A brief summary of Amazon capabilities

Amazon positions itself as a technology company, not a retailer

1. Target the long-tail with million titles, while the largest physical book store may only store 400,000


2. Intensive investment in technology


3. Location: Seattle, near computer talents


4. Product search, data mining, personalized shopping


5. In-house software systems


6. Leader in cloud computing


7. Supplementary product: Kindle


8. Scalability


9. B2C to C2C

Jeff Bezos’s vision and financial expertise

1. Prior to Amazon: Princeton Computer Science & Electrical Engineering graduate, 2 years in Commercial Banking and 4 years in NY Investment Banking


2. Focus on customer service, avoid price war


3. Started with books then diversified


4. Act like a Venture Capitalist to other younger e-commerce firms then get advertising fees from these partners


5. Lock out competition with this partnership network


6. Use sophisticated financial structure including:
   
   
   
   • Private equity (only $1 in 1994)
   
   
   
   
   
   
   • Convertible preferred shares ($8 in 1996)
   
   
   • $326m 10% senior discount notes mature in 10 years
   
   
   • Debt repurchase
   
   
   • $1.25b 4.75% convertible subordinated notes mature in 10 years
   
   
   • $680m 6.875% euro-denominated subordinated notes mature in 10 years
   
   
   • Live many years on credit rating CCC but the company has had enough cash to spend. Good governance!
   
   
   
   


7. Good accounting compliance

Operations

1. Revenue sources: commission, advertising, affiliate marketing, cloud computing leasing


2. Order from suppliers after customer has made an order


3. Weathered the dot-com bubble and GFC well

Reference

Cott J., Palepu K., ‘Amazon.com’

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