The Business Value of Information Systems. Case Study: Amazon.Com

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Amazon.com
In 1994, with a handful of programmers and a few thousand dollars in workstations and servers, Jeff Bezos set out to change the retail world when he created Amazon.com (ticker: AMZN). Shel Kaphan, Amazon’s first programmer, assisted by others, including Paul Barton-Davis, used a collection of tools to create Web pages based on a database of 1 million book titles compiled from the Library of Congress and Books in Print databases. Kaphan notes that “Amazon was dependent on commercial and free database systems, as well as HTTP server software from commercial and free sources. Many of the programming tools were free software” [Collett 2002]. In July 1995, Amazon opened its website for sales. Using heavily discounted book prices (20 to 30 percent below common retail prices); Ama-zon advertised heavily and became the leading celebrity of the Internet and e-commerce. Sales and Relationships

Amazon made its initial mark selling books, and many people still think of the com-pany in terms of books. However, almost from the start, the company has worked to expand into additional areas—striving to become a global retailer of almost anything. Some of the main events include: 1995 books, 1998 music and DVD/video, 1999 auctions, electronics, toys, zShops, home improvement, software, and video games [1999 annual report]. By the end of 1999, the company had forged partnerships with several other online stores, including Ashford.com, Audible, Della.com, drugstore.com, Gear.com, Greenlight.com, HomeGrocer.com, Kozmo.com, living.com, NextCard.com, Pets.com, and Sothebys. Of course, most of those firms and websites later died in the dot-com crash of 2000/2001. Amazon also established partnerships with several large retailers, including Target, Toys ‘R’ Us, Babies ‘R’ Us, and Circuit City. Effectively, Amazon became a service organiza-tion to manage the online presence of these large retailers. However, it also uses its distri-bution system to deliver the products. The Circuit City arrangement is slightly different from the others—customers can pick up their items directly from their local stores [Heun August 2001]. By mid-2003, the Web sales and fulfillment services amounted to 20 percent of Ama-zon’s sales. Bezos points out that most companies realize that only a small fraction of their total sales (5 to 10 percent) will come from online systems, so it makes sense to have Ama-zon run those portions [Murphy 2003]. In 2001, Amazon took over the website run by its bricks-and-mortar rival Borders. In 2000, Borders lost $18.4 million on total online sales of $27.4 million [Heun April 2001]. Also in 2001, Amazon partnered with Expedia to offer travel services directly from the Amazon site. However, in this case, the Amazon portion consists of little more than an ad-vertising link to the Expedia services [Kontzer 2001]. The deals in 2001 continued with a twist when Amazon licensed its search technology to AOL. AOL invested $100 million in Amazon and pays an undisclosed license fee to use the search-and-personalization service on Shop@AOL [Heun July 2001]. In 2003, Amazon launched a subsidiary just to sell its Web-sales and fulfillment technology to other firms. Bezos noted that Amazon spends about $200 million a year on information technology (a total of $900 million to mid-2003). The purpose of the subsidiary is to help recover some of those costs—although Bezos believes they were critically necessary expenditures [Murphy 2003]. With so many diverse products, and relationships, it might be tempting to keep eve-rything separate. However, Amazon perceives advantages from showing the entire site to customers as a single, broad entity. Yes, customers click to the various stores to find indi-vidual items. But, run a search and you will quickly see that it identifies products from any division. Additionally, the company is experimenting with cross sales. In 2002, the Project Ruby test site began selling name-brand clothing and...
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