Business Model Canvas

StrategyStrategy followed by Jeff Bezos to build the Amazon empire:

• Be like the Godfather: Make them an offer they can’t refuse

• Don’t give up information unless absolutely necessary

• Keep teams small enough that members can be fed with two pizzas

• Stop talking so much

• Get adversarial

Overall, Amazon follows a Dominant Strategy. Jeff Bezos’ critical insight when he founded Amazon was that the Internet allowed a retailer to have both (effectively) infinite selection AND lower prices. In other words, Amazon was founded on the premise of theirs being a dominant strategy: better selection AND better prices.

Leadership Strategy

Amazon’s strategy is low cost leadership which is clearly reflected in this statement made by its CEO, Jeff Bezos:

“There are two kinds of companies: Those that work to try to charge more and those that work to charge less. We will be the second.”

A napkin sketch by Jeff Bezos

Note: No arrows pointing outwards labeled ‘take profits’; it’s a closed loop

Service Delivery Framework

Amazon tries to close the service gaps in order to effectively meet consumer expectations. For that its service delivery framework comprises the following:-

• Understanding customer needs

• Customer defined standards

• Service performance

Product Delivery Strategies

Amazon has kept pushing the envelope with respect to delivery time and methods. Following are some illustrations:

• One/two day delivery deals

• Own logistics

• Amazon Fresh, grocery delivery system

• one-hour delivery

• Online travel business

• Prime Air

• Automated warehouses and fulfillment centres

Logistics Partner

Affiliates

Authors and Publishers

Merchandising

Production and Design

Low Cost structure

Economies of Scale

Individual Leverage

Group Leverage

Affiliates

Application interfaces

Physical warehouses

Human : Web application & development

Self service

Automated Service

Convenience

Price

E books and content

Sale of Assets Acquisitions and Investment

Prime monthly subscriptions fees

Commission on reseller sales

Amazon.com

Network of sellers

IT and fulfillment infrastructure

Instant fulfillment with eReader

Vast selection

Global consumer market

Amazon’s Business Model Canvas

IS and KM and Amazon

IS in Amazon

• Broadly Amazon uses 2 main systems:

• AWS-Amazon web service

• S3-Simple storage service

• MIS is used for CRM. TPS is based on creating convenience for users. Each customer has to create an account in amazon.com. Advantages provided/ Features-

• Shopping basket

• Shopping cart

• Wish List

• One click

• Online payment Systems

• Recommender Systems

IS and KM and Amazon

• Recommendation for Amazon

• Improvement in web based IS to make it more user friendly which will be more revenue generating for the company.

Customer KM in Amazon

• Amazon operates on a  KM technology platform that allows customers to search using discreet ‘data’. This prompts the system to return contextual ‘information’ which provides value to the user in the form of knowledge.

• Amazon has not only found ways to use KM practices to provide value to customers, but also to intrinsically motivate customers to share knowledge.

Five Forces Analysis

Supplier Power

Buyer Power

Competitive Rivalry

Threats of Substitutio

n

Threat of new entry

SWOT Analysis

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound Logistics Ops. Outbound Logistics

Sales & Marketing

Service and Support

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Custom

er Value

Cus

tom

er V

alue

Margin

Value Chain Analysis

Maintenance and

packaging of goods;

assembling and

customization of items

Receiving products from partners, routing the items to a put-away location, picking up products from prime locations for order

fulfillment, replenishing the products; Quality

control

Fulfillment of orders;

order handling, dispatch, delivery, invoicing

Customer tracking and

management, order taking, promotions,

market research,

sales analysis

Warranty, upgrades,

maintenance, order tracking facilities,

training

Legal, accounting, financial management

One click ordering, personalized recommendations, Warehouse Management Systems

purchasing raw materials, and other items used in operations

Recruitment, training, firing and compensating personnel

Product

Existing

New

Market

Ansoff Matrix

Market Penetration

Loyalty program

Pricing

NewExisting

Product Development

Kindle

Echo

Market Development

Expand internationally

Affiliates program

Diversification

Acquisition of businesses like IMDB,

Zappos

Horizontal diversification

AWS

Financial Analysis

•Amazon is involved in different businesses at different stages of maturity. Some are profitable, some not.

•Third party sales of products through Amazon’s own platform are now 40% of unit sales. The fees charged to these vendors are now 20% of Amazon’s revenue.

•For close to half of the units sold on Amazon.com, Amazon does not set the price, it just takes a margin.

•Amazon’s OCF margin has been very roughly stable for a decade, but the FCF has fallen, due to radically increased capex.

Revenue and Net income of Amazon

Where is the money going?

More capacity for more products, including 3P products

Proximity - as Amazon builds warehouses closer to customers, the shipping time goes down and so does the shipping cost

AWS

• Amazon will have to stop investing at the point where marginal returns from these investments start diminishing