Case 1 – Amazon.com: The Brink of Bankruptcy
Summary:
Amazon. com is a global leader in online-retail. The company was born out of the tech boom of the 1990’s and founded by Jeff Bezos. Since its founding as an online bookseller, Amazon. com and drastically grown to expand its product offerings, fulfillment, and customer service. This growth required huge investments in technology and processes to support the complex business. Today, Amazon . com sells, or auctions, books, music, videos, toys, videogames, consumer electronics, software, and home products.
The company experience extraordinary growth during and after the tech boom with customers increasing from 14 million in 1999 to over 20 million in 2000. But with rising fulfillment costs, the company had not produced profits during these years. The challenge Bezos and Amazon. com faced was turning the company profitable before cash ran out and operations would have to cease or go bankrupt. In fact, were it not for the $318 million raised through stock options in 1999 and another $680 million borrowed in early 2000, the company surely would have run out of cash. Strengths: Amazon. com strengths begin in its roots.
Starting up in Seattle during the dot com bubble meant Amazon. com was entering a new industry from its earliest beginnings. And being located in Seattle meant the company had e-commerce’s top talent and leading experts nearby. The company’s next strength came from its decision to become a business that offered multiple product lines meeting various consumer needs. The talent and industry that Amazon. com was surrounded by made it easy for the company to switch from a bookseller to retailer by utilizing virtual resources versus traditional physical requirements such as store fronts and floor space.
The company also created a barrier to entry by being the first large online bookseller. With the incredible branding power and name recognition Amazon. com had developed it became difficult for other online booksellers to face the daunting task of attracting customers away from Amazon. com. Since Amazon. com had been in the industry from the beginning they developed an expertise for the online shopping experience through continuous improvement to its virtual storefront.
Moreover, its continuous technology innovation for retailing, fulfillment, and customer service made it difficult, at least during the beginning, for other companies to enter the industry and compete. Weaknesses: Weaknesses include a long period of not being profitable. This is dangerous to a company with such high cost because eventually they will have a cash flow problem. Another weakness could be argued that the company was too focused on growth and not enough on profitability, thus creating additional financial risk. Opportunities: Amazon. om’s largest opportunity is the broadening of their product line. The company experienced a huge return on investment with their branding; they can now leverage their name to sell other products to more and different customers. Lastly, with investments in technology for an e-commerce company, the opportunity for growth globally is quite large. With being one of the first-to-market for large online retailers, their start up investment cost for infrastructure will decline in relation to revenue which will in turn allow for greater profit margins in the future.
