THE GROWING PAINS OF AN INTERNET ICON THE HIGHS AND LOWS OF AMAZON.COM by Wayne E. Pauli A Paper Presented in Partial Fulfillment Of the Requirements of OD 501 Survey of Research in Organizational and Group Dynamics December 2002 Address: 805 North Olive Avenue City, State, Zip: Madison, SD 57042
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THE GROWING PAINS OF AN INTERNET ICON
THE HIGHS AND LOWS OF AMAZON.COM
by
Wayne E. Pauli
A Paper Presented in Partial Fulfillment
Of the Requirements of
OD 501 Survey of Research in Organizational and Group Dynamics
December 2002
Address: 805 North Olive Avenue
City, State, Zip: Madison, SD 57042Phone: 605-636-9323E-mail: [email protected]: Dr. John LathamMentor: TBD
Abstract
The change of the Internet from being a content provider to a
retailing bastion has had a huge impact on how business as usual
is now transacted. Only 1% of all commerce is now completed
online, but the numbers are growing rapidly. Spurring this
expansion is Amazon.com, and its CEO and founder, Jeff Bezos. The
customer-centric focus that Bezos instilled as a driving force
continues today. Accumulated operating losses of over $2.8
Billion dollars has not deterred this company from striving to
reach its vision of working hard, having fun, and making history.
Table of Contents
Table of Contents ii
List of Tables (if tables used) iii
List of Figures (if figures used) iv
Introduction 1
Methodology 2
Work Hard, Have Fun, Make History 3
History is Made 6
Famous or Infamous 9
Reactions by Investors 13
Enter the P for Profit 15
The Changing Effect on Jeff Bezos 18
Better Days Ahead 20
Conclusion 21
References 23
ii
List of Tables
Table 1: Total Customers at Amazon.com 5
Table 2: Distribution Centers 7
Table 3: Total Annual Sales Amazon.com 8
Table 4: Amazon.com Key Strategic Partnerships 12
Table 5: Stock price Comparisons 14
Table 6 Amazon.com Annual Net Losses 15
iii
List of Figures
Figure 1: The 8 I’s that Make a We 11
Figure 2 The E-Business Value Matrix 17
iv
The Growing Pains of an Internet Icon – The Highs and Lows of
Amazon.com
Arthur Koestler, Hungarian born novelist, journalist, and
critic is quoted in Gareth Morgan’s book, “Creative Organization
Theory”, as follows:
Of all forms of mental activity, the most difficult to
induce even in the minds of the young, who may be presumed to
have not lost their flexibility, is the art of handling the same
bundle of data as before, but placing them in a new system of
relations with one another by giving them a different framework.”
(Morgan, 1989)
While traveling west bound on Interstate 90, the desire of
creating a new framework by a thirty year old professional named
Jeff Bezos resulted in Amazon.com. It was 1994, the Internet had
been growing by 2300% per year, and Bezos was working as a Senior
Vice President for Wall Street based D.E. Shaw and Company. His
vision on how to take advantage of the exploding growth of the
Internet was online retailing.(Staff,2000)
Although unclear at that time, the Internet was thought to
be the device that would lead to significant changes in the way
books were not only purchased, but read, written, and promoted.
(Goldsborough, 1999).
The Highs and Lows of Amazon.com
This paper will delve in to the company that some people
call the Internet; whether the Internet is what it is because of
Amazon, or in spite of Amazon, it is the biggest boon to literacy
since the invention of the printing press. (Goldsborough, 1999).
Methodology
The methodology employed is qualitative in nature, using
secondary sources of information. Resources for this paper were
secured through the following areas:
ABI/INFORM a database of business information for more than
30 years. ABI/INFORM contains content from thousands of journals
that assist a researcher in tracking business conditions, trends,
management techniques, corporate strategies, and industry-
specific topics worldwide. The database was accessed through the
Proquest portal located on the Karl E. Mundt Library homepage
(www.departments.dsu.edu/library). Karl E. Mundt Library is on
the campus of Dakota State University, Madison, SD. In addition,
resource searches were limited to periodicals with a 1999 to
current data range, and from peer reviewed publications only.
Significant research was also conducted through websites
utilizing the MSN search engine. The purposes for website
searching was basically two fold; one to get biographical
information on Jeff Bezos, and secondly to get the Security and
2
The Highs and Lows of Amazon.com
Exchange Commission (SEC) reports as filed by Amazon.com on a
quarterly basis since the company went public in 1997.
A plethora of books were also used to glean data from, with
the majority of them coming from coursework through Capella
University, and through voluntary personal readings.
According to the authors of “The Craft of Research”, “If a
writer wants his readers to change their minds about something
important to them, you cannot simply claim, you have to give
reasons and evidence for believing.” (Booth, Colomb, & Williams,
1995)
The reasons and evidence about to be presented are to change
the mindset of doubters concerning the positive impact that
Amazon.com has had.
Work Hard, Have Fun, Make History
In 1899, Theodore Roosevelt is quoted as follows: “Far
better to dare things, to win glorious triumphs, even though
checkered by failure, than to take rank with those poor spirits
who neither enjoy much nor suffer much, because they live in the
gray twilight that knows no victory, nor defeat.” (Collins &
Porras, 1997)
The above quotation is also the preface for a chapter in
Collins and Porras’ book entitled, “Big Hairy Audacious Goals.”
3
The Highs and Lows of Amazon.com
These are goals that are challenging, often risky, and normally
equated with a visionary company. (Collins & Porras, 1997)
Jeff Bezos began Amazon.com prior to the writings of Collins
and Porras. That does not mean that he does not believe in the
teaching of “Built to Last”, but rather that while working on
Wall Street, and watching the Internet grow at an annualized rate
of 2300% in 1994, Bezos claimed his “Big Hairy Audacious Goal”,
that being Amazon. Bezos’ concept was that the Internet was
about people, his first customers were his friends, and his first
product was books. (Louie & Rayport, 2001)
To further testify to the fact that the Internet is about
people, Robert Thames writing for Strategic Finance comments
that, the 1980’s competitive pressures were price, but today, the
power thanks to e-business is with the individual. (Thames, 2000)
A “Big Hairy Audacious Goal” engages people, it reaches out
and grabs them, it is also energizing, and people “get it” right
away. Continuing on with descriptions, they are bold, looking
more audacious to outsiders than to insiders. (Collins & Porras,
1997)
The ongoing verbalization of the “Big Hairy Audacious Goal”
for Amazon has become its credo, that being “Work Hard, Have Fun,
Make History”. (Louie & Rayport, 2001) In the truest sense of the
words describing “Big Hairy Audacious Goals”, Amazon has captured
the very essence with its credo.
4
The Highs and Lows of Amazon.com
Let us look at Table 1 to ascertain if the people “Got it”
with Amazon:
Table 1 Total Customers at Amazon.com
YEAR END NUMBER OF CUSTOMERS
1996 180,000
1997 1,500,000
1998 6,200,000
1999 16,900,000
2000 24,700,000
2001 32,000,000
(Louie & Rayport,2001)
From the standpoint of creating and fulfilling his “Big
Hairy Audacious Goal”, Jeff Bezos without a doubt has been
successful. A quote from turn of the Century (20th Century)
business man and Time Magazine’s man of the Year for 1929 Owen D.
Young says a great deal about Amazon.com, “It takes vision and
courage to create – it takes faith and courage to prove.” Jeff
Bezos proved that he has the vision and courage to create, and
only time will tell about the faith and courage to prove.
History is Made
5
The Highs and Lows of Amazon.com
During the late Fall of 1999, Time magazine named Jeff Bezos
their Person of the Year for 1999. (Thames, 2000) Amazon had
arrived in the public mainstream. Over 16,000,000 people had
Amazon.com accounts, which had accounted for in excess of $1.6
Billion dollars in sales. (Louie & Rayport, 2001)
With the click of a mouse, customers on their own PCs were
purchasing the goods they desired from the Amazon website.
Customers, sales, and visitations were increasing daily at
Amazon.com. Amazon through the empowerment of their customer
became the first company to move book retailing from the shopping
malls and other bricks and mortar situations to the online
environment. (Mellahi & Johnson, 2000)
First to market is not to be downplayed, but according to
Mellahi and Johnson, this is not the only area where Amazon has
made e-commerce history, to wit: Amazon is a highly recognized
brand name, and companies will literally spend millions upon
millions of dollars to acquire brand recognition. Amazon is
customer centric, which means that the experience the customer
has while online at Amazon.com is of utmost importance. The
database of Amazon is of such sophistication that it forecasting
models are much more accurate than others in the industry with
its rate of return being under one fourth of one percent while
industry average is thirty percent. (Mellahi & Johnson, 2000)
6
The Highs and Lows of Amazon.com
Along with the internal history making, Amazon also made
history of the external kind when in 1998 plans were outlined for
seven new distribution centers strategically placed throughout
the United States. These centers covered almost 3 million square
feet of inventory storage capacity. The New York Times called
this the fastest expansion of distribution capacity in peacetime
history. (Louie & Rayport, 2001)
This plant expansion brought their total square footage
worldwide to 5 million square feet.
Table 2 Distribution Centers
Location Square Footage
Seattle Washington 93,000
Campbellsville, Kentucky 770,000
Coffeyville, Kansas 750,000
Fernley, Nevada 332,650
Grand Forks, North Dakota 130,000
McDonough, Georgia 800,000
New Castle, Delaware 202,000
Total U.S. Distribution 2,984,650
(Louie & Rayport, 2001)
Finally, the attention is turned to sales, Amazon continued
its record breaking run with tremendous increases in sales on an
annual basis.
7
The Highs and Lows of Amazon.com
Table 3 Total Annual Sales Amazon.com
YEAR TOTAL SALES
1995 $ 511,000.00
1996 $ 15,746,000.00
1997 $ 147,787,000.00
1998 $ 609,819,000.00
1999 $1,639,839,000.00
2000 $2,761,983,000.00
2001 $3,122,433,000.00
(Amazon.com, Annual Report 1999 - 2001)
Keeping pace with distribution center expansion and sales
growth, the size of the Amazon.com work force has grown
dramatically as well. From approximately 250 employees when the
company went public, two years later Amazon boasted over 7000
employees. (Powers & Phair, 2000 ) By the end of the year 2001
the employment base stood at 7,600 after adjustments for seasonal
layoffs. (Kanter, 2001)
Jeff Bezos has taken the vision and courage and created
Amazon.com, he has made history. From Man of the Year in 1999 to
huge growth in the terms of customers, sales, and employees,
Amazon.com has created the aura of success, of being visionary,
but is it what they will be known for in the future?
8
The Highs and Lows of Amazon.com
Famous or Infamous
In his critically acclaimed work, “Origin of Species”, in
1859, Charles Darwin stated: “To my imagination it is far more
satisfactory to look at well-adapted species not as specially
endowed or created instincts, but as small consequences of one
general law leading to the advancement of all organic beings.”
(Collins & Porras, 1997)
With this concept, along with previously discussed issues of
building different frameworks of data delivery and that the
Internet is about people, Amazon is famous with its customer
centric objectivity.
In terms of an industry that is beset with competition from
traditional book jobbers (Rogers, 2001), and a marketplace albeit
an online one, that is intensely and savagely competitive,
Amazon, according to Fortune magazine continues to demonstrate
that no company has done more to show how the Internet overturns
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