Digital titan Amazon creates competitive advantage

1. Amazon.com: A Digital Titan
Prof. Bala Iyer
11/09/16

2. Mission Statement
• “Our vision is to be earth's most customer-centric company;
to build a place where people can come to find and discover
anything they might want to buy online.”
• Operational Excellence
• Customer Intimacy
• Product Leadership
2

3. Competition
• Ebay
• Walmart
• Alibaba
• Key dimensions
• Price
• Selection
• Quality
• Customer focus (UX/UI)
3
Competition may intensify as our competitors enter
into business combinations or alliances and established
companies in other market segments expand to
become competitive with our business.
[2015 Annual Report]

4. 4

5. Agenda
• Is Amazon a success story?
• What investments are they making?
• Capabilities that are being built
• Notion of a digital customer
• Powerful bit engines
• How can others emulate
• Future plans
• Risk factors
5

6. Is Amazon.com a success story?
6
New York Times, “the internet is Jeff Bezos’s world and
the rest of us are just shopping in it”?
Can Amazon Find Success in China?

7. Amazon
• Revenue – $107 billion USD in 2015
• Market Cap - $389 billion USD Nov 8, 2016
• Top five by Market Cap (AAPL, Alphabet, MSFT)
• Revenue per employee: $1,091,151
• Digital Titan with tentacles everywhere
7

8. 8

9. Corporate culture
• World’s biggest startup
• Amazon has an ownership culture; there are no excuses and nothing
that's "not your job".
• If you are giving a great customer experience, the only way to do that
is with happy people
• “Our environment embraces a lot of change — we have to, because
the internet is changing and the technologies we use are changing,”
he said. “… For somebody who hated change, I imagine high tech
would be a pretty bad career. It would be very tough.
• Gold standard culture for innovation and pioneering work
9

10. 10

11. 11

12. $17,930.00
$74,980.00 $107,000.00
$233,720.00
$1,412,812.23
$1,212,993.82
$463,604.85
$2,032,347.83
$0.00
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
Facebook Alphabet Amazon Apple
Digital Titans
Revenue ($b) Rev/Emp
12

13. 13
Source: Zerohedge

14. Why spend on R&D?
• Future growth areas
• AWS subsidizes a lot of spending
• Improve absorptive capacity
• Keep company relevant by making sense of technology
• Help integrate distributed capabilities
14

15. A Digital Titan
• Online Services
• Amazon Prime
• Amazon Video
• Amazon Cloud Drive & Cloud Player
• Amazon Web Services
• Amazon Fresh & Amazon Prime Pantry
• Amazon Dash
• Other Brands
• Alexa.com, DPReview,
• Box Office Mojo, AbeBooks,
• Double Helix Games, Brilliance Audio,
• Shelfari, and
• Beijing Century Joyo Courier Services.
• Consumer Electronics
• Amazon Kindle
• Amazon Echo
• Fire TV
• Subsidiaries
• Audible
• CreateSpace
• A9.com
• Goodreads
• Woot
• IMDb
• Zappos
15

16. 16

17. 17

18. 18

19. 19

20. 20

21. 21

22. Brown boxes and APIs
• This year, Amazon became the fastest company ever to reach $100
billion in annual sales. Also this year, Amazon Web Services is
reaching $10 billion in annual sales … doing so at a pace even faster
than Amazon achieved that milestone.
• One is famous for brown boxes and the other for APIs
• [From the 2015 Annual Report]
22

23. Three pillars of Amazon.com
• Prime
• Marketplace
• AWS
23

24. How are the three related?
• I’m talking about customer obsession rather than competitor
obsession, eagerness to invent and pioneer, willingness to fail, the
patience to think long-term, and the taking of professional pride in
operational excellence.
24

25. • Amazon has roughly 220 million customers with registered payment
credentials
• In 2005, Amazon Prime started a $79 annual subscription for “free” two-
day delivery nationwide for an unlimited number of orders.
• In 2011, Amazon added a Netflix-like video streaming service to the Prime
package
• In January 2014, the company decided to produce 12 movies this year and
signed Woody Allen to direct his first TV series
• Access to a digital library of over 600,000 e-books for no additional cost,
unlimited photo storage and a music streaming service
• Prime members said they spent an average of $625 annually with Amazon,
far more than the $320 by non-Prime members.
25

26. Prime facts
• Average Prime user spends $625 per year (Business Insider).
• 20 million products are available for Amazon Prime (Recode.net).
• 78% of consumers pay for Amazon Prime to get free two-day shipping (eMarketer).
• 11% of Baby Boomers use Amazon Prime (eMarketer).
• 16% of Generation X uses Amazon Prime (eMarketer).
• 19% of Millennials use Amazon Prime (eMarketer).
• 30% of online shoppers in the U.S. have a Prime membership (Forbes).
• Amazon loses between $1 to $2 billion on shipping Prime goods each year (Forbes).
• 49% of Prime members spend $800 or more per year (Business Insider).
• 41% of Prime members exceed $800 in spending during the first year (Business Insider).
• Prime uses a free shipping threshold that starts at $35 per purchase (Fast Company).
26

27. 27

28. 28

29. 29
Echo in Sep, 2015

30. Amazon.com: the Hidden Empire - Update 2013
30

31. 31
The internal teams at Amazon required a set of common infrastructure
services everyone could access without reinventing the wheel every time,
and that’s precisely what Amazon set out to build — and that’s when they
began to realize they might have something bigger.
-- Andy Jassy, AWS CEO

32. 32

33. Does it make sense for Amazon to be in all
these areas?
• Why? • Why not?
33

34. Amazon.com: the Hidden Empire - Update 2013 34

35. 35

36. 36

37. Amazon.com: the Hidden Empire - Update 2013 37

38. Who is a digital customer?
• Digital customers use digital channels — Web, mobile and social — to
consume content, engage with brands and complete a transaction.
[Gartner 2017]
38

39. Analog vs. digital
• Are you defined by the sum of all your digital interactions?
• Increased computing power and connectivity are making it possible to
virtualize the task of monitoring by creating and maintaining a digital
representation, or “digital twin”, of any piece of real equipment, and
thus of any plant or engine.
• Create, test and build our equipment in a virtual environment. Only
when we get it to where it performs to our requirements do we
physically manufacture it. We then want that physical build to tie back
to its digital twin through sensors so that the digital twin contains all
the information that we could have by inspecting the physical build
39

40. Would this idea work?
40
For people? For machines?

41. How are Digital Customers different?
• Information attributes define the customer
• UI/UX is the new customer intimacy
• Shared tastes are the new segments
• Every interaction from thought to finish is captured
• Product continually modified
• Perfect transactional memory
• Service independent of giver
41

42. Amazon.com: the Hidden Empire - Update 2013 42
+ Participate in multiple ecosystems

43. Amazon.com: the Hidden Empire - Update 2013 43

44. 44Amazon.com: the Hidden Empire - Update 2013

45. 45Amazon.com: the Hidden Empire - Update 2013

46. 46

47. 47
Culture of Experimentation

48. Digital Titan in multiple ecosystem
• Simultaneous participation in multiple sectors
• Transfer learning across ecosystems
• Third-party developers across ecosystems
• Customer data across ecosystem
• Reuse software
• Reuse UX/UI
• Fast experimentation
48

49. Run by algorithms
• Corporate culture driven by algorithms link
• Anytime feedback tool
• Recommender systems
• Warehouse robotics
• Sick inspector P30
• Delivery by drone
49

50. 50

51. Future plans
51

52. 52

53. 53

54. 54

55. 55

56. 56

57. 57

58. Race to dominate the Smart Home Ecosystem
58

59. What’s next for Amazon?
• Workforce development
• Prime Day
• AWS
• Google Home vs Amazon Echo
• Platform, complementor or ecosystem?
• As more benefits hook more subscribers on Prime and continue to
grow Amazon's business — to 60 million Prime subscribers in the US
and 100 million internationally, as estimated by RBC Capital —
Amazon gains the ability to experiment with even more services.
59