Web sites, and paid what it claimed were the highest commissions to its affiliate network. It had also added new features to its site, such as customer reviews, recommendations based on a customer’s past purchases, and free electronic greeting cards.l

In November 1998, a new CEO --who had been head of AOL’s highly successful UK operations--was appointed to take the helm of barnesandnoble.com.li

In November 1998, a new CEO --who had been head of AOL’s highly successful UK operations--was appointed to take the helm of barnesandnoble.com.li

Borders --and Others-- Enter The Space Borders announced that it would launch its own Web site in the summer of 1998. Borders Online, as it was called, intended to sell books, music and videos, as well as mimic its chain strategy with access to staff, authors and a virtual coffee joint--Borders Cafe Espresso--which offered online chats.lii

Borders --and Others-- Enter The Space Borders announced that it would launch its own Web site in the summer of 1998. Borders Online, as it was called, intended to sell books, music and videos, as well as mimic its chain strategy with access to staff, authors and a virtual coffee joint--Borders Cafe Espresso--which offered online chats.lii

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Other retailers, especially in the UK, also began planning to open up sites. WH Smith became the first of these when it purchased, in June of 1998, the Oxford-based Internet Bookshop. It paid £8.8 million, or 265 pence per share, a huge premium to the company’s closing price of 85 pence. The 1997 sales of Internet Bookshop had totalled £2.12 million, and it had posted a loss of £406,000 for the year.liii

Other retailers, especially in the UK, also began planning to open up sites. WH Smith became the first of these when it purchased, in June of 1998, the Oxford-based Internet Bookshop. It paid £8.8 million, or 265 pence per share, a huge premium to the company’s closing price of 85 pence. The 1997 sales of Internet Bookshop had totalled £2.12 million, and it had posted a loss of £406,000 for the year.liii

Coming from another end of the market were such online sites as Bookstacks, part of the Internet mall, NetMarket--run by the US direct marketing giant CUC. NetMarket sold everything from kitchen appliances and home furnishings, travel and cars, to music and books. Similar to a discount mall and geared to the mass market, their prices were low, selection narrow, and the site had no editorial reviews, author interviews, or customer commentaries. liv

Coming from another end of the market were such online sites as Bookstacks, part of the Internet mall, NetMarket--run by the US direct marketing giant CUC. NetMarket sold everything from kitchen appliances and home furnishings, travel and cars, to music and books. Similar to a discount mall and geared to the mass market, their prices were low, selection narrow, and the site had no editorial reviews, author interviews, or customer commentaries. liv

But, as Jeff Bezos, Amazon.com’s founder and CEO, kept saying, who was to say that the real competition would not come from a not-so-obvious source?

But, as Jeff Bezos, Amazon.com’s founder and CEO, kept saying, who was to say that the real competition would not come from a not-so-obvious source?

Innovations were coming on stream daily. Bookstores and publishers were merging. Online Originals, a London-based venture created by an American author and book lover, was a publishing company that operated solely on the Internet, distributing book length works in digital form, using e-mail for both orders and delivery. The company solicited authors to write innovative and thought-provoking fiction or non-fiction, in English or French; did everything publishers do, and then sold the works, over the Net, charging $7 (£4) per book, giving authors 50% of the order revenues.lv And Gates, through his Microsoft Network (MSN), was moving in on almost every industry: travel, car sales, investment, and news. More than anyone else, Bezos knew that Web based commerce didn’t respect traditional industry boundaries, or barriers. After all, he had come from no-where…………. Said Bezos: “That’s why ……..I believe our success will continue only as far as we provide the best customer experience. That means we have to have the biggest selection. The easiest-to-use Web site. The lowest prices. And the best purchase decision information.”lvi The Earth’s Biggest Bookstore Even as early as mid-1997, Amazon.com had become not only the leading on-line bookseller, but also the leading Internet retailer. Although it had yet to make any profit (and none was expected until 2000 at the earliestlvii) it had, over its short existence, generated sales on average at an annualised rate of $600 million, and was growing at around 30% every three months. lviii (See Exhibit 8 for annual 1997 and 1996 balance sheets; Exhibit 9 for the Operating Statements; Exhibit 10 for Quarterly 1996,1997,1998 Balance Sheets; Exhibit 11 for Quarterly 1996,1997,1998 Operating Results; Exhibit 12 for growth in cumulative customer accounts and in repeat orders as a percentage of all orders.) Demand Feeds Demand By early 1998, there had also been an acceleration in new customer acquisition: whereas it had taken the company 27 months to acquire its first million customers, it took them less than six months to acquire the second million.lix In terms of revenue, Amazon.com had become the third largest bookseller in the US, on-line or off-line, and it had remained the leading on-line shopping site in any category.lx It was selling over three million products to close to five million customers in over 160 countries. Amazon’s music site had also become the number Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Innovations were coming on stream daily. Bookstores and publishers were merging. Online Originals, a London-based venture created by an American author and book lover, was a publishing company that operated solely on the Internet, distributing book length works in digital form, using e-mail for both orders and delivery. The company solicited authors to write innovative and thought-provoking fiction or non-fiction, in English or French; did everything publishers do, and then sold the works, over the Net, charging $7 (£4) per book, giving authors 50% of the order revenues.lv And Gates, through his Microsoft Network (MSN), was moving in on almost every industry: travel, car sales, investment, and news. More than anyone else, Bezos knew that Web based commerce didn’t respect traditional industry boundaries, or barriers. After all, he had come from no-where…………. Said Bezos: “That’s why ……..I believe our success will continue only as far as we provide the best customer experience. That means we have to have the biggest selection. The easiest-to-use Web site. The lowest prices. And the best purchase decision information.”lvi The Earth’s Biggest Bookstore Even as early as mid-1997, Amazon.com had become not only the leading on-line bookseller, but also the leading Internet retailer. Although it had yet to make any profit (and none was expected until 2000 at the earliestlvii) it had, over its short existence, generated sales on average at an annualised rate of $600 million, and was growing at around 30% every three months. lviii (See Exhibit 8 for annual 1997 and 1996 balance sheets; Exhibit 9 for the Operating Statements; Exhibit 10 for Quarterly 1996,1997,1998 Balance Sheets; Exhibit 11 for Quarterly 1996,1997,1998 Operating Results; Exhibit 12 for growth in cumulative customer accounts and in repeat orders as a percentage of all orders.) Demand Feeds Demand By early 1998, there had also been an acceleration in new customer acquisition: whereas it had taken the company 27 months to acquire its first million customers, it took them less than six months to acquire the second million.lix In terms of revenue, Amazon.com had become the third largest bookseller in the US, on-line or off-line, and it had remained the leading on-line shopping site in any category.lx It was selling over three million products to close to five million customers in over 160 countries. Amazon’s music site had also become the number Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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one seller of CDs on the Internet in its first full quarter of music sales, and the total number of Associates had grown to 140,000.

one seller of CDs on the Internet in its first full quarter of music sales, and the total number of Associates had grown to 140,000.

At about the same time, Barnes & Noble had announced a loss of $9 million on a $15 million turnover for its on-line operations. lxi By the second quarter 1998, Amazon.com had about 10 times the sales and four times the customers of Barnes & Noble’s Web site. Barnesandnoble.com’s revenues for the second quarter grew 470%, against 316% for Amazon.com.lxii

At about the same time, Barnes & Noble had announced a loss of $9 million on a $15 million turnover for its on-line operations. lxi By the second quarter 1998, Amazon.com had about 10 times the sales and four times the customers of Barnes & Noble’s Web site. Barnesandnoble.com’s revenues for the second quarter grew 470%, against 316% for Amazon.com.lxii

Amazon had become the standard for “new ways of buying and selling books”. As one publisher put it, “When you think of selling books on-line, you think of Amazon today.”lxiii And, with a market value of over $6 billionlxiv, Jeff Bezos’ 42% stake in the company was now worth more than $2 billion.lxv (see Exhibit 13 for the share price performance of Amazon.com till 30 October 1998).

Amazon had become the standard for “new ways of buying and selling books”. As one publisher put it, “When you think of selling books on-line, you think of Amazon today.”lxiii And, with a market value of over $6 billionlxiv, Jeff Bezos’ 42% stake in the company was now worth more than $2 billion.lxv (see Exhibit 13 for the share price performance of Amazon.com till 30 October 1998).

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Amazon.com continued to pursue its innovation strategy. It was working with a company called NuvoMedia on a hand held device allowing readers to download the books they wanted directly off the Web. Bertelsmann Ventures, the venture capital fund of Bertelsmann, was a strong investor in NuvoMedia, as was Barnes & Noble, who intended to sell the item in its bookstores.lxvi Bertelsmann was also investing heavily in e-books and private online systems for the business information market, which had already begun to replace traditional books. The Future Despite the ever more turbulent competitive picture, Bezos reflected on his company with pride, and he was enthusiastic about the future: “I hope that 25 years from now people look and find something great that we did. I think people will say that we kicked off this electronic commerce thing. That we were pioneers there...I hope also that 25 years from now, Amazon.com has demonstrated that it is an important and lasting company...I am hopeful that there will be a lot of innovation from Amazon.com in the future around the notion of personalization and customization of the store for each and every customer. We have made some progress there already. I tell people--and I believe it firmly-- that we are at the Kitty Hawk stage of electronic commerce. We know 2% of what we will know 10 years from now, and most of that learning is going to revolve around personalization--the notion of making the store ideal for a particular customer, not for the mythic average customer.””lxvii

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Amazon.com continued to pursue its innovation strategy. It was working with a company called NuvoMedia on a hand held device allowing readers to download the books they wanted directly off the Web. Bertelsmann Ventures, the venture capital fund of Bertelsmann, was a strong investor in NuvoMedia, as was Barnes & Noble, who intended to sell the item in its bookstores.lxvi Bertelsmann was also investing heavily in e-books and private online systems for the business information market, which had already begun to replace traditional books. The Future Despite the ever more turbulent competitive picture, Bezos reflected on his company with pride, and he was enthusiastic about the future: “I hope that 25 years from now people look and find something great that we did. I think people will say that we kicked off this electronic commerce thing. That we were pioneers there...I hope also that 25 years from now, Amazon.com has demonstrated that it is an important and lasting company...I am hopeful that there will be a lot of innovation from Amazon.com in the future around the notion of personalization and customization of the store for each and every customer. We have made some progress there already. I tell people--and I believe it firmly-- that we are at the Kitty Hawk stage of electronic commerce. We know 2% of what we will know 10 years from now, and most of that learning is going to revolve around personalization--the notion of making the store ideal for a particular customer, not for the mythic average customer.””lxvii

How could Amazon achieve this? What were the options for Bezos as 1998 drew to a close? Should he consolidate his position with his present customers, stretching his brand as far as possible so as to get a broader and wider share of their spend? Or continue to expand his customer base? Should he continue his huge investment in marketing (see Exhibits 14 and 15 for advertising) and technology? Or quickly show profits? Or, like everyone else, should he simply sell out to one of the big competitors—who had already expressed interest in the prospect, as they typically grew via acquisition—and retire, at the age of 34, to some tropical isle?

How could Amazon achieve this? What were the options for Bezos as 1998 drew to a close? Should he consolidate his position with his present customers, stretching his brand as far as possible so as to get a broader and wider share of their spend? Or continue to expand his customer base? Should he continue his huge investment in marketing (see Exhibits 14 and 15 for advertising) and technology? Or quickly show profits? Or, like everyone else, should he simply sell out to one of the big competitors—who had already expressed interest in the prospect, as they typically grew via acquisition—and retire, at the age of 34, to some tropical isle?

The group of executives at the London-based business school decided they needed a break before discussing the future of Amazon, and of Jeff Bezos, and they quickly headed for the Christmas party still going strong. ………………. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 14

The group of executives at the London-based business school decided they needed a break before discussing the future of Amazon, and of Jeff Bezos, and they quickly headed for the Christmas party still going strong. ………………. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be 14

used or reproduced without permission.

used or reproduced without permission.

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EXHIBIT 1 AMAZON.COM HOME PAGE EXHIBIT 1 AMAZON.COM HOME PAGE

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EXHIBIT 2 AMAZON.COM INCOME STATEMENT FOR 1995 (JULY -DECEMBER) AND 1996 (FIRST FULL YEAR) (in $’000s)

EXHIBIT 2 AMAZON.COM INCOME STATEMENT FOR 1995 (JULY -DECEMBER) AND 1996 (FIRST FULL YEAR) (in $’000s)

1996 1995 Net Sales 15,746 511 Cost of sales 12,287 409 Gross Profit 3,459 102 Operating Expenses: Marketing & Sales 6,090 200 Product development 2,313 171 General & administrative 1,035 35 Total Operating Expenses 9,438 406 Loss From Operations (5,979) (304) Interest income 202 1 Interest expense -Net Loss (5,777) (304) Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997.

1996 1995 Net Sales 15,746 511 Cost of sales 12,287 409 Gross Profit 3,459 102 Operating Expenses: Marketing & Sales 6,090 200 Product development 2,313 171 General & administrative 1,035 35 Total Operating Expenses 9,438 406 Loss From Operations (5,979) (304) Interest income 202 1 Interest expense -Net Loss (5,777) (304) Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997.

Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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EXHIBIT 3 AMAZON.COM EXECUTIVE OFFICERS

EXHIBIT 3 AMAZON.COM EXECUTIVE OFFICERS Jeff Bezos, 33 years old. President, CEO and Chairman of the Board

George Aposporos, 38 years old. Joined the company in May 1997 as Vice President of Business Development. From 1995-1997 had been founder and president of Digital Brands, Inc., a strategic consulting and interactive marketing firm.

George Aposporos, 38 years old. Joined the company in May 1997 as Vice President of Business Development. From 1995-1997 had been founder and president of Digital Brands, Inc., a strategic consulting and interactive marketing firm.

Joy Covey, 33 years old. Joined the company in December 1996 as Chief Financial Officer and Vice President of Finance & Administration. Previously had been Vice President, Operations, , at Avid Technology, a developer of digital media systems. Harvard MBA and JD.

Joy Covey, 33 years old. Joined the company in December 1996 as Chief Financial Officer and Vice President of Finance & Administration. Previously had been Vice President, Operations, , at Avid Technology, a developer of digital media systems. Harvard MBA and JD.

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Richard Dalzell, 39 years old. Joined the company in August 1997 as Vice President and Chief Information Officer. Had been Vice President, Information Systems and Logistics, at Wal-Mart since 1994. Mary Engstrom, 34 years old. Joined the company in February 1997 as Vice President of Publisher Affairs. Had been Vice President of Product Marketing at Symantec Corporation, a developer of information management and productivity enhancement software. Sheldon Kaphan, 44 years old. Appointed in March 1997 as Vice President and Chief Technology Officer. From October 1994 to March 1997 had been Vice President of R&D at Amazon.com. John Risher, 31 years old. Joined the company in February 1997 as Vice President of Product Development. From 1991-1997, held a variety of marketing and product management positions at Microsoft, including Founder and Product Unit Manager for MS Investor, Microsoft’s Web site for personal investment. Joel Spiegel, 41 years old. Joined in March 1997 as Vice President of Engineering. Previously held several positions at Microsoft, including Multimedia Development Manager for Windows 95. Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997.

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Jeff Bezos, 33 years old. President, CEO and Chairman of the Board

Richard Dalzell, 39 years old. Joined the company in August 1997 as Vice President and Chief Information Officer. Had been Vice President, Information Systems and Logistics, at Wal-Mart since 1994. Mary Engstrom, 34 years old. Joined the company in February 1997 as Vice President of Publisher Affairs. Had been Vice President of Product Marketing at Symantec Corporation, a developer of information management and productivity enhancement software. Sheldon Kaphan, 44 years old. Appointed in March 1997 as Vice President and Chief Technology Officer. From October 1994 to March 1997 had been Vice President of R&D at Amazon.com. John Risher, 31 years old. Joined the company in February 1997 as Vice President of Product Development. From 1991-1997, held a variety of marketing and product management positions at Microsoft, including Founder and Product Unit Manager for MS Investor, Microsoft’s Web site for personal investment. Joel Spiegel, 41 years old. Joined in March 1997 as Vice President of Engineering. Previously held several positions at Microsoft, including Multimedia Development Manager for Windows 95. Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997.

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EXHIBIT 4 AOL ADVERTISEMENT EXHIBIT 4 AOL ADVERTISEMENT

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EXHIBIT 5 AMAZON UK HOME PAGE EXHIBIT 5 AMAZON UK HOME PAGE

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EXHIBIT 6 AMAZON GERMANY HOME PAGE EXHIBIT 6 AMAZON GERMANY HOME PAGE

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598-069-1 EXHIBIT 7 CHIEF DIFFERENCES BETWEEN AMAZON AND BARNES & NOBLE AS OF MAY 1997

(Financial results are for the most recent four quarters: Amazon is through March 31, 1997; Barnes & Noble through February 1, 1997)

(Financial results are for the most recent four quarters: Amazon is through March 31, 1997; Barnes & Noble through February 1, 1997)

Revenue Profit (Loss) Cash Working Capital Inventory Net Properties & Equipment Stores Operated

AMAZON.COM $30.9 million ($8.4 million) $7.2 million $79,000 $939,000 $2.5 million 1

BARNES & NOBLE $2.45 billion $51.2 million $19.0 million $145.5 million $732.2 million $421.6 million 1008

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Source: Randy Whitestone, “Barnes & Noble Takes on Amazon Bookstore Battle”, Inter@ctive Week, 6 May 1997

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EXHIBIT 7 CHIEF DIFFERENCES BETWEEN AMAZON AND BARNES & NOBLE AS OF MAY 1997

Revenue Profit (Loss) Cash Working Capital Inventory Net Properties & Equipment Stores Operated

AMAZON.COM $30.9 million ($8.4 million) $7.2 million $79,000 $939,000 $2.5 million 1

BARNES & NOBLE $2.45 billion $51.2 million $19.0 million $145.5 million $732.2 million $421.6 million 1008

Source: Randy Whitestone, “Barnes & Noble Takes on Amazon Bookstore Battle”, Inter@ctive Week, 6 May 1997

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ASSETS Current Assets: Cash & cash equivalents Short term investments Inventories Prepaid expenses and other TOTAL CURRENT ASSETS Fixed Assets, Net Deposits Deferred charges TOTAL ASSETS LIABILITIES &STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable Accrued advertising Accrued product development Other liabilities and accrued expenses Current portion of long term debt TOTAL CURRENT LIABILITIES Long term portion of debt Long term portion of capital lease obligation COMMON STOCK, $0.01 par value, authorised shares: 100,000,000; issues and outstanding shares:23,937,169 and 15,900,229 shares in 1997 and 1996 respectively Additional paid-in capital Deferred compensation Accumulated deficit TOTAL STOCKHOLDER’S EQUITY TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY

1997

1996

109,810 15,256 8,971 3,298 137,335 9265 166 2240 149,006

6,248 -571 321 7,140 985 146 -8,271

32,697 3,454 -6,167 1,500 43,818 76,521 181 239

2,852 598 500 920 -4,870 --159

63,792 (1,930) (33,615) 28,486 149,006

9,873 (612) (6025) 3,401 8,271

EXHIBIT 8 AMAZON.COM BALANCE SHEET (in $’000s, except share data)

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EXHIBIT 8 AMAZON.COM BALANCE SHEET (in $’000s, except share data)

Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997. Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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ASSETS Current Assets: Cash & cash equivalents Short term investments Inventories Prepaid expenses and other TOTAL CURRENT ASSETS Fixed Assets, Net Deposits Deferred charges TOTAL ASSETS LIABILITIES &STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable Accrued advertising Accrued product development Other liabilities and accrued expenses Current portion of long term debt TOTAL CURRENT LIABILITIES Long term portion of debt Long term portion of capital lease obligation COMMON STOCK, $0.01 par value, authorised shares: 100,000,000; issues and outstanding shares:23,937,169 and 15,900,229 shares in 1997 and 1996 respectively Additional paid-in capital Deferred compensation Accumulated deficit TOTAL STOCKHOLDER’S EQUITY TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY

1997

1996

109,810 15,256 8,971 3,298 137,335 9265 166 2240 149,006

6,248 -571 321 7,140 985 146 -8,271

32,697 3,454 -6,167 1,500 43,818 76,521 181 239

2,852 598 500 920 -4,870 --159

63,792 (1,930) (33,615) 28,486 149,006

9,873 (612) (6025) 3,401 8,271

Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997. Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

1997 147,758 118,945 28,813 38,964 12,485 6,573 58,022 (29,209) 1,898 (279) ($27,590)

EXHIBIT 9 AMAZON.COM INCOME STATEMENT (in $’000s) 1996 15,746 12,287 3,459 6,090 2,313 1,035 9,438 (5,979) 202 -($5,777)

Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997.

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Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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EXHIBIT 9 AMAZON.COM INCOME STATEMENT (in $’000s)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

1997 147,758 118,945 28,813 38,964 12,485 6,573 58,022 (29,209) 1,898 (279) ($27,590)

1996 15,746 12,287 3,459 6,090 2,313 1,035 9,438 (5,979) 202 -($5,777)

Source: Amazon.Com, Inc., Form 10-K For the Year Ended 31 December 1997. Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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Cash & cash equivalents Inventories Prepaid expenses & other Equipment, net Deposits Total Assets Liabilities & Equity Account payable Accrued expenses & others Total liabilities Preferred stock Common stock & paid-in capital Accumulated deficit Total stockholders’ equity Total Liabilities & Stockholders’ Equity

June 30 1997 53692 1652 1162 3564 328 63098

December 31 1996 6248 571 321 985 146 8271

10327 7211 17538 -61328 (15768) 45560 63098

2852 2018 4870 7970 1456 (6025) 3401 8271

September 30 1997 44867 3494 2732 1784 4403 347 57447

December 31 1996 6248 -571 321 985 146 8271

EXHIBIT 10 QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Cash & cash equivalents Short term investments Inventories Prepaid expenses & other Equipment, net Deposits Total Assets Liabilities & Equity Accounts payable 15386 2852 Accrued advertising -598 Accrued product development -500 Other liabilities & accrued expenses 4462 920 Total liabilities 19848 4870 Preferred stock 6 Common stock 238 159 Additional paid in capital 63749 9873 Deferred compensation (2291) (612) Accumulated deficit (24278) (6025) Total stockholders’ equity 37418 3401 Total liabilities & stockholders’ equity 57447 8271 Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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EXHIBIT 10 QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Cash & cash equivalents Inventories Prepaid expenses & other Equipment, net Deposits Total Assets Liabilities & Equity Account payable Accrued expenses & others Total liabilities Preferred stock Common stock & paid-in capital Accumulated deficit Total stockholders’ equity Total Liabilities & Stockholders’ Equity

June 30 1997 53692 1652 1162 3564 328 63098

December 31 1996 6248 571 321 985 146 8271

10327 7211 17538 -61328 (15768) 45560 63098

2852 2018 4870 7970 1456 (6025) 3401 8271

September 30 1997 44867 3494 2732 1784 4403 347 57447

December 31 1996 6248 -571 321 985 146 8271

Cash & cash equivalents Short term investments Inventories Prepaid expenses & other Equipment, net Deposits Total Assets Liabilities & Equity Accounts payable 15386 2852 Accrued advertising -598 Accrued product development -500 Other liabilities & accrued expenses 4462 920 Total liabilities 19848 4870 Preferred stock 6 Common stock 238 159 Additional paid in capital 63749 9873 Deferred compensation (2291) (612) Accumulated deficit (24278) (6025) Total stockholders’ equity 37418 3401 Total liabilities & stockholders’ equity 57447 8271 Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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598-069-1 EXHIBIT 10 (cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

EXHIBIT 10 (cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

March 31 1998 98600 18220 11674 4399 9773 293 2048 145007

December 31 1997 109810 15256 8971 3298 9265 166 2240 149006

March 31 1998 98600 18220 11674 4399 9773 293 2048 145007

December 31 1997 109810 15256 8971 3298 9265 166 2240 149006

34374 5349 8071 684 48478 181

32697 3454 6167 1500 76521 181

34374 5349 8071 684 48478 181

32697 3454 6167 1500 76521 181

-242 63952

-239 63793 --

-242 63952

-239 63793 --

(1493) (42874) 19827 145007

(1930) (33615) 28486 149006

(1493) (42874) 19827 145007

(1930) (33615) 28486 149006

Inventories Prepaid expenses & other Fixed assets, net Deposits Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity

Cash & cash equivalents & investments

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Cash & cash equivalents & investments

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On 27 April 1998 Amazon.com announced a two-for-one stock split, effective 1 June 1998. The share and per share data have not been restated to reflect this split. Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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Inventories Prepaid expenses & other Fixed assets, net Deposits Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity

On 27 April 1998 Amazon.com announced a two-for-one stock split, effective 1 June 1998. The share and per share data have not been restated to reflect this split. Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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EXHIBIT 10 (Cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Cash & cash equivalents & investments Inventories Prepaid expenses & other Fixed assets, net Deposits Goodwill & other purchased intangibles Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Other gains/losses Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity Source: Amazon.Com Press Release

339919 17035 12487 14014 284 52398 7622 443759

December 31 1997 125066 8971 3298 9265 166 -2240 149006

47556 9971 13713 684 332225 181

32697 3454 6167 1500 76521 181

-497 104368 --

-479 63552 --

(1301) (35) (64100) 39429 443759

(1930) -(33615) 28486 149006

June 30 1998

Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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June 30 1998

EXHIBIT 10 (Cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Cash & cash equivalents & investments Inventories Prepaid expenses & other Fixed assets, net Deposits Goodwill & other purchased intangibles Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Other gains/losses Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity Source: Amazon.Com Press Release

339919 17035 12487 14014 284 52398 7622 443759

December 31 1997 125066 8971 3298 9265 166 -2240 149006

47556 9971 13713 684 332225 181

32697 3454 6167 1500 76521 181

-497 104368 --

-479 63552 --

(1301) (35) (64100) 39429 443759

(1930) -(33615) 28486 149006

Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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Cash & cash equivalents Short term investments Inventories Prepaid expenses & other Fixed assets, net Deposits Goodwill & other purchased intangibles Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Other gains/losses Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity Source: Amazon.Com Press Release

September 30 1998 14856 322404 19772 17625 23821 582 213064 7590 619740

December 31 1997 1876 123499 8971 3363 9726 169 -2240 149844

60046 11857 26868 684 340392 103

33027 3454 6570 1500 76521 181

-527 298322 (1099)

-483 67552 --

(2943) 590 (115633) 179764 619714

(1930) -(37514) 28591 149844

EXHIBIT 10 (Cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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EXHIBIT 10 (Cont.) QUARTERLY BALANCE SHEETS (1996, 1997, 1998) (in $’000s)

Cash & cash equivalents Short term investments Inventories Prepaid expenses & other Fixed assets, net Deposits Goodwill & other purchased intangibles Deferred charges Total Assets Liabilities & stockholders’ equity Accounts payable Accrued advertising Other liabilities & accrued expenses Current portion of long term debt Long term debt Long term portion of capital lease obligation Preferred stock Common stock Additional paid in capital Note receivable from officer of common stock Deferred compensation Other gains/losses Accumulated deficit Total stockholders’ equity Total liabilities & stockholders’ equity Source: Amazon.Com Press Release

September 30 1998 14856 322404 19772 17625 23821 582 213064 7590 619740

December 31 1997 1876 123499 8971 3363 9726 169 -2240 149844

60046 11857 26868 684 340392 103

33027 3454 6570 1500 76521 181

-527 298322 (1099)

-483 67552 --

(2943) 590 (115633) 179764 619714

(1930) -(37514) 28591 149844

Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports.

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598-069-1 EXHIBIT 11 QUARTERLY OPERATING RESULTS (1996 and 1997) (in $’000s)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

2nd Q.97 27855 22633 5222 7773 2808 1708 12289 (7067) 362 -(6705)

2nd Q.96 2230 1753 477 696 394 163 1253 (776) 9 -(767)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

3rd Q.97 37887 30717 7170 11516 3998 1972 17486 (10316) 688 (19) (9647)

3rd Q.96 4173 3262 911 2251 755 377 3383 (2472) 92 -(2380)

4th Q.97 66011 53119 12892 16306 4520 1920 22746 (9854) 517 -(9337)

4th Q.96 8468 6577 1891 2938 901 447 4286 (2395) 96 -(2299)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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EXHIBIT 11 QUARTERLY OPERATING RESULTS (1996 and 1997) (in $’000s)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

2nd Q.97 27855 22633 5222 7773 2808 1708 12289 (7067) 362 -(6705)

2nd Q.96 2230 1753 477 696 394 163 1253 (776) 9 -(767)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

3rd Q.97 37887 30717 7170 11516 3998 1972 17486 (10316) 688 (19) (9647)

3rd Q.96 4173 3262 911 2251 755 377 3383 (2472) 92 -(2380)

4th Q.97 66011 53119 12892 16306 4520 1920 22746 (9854) 517 -(9337)

4th Q.96 8468 6577 1891 2938 901 447 4286 (2395) 96 -(2299)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Amortization of goodwill & other purchased intangibles Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

1st Q.97 16005 12484 3521 3906 1575 1142 6623 (3102)

(3038)

2nd Q.98 115977 89786 26191 26452 8060 3262 5413 43187 (16996) 3334 (7564) (21226)

2nd Q.97 27855 22633 5222 7773 2808 1708 12289 (7067) 362 -(6705)

3rdQ .98 153698 118823 34875 35717 13374 4978

3rd Q.97 37887 30717 7170 11516 3998 1972

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Amortization of goodwill & other purchased intangibles/M&A related costs 20512 Total Operating Expenses 76381 17486 Loss From Operations (41506) (10316) Interest income 4754 688 Interest expense (8419) (19) Net Loss (45171) (9647) Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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EXHIBIT 11 (cont.) QUARTERLY OPERATING RESULTS (1997 and 1998) (in $’000s) 1st Q.98 Net Sales 87375 Cost of sales 68054 Gross Profit 19321 Operating Expenses: Marketing & Sales 19503 Product development 6729 General & administrative 1963 Total Operating Expenses 28195 Loss From Operations (8874) Interest income 1640 Interest expense (2025) Net Loss (9259)

598-069-1 EXHIBIT 11 (cont.) QUARTERLY OPERATING RESULTS (1997 and 1998) (in $’000s) 1st Q.98 Net Sales 87375 Cost of sales 68054 Gross Profit 19321 Operating Expenses: Marketing & Sales 19503 Product development 6729 General & administrative 1963 Total Operating Expenses 28195 Loss From Operations (8874) Interest income 1640 Interest expense (2025) Net Loss (9259)

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Amortization of goodwill & other purchased intangibles Total Operating Expenses Loss From Operations Interest income Interest expense Net Loss

1st Q.97 16005 12484 3521 3906 1575 1142 6623 (3102)

(3038)

2nd Q.98 115977 89786 26191 26452 8060 3262 5413 43187 (16996) 3334 (7564) (21226)

2nd Q.97 27855 22633 5222 7773 2808 1708 12289 (7067) 362 -(6705)

3rdQ .98 153698 118823 34875 35717 13374 4978

3rd Q.97 37887 30717 7170 11516 3998 1972

Net Sales Cost of sales Gross Profit Operating Expenses: Marketing & Sales Product development General & administrative Amortization of goodwill & other purchased intangibles/M&A related costs 20512 Total Operating Expenses 76381 17486 Loss From Operations (41506) (10316) Interest income 4754 688 Interest expense (8419) (19) Net Loss (45171) (9647) Source: Amazon.Com Press Release Note: Small discrepancies from quarter-to-quarter, and year-to-year, due to rounding effects, and to minor differences between audited and non-audited statements within Amazon.com quarterly reports. Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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EXHIBIT 12 GROWTH IN CUMULATIVE CUSTOMER ACCOUNTS AND REPEAT ORDERS

Repeat Customer Orders as % of All Orders 50% 55% 58% 60% 63% 64%

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June 30, 1997 September 30,1997 December 30, 1997 March 30, 1998 June 30, 1998 September 30, 1998

Cumulative Customer Accounts 610,000 940,000 1,510,000 2,260,000 3,140,000 4,500,000

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Source: Amazon.Com Press Release

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

EXHIBIT 12 GROWTH IN CUMULATIVE CUSTOMER ACCOUNTS AND REPEAT ORDERS

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June 30, 1997 September 30,1997 December 30, 1997 March 30, 1998 June 30, 1998 September 30, 1998

Cumulative Customer Accounts 610,000 940,000 1,510,000 2,260,000 3,140,000 4,500,000

Repeat Customer Orders as % of All Orders 50% 55% 58% 60% 63% 64%

Source: Amazon.Com Press Release

Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Copyright © 1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

EXHIBIT 13 AMAZON.COM SHARE PRICE EVOLUTION AND VOLUME SOLD

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EXHIBIT 13 AMAZON.COM SHARE PRICE EVOLUTION AND VOLUME SOLD

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Copyright  1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

EXHIBIT 14 AMAZON.COM TWO-PAGE ADVERTISEMENT

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EXHIBIT 14 AMAZON.COM TWO-PAGE ADVERTISEMENT

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EXHIBIT 15 AMAZON.COM ADVERTISEMENT FOR UK EXHIBIT 15 AMAZON.COM ADVERTISEMENT FOR UK

Copyright  1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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REFERENCES

REFERENCES

Suresh Kotha, “Competing on the Internet: The Case of Amazon.com.”, European Management Journal, 2 April 1998. ii Tim Clark, “Newsmakers: Jeff Bezos, Turning to a Global page”, CNET News.com, 8 April 1998 iii “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. iv “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. v “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. vi “Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997. vii Lisa Bowman, “Amazon.com Founder Shares the Secrets of His Success”, ZDNetNews, 28 July 1998. viii Tim Clark, “Newsmakers: Jeff Bezos—Turning to a Global Page”, CNET News.com, 8 April 1998 ix More on Amazon’s new way of doing business in Sandra Vandermerwe, Customer Capitalism: The New Business Model for Increasing Returns by Becoming The Customer Choice, London: Nicholas Brealey, 1999. x “Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997 xi ibid. xii For more on network externalities, see for instance: John Hagel and Arthur Armstrong, Net Gain: Expanding Markets Through Virtual Communities, Boston, Harvard Business School Press, 1997; Kevin Kelly, New Rules for the New Economy, London: 4th Estate, 1998; Sandra Vandermerwe, Customer Capitalism: The New Business Model for Increasing Returns by Becoming the Customer Choice, London: Nicholas Brealey, 1999. xiii Suresh Kotha, “Competing on the Internet: The Case of Amazon. Com”, European Management Journal, April 1998. xiv “Who’s Writing the Book on Web Business?”, Fast Company, October/November 1996. xv Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997 xvi Suresh Kotha, “Competing on the Internet: The Case of Amazon. Com”, European Management Journal, April 1998. xvii Lucy Kellaway, “Billionaire Nerd With His Own Bandwidth”, Financial Times, 13 November 1998. xviii ibid. xix Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. xx Jane Martinson, “Online Bookseller Seen as ‘One of the Last Free Investor Lunches’ As Shares Slump After Debut”, Financial Times, 10 June 1997. xxi Alice Rawsthorn, “Webs for Book Worms: Retailers’ On-Line Sales Speak Volumes”, Financial Times, 2 August 1997. xxii Amazon.com Press Release: “Yahoo! and Amazon.com. to Deliver Innovative New Navigational Service for Books on the Web”, 7 July 1997. xxiii Amazon.com Press Release: “Amazon.com and AOL Announce Multi-Million Dollar Advertising and Promotional Agreement, Bringing Together Number 1 On-line Bookseller with Number 1 Internet On-line Service”, 8 July 1997. xxiv Information on Borders from Alice Rawsthorn, "Interview with Bob DiRomualdo, Borders: Book Lover With a Fresh Shelf Life", Financial Times, 2 September 1998. xxv Lucy Kellaway, “Billionaire Nerd With His Own Bandwidth”, Financial Times, 13 November 1998. xxvi Amazon.com Press Release: “Amazon.com Catapults Electronic Commerce to Next Level with Powerful New Features”, 23 September 1997. xxvii Amazon.com Press Release: “Amazon.com Invites Music Lovers to Help Build the Ultimate Music Store”, 23 April 1998. xxviii Amazon.com Press Release: “Amazon.com Adds Classical CDs to Earth’s Biggest Book and Music Store”, 9 September 1998. xxix Paul Schindler, “Amazon’s Acquisition Strategy”, CMPNET, TechWeb, 5 August 1998; Steven vonder Haar, “Amazon.com Buys Pair of Internet Companies”, Inter@ctive Week Online, 4 August 1998. xxx Paul Gillin, Computerworld Magazine, 10 August 1998. xxxi “Amazon: Wal-Mart of the Web?” USA Today, 12 August 1998. xxxii Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. Copyright  1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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i

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i

Suresh Kotha, “Competing on the Internet: The Case of Amazon.com.”, European Management Journal, 2 April 1998. ii Tim Clark, “Newsmakers: Jeff Bezos, Turning to a Global page”, CNET News.com, 8 April 1998 iii “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. iv “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. v “A Fable Concerning Ambition: Would Britain’s Leading On-Line Bookseller Have Done Better in the United States?”, The Economist, 21 June 1997. vi “Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997. vii Lisa Bowman, “Amazon.com Founder Shares the Secrets of His Success”, ZDNetNews, 28 July 1998. viii Tim Clark, “Newsmakers: Jeff Bezos—Turning to a Global Page”, CNET News.com, 8 April 1998 ix More on Amazon’s new way of doing business in Sandra Vandermerwe, Customer Capitalism: The New Business Model for Increasing Returns by Becoming The Customer Choice, London: Nicholas Brealey, 1999. x “Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997 xi ibid. xii For more on network externalities, see for instance: John Hagel and Arthur Armstrong, Net Gain: Expanding Markets Through Virtual Communities, Boston, Harvard Business School Press, 1997; Kevin Kelly, New Rules for the New Economy, London: 4th Estate, 1998; Sandra Vandermerwe, Customer Capitalism: The New Business Model for Increasing Returns by Becoming the Customer Choice, London: Nicholas Brealey, 1999. xiii Suresh Kotha, “Competing on the Internet: The Case of Amazon. Com”, European Management Journal, April 1998. xiv “Who’s Writing the Book on Web Business?”, Fast Company, October/November 1996. xv Survey of Electronic Commerce: A River Runs through It--Amazon.com. offers a Glimpse of the Future, and It May Surprise You”, The Economist, 10 May 1997 xvi Suresh Kotha, “Competing on the Internet: The Case of Amazon. Com”, European Management Journal, April 1998. xvii Lucy Kellaway, “Billionaire Nerd With His Own Bandwidth”, Financial Times, 13 November 1998. xviii ibid. xix Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. xx Jane Martinson, “Online Bookseller Seen as ‘One of the Last Free Investor Lunches’ As Shares Slump After Debut”, Financial Times, 10 June 1997. xxi Alice Rawsthorn, “Webs for Book Worms: Retailers’ On-Line Sales Speak Volumes”, Financial Times, 2 August 1997. xxii Amazon.com Press Release: “Yahoo! and Amazon.com. to Deliver Innovative New Navigational Service for Books on the Web”, 7 July 1997. xxiii Amazon.com Press Release: “Amazon.com and AOL Announce Multi-Million Dollar Advertising and Promotional Agreement, Bringing Together Number 1 On-line Bookseller with Number 1 Internet On-line Service”, 8 July 1997. xxiv Information on Borders from Alice Rawsthorn, "Interview with Bob DiRomualdo, Borders: Book Lover With a Fresh Shelf Life", Financial Times, 2 September 1998. xxv Lucy Kellaway, “Billionaire Nerd With His Own Bandwidth”, Financial Times, 13 November 1998. xxvi Amazon.com Press Release: “Amazon.com Catapults Electronic Commerce to Next Level with Powerful New Features”, 23 September 1997. xxvii Amazon.com Press Release: “Amazon.com Invites Music Lovers to Help Build the Ultimate Music Store”, 23 April 1998. xxviii Amazon.com Press Release: “Amazon.com Adds Classical CDs to Earth’s Biggest Book and Music Store”, 9 September 1998. xxix Paul Schindler, “Amazon’s Acquisition Strategy”, CMPNET, TechWeb, 5 August 1998; Steven vonder Haar, “Amazon.com Buys Pair of Internet Companies”, Inter@ctive Week Online, 4 August 1998. xxx Paul Gillin, Computerworld Magazine, 10 August 1998. xxxi “Amazon: Wal-Mart of the Web?” USA Today, 12 August 1998. xxxii Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. Copyright  1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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xxxiii

Jennifer Sullivan, “Amazon’s Not Just a Book Worm”, Wired News, 29 April 1998. Tim Clark, “Newsmakers: Jeff Bezos, Turning to a Global page”, CNET News.com, 8 April 1998 xxxv Randy Whitestone, “Barnes & Noble Takes on Amazon Bookstore Battle”, Inter@ctive Week, 6 May 1997. xxxvi Ibid. xxxvii John Labate, “Rival Fails to Threaten Amazon.com”, Financial Times, 9 September 1997. xxxviii Richard Waters and John Labate, “Brought to Book: The Internet Retailing War is Turning into a Struggle Over Distribution”, Financial Times, 10 November 1998. xxxix “Bertelsmann Plans a Big Bang in the Online Book Market”, Internet Magazine Daily News, 20 August 1998. See also Marc Gunther, “Bertelsmann’s New Media Man”, Fortune, 23 November 1998. xl Geoff Shandler, “Bertelsmann’s Online Blitzkrieg”, Salon Magazine, 7 July 1998; Stacy Perman. “The Book on Bertelsmann”, Time.com., vol. 151, no. 13, 6 April 1998; “Bertelsmann’s Bismarck”, The Economist, 7 November 1998. xli “Bertelsmann’s Bismarck”, The Economist, 7 November 1998. xlii “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xliii “Internet Bookshop Opened By Bertelsmann”, Wall Street Journal Europe, 17 February 1998. xliv “Bertelsmann Plans a Big Bang in the Online Book Market”, Internet Magazine Ds, 20 August 1998. xlv “German Firm May Seek Amazon Partnership”, Seattle Times, 18 August 1998 xlvi “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xlvii “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xlviii Geoff Shandler, “Bertelsmann’s Online Blitzkrieg”, Salon Magazine, 7 July 1998 xlix “German Media Group Reports Flat Year”, Financial Times, 19 August 1998. l “Barnes & Noble Expands Online Book Selections, Adds Features”, Bloomberg News, CNET Investor, 20 October 1998. li barnesandnoble.com Press Release: “Jonathan Bulkeley Named CEO”, 4 November 1998. lii Jennifer Sullivan, “Borders Online Opens This Week”, WiredNews, 5 May 1998. liii “WH Smith Takes Over Internet Bookshop for £8.8 Million”, Financial Times, 9 June 1998. liv “The Promise of Internet Megastores”, The Economist, 1 November 1997. lv Tim Jackson, “Publish and Be Scanned”, Financial Times-- Inside Track, 14 September 1998, and Alice Rawsthorn, “Online Books Jump off the Page in a Novel Approach to Publishing”, Financial Times, 23 June 1998. lvi Lucy Kellaway, “Billionaire Nerd on His Own Bandwidth”, Financial Times, 13 November 1998. lvii Jodi Mardesich and Marc Gunther, “Is Competition Closing In On Amazon.com?”, Fortune, 9 November 1998. lviii Richard Waters and John Labate, “Brought to Book: The Internet Retailing War is Turning Into a Struggle Over Distribution”, Financial Times, 10 November 1998. lix Amazon.com Press Release: “Amazon.com Announces Financial Results for First Quarter 1998”, 27 April 1998 lx ibid lxi “Brands Bite Back”, The Economist, 21 March 1998. lxii “Lex Column: Barnes & Noble”, Financial Times 21 August 1998. lxiii David Streitfeld, "Paper Money on the Net: Amazon.com Rewrites Bookselling Script", The International Herald Tribune, 11-12 July 1998. lxiv Tim Clark, “Why The Street Loves Amazon.com”, CNET News, 8 April 1998 lxv Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. lxvi Jeff Pelline, “Bertelsmann Funds Web Books”, CNETNews.com, 22 June 1998; “Coming Soon: The Paperless, Portable Book”, Business Week, 6 July 1998. lxvii Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998.

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Copyright  1998 Sandra Vandermerwe, Imperial College Management School, London, UK. Not to be used or reproduced without permission.

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Jennifer Sullivan, “Amazon’s Not Just a Book Worm”, Wired News, 29 April 1998. Tim Clark, “Newsmakers: Jeff Bezos, Turning to a Global page”, CNET News.com, 8 April 1998 xxxv Randy Whitestone, “Barnes & Noble Takes on Amazon Bookstore Battle”, Inter@ctive Week, 6 May 1997. xxxvi Ibid. xxxvii John Labate, “Rival Fails to Threaten Amazon.com”, Financial Times, 9 September 1997. xxxviii Richard Waters and John Labate, “Brought to Book: The Internet Retailing War is Turning into a Struggle Over Distribution”, Financial Times, 10 November 1998. xxxix “Bertelsmann Plans a Big Bang in the Online Book Market”, Internet Magazine Daily News, 20 August 1998. See also Marc Gunther, “Bertelsmann’s New Media Man”, Fortune, 23 November 1998. xl Geoff Shandler, “Bertelsmann’s Online Blitzkrieg”, Salon Magazine, 7 July 1998; Stacy Perman. “The Book on Bertelsmann”, Time.com., vol. 151, no. 13, 6 April 1998; “Bertelsmann’s Bismarck”, The Economist, 7 November 1998. xli “Bertelsmann’s Bismarck”, The Economist, 7 November 1998. xlii “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xliii “Internet Bookshop Opened By Bertelsmann”, Wall Street Journal Europe, 17 February 1998. xliv “Bertelsmann Plans a Big Bang in the Online Book Market”, Internet Magazine Ds, 20 August 1998. xlv “German Firm May Seek Amazon Partnership”, Seattle Times, 18 August 1998 xlvi “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xlvii “Internet Book Selling: Making a Mark”, The Economist, 10 October 1998. xlviii Geoff Shandler, “Bertelsmann’s Online Blitzkrieg”, Salon Magazine, 7 July 1998 xlix “German Media Group Reports Flat Year”, Financial Times, 19 August 1998. l “Barnes & Noble Expands Online Book Selections, Adds Features”, Bloomberg News, CNET Investor, 20 October 1998. li barnesandnoble.com Press Release: “Jonathan Bulkeley Named CEO”, 4 November 1998. lii Jennifer Sullivan, “Borders Online Opens This Week”, WiredNews, 5 May 1998. liii “WH Smith Takes Over Internet Bookshop for £8.8 Million”, Financial Times, 9 June 1998. liv “The Promise of Internet Megastores”, The Economist, 1 November 1997. lv Tim Jackson, “Publish and Be Scanned”, Financial Times-- Inside Track, 14 September 1998, and Alice Rawsthorn, “Online Books Jump off the Page in a Novel Approach to Publishing”, Financial Times, 23 June 1998. lvi Lucy Kellaway, “Billionaire Nerd on His Own Bandwidth”, Financial Times, 13 November 1998. lvii Jodi Mardesich and Marc Gunther, “Is Competition Closing In On Amazon.com?”, Fortune, 9 November 1998. lviii Richard Waters and John Labate, “Brought to Book: The Internet Retailing War is Turning Into a Struggle Over Distribution”, Financial Times, 10 November 1998. lix Amazon.com Press Release: “Amazon.com Announces Financial Results for First Quarter 1998”, 27 April 1998 lx ibid lxi “Brands Bite Back”, The Economist, 21 March 1998. lxii “Lex Column: Barnes & Noble”, Financial Times 21 August 1998. lxiii David Streitfeld, "Paper Money on the Net: Amazon.com Rewrites Bookselling Script", The International Herald Tribune, 11-12 July 1998. lxiv Tim Clark, “Why The Street Loves Amazon.com”, CNET News, 8 April 1998 lxv Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. lxvi Jeff Pelline, “Bertelsmann Funds Web Books”, CNETNews.com, 22 June 1998; “Coming Soon: The Paperless, Portable Book”, Business Week, 6 July 1998. lxvii Tim Clark: “Newsmakers: Jeff Bezos--Turning to a Global Page”, CNET News.com, 8 April 1998. xxxiv

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