Amazon. com, Inc. is the leading online retailer of books. The Earths Biggest Bookstore opened its virtual doors in July 1995 with a mission to use the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible1. Amazon still holds their commitment to customer satisfaction and the delivery of an educational and inspiring shopping experience in high regard today and it is now one of the most widely known, used and cited commerce sites on the World Wide Web (WWW). Amazon has grown rapidly since their inception.
The company experienced a surge is sales of 313% until 1998, supported by 8. 4 million customer accounts in over 150 countries, of which 60% accounted for repeat customers. Although the company has grown rapidly, it has incurred losses every year since then5. In January 2002, Amazon finally reported a net profit of $5 million3. They earned this profit by employing operational efficiencies, heads-down cost cutting, and savvy partnership deals. Amazon strives to offer its customers value through a broad selection of products, a high level of personalized customer service and competitive pricing.
Innovative uses of technology and the Internet enable the online book seller to offer millions of titles, easy-to-use search and browse features, email services, personalized shopping services, web-based credit card payments and direct shipping to customers. The company has since expanded their business to various other products such as electronic greeting cards, online auctions, CDs, videos, DVDs, toys and games, electronics, kitchenware, computers and more. Customers access this vast selection of merchandise through an efficient search interface.
Amazon is just one of a number of online booksellers that have used the Internet as a channel to reach potential consumers. Amazons idea of selling books online on such a grand scale, though, has brought online retailing to a new level. Following is a look at Amazons online retail process and how information systems played a role in the overall process. The main difference between traditional booksellers and online booksellers is that the online retailer does not have a physical presence. All interactions with the customer occur on the Internet, which is why customer focus is so critical.
Amazon holds the upper hand in that they have greater brand recognition and customer focus than their competitors. Amazon has been a customer-centric company since its inception and has devoted their efforts to ascertaining what the customer wants and has worked hard to fulfill the customers expectations. One example of Amazons customer focus is their excellent use of email communication with the customer before and after the customers purchase. Jeff Bezos, Founder and CEO of Amazon. com stated Weve gotten more feedback in the past four years than most traditional companies have in 40 years.
We use it to improve our services. One simple V and very effective V thing we do is to email a question to 3,000 randomly selected customers. Email in general in a very useful feedback mechanism2. In addition, they maintain a comprehensive database of their customers preferences, study this information, and then use it to provide one-click shopping, tailored recommendations and new book notifications. Another tool that Amazon uses to establish relationships with its customers is virtual communities whereby providing a platform for members to share their experiences, interact with each other and gain from their interaction.
Amazon also benefits from the use of these tools when the customer continues to visit their site for future purchases. In addition, there is a lower investment and better customer reach in this virtual online community. Once the customer places their order over the Internet from the convenience of his/her home, the order is sent to the online book retailer, which is then electronically forwarded to a wholesaler or directly to a publisher. The books are then shipped from the wholesaler directly to the customer, thereby eliminating the need to have a physical inventory of books5.
Although there are numerous advantages to this, there is also a disadvantage in that the online bookseller must pay the middle man for their services. In order to cut costs, Amazon decided to distribute its own inventory of books, some of which are purchased directly from publishers, in addition to utilizing rapid fulfillment from major distributors and wholesalers. Therefore, Amazon expanded its warehouse capacity and rented a 300,000 square foot distribution center in 1999 to reduce the companys reliance on overnight delivery services.
As a result, their inventory turnover is 10 times greater than that of rival Barnes and Noble thereby lowering inventory-carrying costs5. To this end, Amazon utilizes automated interfaces for sorting and organizing its orders to enable the most rapid and economic purchase and delivery terms possible. The companys proprietary software selects the orders that can be filled via electronic interfaces with vendors and forwards remaining orders to its special orders group.
The electronically-ordered books are shipped by the distributor within hours of receipt of an order from Amazon. com5. The primary advantages of this distribution network are the reduced handling costs of inventory for Amazon and the ease of ordering and price discounts for the customer. Honing its process allowed for fewer items to be put in the wrong locations in its distribution centers thereby shipping 35% more units with the same number of people, which cut fulfillment expenses by $22 million, or 17%, from 1999 to 20003.
Amazon also utilizes its information systems to place advertising banners at their partners sites like Yahoo, Altavista, etc. When a potential customer searches for a topic, an advertising banner appears alongside the results of the search. When the potential customer clicks on the banner, the books related to the search appear at no additional cost to the customer. The advantage to Amazon is that they get the potential customer to their Web site, which is probably the most valuable tool as it is the customers first interface with the company. The following outlines Amazons Web site.
The home page is arranged in a simple, easy-to-use fashion and presents a variety of products and information of topical or current-event interest. When a repeat customer visits this site, they are greeted by name as well as receive recommendations specifically tailored to their needs/wants. The primary feature of the Amazon. com Web site is its interactive, searchable catalog of millions of titles. Amazon provides a selection of search tools to find books and other products based on title, subject, author, keyword, publication date or ISBN as well as more complex and precise search tools.
Amazon. coms Web page also offers numerous forms of reviews and content to aid customers in their search, enhance their shopping experience, and encourage purchases. These are in the form of book cover images, synopses, author interviews, and reviews by authors and other readers. Availability and delivery options also play an important role on the Web site. Many of the titles are available for shipment within 24 hours, with others available within 48 to 72 hours and customers may select from a variety of delivery options.
In addition, once the customer has placed their order by using their electronic shopping cart, Amazon emails the order status to the customer. Behind the scenes, Amazons Web pages are maintained by Linux servers running Red Hats Stronghold Web server. Amazon switched their servers in 2001, which enabled them to cut technology expenses by about 25 percent, from $71 million to $54 million4. Continued uninterrupted operation of the companys Web site is of utmost importance since this is the only interaction they have with the customer.
Therefore, Amazon. com uses three Internet service providers, UUNet Technologies, Inc. , InterNAP Network Services LLC and Interconnected Associates, Inc. , to obtain connectivity to the Internet over multiple dedicated lines. In addition, Amazon has implemented an array of site management, search, customer interaction, transaction-processing, order fulfillment services and systems using a combination of its own proprietary technologies and commercially available technologies.
They use a set of applications for accepting and validating customer orders, organizing, placing and managing orders with suppliers, managing inventory, assigning inventory to customer orders and managing shipment of product. The companys transaction-processing systems handle millions of items, a number of different availability statuses, gift-wrapping requests and multiple shipment methods and allow the customer to choose whether to receive single or several shipments based on availability. These applications also manage the process of accepting, authorizing and charging customer credit cards.
The Web site also incorporates a variety of search and database tools5. By using these types of software to more accurately forecast purchasing patterns by region, Amazon slashed inventory levels by $31 million, or 18%, in the fourth quarter of 20012. One of the most controversial issues regarding Amazons technological enhancements was the purchase of Alexa Internet in April 19995. Alexa developed a Web navigation service that works with Internet browsers to provide useful information about the sites being viewed and thereby suggests related sites.
This tool provides Amazon the ability to monitor customers as they surf the Web. This technology was expected to improve customer loyalty by making Amazons Web site easier to navigate, however, it is being viewed as an invasion of privacy and, therefore, has been under attack. Additional partnerships with Toys R Us and Target were deemed profitable when they brought in $225 million in revenue, which nearly doubled Amazons gross profit margins during the fourth quarter of 20013. As a result of these partnerships, Amazon now sells and ships certain products for these named retailers.
Amazon now reaches a market comprised of 92 percent of consumer e-commerce revenue6; therefore their revenues depend on the number of visitors who shop its Web site and the volume of orders it fulfills. This warrants successful management of the technology infrastructure as critical. Any system failures that result in the Web site being down would reduce the volume of goods sold and, in turn would impact Amazons revenues. To this end, Amazon uses Information Technology to its advantage to establish a powerful and uninterrupted presence on the Internet.