Amazon

AMAZON.COM

Assistant Professor Suresh Kotha and Emer Dooley, both from the University of
Washington, School of Business Administration, prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
Copyright © Kotha and Dooley. All rights reserved. Revised March 31, 1997
Amazon is the beginning of acompletely new way to buy books... It could increase book
sales quite dramatically by making it easier for people to find the books they want.
Alberto Vitale, Chairman, Random House Inc.
It is projected that as many as 52 million people worldwide will be using the Internet by the year
2000. The typical Internet user in 1996 was young, affluent, and well educated. The potential
size andaffluence of this target market has led many observers to coin the phrase the "Internet
Gold Rush" Not unlike the California gold rush of 1849 where prospectors lost everything,
pickings in the Internet gold rush so far have been extremely limited. Most commercial web sites
-they number in the thousands- generate no revenue and cost upward of $500,000 a year to
maintain and operate. Losses by majorcorporations are so widespread that Don Logan, CEO of
Time Warner, declared publicly that the (Time Warner) web site, "Pathfinder," gave a "new
definition to the term black hole". Although historically every gold rush has been a net loss, there
have always been the successful few who buck the trend and garner extraordinary rewards. This
case explores the efforts of one such entrepreneur,Jeffrey Bezos, and his online bookstore
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-Amazon.com- on the World Wide Web.
Amazon.com provides a singular case in which the frequently hyped World Wide Web is
actually changing how consumers buy products and services. Not content to just transplant the
traditional book retailing format to the World Wide Web, Jeff Bezos, the founder behind
Amazon.com, is attempting to transform it throughtechnology that taps the interactive nature of
the Internet. At Amazon.com like-minded bibliophiles can meet, discuss books, swap raves and
pans, and, most importantly, spend money. Over the past two years, Bezos has quietly built a
fast-growing business. His web site on the World Wide Web (http://www.amazon.com) has
become an underground sensation for thousands of book-lovers around the world whospend
hours perusing its vast electronic library, reading other customers' amusing online reviews, and
ordering books. This case describes how Bezos has managed to build a rapidly growing business
on the Internet and the challenges be currently faces as other firms attempt to imitate his model
of competition.
COMPANY BACKGROUND
In 1994, Jeffrey Bezos, a computer science and electricalengineering graduate from Princeton
University, was the youngest senior vice-president in the history of D. E. Shaw, a Wall Streetbased
investment bank. During the summer of that year, one statistic about the Internet caught
his imagination -Internet usage was growing at 2,300 percent a year. His reaction: “Anything
that's growing that fast is going to be ubiquitous very quickly. It was my wake-upcall”.
He left his job, drew up a list of 20 possible products that could be sold on the Internet and
quickly narrowed the prospects to music and books. Both had a potential advantage for online
sale: far too many titles for a single store to stock. He chose books.
There are so many of them! There are 1.5 million English-language books in print, 3 million
books in all languages worldwide. Thisvolume defined the opportunity. Consumers keep
demonstrating that they value authoritative selection. The biggest phenomenon in retailing is the
big-format store -the "category killer"- whether it's selling books, toys, or music. But the largest
physical bookstore in the world has only 175,000 titles... With some 4,200 US publishers and the
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two biggest booksellers, Barnes & Noble and...