Amazon com business model case study

Discussion Questions and Case Study Analysis
Subject
Business Finance

Question Description
Please find the instructions for both of the questions, the case study and the discussion question. The discussion question should be answer as your understanding and knowledge of the topics, and the case study must be based on the attached case analysis. Please let me know if you have any questions before starting with the assignments.316-0107-1 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F305731 Amazon.com’s Business Model and its Evolution This case was written by Syeda Maseeha Qumer and Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.  2016, IBS Center for Management Research IBS Center for Management Research (ICMR) IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad-501 203, Telangana, INDIA. Ph: +91 9640901313 E-mail: casehelpdesk@ibsindia.org case centre Distributed by The Case Centre www.thecasecentre.org All rights reserved North America t +1 781 239 5884 f +1 781 239 5885 e info.usa@thecasecentre.org Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e info@thecasecentre.org Purchased for use by Kortne Ford on 02-Oct-2017. Order ref F305731. You are permitted to view the material on-line and print a copy for your personal use until 2-Oct-2018. Please note that you are not permitted to reproduce or redistribute it for any other purpose. IBS Center for Management Research 316-0107-1 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F305731 In 2015, Seattle-based e-commerce giant Amazon.com, Inc.(Amazon) surprised investors by posting an unanticipated second quarterly profit in a row after struggling with profitability the previous year. In the third quarter ended September 30, 2015, Amazon’s revenues increased by 20% to US$23.2 billion, while net income was US $79 million, compared with a net loss of US$437 million in the corresponding quarter of the previous year. The revenue growth was attributed to the company’s rapidly growing cloud-computing business, higher sales in North America, and initiatives to attract more customers. On the back of these unexpected quarterly results, Amazon shares surged, making it the most valuable retailer in the world surpassing WalMart Stores Inc1 as of July 2015i (See Exhibit I and II). “They are showing investors that if they want to deliver profits, they can. Amazon is a dominant online retailer, well on its way to becoming one of the world’s largest retailers,”ii said Michael Pachter, analyst at Wedbush Securities Inc2. Launched as an online bookstore in 1995, Amazon quickly expanded beyond books to include all types of consumer goods. The company constantly innovated with its business model and moved from consumer electronics to cloud computing services and later into the technology business. Amazon’s business model was built around low prices, a vast selection, fast and reliable delivery, and a convenient online customer experience. Besides offering customers a vast selection of products at low prices, Amazon also provided marketing and promotional services for third-party retailers and web services for developers. It was Amazon’s relentless focus on value and selection along with innovations around shipping and handling cost reductions that had made it a leader in ecommerce, opined analysts. Amazon reinvested much of its free cash flow in its growth. The company’s strategy was to put long-term investment, market gains, and value creation ahead of short-term profits. Amazon constantly plowed cash back into the business and continued building new businesses in the hope of getting greater returns in the future. Though the strategy helped the company in capturing a larger share of the e-commerce sector, it was consistently reporting losses. In the third quarter of 2014, Amazon spent about 12% of its revenues on technology and content including new-product development and licensing for music and video streaming. That led to the biggest quarterly loss the company had suffered in 14 years. Despite the lack of profits, Amazon’s shareholders backed the strategy of the CEO, Jeff Bezos, of being indifferent to short-term earnings in anticipation of future profits. According to some critics, if the huge investments made by Amazon did not work out, investors’ patience would finally run out and the company would be in trouble. They felt that Amazon had boundless ambition, but going forward, the company would have to be selective about where it invested in order to turn profitable. Moreover, some analysts felt that between price-match guarantees, free shipping, and plans to go multi-channel, other competitors were finally catching up with Amazon in the online retail game. Amazon would need to work harder and meet the expectations of its customers to maintain its dominance in the highly competitive online retail 1 2 Wal-Mart was the largest retailer in the world with annual net sales of US$482 billion in the fiscal year ended January 31, 2015. It operates a chain of retail stores in various formats worldwide. Wedbush Securities Inc is a US-based financial services and investment firm. 2 Purchased for use by Kortne Ford on 02-Oct-2017. Order ref F305731. You are permitted to view the material on-line and print a copy for your personal use until 2-Oct-2018. Please note that you are not permitted to reproduce or redistribute it for any other purpose. Amazon.com’s Business Model and its Evolution 316-0107-1 sector, they added. Some analysts raised questions like: How can Amazon keep its prices low as it grows? Is it time for the company to adjust its “growth now profits later”