The Brink of Bankruptcy

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LYNDA M. APPLEGATE
HARVARD
BUSINESS
SCHOOL
9 – 8 0 9 – 0 1 4 REV: NOVEMBER 18, 2013
Amazon.com: The Brink of Bankruptcy
We seek to offer the Earth’s Biggest Selection and to be the Earth’s Most Customer-Centric Company, where customers can find and discover anything they may want to buy online. — Jeff Bezos, CEO, Amazon.com, 20011
In early 2001, Amazon.com senior management faced tremendous pressures from Wall Street and the company’s shareholders to achieve profitability. Incorporated in 1994 as the “Earth’s Biggest Bookstore,” Amazon.com enjoyed several years of tremendous growth fueled by the “irrational exuberance” that characterized the launch of Internet commerce.2 The company’s successful initial public offering (IPO) on May 15, 1997 netted approximately $50 million, and the company quickly used that money and the capital associated with its soaring stock price to expand from an online retail bookstore into an online superstore offering books, music, videos, toys, videogames, consumer electronics, software, and a full line of kitchen and home improvement products. As a retailer, Amazon.com took ownership of the inventory it sold and, as its product line expanded, so too did the complexity of its warehousing, inventory management, distribution, and fulfillment. To manage complexity while still increasing scale, the company also began to explore new business models, initially adding auctions and an online marketplace where individuals and small businesses could leverage the company’s proprietary online retail infrastructure to gain access to millions of loyal customers. Finally, in 1998, Amazon.com began expanding this “marketplace” business model through a series of partnerships with online retail aggregators (for example, Drugstore.com, living.com, and pets.com). (Exhibit 1 provides a timeline of key events.) Even as it expanded its retail strategy and explored new business models, during the late 1990s the company also invested heavily to quickly develop the best-in-class retailing, fulfillment, and customer service capabilities required to support its rapidly growing and increasingly complex business. Senior executives were hired to provide the retail logistics and brand management expertise required. For example Bezos hired an executive from Microsoft, the CIO and a logistics executive from Wal-Mart, and a brand management executive from Black and Decker. These senior executives then drew on their networks to hire the talent needed to enable the fledgling company to “get big fast.” In addition, during 1998 and 1999, Amazon.com spent over $429 million to build a state-of-the-art digital business infrastructure and operations that linked nine distribution centers and six customer service centers located across the U.S. and in Europe and Asia. Built with rapid growth in mind, in late 1999 this distribution infrastructure provided roughly 70% to 80% overcapacity.3 But the surge in internet stock prices that fueled the meteoric rise in stock market valuations in the late 1990s turned to momentum selling during the latter half of 2000. Like most Internet businesses
Professor Lynda M. Applegate prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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This document is authorized for educator review use only by Justin Pierce, HE OTHER until July 2016. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

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