Case Study: Amazon.com – on the Brink of Bankruptcy

2. 2
1 CASE SYNOPSIS 2 3 4 5
Started as
“Earth’s biggest
bookstore” in
1994
Raised $50
Million via IPO
in 1997
Explored new
business
models,
auctions &
marketplaces in
1999
Shifted to
traditional
retailers after
fall in GP in
2000
• Deep E-commerce expertise
• Despite declining stock prices, number
of customers continued to rise
• Closed down online toys store &
partnered with Toys R Us in 2000
• Lehman Bros report negative Credit
Rates
Gross
Profit
Margin
24%
18%

3. 3
1 PROBLEM DEFINITION2 3 4 5
Can Amazon
become Cash
Flow positive by
2001?
Will revenues &
Profits grow?
Could they
create &
sustain
value over
time?
Will returns
to investors
increase?
Sub-Problems:
• Simply growing revenues &
retaining customers will not work
• Strong competitors were lining up
• Investors expected returns

4. 4
1 2 3 4 5FISH BONE Diagram
# of customers
reached every week
# of stores in USA &
Canada
Profit
Cash Flow
Sustain value
Return to
investors
Competitors
lining up
Revenues
Operating
costs
Dividends
Brand
value
Ebay
Borrowing

5. 5
• Key challenge in late 2000s: achieve profitability by 2001 end.
• Problems intensified because of dot com stock market crash
and bankruptcy of online retails partners.
• Borrowed money $700 million.
• Partnered with Toys “R” Us.
• Entered into “Logistics services” business model.
• Combination of business models – Marketplace model,
Auction model and Retail.
• It could be the tipping point for Amazon.
1 2 3 4 5SITUATIONAL ANALYSIS

6. 6
•Reduce Operating Costs
•Increase the dividend
•Buy back the stocks
•More desirable shipping
•Opening new distribution centres
•Renting out Movies & books
•Manage Inventory
•Customer Service
1 2 3 4 5 RECOMMENDATIONS