Customer Fulfillment in the Digital Economy Amazon.Com

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Customer Fulfillment in the Digital Economy

Amazon.com

E-tail Customer Fulfillment Networks Pioneer
“The logistics of distribution

Scorecard

are the iceberg below the
waterline of online bookselling.”1

B-web type

—Jeff Bezos,
founder and CEO, Amazon.com

• Aggregation (e-tail) /Agora
(auctions, Zshops) hybrid model

KEY PARTICIPANTS

“Ten years from now, no one
will remember whether

Consumers and business buyers

Context providers




Content providers



Amazon.com and small online
merchants (Amazon.com
associates, Zshops, auctions)
Suppliers and b-web partners
(publishers; producers [OEM];
distributors e.g. Ingram Micro,
Baker & Taylor Books, and others)

Customers

Amazon.com spent an extra
$100,000 upgrading shipping
from the West Coast to the East
Coast. All that will matter is
whether electronic commerce



gave people a good or bad
experience.”2
—David Risher,
senior vice president for
merchandising, Amazon.com

Commerce services



Infrastructure providers






“This [the Amazon.com
distribution warehouses and
CFN] is the fastest expansion of
distribution capacity in
peacetime history.”3
—Jeff Bezos,
founder and CEO, Amazon.com

Offering







Amazon.com and online
merchants (Amazon.com
associates, Zshops, auctions)

Amazon.com and merchants
participating in auctions and
Zshops
Third party shippers (UPS & USPS)
Amazon.com
Drop shippers such as Ingram
Technology providers such as
Oracle, Net Perceptions, and i2
Technologies
Third party shippers (UPS, USPS)
The largest online e-tailer of books,
music, videos, toys, and gifts
Recently expanded service offering
to include auctions (March 1999)
and Zshops (September 1999)—an
aggregation of merchants on its
Web site
Aspires to become a one-stop shop
for merchandise on the Web

CFN value proposition



“Earth’s largest selection” of
merchandise at competitive prices,
a validated product assortment,
and consistent customer service
from “home page to home
delivery”–24/7

URL



http://www.amazon.com

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1.1

Customer Fulfillment in the Digital Economy

Amazon.com

few barriers to entry—but one of those barriers is
customer fulfillment. In 1996–97, Amazon.com was
largely alone in the e-tailing business. Now the Web is
teeming with e-tailers like buy.com (which aggressively
undercuts everyone else, including Amazon.com),
CDNow, and barnesandnoble.com. There are also Web
portal-run malls, many of which are copying and
offering features (like the renowned “one-click
shopping”) that have thus far differentiated
Amazon.com. Yahoo’s online mall offers 7,000 stores
with over four million items and walmart.com’s planned
debut in 2000 poses a significant threat. Amazon.com’s
first mover advantage, e-brand equity, and initial cost
advantages (stemming from lack of investments in
prime real estate for storefronts) are gradually eroding.
Its margins are falling, while operating expenses from
mergers and acquisitions are increasing. As of the end of
1999, Amazon.com expected to post approximately $600
million in losses for the year, at a time when growth in
book sales is falling (from about 800% in 1997 to a little
over 100% in 1999). On the plus side, customer
retention rates exceeded 72% in the third quarter of
1999.8 But average revenue per customer in 1998 was
$98.4, while average selling, general and administrative
(SG&A) and distribution costs per customer (excluding
cost of goods sold) were about $71.30, leading to an
average net earnings loss of around 21%.9

Amazon.com
Founder Jeff...
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