1. Business Model of Amazon.com
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Amazon.com is the pioneering bookstore on the Internet that first opened in July 1995 by Jeff Bezos.
The firm offers online shopping services and partnership opportunities such as online search for
books, music and video items. The products that they sell include an array of audio, video and book
titles. Amazon has one of the widest selections and employs international shipping to virtually every
corner of the globe in just a few days.
Amazon’s focus is having the biggest selection of free-electronic greeting cards, online auction and
millions of books, CDs, videos, DVDs, toys and electronics. They have expanded to different areas of
the world, such as Amazon.co.uk and Amazon.de, to service consumers outside of the United States.
They aim to be a Cost leader in which their firm has lower costs than the competitors. They have
employed different Amazon branches in different parts of the world to lower costs. This allows Amazon
to ship their products at a lower price from each point of shipment to the consumer.
In recent years, Amazon.com has expanded from being just an online bookstore to an all around
online shopping experience. They have coined the tag line "Earth’s biggest selection". Amazon has
diversified into different websites. These are the Internet Movie Database (www.imdb.com),
LiveBid.com, amazon.livebid.com, drugstore.com (an online retail and information about health and
wellness), gear.com (online sporting goods company), homegrocer.com (online grocery shopping and
delivery), pets.com (largest pet supply online shopping site), ashford.com (online luxury and premium
shopping) and eZiba.com (online retailer of handcrafted products).
Five Forces Model for Industry Analysis
New Entrants
The online bookstore industry that Amazon.com has pioneered in was, at first, very hard to penetrate.
There were different barriers such as distributing capabilities and the variety of the selection offered
that are supposed to be hurdled. Amazon successfully solved the tricky parameters as being the first
one to get into the whole idea of online retail. With being the first, they had the luxury to set what were
the norms for the industry. Factors that may lower these barrier tactics would be a wider selection and
the ability to go to an actual bookstore to exchange or return books or other products. This network of
"actual" retail spaces makes it easier for the consumer to return or exchange the products they were
not satisfied with. These handicaps of Amazon were the basis for the emergence of book retail giants
Barnes and Noble and Borders in the online shopping industry.
Industry Competitors
The major competitors of Amazon are Barnes and Noble and Borders. Barnes and Noble is a retail
giant offering books and CDs both in their outlets all over the country. It opened their online industry in
1997 and has become the fourth largest e-commerce sites today.
Focused largely on the sale of books, music, software, magazines, prints, posters, and related
products, the company has capitalized on the recognized brand value of the Barnes & Noble name to
become the second largest, and one of the fastest growing, online distributors of books. Their
"advantage" to Amazon is the brand name and the availability of actual retail outlets in which
consumers could go in to exchange or return products easily. They also have an established book
selection based in their retail operations.
Borders is another multi-media retail store found in major cities around the country. Started out as a
small bookshop in the college town of Ann Arbor, Michigan, it has since expanded into one of the
finest bookstores. In 1992, Borders was bought by the Kmart group which further flourished the
company into a Multi Media Giant with a wide selection of Audio, Video and Books found throughout
the United States.

2. The Online Bookstore industry have become a fierce business which involves discounts, varied
selections and fast delivery in which all three companies are challenging each other.
Buyers
The consumers of this industry can be found in every corner of the population. These are mostly
people who have had some form of higher education and have access to the Internet and computers.
The segment of online shoppers has increased dramatically in recent years due to the convenience of
shopping in the comforts of the home and the accessibility of the Internet. These developments have
made it easier for consumers to log on and buy on the Internet. Consumers also tend to compare
prices among the retail leaders such that buyers are able to buy products with very big discounts
compared to ones bought in "actual" retail outlets. The bargaining power of the consumer is based on
the competitive strategies of each active firm in the industry. Thus, consumers can challenge one firm
for charging more than the other one such that the firm will beat the price of the competing firm.
Suppliers
Amazon’s suppliers range from the publishing and media houses to electronics’ manufacturers.
Amazon buys all their books, videos and audio CDs from the multi media houses and publishing giants
such as Time Warner, Doubleday etc. Amazon also has alliances with other bookstores to cover
orders that they cannot serve.
Substitutes
The substitutes for Amazon and other online bookstores are the "actual" book retailers and music
stores such as Barnes and Nobles, Virgin Megastore, Tower Records, Sam Goody and other small
mom-and-pop outlets. With the rise of online retail, there will be little impact from these substitutes.
One impact would be some consumers who would like to hold or listen to their purchases prior to
buying and those who are into the whole "shopping experience". Barnes and Nobles have jumped into
online retail and have succeeded into diversifying into the new e-commerce industry.
Industrial Organization Model
Degree of Competition
Due to the shift of focus for Amazon, it has become the "Earth’s biggest anything store". Its
competitors have expanded from just online book retailers Barnes and Nobles and Borders to top
audio retailers CDNOW.com and online auction house EBAY.com. Amazon has an overall lead of
40% market share against the other online retail firms. Their international business has more than
doubled over the past 2 years and this growth increased Amazon’s share in the online business
market.
Life Cycle
Amazon, in it’s first years, had negative income but the rise of e-commerce sites and being the pioneer
made the succeeding years led to boom time for them. Their growth period was during 1994 to 1995
when they were the first of its kind in the world. They incurred very high costs in terms of distributions
to customers. Still with a negative income, Amazon went public in 1997 and had one of the biggest
IPOs of the time. With investors banking on future positive cash flow for this company, Amazon’s
market value soared. Many people caught on with the idea of online shopping, thus, Amazon’s
success. Amazon’s success as an online retailer prompted bricks-and-mortar rivals Barnes and Noble
and Borders to join in. Competition decreased Amazon’s profitability so in the past couple of years,
Amazon has expanded to more than books, audio and video to electronics and other retail concepts.
Social Relevance

3. Amazon’s products are marketed for every consumer possible. Books, audio, video and electronics
are appreciated by majority of the population especially those who have access to the Internet.
Amazon is active in pursuing literacy programs for young children by collaborating with the makers of
the Dr. Seuss books. They have actively participated in the Dr. Seuss shops, story telling sessions and
Dr. Seuss days.
Degree of Globalization
Amazon’s strength internationally lies within its networks in major ports and cities around the Globe.
Amazon first started out in Seattle but as soon as they have established a niche market, they have
opened shop all over the nation and in cities such as London, Berlin, The Hague, Paris, Tokyo,
Singapore and many more. These branches overseas improves their delivery service to a wide
consumer base.
Extent of Government Control
There has not been many government regulations regarding online retailing. A group of CEOs whose
firms that are engaged in such practices have formed an organization called Global Business
Dialogue. This GBD group supports the development of a seamless global system that delivers the
broadest array of goods and services to the largest number of consumers at the most competitive
prices. This work effort will: offer recommendations to the WTO, including making the moratorium on
online tariffs permanent; and collaborate with governments to target and eliminate discriminations
against, or other non-tariff barriers to global trade in, electronic commerce. This working group will also
provide an avenue for the GBDs to consider and promote the growth of the electronic marketplace in
an environment unencumbered by detrimental taxation.
Degree of Vertical Integration
Amazon’s primary value chain includes purchasing/sourcing, marketing, distribution and after-sales
services, which includes returns and exchanges from unsatisfied customers. Their main focus is in the
purchasing/sourcing and in the distribution of the products to the consumers. Their investments are
therefore, geared towards warehouses in key points of high consumer demand areas and an efficient
delivery and distributing system to service all its consumers. Thus, Amazon controls most of its
distributing system that spans across borders.
Inter Organization of Network Economics
Amazon in its efforts to sustain its market leadership in the online retailing industry has tied up with
various online organizations. Netscape Navigator and Amazon will offer members of Netscape
Netcenter a co-branded storefront where Earth's Biggest Bookstore will be easily accessed through
Netscape Netcenter (home.netscape.com). In addition, Amazon.com has multi-year exclusive and
premier bookseller relationships with 5 of the top 6 sites on the World Wide Web: AOL.com, Yahoo!,
Netscape, GeoCities, and Excite. These partnerships widen Amazon’s presence in the World Wide
Web.
Sensitivity to Business Cycles
The Online retailing business has a very quick cyclical growth. Amazon being one of the firsts to
venture in this type of commerce are all ready in what seems to be in their decline stage where market
share is declining. Therefore, Amazon is expanding to different industries within online retailing.
Amazon and other online retailing firms are very sensitive to business cycles due to the speed of
technology involved in the services they offer.
Dynamics of New Knowledge Generation
Online retailing relies on the work of an excellent distribution system. Amazon has invested their
money into expanding their network of distribution centers around the globe. They also have

4. investments in creating better technology for tracking orders and giving efficient delivery systems for
their customers.
Amazon.com has remained on top of the online retailing business despite the entrance of giants such
as Barnes and Nobles and Borders. Their success is attributed to two factors; timing and continuing to
invest heavily into the inventory and distribution systems. Amazon, by being the first of its kind, has a
big lead over the nearest competitors due to their experience and its reputation as the first movers.
Their thrust remains on improving efficient delivery systems across borders and to build name
recognition as the number one retailing firm in the Internet. They have also ventured into different retail
options to keep that lead. Marketing, Innovative inventory and distribution systems, and name recall
have helped Amazon build a sustainable competitive advantage.
In order for any online retail company to remain prosperous and income generating, they must invest a
lot of time and money into research and development of more efficient operations and distributions
systems. This proved to be key for the Market Leader in online retailing, Amazon.Com.
Mary Grace Velasco,College of Business Administration,Senior, Fordham University,Fall 2000