Encyclopedia of Computer Science and Technology

Amazon.comExpansion and ProfitabilityBecause of its desire to build a very diverse product line,Amazon.com, unusually for a business startup, did notexpect to become profitable for about five years. The growingrevenues were largely poured back into expansion.In the heated atmosphere of the Internet boom of thelate 1990s, many other Internet-based businesses echoedthat philosophy, and many went out of business followingthe bursting of the so-called dot-com bubble of theearly 2000s. Some analysts questioned whether even thehugely popular Amazon.com would ever be able to convertits business volume into an operating profit. However,the company achieved its first profitable year in 2003(with a modest $35 million surplus). Since then growthhas remained steady and generally impressive: In 2005,Amazon.com earned $8.49 billion revenues with a netincome of $359 million. By then the company had about12,000 employees and had been added to the S&P 500stock index.In 2006 the company maintained its strategy of investingin innovation rather than focusing on short-term profits.Its latest initiatives include selling digital versions ofbooks (e-books) and magazine articles, new arrangementsto sell video content, and even a venture into moviemaking.By year end, annual revenue had increased to $10.7 billion.In November 2007 Amazon announced the Kindle, abook reader (see e-books and digital libraries) with asharp “paper-like” display. In addition to books, the Kindlecan also subscribe to and download magazines, contentfrom newspaper Web sites, and even blogs.As part of its expansion strategy, Amazon.com hasacquired other online bookstore sites including Borders.comand Waldenbooks.com. The company has also expandedgeographically with retail operations in Canada, the UnitedKingdom, France, Germany, Japan, and China.Amazon.com has kept a tight rein on its operations evenwhile continually expanding. The company’s leading marketposition enables it to get favorable terms from publishersand manufacturers. A high degree of warehouse automationand an efficient procurement system keep stock movingquickly rather than taking up space on the shelves.Information-Based StrategiesAmazon.com has skillfully taken advantage of informationtechnology to expand its capabilities and offerings. Examplesof such efforts include new search mechanisms, cultivationof customer relationships, and the development ofnew ways for users to sell their own goods.Amazon’s “Search Inside the Book” feature is a goodexample of leveraging search technology to take advantageof having a growing amount of text online. If the publisherof a book cooperates, its actual text is made available foronline searching. (The amount of text that can be displayedis limited to prevent users from being able to read entirebooks for free.) Further, one can see a list of books citing(or being cited by) the current book, providing yet anotherway to explore connections between ideas as used by differentauthors. Obviously for Amazon.com, the ultimatereason for offering all these useful features is that morepotential customers may be able to find and purchase bookson even the most obscure topics.Amazon.com’s use of information about customers’buying histories is based on the idea that the more oneknows about what customers have wanted in the past, themore effectively they can be marketed to in the futurethrough customizing their view of the site. Users receiveautomatically generated recommendations for books orother items based on their previous purchases (see alsocustomer relationship management). There is even a“plog” or customized Web log that offers postings relatedto the user’s interests and allows the user to respond.There are other ways in which Amazon.com tries toinvolve users actively in the marketing process. For example,users are encouraged to review books and other productsand to create lists that can be shared with other users.The inclusion of both user and professional reviews in turnmakes it easier for prospective purchasers to determinewhether a given book or other item is suitable. Authors aregiven the opportunity through “Amazon Connect” to provideadditional information about their books. Finally, inlate 2005 Amazon replaced an earlier “discussion board”facility with a wiki system that allows purchasers to createor edit an information page for any product (see wikisand Wikipedia).The company’s third major means of expansion is tofacilitate small businesses and even individual users inthe marketing of their own goods. Amazon Marketplace,a service launched in 2001, allows users to sell a variety ofitems, with no fees charged unless the item is sold. Thereare also many provisions for merchants to set up online“storefronts” and take advantage of online payment andother services.Another aspect of Amazon’s marketing is its referral network.Amazon’s “associates” are independent businessesthat provide links from their own sites to products on Amazon.For example, a seller of crafts supplies might includeon its site links to books on crafting on the Amazon site. Inreturn, the referring business receives a commission fromAmazon.com.Although often admired for its successful business plan,Amazon.com has received criticism from several quarters.Some users have found the company’s customer service(which is handled almost entirely by e-mail) to beunresponsive. Meanwhile local and specialized bookstores,already suffering in recent years from the competition oflarge chains such as Borders and Barnes and Noble, haveseen in Amazon.com another potent threat to the survivalof their business. (The company’s size and economic powerhave elicited occasional comparisons with Wal-Mart.)Finally, Amazon.com has been criticized by some laboradvocates for paying low wages and threatening to terminateworkers who sought to unionize.Further ReadingAmazon.com Web site. Available online. URL: http://www.amazon.com. Accessed August 28, 2007.Daisey, Mike. 21 Dog Years: Doing Time @ Amazon.com. New York:The Free Press, 2002.Marcus, James. Amazonia. New York: New Press, 2005.