>lg 1 What is the Internet, who uses it, and for what?
>lg 2 How has the Internet economy changed the business environment?
>lg 3 How can companies incorporate e-commerce into their overall business strategies?
>lg 4 What benefits do businesses achieve through e-commerce?
>lg 5 What steps are involved in launching an e-commerce venture?
>lg 6 What lies ahead for e-commerce?
Borders Pages Amazon for Help
Bookseller Borders waited until 1998 to start its Web site—a relatively late date compared to its competitors. As the burden of maintaining its own site became a huge drain to Borders, the company realized its infrastructure was inadequate to meet customer needs. At the same time, Borders realized that shoppers liked to search for information online and then buy in stores, or to search in stores before buying online. In 2001, it arranged for Amazon.com to handle its online sales. A customer going to Borders.com (http://www.borders.com) ends up at an Amazon.com page with the Borders name and logo at the top. Amazon bills the customer the Amazon price, ships the book from its own inventory, records the sale as revenue, and pays Borders a referral fee. Amazon customers can also reserve products online and pick them up at Borders stores at Borders prices.
Such a mutually beneficial partnership is remarkable, given that Amazon and Borders were competitors in the online book and music business. Amazon started the first online-only bookstore and is still exclusively an online company. Since its 1995 start-up, Amazon has become one of the major successes of the Internet economy, aiming to transform itself into a Web superstore selling, in the words of founder Jeff Bezos, “anything, with a capital A.” It is well on its way to doing just that, using technology and savvy marketing to gain customers. For example, it was a pioneer in personalization. Shoppers who register at the site will discover that it remembers their preferences from past site visits. When they return, they get a customized shopping experience, such as product recommendations based on previous searches and purchases.
How has Amazon survived while many dot-coms have not? The answer lies in its ability to change its business model as the Internet economy changes. One such development involves capitalizing on its online sales technology, a by-product of its success. It has used this technological expertise to form partnerships with other retailers, usually brick-and-mortar stores wanting an online presence. These stores often do not have the resources or technology to maintain their own Web sites and have turned to Amazon, with its proven online sales history, to do it for them.
Borders is just one example of the many online partnerships that Amazon has created with retailers. Target, which also began online sales in 1998, realized in 2000 that its software could not handle the growing volume of site visitors and transactions. Eventually, Target called in Amazon to upgrade its Web operations. Target now has a “subsite” at Amazon.com, enabling Target to benefit from Amazon’s base of over 30 million shoppers. In addition to hosting the Target subsite, Amazon runs the Target.com site (http://www.target.com). Amazon also has partnerships with thousands of other stores and brands, from Nordstrom and Eddie Bauer to Nintendo and Mattel.
Brick-and-mortar retailers who partner with Amazon to maintain an online presence enjoy an additional benefit: Sales at the physical stores typically increase. According to Ken Casser, senior analyst at Jupitermedia, “Retailers have been talking a lot lately about the Web’s ability to influence behavior in their stores. A common research estimate is that about $1 spent online leads to another $5 spent offline, but that’s just an estimate. No one really knows.”
Web site partnerships are not the only way Amazon has kept up with changes in the Internet economy. Since market research shows that customers hate shipping charges, Amazon offers free shipping on orders over a certain dollar amount. It pays for these aggressive discounts and free shipping by more efficient processing of orders and by selling certain new and used goods for commissions without having to hold inventory. To compete with auction site eBay’s growing popularity, Amazon now lets small businesses and individuals post items for sale or auction in Amazon’s marketplace in exchange for a fee or commission.
The results for Amazon? In the third quarter of 2003, 22 percent of all items sold by Amazon were from third parties, both merchants and individuals. That quarter was also Amazon’s first profitable nonholiday quarter, and quarterly sales were up over 30 percent from a year earlier—a combined 21 percent at the U.S. and Canada sites, and a combined 61 percent for the company’s sites in the United Kingdom, Germany, France, and Japan. A record fourth (holiday) quarter, with net income estimated at more than $73 million—compared to $2.7 million in the fourth quarter of 2002—gave Amazon its first profitable year in 2003.1
Critical Thinking Questions
As you read this chapter, consider the following questions as they relate to Amazon.com:
Identify the reasons that Amazon continues to prosper in the Internet economy.
In what ways do Amazon’s partnerships benefit Amazon as well as its varied partners?
Visit Amazon’s Web site (http://www.amazon.com). Describe how individuals list or buy an item for sale. Who are the newest retail partners, and has Amazon expanded into other international markets?
Principles of E-Commerce
As Amazon.com’s story clearly demonstrates, the Internet is a driving force in worldwide business today. In just a short time, it has moved us beyond the individual enterprise to an interconnected economy. In the virtual world of cyberspace, companies transact business without regard to traditional boundaries and constraints. The Internet creates new opportunities for growth through new products, greater speed to market, and enhanced cost competitiveness. As a result, businesses have implemented new ways of operating that take advantage of electronic commerce (e-commerce). The Internet has forced companies and even whole industries to change their business models.
To succeed in business today, you must understand how this communication and transaction medium is shaping business and society, as well as how to use the Internet to your benefit. We’ll start our exploration of e-commerce with some background on the size of the Internet and how people use it. Next we’ll look at the impact of the Internet on business operations and industry dynamics, examine the growth of electronic commerce in both the business-to-business and the business-to-consumer markets, and describe the steps required to launch an e-business. The chapter ends with a look at what lies ahead for e-commerce.