Academic journal article Journal of the International Academy for Case Studies in 2003.(instructor's Note)

Academic journal article Journal of the International Academy for Case Studies in 2003.(instructor's Note)

Article excerpt


The primary subject matter of this case concerns making an online retail business profitable. Secondary issues include (a) assessing the long-term attractiveness of pure online retail industry, (b) understanding and comparing strategy elements and competitive advantages in e-commerce with traditional firms, and (c) evaluating growth strategies. The purpose of this case is to provide students with enough information about Amazon's business situation, to be able to chart the course of action the company should take at a given point in time. The case has a senior or second year graduate level difficulty. The case is designed to be taught in three class hours and three hours of outside preparation by students.


Jeff Bezos opened his Amazon's virtual book store in 1995 in Seattle, Washington. Amazon's online store was a big hit, with about $5 million in the first year of operations. To expand on his success, Jeff introduced other products, including DVD, and electronics. In 2002, Amazon was the world largest online retailers. Unfortunately, the business had not yet made any profit. After four years of single-minded focus on growth, in year 2000, Amazon focused exclusively on increasing its efficiency. Beginning late 2001, Amazon shifted its focus on growth prospects again. Jeff believed that Amazon had reached a point where it could afford to balance growth and cost improvement. This balance began to pay off in the fourth quarter of 2002, where the company generated $198 million in free cash flow for the first time. After falling out of favor along with the Internet sector in 2000 and 2001, Amazon's stock staged a rebound in 2002 as investors bought back into the idea that Amazon would be around for a long time and would start generating real profits. However, it seemed that survivability was still an issue for those investing in Amazon due to massive negative operating cash flow, excessive debt, significant payments for its suppliers and bondholders, intense competition, and the slow economy.

As a low-margin retailer, the case opens with Jeff facing the dual challenge of trying to improve margins and service a large amount of debt. Numerous efforts by Jeff to advertise online and traditional media, lower prices, and free delivery had failed to attract more new customers. Jeff and some of his top level managers had different opinions on the solutions to their problems.


Information was basically gathered from the public interviews with Bezos and other company officials on TV and at the Company's quarterly conferences. Background information on the industry and the company was drawn mainly from annual reports of the company and publicly available information.


The case is primarily a Strategic Management/Business Policy case. It explores the unique challenges that Jeff Bezos, founder and CEO of Amazon faced as he grew his venture from one product to many variations. It provides a good opportunity to analyze the business strategy as it relates to financial alternatives. The case could be used as a means to discuss several managerial issues involved in strategy formulation and implementation. In this role, some or all of case discussion questions would be appropriate to assign in advance, and class discussion could be led to achieve one or more of the following objectives:

* To assess the long-term attractiveness and profitability of the online retail industry.

* To understand the main strategy elements of an online retailing firm.

* To help students understand that most elements of a strategy in e-commerce is not that different from traditional firms.

* To assess internal situation, and risk and uncertainties that an online retailer is facing.

* To assess the external environment of online retailers, and perform Porter's 5-forces of model. …

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