RIZAL TECHNOOGICAL UNIVERSITY

MGT 9 Management Information System

Submitted by: TERENCIO, JENNILYN G. CBET 02-601A W 1:30-4:30pm

Submitted to: Prof. Ian Tianero

Strategy & Innovation

Amazon's Smart Innovation Strategy

Posted on Strategy and Innovation By Mark W. Johnson on April 12, 2010

Building a great business and operating it well no longer guarantees you'll be around in 100 years, or even 20. In 1958, the average length of time a company remained on the S&P 500 was 57 years; by 1983, it had dropped to 30 years; in 2008, it was just 18. Shorter business life cycles require a new sort of management discipline capable of leading an organization through an ongoing process of transformation and renewal. To thrive in today's marketplace, to be built to last, every business now must be built to transform. Consider Amazon (AMZN), which emerged from the dot-com bubble one of the few winners and continued to blaze a trail of impressive growth (from about $4 billion in 2002 to nearly $20 billion in 2008). One of the most unexamined facets of Amazon's high-profile success is its unabashed embrace of transformational growth in its white space. Amazon survived the dot-com bust because it had a viable and innovative business model built around a market-changing customer value proposition and a radical profit formula, which upended the staid book industry. Then it quickly expanded beyond books to include all sorts of easily shippable consumer goods, growing from its core into near adjacencies. But Amazon didn't stop there. A few years later, the company seized its white space when it devised a new value proposition, offering a commission-based brokerage service to buyers and sellers of used books. Then it moved into its white space again by developing a model to serve an entirely different customer: third-party sellers. By opening up its storefront to other retailers that were essentially competitors, Amazon transformed its business from direct sales to a salesand-service model, aggregating many sellers under one virtual roof and receiving commissions from the other companies' sales. Then Amazon did it yet again, identifying a new area of potential growth by finding another new customerthe IT community. Serving this new customer's needs required different processes, different resources, and a different profit formulain short, another new

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business model. In 2002 Amazon launched a web services platform. Perhaps it was risky
for a young company that had only reached profitability in that same year to invest its innovation resources in new business models rather than stick to its core, but within five years the site used by Amazon's web-services platform had grown into the seventh-largest in the world. And Amazon kept going. In late 2007, it set up Lab126, whose first product, the Kindle e-book reader, came to market wrapped in a business model not only foreign to Amazon's DNA but also potentially disruptive to the entire publishing industry. To launch this high-margin, product-based offering, Amazon had to become an original equipment manufacturer (OEM). It wrapped this technology in a seamlessly integrated iTunes-type digital media platform that combined both transaction- and subscriptionbased content delivery. It partnered with content producers in innovative ways and created an open back-end that allowed independent publishers to generate new content for the Kindle. In its first year, Amazon sold an estimated 500,000 Kindles. Amazon has greatly expanded the market for e-books and positioned itself for success not only in this market but in newspaper and periodical distribution as well. Amazon at its roots is built to transform. When it finds opportunities to serve new customers, or existing customers in new ways, it conceives and builds new business models to exploit them. Amazon has the unique ability to launch and run entirely new types of businesses while simultaneously extracting value from existing businesses. Amazon's journey forward will likely be marked by a series of transformations, as it continues to pursue its vision unafraid of white space, business model innovation, or renewal. To be built to transform requires the courage to focus on delivering value for the customer first. Identifying value begins by thinking of an important unserved or underserved job that customers want done and then coming up with a well-defined value proposition to address that job, however foreign to your current offerings that may be. "If you want to continuously revitalize the service that you offer to your customers, you cannot stop at what you are good at," says CEO Jeff Bezos. "You have to ask what your customers need and want, and then, no matter how hard it is, you better get good at those things." With a well-defined customer value proposition serving a focused, well-articulated job, business leaders and project teams can work together to design the appropriate profit formulas, key

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resources, and key processes the company needs to thrive. To do this, business leaders need to become business model thinkers, to understand that both the current model underpinning their existing business and any new models they may devise are complex systems with interdependent elements that must work together to deliver real value. To build these systems, they must think like architects or engineers, to begin with blueprints, build prototypes, and develop working structures that can deliver on new areas of opportunity. Although they can't devise all the answers up front, they can ask the right questions. Then they must pursue those answers like an artist would, exploring with a process of structured creativity that allows everyone involved to freely imagine the possible, not just the easily done. Business model innovation thrives in cultures of inquiry, environments in which new value propositions, new ways to turn a profit, and ideas for new business models are met with interest and encouragement. In built-to-transform companies, managers recognize that becoming is part of being, and that the road to the next big thing can be traveled only by those with open minds.
This article is excerpted from Seizing the White Space: Business Model Innovation for Growth and Renewal by Mark W. Johnson (Harvard Business Press, February 2010). published by frog design. Written and designed by frog's employees and featuring contributions from guest writers and artists, it provides perspectives on industry trends, emerging technologies, and global consumer culture. Source:http://www.businessweek.com/innovate/content/apr2010/id20100412_520351.htm

Amazon.com: The Hidden Empire Amazon.com, Inc. (AMZN) is an American multinational electronic commerce company. It is now the world's largest online retailer. The company has grown from a book seller to a virtual Wall Mart of the Web selling products as diverse as music CDs, software, office products, electronics, toys, games, cookware, hardware, food, and health products. It has also grown at a tremendous rate with revenue rising from about US$150 million in 1997 to US$5.2 billion in 2003.

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Amazon has used the internet to create a truly global business platform. It is said that If Amazons 68 million active customers all lived in the same country; it would be the worlds 19th most populous country, with more citizens than every European country except Germany.

STRATEGIC MOVE
Breaking the Rules Amazon.com is a company that is closely tied with the e-commerce phenomenon. Jeff Bezos, the founder of the company, broke the rules of the book business by using the Internet rather than conventional distribution channels. Data Driven Automation Round (2004) said that Data is king at Amazon. He gave many examples of

data driven automation including customer channel preferences; managing the

way content is displayed to different user types such as new releases and topsellers, merchandising and recommendation (showing related products and promotions) and also advertising through paid search (automatic ad generation and bidding). The automated search advertising and bidding system for paid search has had a big impact at Amazon. Sponsored links initially done by humans, but this was unsustainable due to range of products at Amazon. The automated programme generates keywords, writes ad creative, determines best landing page, manages bids, measure conversion rates, profit per converted visitor and updates bids. Again the problem of volume is there, Matt Round described how some books received tens of thousands of clicks from related searches, but few actually purchased the book. So the update cycle must be quick to avoid large losses.

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There is also an automated email measurement and optimization system. The campaign calendar used to be manually managed with relatively weak measurement and it was costly to schedule and use. Value Added Information Services Amazon.com works hard to achieve value-added differentiation through customer-focused information services. Amazon.com's site retains customer preferences and provides automated customization for users. Amazon marketing Amazon (2011) states we direct customers to our websites primarily through a number of targeted online marketing channels, such as our Associates program, sponsored search, portal advertising, email marketing campaigns, and other initiatives. These other initiatives may include outdoor and TV advertising, but they are not mentioned specifically. In this statement they also highlight the importance of customer loyalty tools. They say: while costs associated with free shipping are not included in marketing expense, we view free shipping offers and Amazon Prime as effective worldwide marketing tools, and intend to continue offering them indefinitely. Marketing Communications Amazon also believes that their most effective marketing communications are a consequence of their focus on continuously improving the customer experience. This then creates word-of-mouth promotion which is effective in acquiring new customers and may also encourage repeat customer visits. The search facilities in the search engine and on the Amazon site, together with its product recommendation features meant that Amazon could connect its products with the interests of these people. Online advertising techniques include paid search marketing, interactive ads on portals, e-mail campaigns and search engine optimization. These are automated as far as possible as described earlier in the case study. As previously mentioned, the affiliate programme is also important in driving
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visitors to Amazon and Amazon offers a wide range of methods of linking to its site to help improve conversion. Technology It follows that the Amazon technology infrastructure must readily support this culture of experimentation and this can be difficult to achieve with standardized content management. Amazon has achieved its competitive advantage through developing its technology internally and with a significant investment in this which may not be available to other organizations without the right focus on the online channels. Round (2004) describes the technology approach as distributed development and deployment. Pages such as the home page have a number of content pods or slots which call web services for features. This makes it relatively easy to change the content in these pods and even change the location of the pods on-screen. Amazon uses a flowable or fluid page design unlike many sites which enables it to make the most of real-estate on-screen. Technology also supports more standard e-retail facilities. SEC (2005) states: We use a set of applications for accepting and validating customer orders, placing and tracking orders with suppliers, managing and assigning inventory to customer orders, and ensuring proper shipment of products to customers. Our transaction-processing systems handle millions of items, a number of different status inquiries, multiple shipping addresses, gift-wrapping requests, and multiple shipment methods. These systems allow the customer to choose whether to receive single or several shipments based on availability and to track the progress of each order. These applications also manage the process of accepting, authorizing, and charging customer credit cards.

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OPPORTUNITIES
In todays highly competitive industry, Amazon still managed to gain strategic

advantage by building brand equity; focusing on online marketing channels;

and improving their technology and marketing communications. Building Brand Equity Amazon.com has steadily increased its spending on advertising and promotion to make its brand stronger and build brand equity. By 2003, the brand of Amazon.com was worth US$ 22 billion. Third Party Seller Marketplace Years ago, Amazon also made a strategic decision to open up its website and create a Marketplace of third party sellers who effectively compete with Amazon for any given sale. These merchants sell a variety of new and used products for which Amazon receives a commission on products sold via its Marketplace, and although gross margins on these transactions is generally less than that if Amazon sold the item directly, the Marketplace strategy creates a one-stop shopping destination with a consistent experience for the customer. It has also helped Amazon dramatically increase its selection of available products. The bet seems to have been a smart one -- 30% of items sold on Amazon are sold by third parties. Competitive advantage Amazon has moved from merely selling books through the Web to providing best-seller lists, readers reviews, authors interviews; selling almost any consumer product imaginable; and posting consumer wish lists, product reviews by customers, and other cool stuff. Through the help of ISs, the company continues to improve its Web pages look and the online services that it provides.

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Enhancing existing products or services o Computing Services Amazon launched Amazon Web Services (AWS) in 2002, which provides programmatic access to latent features on its website. In March 2006, Amazon launched an online storage service called Amazon Simple Storage Service (Amazon S3). An unlimited number of data objects, from 1 byte to 5 terabytes in size, can be stored in S3 and distributed via HTTP or BitTorrent. The service charges monthly fees for data stored and transferred. In 2006, Amazon introduced Amazon Simple Queue Service (Amazon SQS), a distributed queue messaging service, and product wikis (later folded into Amapedia) and discussion forums for certain products using guidelines that follow standard message board conventions. Also in 2006, Amazon introduced Amazon Elastic Compute Cloud (Amazon EC2), a virtual site farm, allowing users to use the Amazon infrastructure to run applications ranging from running simulations to web hosting. In 2008, Amazon improved the service by adding Elastic Block Store (EBS), offering persistent storage for Amazon EC2 instances and Elastic IP addresses, and offering static IP addresses designed for dynamic cloud computing. Amazon introduced SimpleDB, a database system, allowing users of its other infrastructure to utilize a high-reliability, high-performance database system. Amazon continues to refine and add services to AWS, adding such services as Scalable DNS service (Amazon Route 53), payment handling, and AWS specific APIs for their Mechanical Turk service. In August 2012, Amazon announced Amazon Glacier, a lowcost online storage web service that provides reliable data archiving, storage, and backup. Amazon Technology Customer Relationship Management (CRM) and Information Management (IM) support Amazons business strategy. Amazons technology architecture handles millions of back-end operations every day, as well as queries from more than half a million third-party sellers. With hundreds of thousands of
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people sending their credit card numbers to Amazons servers everyday, security becomes a major concern. Amazon employs Netscape Secure Commerce Server using the Secure Socket Layer protocol which stores all credit card details in a separate database. The company also records data on customer buyer behavior which enables them to offer or recommend to an individual specific item, or bundles of items based upon preferences demonstrated through purchases or items visited. Establishing Alliances (affiliate programs) Today, E-commerce enabled organizations to create alliances. On the Web, an obvious example of alliances is an affiliate program. Amazon derives about 40% of its sales from affiliate marketing called "Amazon

Associates" and third-party sellers who sell products on Amazon. Associates

receive a commission for referring customers to Amazon by placing links on their websites to Amazon, if the referral results in a sale. Worldwide, Amazon has "over 900,000 members" in its affiliate programs. The company lets almost anyone sell almost anything using its platform. In addition to affiliate program that lets anybody post Amazon links earn a commission on click through sales, there is now a program which let those affiliates build entire websites based on Amazons platform.

CONCLUSION
The role portrayed by Information Systems to organizations, such as Amazon.com, Inc. is very important and extends beyond merely assisting to perform their existing functions efficiently, or even just effectively. The information system is instrumental in the organizations achievement of its competitive or other strategic objectives.

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