Case: Amazon.com In 1994, a 29-year-old financial analyst and fund manager named Jeff Bezos became intrigued by the rapid growth of the Internet. Looking for a way to capitalize on this hot new marketing tool, he made a list of 20 products that might sell well on the Internet. After some intense analysis, he determined that books were at the top of that list. Although Bezos liked the name Abracadabra, he decided to call his online bookshop Amazon.com. Today, Amazon.com has more than 40 million customers and sells billions of dollars worth of all types of merchandise. When he started, Bezos had no experience in the book-selling business, but he realized that books had an ideal shipping profile for online sales. He believed that many customers would be willing to buy books without inspecting them in person and that books could be impulse purchase items if properly promoted on a Web site. By accepting orders on its Web site, Bezos believed that Amazon.com could reduce transaction costs in the sale to the customer. More than 4 million book titles are in print at any one time throughout the world, and more than 1 million of those are in English. However, the largest physical bookstore cannot stock more than 200,000 books and carries even fewer titles because bookstores stock more than one copy of each title. Having a wide selection was important because Bezos believed it would help create a network economic effect. People would visit Amazon.com whenever they wanted to buy a book because it would be the most likely store (physical or online) to have a particular title. After becoming satisfied customers, people would return to Amazon.com to buy more books and would eventually stop looking elsewhere. The structure of the supply side of the book business was equally important to Amazon.com’s success. Music CDs, which were second on Bezos’ list, were produced by a few major recording companies who could easily control Amazon.com’s supply. In contrast, there were a large number of book publishers, none of which held a dominant position in the book-selling marketplace. Thus, it was unlikely that a single supplier could restrict Bezos’ supply of books or enter his market as a competitor. He decided to locate his firm in Seattle, close to a large pool of programming talent and near one of the largest book distribution warehouses in the world. These supply factors were important because Bezos wanted to develop efficiencies that would allow Amazon.com to reduce transaction costs for its purchases as well as its sales transactions. Bezos encouraged early customers to submit reviews of books, which he posted with the publisher’s information about the book and with reviews written by Amazon.com employees. This customer participation served as a substitute for the corner bookshop staff’s friendly advice and recommendations. Bezos saw the power of the Internet in reaching small, highly focused market segments, but he realized that his comprehensive bookstore could not be all things to all people. Therefore, he created a sales associate program in which Web sites devoted to a particular topic, such as model railroading, could provide links to Amazon.com books that related to that topic. In return, Amazon.com remits a percentage of the referred sales to the owner of the referring site. Although Bezos’ original vision was to create an online bookstore with the world’s best selection, Amazon has moved into other product lines where opportunities for network economic effects and transaction cost reductions looked promising. In 1998, Amazon.com began selling music CDs and videotapes. The Web site’s software can track a customer’s purchases and recommend similar book, CD, or video titles. In fact, the site can recommend related products in a variety of product categories now sold on Amazon.com. These product categories include consumer electronics, computers, toys, clothing, art, tools, hardware, housewares, furniture, and car parts. By paying attention to every process involved in buying, promoting, selling, and shipping consumer goods, and by working to improve each process continually Bezos and Amazon.com have become one of the first highly visible success stories in electronic commerce. In fact, Amazon.com now generates significant revenue by supplying other sellers of consumer goods with the technology to sell those goods online. One of its first partnerships was with Toys R Us, a company that had experienced difficulties in selling online and making deliveries on time in the 1999 holiday shopping season. Toys R Us signed an agreement with Amazon.com in 2000 that placed Toys R Us products on the Amazon.com Web site. Amazon.com would accept the orders on its Web site and would ship products to customers for Toys R Us in exchange for a percentage of each sale. Amazon.com also agreed not to sell toys itself or on behalf of other partners for whom it might provide online sales services in the future. For example, when Amazon agreed to sell Target products online, it could not sell Target’s toy lines on its Web site. (Target is the third largest toy retailer in the world, behind Wal- Mart and Toys R Us.) In addition to the online sales services Amazon.com provides to Toys R Us, Target, Borders, CDNow, and other large companies, it provides similar services to many smaller companies with its zShops offering. In zShops, small retailers become members of an online shopping mall on Amazon’s site. Toys R Us sells more than $300 million worth of toys each year through the Amazon.com site. Both Toys R Us and Amazon.com benefit from the network economics effect they obtain by having toys available for sale on Amazon.com’s well-known electronic commerce site. Many small retailers in the zShops program who sell toys also benefit because shoppers visit the Amazon.com site looking for toys.When a site visitor searches for a toy, the zShops retailers’ offerings are presented on the search results page along with results from Toys R Us, Amazon.com, and other companies for which Amazon.com provides online sales services. Required: 1. In 2004, Toys R Us sued Amazon.com for violating terms of the agreement between the companies (specifically, Toys R Us objected to Amazon.com’s permitting toys to be sold on its zShops Web pages). Amazon.com responded by filing a countersuit. Prepare a report of about 200 words in which you summarize the current state of the litigation. 2. Outline the advantages and disadvantages that Amazon.com would have considered before it made the agreement with Toys R Us to limit competing toy sales. In about 200 words, summarize these advantages and disadvantages, then evaluate Amazon.com’s decision to enter such an agreement. 3. In about 200 words, outline specific recommendations to Amazon.com for negotiating a settlement with Toys R Us that would benefit both companies Here's the Assignment requirement You are a Professional Consultant with a professional consulting firm that has been chosen to study a specific situation and report your findings and recommendations. At the end of each chapter in the text there are two case studies, marked “C1” and “C2”. Choose one from any chapter and prepare a 3 page analysis that includes the following elements: Introduction An overview of the facts of the case. Analysis Any additional research to expand knowledge of the situation. Recommendations Make recommendations that consider the facts of the case, your additional research, analysis of the costs and benefits of your proposed solutions. You may use the questions at the end of the cases as a format, but I want you to EXPAND on them to include the above as well. Note! Use the internet! Use Google to help you find more information. Cite articles and web sites from your internet research. Suggest links where the reader can find more information.
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