ChapterCase8Amazon.

com: To
Infinity and Beyond
The opening ChapterCase discusses the story of the founding of Amazon.com which is now more than 25 years
old. Building from its online book selling to an overall marketplace welcoming third party sellers moved the
firm into a global environment. Building on its slogan of “the everything store,” Amazon continues to cover a
wide variety of consumer needs including country specific sites to enhance their global footprint. The firm has
also moved vertically with cloud-based computing services and developing its own content for Prime video
streaming. Also recently Amazon has bought Whole Foods and started AmazonCampus to further broaden its
product and market reach.

DISCUSSION TOPICS
In November 2015, Amazon announced the opening of its first brick-and-mortar store in a mall in Washington.
Ask students whether they believe that expansion of this chain risks damaging Amazon’s competitive advantage
by burdening it with the costs of its more traditional rivals. (See “Amazon to Open First Brick-and-Mortar
Store,”The Wall Street Journal, November 2, 2015.)

CONSIDER THIS DISCUSSION QUESTIONS

INSTRUCTOR SUPPLEMENT SLIDE 5
1. Describe Amazon's diversification strategy using Exhibit 8.8. What type of diversification
strategy is Amazon pursuing?Explain.
The easiest case is that Amazon started in retailing books online and has vastly expanded to retail almost
anything online. The growth into kindles and web services is usually considered vertical movement related to
the core business of consumer retailing. The more recent expansion to college campuses is a horizontal
expansion to new markets while the purchase of Whole Foods adds dimensions to expand product depth and
delivery services from the physical stores. In sum, the firm is using a related-linked diversification strategy.

2. What is Amazon’s core business? Is AWS related to Amazon’s core business? Why or why not?
Some investors are pressuring Jeff Bezos to spin out AWS as a standalone company. Do you
agree with this corporate strategy recommendation? Why or why not? Hint: Do you believe
AWS would be more valuable within Amazon or as a standalone company?

Investors like “pure plays” especially when businesses have radically different margins, growth rates, and
growth prospects. As all three of these issues apply to Amazon’s situation, a split would be in investors’ best
interest. Although Amazon’s algorithms, data, and knowledge of its customers are key success factors in
retailing, owning the physical servers that hold these resources probably is not. They could spin off the cloud
server business with its servers and the retail business could rent server time with little to no loss of synergies.
Thus, an AWS spinoff is a reasonable option.

3. Amazon.com is now 25 years old and makes $140 billion in annual revenues. As an investor,
would it concern you that Amazon.com has yet to deliver any consistent profits? Why or why
not? How much longer do you think investors will be patient with Jeff Bezos as he continues to
pursue billion-dollar diversification initiatives?

Amazon started turning profits in mid-2015, but they are very minimal, so investors remain concerned. Suggest
that students listen to an Amazon quarterly earning webcast with analysts to get a sense of investor issues.
Investors are concerned about increasing expenditures in content development and distribution for Prime users,
investments in warehouses, and the profitable integration of the Whole Foods acquisition.

4. Amazon.com continues to spend billions on seemingly unrelated diversification efforts. Do you

believe these efforts contribute to Amazon gaining and sustaining a competitive advantage? Why
or why not?

Students will have differing opinions on this, but push them to ground their opinions with theory and evidence.
Their arguments should address theory both in respect to the benefits of leveraging their technology and brands
across multiple businesses and the downsides of increased complexity, brand dilution, and diversification
discount.