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Dr Colin Combe, Caledonian Business School, Glasgow Caledonian University, Cowcaddens Road, Glasgow G4 0BA, UK Tel: +44 (0) 141 331 8811, Fax: +44 (0) 141 331 3269, Email: C.Combe@gcal.ac.uk
The Management of E-Commerce Strategies for Sustaining Competitive Advantage in the Online Bookselling Industry: The Case of Amazon.com
Abstract: Many industry sectors have adopted the Internet as a medium of communications between suppliers and customers. Yet few have been able to create, let alone sustain, a competitive advantage using e-commerce as a basis for transacting business. The bookselling industry has been at the forefront of developing business models to seek competitive advantage via Internet applications. Amazon.com were the first movers in this new method of transacting business and were able to build a significant lead in the market. However, since 2000 the company has had to re-assess its operations after seeing its competitive advantage eroded by a combination of debt financing and an increasingly coherent response from rivals. This paper investigates the management of e-commerce strategies and the efficacy of the business model developed by Amazon.com and calls on theoretical positions from the fields of strategic management and economics to critically assess the sustainability of the company’s competitive advantage.
Received: September 2002
Since the mid 1990’s there has been a huge increase in the amount of business transacted over the Internet. Although the USA leads the way in this area the use of the Internet in business has become a global phenomenon. E-commerce, as it has become known, has the potential for creating wealth and changing the business landscape. However, in order to exploit the opportunities presented by the application of technology it is necessary to create business models suited to gaining and sustaining competitive advantage in the new business environment. One industry at the forefront of exploiting new technology has been bookselling with Amazon.com being the standard bearer for online bookselling on a global scale. Electronic commerce refers to trading electronically. Transactions involve buying and selling products, services and information over a network(14). E- commerce is changing the way busi-
nesses operate and is creating opportunities for developing new markets and products. One of the most important characteristics of the Internet is the ubiquity of information and the ease of access to that information. It is, therefore, little surprise that information driven industries have been at the forefront of developing and exploiting the advantages of e-commerce. Bookselling is one such industry. New technology has altered the way booksellers operate and has been the catalyst for change in the industry. Once thought of as moribund and inefficient the bookselling industry has grasped the opportunities presented by new technology to create competitive advantages and compete in a crowded market for leisure and information products. Amazon have been most prominent in the online bookselling industry. As first mover in the market it is apposite that much of the following investigation focuses on the strategy and business model of the company. ®
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unlike physical goods. but more crucially network externalities are created whereby added value is not manifested in higher prices(5). However. Firstly. the literature to date has failed to fully articulate the key issues relating to this phenomenon. the low cost of usage and the ability it affords for reaching many millions of people through connectivity and interactivity. The potential benefits of applying the Internet for business purposes is extensive in light of the global diffusion of the technology. However. the available literature on the theme of evaluating online business models using economic and strategic management theory remains relatively sparse. the Internet provides a stimulus for firms to rethink their strategy in pursuit of competitive advantage in their industry sector. Network communities offer the advantage of extended reach and range in collecting. In many industries. Some key characteristics of virtual markets can determine competitive advantage. customers and firms. Literature review The impact of the Internet on strategic management has been manifest. Indeed. In particular. Slater(11) notes that information can be shared among communities of stakeholders including suppliers. this new method of transacting business has altered the competitive environment. it does not diminish as it is used and therefore does not adhere to conventional notions of supply and demand dynamics. The online bookselling industry has gained in profile since the exceptional rise of the industry standard bearer in the form of Amazon. there is a strong link between the two streams of academic research in analysing e-commerce. The innovation of the Internet provides a vehicle for entrepreneurs to create new business ventures aimed at a wide range of markets from specialist niche through to mass consumerism. In business processes firms achieve reduced overhead expenses as the Internet facilitates pull-type supply chain management. The influence of the virtual value chain is determined by the economics of information as distinct from the economics of physical products. The cost of additional copies of information declines as more is demanded. An important element in the discussion of the application of the Internet in business is the analysis of the value chain in the virtual trading environment of e-commerce. This paper attempts to fill the gap by using theory to link the unique features of virtual markets with the business model developed by Amazon. This phenomenon has attracted the attention of scholars in economics and strategic management. These have been identified and used as a basis for CASE STUDY 154 • International Journal of e-Business Strategy Management November/December 2002 . There are also opportunities for customising products to particular customer needs. it is necessary to set the scene for analysis by assessing the academic contribution to understanding the value-adding activities of electronic bookselling and the competitive advantages that can be accrued through developing e-commerce as a business activity. organising and analysing activities built around the value chain(4). including that of bookselling. Despite receiving significant attention from both the academic and non-academic press.com to create and sustain competitive advantage. Crucially. the investigation uses an e-commerce business model forwarded by Timmers(13) as a parameter for analysis and relies on economic theory of industrial organisation(10) in assessing the sustainability of competitive advantage.E-commerce provides a mechanism for creating new wealth through entrepreneurship and innovative business ventures.
This alters the way in which the value chain framework operates. the value chain is where the most strategically important activities are to be found. These include high connectivity. Amazon. both in terms of content and logistics. ordering and pay. information acts as a support mechanism. synthesizing and distributing information are the key activities(9`) . However. The availability of information goods and the sheer ubiquity of that information on the Internet reduces the need for traditional intermediaries along the value chain. However.com built warehouses in order to increase the speed and reliability of the delivery of products ordered online. Despite the high profile of Amazon online bookselling does not represent a paradigm shift in the method of enacting bookselling transactions since most books continue to be sold through traditional means. the importance of information goods and network and high reach and richness of information(6). Though the physical value chain remains. This physical value adding activity is combined with the virtual value chain where gathering. price. The efficiency of a virtual market is determined by the number of people and products that are within quick reach of online users and that offer a cost saving.analysis by a number of contributors to the academic attention afforded Internet research. Although some barriers to reach are still evident. Book publishing and bookselling are information intensive activities. Booksellers use the Internet for book search services. selecting. The value chain for e-Booksellers A comparative analysis of the traditional bookselling business model with that of the Amazon ecommerce centred model reveals the key competitive advantages this form of trading can bring to the bookselling industry. Concurrently. in the virtual value chain information takes on a strategic function. taste and cross-border logistics. Online booksellers such as Amazon seek to gain competitive advantage by combining both physical and virtual value chain activities. added value is derived from the virtual value chain activities. Whereas. Porter(7) emphasised the concept of the physical value chain of the firm. this process presents opportunities for further value creation via reintermediation where buyers and sellers are connected in ever more innovative ways via the Internet. That is. in the digital age. in a physical value chain. such as language. the role of e-commerce as the dominant mode of business transactions in the industry remains elusive. virtual markets extend well beyond those of traditional bricks and mortar firms. design. offered and exchanged between market participants determines the richness of the virtual market(1).® International Journal of e-Business Strategy Management November/December 2002 • 155 CASE STUDY . The quality and depth of online content that is accrued. print-run and delivery times. This form of disintermediation can be the basis for creating value and competitive advantage for online firms. a focus on transactions. more and more firms are conducting business electronically. One of the key advantages the bookselling industry enjoys is the fact that it is mostly information driven. In developing his value chain framework Porter(7) focuses the analysis on manufacturing firms where there is a physical flow of material. organising. The Internet provides a platform for virtual communities to emerge and creates opportunities for commercial interaction between firms unfettered by traditional boundaries between firms along the value chain. Information is the raw material around which publishers produce products in the form of books and booksellers depend on data regarding book genres.
This ever-expanding bank of information creates a network between all the interested parties in the book buying and selling arena. This is in contrast to the linear relationship that has traditionally characterised interaction between the main players in the book publishing industry. after sales services and for delivery systems. Figure 1 illustrates the linear value chain relationship in book publishing. adds knowledge value to the industry. Many Internet firms. The marketing aspect is further divided into analytics (understanding customers). In the linear value chain of traditional booksellers value is added at each stage along with a cost increment. The modern value chain is conducive to greater co-operation throughout the industry as each sector benefits from interactivity with others in the value chain. whether from businessto-consumer (B2C) or business-to-business (B2B). services and sales. Every ‘click of interest’. E-CRM is divided into areas of marketing. The information gathered and disseminated by each member of the value chain network adds significantly to the overall bank of knowledge about customers. have adopted the electronic customer relationship management (e-CRM) software to track the online behaviour of potential customers. Information is collected through feedback from authors. including Amazon. e-market- CASE STUDY AUTHOR PUBLISHER DISTRIBUTOR BOOKSHOP READER Figure 1: Traditional Book Publishing Value Chain PUBLISHERS Catalogues AUTHORS Customer Information Payment Services Delivery CUSTOMERS BOOKSHOPS Figure 2: Publishing and Bookselling Value Network 156 • International Journal of e-Business Strategy Management November/December 2002 . To facilitate this value added aspect of knowledge gathering requires management skill in matching technology to the functional strategy. customers and a host of book reviewers.com.ment. Figure 2 illustrates a publishing and bookselling value network.
ing (how to structure strategy to reach customers) and personalisation (knowledge for creating a personalised experience). It can be seen that bookselling is only part of the Amazon operational strategy. core information management and core handling and processing. publishers. The value network permits each party to offer different roles depending on the value functionality offered. From this configuration it is clear that the process of bookselling is much more dynamic than the traditional linear model with each party in the process interacting with greater intensity. Customers include those who purchase books.com of personalisation is significantly increased compared to blind e-mailing of information to large numbers of customers. By providing access to information covering a huge range of books worldwide Amazon have built a catalogue which publish. publishers and distributors all contribute to the increasing bank of in-house and market information required to respond to requests from customers. Readers form the core customers in terms of business to consumer (B2C) operations but another important strategy is to develop services based on information for publishers and bookstores – business to business (B2B). Figure 3 illustrates the functions comprising the business configuration. A key asset is the ability of the firm to build and enhance relationships across the value chain. Statistical correlation techniques are used to converge buyers around their particular tastes and interests and creates opportunities for community building. Customers. all functionality is vested with Amazon. The latter aspect is extensively utilised by Amazon. Information to authors and customers forms the basis for building up the community within the bookselling process. the core handling and processing maintains payment services between the company and its customers whether they be readers.com business model Amazon is one of the leading proponents of utilising e-commerce applications in the bookselling arena.com business strategy. The added value to Amazon. With a catalogue of over three million books the firm claims to be the world’s biggest bookseller. crucially. resellers or authors.com to create an experience uniquely relevant to individual shoppers on their Website. This function also covers shipping and delivery administration. Core information management builds and provides access to the Amazon catalogue of books and is linked to Amazon Advantage. Timmers(13) identified a business configuration emphasising value networks. Four main elements comprise the model and include community building. The model outlined in Figure 2 forms the basis of the Amazon. Finally. authors.® International Journal of e-Business Strategy Management November/December 2002 • 157 CASE STUDY . The first constitutes business to consumer (B2C) e-commerce whereas the latter two are business to business (B2B) e-commerce. Thus. The Amazon. The customer database also provides value-adding information. The company uses the software to offer information to buyers regarding other purchases by other buyers of products in the same or similar genre. Amazon Advantage offer services for publishers and Amazon Associates deal with book resellers. Amazon created two groups to specialise in B2B e-commerce. The sales interface relies on building up a bank of knowledge from each and every sale whether from readers (through Amazon. sales interface.com) or resellers (through Amazon Associates). publishers who request market information and book resellers who also rely on Amazon services.
However. This was as a result of the company increasing its focus on efficiency and financial prudence in order to allay the worst fears of investors and to counteract the increasing competitive forces in the market for online bookselling.com Core information management Core handling and processing CASE STUDY ers and bookstores value.2% revenue growth rate in the year to the end of 1999 and the $720 million loss registered over the same period. With each click on the system Amazon increases its bank of knowledge and extends its customer reach. Publishers can benefit from the larger customer base that Amazon has built up and booksellers 158 • International Journal of e-Business Strategy Management November/December 2002 . building customer database and the value-adding information. Payment processing. By September 1998 this figure had risen to 150 000. The market value of the company has seen a decline to $12 billion in 2000 from a $23 billion peak in 1998. The low cost and ease of access make it an attractive online system for practitioners across the industry. these forms of competition have yet to reach a level to threaten the lead Amazon enjoys in the market. the largest distribution and access to customers and having the best known brand name in the e-commerce bookselling industry. In September 1997 Amazon had 15 000 bookselling associates. Also. The growth of the Associates aspect of the business has been without precedent in the publishing world. Other distributors can potentially undercut Amazon for shipping and delivery or maintain their own catalogue under their control or the control of other online bookstores. Each site has local characteristics including language thereby allowing Amazon to claim to be a truly global phenomenon not just in terms of customer reach but also culturally. Results in the first quarter of 2000 showed signs of improvement as losses declined to $308 million. Direct customer order intake and registration of individual buyers. shipping and delivery services. Figure 3: Business Configuration Strategies and Functionality in Amazon. with each successive ‘click of interest’ the brand name of Amazon becomes ever more ubiquitous. One of the main areas of competition for Amazon is in the distribution sector of the business. most of the figures relating to Amazon are spectacular such as the 135.STRATEGY Community building Sales interface FUNCTIONALITY Author / customer supplied information related to specific books. The Amazon strategy for creating competitive advantage is now well established and focuses on having the world’s largest catalogue of books. Indeed. Indirect via Associates. Building and providing access to book catalogue.
price and delivery information. as more and more firms enter the market each becomes a price taker. This allows any firm (incumbents or potential entrants) to attain any position along the efficiency frontier. entry is free and imitation incurs negligible costs. By implication this models adds emphasis to the importance of ‘lock-in’ for customers whereby the switching costs are significant enough to main® tain brand loyalty. Sustaining competitive advantage in e-bookselling The frictionless world of e-commerce is designed to edge competitive environments closer to that of perfect competition. Figure 4 illustrates efficiency frontiers in a perfectly competitive market.can access important information through the Amazon database. cost or quality combinations end at point PX=CX/QX where the market is in equilibrium. International Journal of e-Business Strategy Management November/December 2002 • 159 CASE STUDY . Indeed. The efficiency frontier represents the most efficient cost/quality positions that are possible for firms in the market. However. it can be seen that this presents as much of a threat to sustaining competitive advantage as it does opportunities for entry and cost reduction(3). The diagram represents a market in which consumers’ benefits are based on a single attribute of quality (Q). Amazon had first mover advantages in terms of building market share and brand image. a hybrid strategy of cost leadership and differentiation to achieve competitive advantage is unsustainable. Opportunities for creating competitive advantage through price. Higher quality at lower cost becomes unattainable for individual firms in the market due to the ease of imitation of the business model that brought it about. It is now necessary to analyse the reasons behind the fall from grace of Amazon and investigate the evident weaknesses in the company’s strategy for sustaining competitive advantage and achieving profitability. The firms face similar technologies and input costs. In a market. opportunities for achieving profitability in such an environment quickly disappear as new entrants are attracted and upward pressure is asserted on supply and prices fall. There is evidence that it has attracted other players in the bookselling industry who have imitated the Amazon model. Although firms in the industry supply information on many genres of books the service provided is largely homogeneous based around product characteristics. the business model and the economic foundations of the Amazon venture have resulted in spectacular losses and a freefall in the company’s share price. Thus. offer ease of access at low cost and provide profits for Amazon and its associates. These are shown by the upward sloping indifference curves. The business model described was designed to encourage greater participation in the bookselling process. The above scenario can be illustrated using economic theory enunciated by Rumelt(8). such as online bookselling. Eventually. Online bookselling comes remarkably close to this model. The model assumes consumers have identical price/quality preferences. Competitive advantage built around branding and design is dissipated by the ease of entry and imitation by rivals. In Figure 4 price/quality preferences P1Q1 would not be sustainable because ease of entry would allow a new firm to offer higher quality (Q2) and lower price P2 and gain market share from incumbents. That is. no firm can extend efficiency beyond the frontier. as Amazon have discovered. However.
Timmers(13) describes these as external benefits or costs of the presence of products in the market that are not reflected in the market price (as opposed to network effects which are reflected in price).com. therefore. Barnes and Hunt(2) assign much of the value to perceptions of Amazon as being not just a bookseller but also a mechanism for selling a variety of goods.Unit cost. As customers are not charged for these benefits so they are termed network externalities. The core competence of the firm lies in the added value service to customers that the software provides and that the highly skilled Amazon workforce exploit. be viewed as market inefficiencies(5). This initial advantage caused problems later for Amazon. They have enabled the company to amass a huge market value. Amazon is among many ecommerce firms who have developed business models around the concept of creating virtual communities. Nevertheless. price Figure 4: Efficiency Frontiers in a Perfectly Competitive Market P1 P2 Efficiency frontier CASE STUDY PX =CX I1 I2 I3 Q1 Q2 QX Quality (Q) Analysis of first mover advantages Amazon’s first mover advantages have been significant. There is no compensation through price and must. The Internet is an ideal medium for creating increasing benefits for increasing numbers of customers joining the network. one of the most valuable assets possessed by Amazon is the computer software developed to enhance customer benefit through database management. A crucial first mover advantage enjoyed by Amazon is the development of network externalities. Internet auctions. value chain inte- 160 • International Journal of e-Business Strategy Management November/December 2002 .
A firm offering a price/quality trade-off inferior to competitors would be unable to compete. Nevertheless. Even though most books continue to be sold through traditional retail methods the potential of the online market is sufficient to attract big name booksellers such as Barnes & Noble. Amazon. For a firm facing a downward sloping demand curve the optimal price is above marginal cost. Amazon created a differentiated product based on service. in the case of online book buying there are many more potential customers than actual ones and. as the market heads towards one of monopolistic competition sellers differentiate horizontally in distinct market segments. the competitive advantage enjoyed by Amazon is likely to be diluted as new entrants vigorously pursue old and new customers alike. The market illustrated in Figure 4 has it that all consumers have the same preferences. to protect the firm’s development of software technology against imitators such as rivals Barnes & Noble.grators and a host of other applications. this makes competitive advantage unsustainable by first mover advantages alone. However. Sustained competitive advantage must combine attributes such as first mover advantages. The effect of imitation on performance Amazon experienced exponential growth in sales and stock value through exploiting first mover advantages and monopoly status between 1995 and 1997. value adding criteria and a robust business model. Waterstones. Many of the business models and website designs of new entrants closely resemble those developed by Amazon. The industry structure will be determined by how long incumbent firms make profits that attract new ® International Journal of e-Business Strategy Management November/December 2002 • 161 CASE STUDY . latterly. Borders and. including litigation. New entrants have to contend with the knowledge that customers are already familiar with the modus operandi of the first mover’s website. the issue of switching costs are themselves a source of first mover advantage. In the evolving online bookselling industry firms can vertically differentiate to create competitive advantage. differentiation. The company has based its strategy around brand recognition and superior service such that customers are reluctant to switch to rivals even if the cost of doing so is zero. Amazon could be deemed a logistics company under the Hyper Text Markup Language (HTML) code rather than a bookseller). However. therefore. This allows prices to be raised without a fatal fall in demand. Again. as noted. Branding and building customer loyalty are other important first mover related advantages for Amazon. the quality is unknown until used (technically. The computer software technology was (and remains) the key to sustaining competitive advantage in the face of increasing rivalry in the online bookselling industry. through its monopoly status between 1995 and 1997 were able to develop a large and loyal customer base that later entrants had to overcome in order to compete effectively. Their reputation based on service is vital for effecting customer loyalty. This is especially cogent to Amazon since their ‘product’ is essentially an experience good – that is. Indeed. design and brand image. the Amazon business model attracted imitators. as new entrants arrived price competition has ensued. However. This though does not guarantee profitability as total costs may not be covered. Amazon has gone to great lengths. The more the community grows the greater the attraction of joining because information service continues to rise but the cost to users is static.
entrants. speeding product distribution through regional inventory maintenance.com faces competitive pressures from both online and traditional bricks and mortar booksellers. The first mover advantages accrued by Amazon. Subsequently. The success of Amazon was built on its knowledge and expertise in bookselling. Although there has been no discernable rush to provide online services more and more of the traditional booksellers are adding Internet services to their businesses. the gap has closed as BarnesandNoble. Yet three years on from its stock market flotation the company was in crisis. Key to its initial success was the ability to win customers and maintain their loyalty. Each successive new entrant chips away at industry profitability until it is no longer attractive. With a clear strategy and business plan in place it appeared that the prospects for Amazon could only get brighter. Barnes and Noble responded to the initial success of Amazon by introducing their own online service to supplement their core business of bookselling through shops. Evaluating Amazon’s competitive position in the e-bookselling industry Amazon. most buyers have a tantalising wait for their book of choice. this was the core business – both B2B and B2C. Kozmo. Customers in traditional bookshops can take the product home on purchase. That the online bookselling industry has been characterised by increasing numbers of new entrants when profits have proved elusive illustrates the extent to which perceptions of future prospects remain buoyant. The growth of e-commerce has been one of the great business stories of the late 20th Century. The value proposition that Barnes and Noble delivered to the marketplace was to interact with customers via the Internet. Amazon has been at the forefront of this phenomenon. thereby combining the convenience of online ordering with almost instant gratification. Alongside many other dot. CASE STUDY However. Investors rushed to pump money into the venture and its share price rocketed in 1998. In an increasingly time conscious consumer market Amazon.com becomes more recognised and Amazon grapple with debt. Debts had built up since 1997 with no imminent sign of profit. while maintaining the immediacy of the physical shopping experience in local shops. Nevertheless. such as Webvan. The initial business strategy did 162 • International Journal of e-Business Strategy Management November/December 2002 . Figure 5 shows the net losses incurred by Amazon from 1997 to 2000.com by mid 1999. the Achilles heel of the Amazon business plan lay in the distribution of the products. The advantages that the Internet offers are undermined by the constraints of delivery times.com resulted in a market value some thirty times that of main online rivals BarnesandNoble. Essentially. Some Internet firms. New Internet companies have soaked up investment capital like a sponge based on little more than potential future profits rather than utilising physical resources.com and Pink Dot offer same day delivery in certain locations. With leader Jeff Bezos at the helm providing energy and vision the company built it’s retailing around bookselling and then other areas such as music and video.com firms Amazon found investors bailing out in early 2000 thereby cutting the share price by some 20%.com provided a way for buyers to circumvent the cost of visiting a bookshop. Amazon offered an entirely new proposition to customers when it began trading in 1995. The service offered easy access to convenient ordering from a huge selection of books.
price and selection. Soon cosmetics. 1999) not include ventures into other areas of retailing.averse regarding the new economy to withhold further funding for Amazon. In the quarter ended December 2001 this figure dipped below 10% for the first time. Crucially Amazon has maintained a clarity in the fundamental strategy of focusing on the aspects of online trade that consumers value such as convenience. Fuelled by deficit spending Amazon drifted from the core activity of bookselling where they had garnered much goodwill. improve and control) technique to review performance and deal with inefficiencies. lay in the high number of unique visitors per month to the Amazon website and the overall number of hits the website had received. technological and online marketing expertise and customer loyalty. In December 2001 the company reported its first GAAP (generally accepted accounting principles) quarterly profit.Figure 5: Amazon Net Losses ($m) 1997-2000 Net loss $m 0 100 200 300 CASE STUDY 400 1997 1998 1999 2000 Source: The Economist (July 1. The ® International Journal of e-Business Strategy Management November/December 2002 • 163 . garden implements and tools followed. the potential of the company. toys and video. according to the management team. The company has adopted the Six Sigma DMAIC (define. There have been further efficiency gains in the area of distribution. After a series of acquisitions and partnerships Amazon entered other markets such as music. In particular. Throughout 2001 a relentless cost-cutting programme across the company had dramatic effects on efficiency. by mid 2000 nervous investment companies were sufficiently risk. In order to attract further investment Amazon emphasised the first mover advantages the company possessed. Business management techniques were introduced to improve the company’s cost of fulfilment as a percentage of sales. analyse. The company had to find alternative methods of staying in business. measure. Conclusion Amazon has survived the pitfalls of the new electronic business environment because of its first mover advantages. By diversifying into other areas of retailing the company diluted the effect customer loyalty played in attaining investment credibility. Nevertheless.
reviewing products and other interactive services forms the basis of building network externalities that the firm benefits from. (2000). (2001) Value Creation in E-Business. C. The lesson to be learnt is that e-commerce requires a mix of information (via the Internet) and physical products (via distribution centres) to survive long term. Only in the wake of cost cutting programmes has Amazon been able to re-establish its competitive advantage. and Emdad. Firstly. Logistics Information Management.D. A. G. in turn.com and its main rivals narrowed significantly in 2000. (2001) E-Commerce & V-Business : Business Models for Global Success. Dranove. Amazon display other characteristics that offer explanations for the durability of the company. (2001). Operational effi- ciency was vital as the company extended its core business activities beyond bookselling. The mutual benefit derived from the customer-supplier relationship ‘locks in’ customers to the Amazon service. In the mind of founder Jeff Bezoz getting big was only the prologue to a long-term plan to sustain competitive advantage. customisation. pp 493-520. The first mover advantages included that of brand recognition and this was used as a basis for differentiating the service and building trust among customers. 164 • International Journal of e-Business Strategy Management November/December 2002 . Thus. That Amazon has endured owes much to the importance of allowing customers to work for the organisation.F. Oxford. An analysis of the virtual value chain in electronic commerce.1 billion in 2001 the company has achieved that aim and now intends to take advantage of it. This creates a so-called virtuous cycle where both the company and customers benefit from ever increasing interactivity. S and Hunt.. self-service.. Butterworth-Heinemann. Customer loyalty may be bolstered by the cost of switching to rival online sellers.company has quickly learnt the new rules of operating within that environment. Issue 1/2. the greater the bank of knowledge the more the service becomes attractive to customers.  Besanko. D and Shanley. Wiley. the company were able to move quickly enough in a dynamic environment in order to offer added value to customers via their online service. The way the company positioned itself prior to expansion radiated a clear vision and attracted investment funds. Maintaining expansion required new investment funds that. D. Amazon set out in 1995 to get big quickly. M.  Bhatt. With revenues of $3. Chichester. Economics of Strategy (Second edition). The more customers use the service the greater is the bank of knowledge available. The Amazon business model was not able to sustain its high level of competitive advantage in its original format.14. R and Zott. The gap between Amazon. Vol. necessitated changes in the strategic focus of the company. B. When profit proved elusive the investment funds dried up. There was an emphasis on building customer relationships in a marketspace rather than any particular location.  Barnes. © Winthrop Publications Limited 2002 CASE STUDY References  Amit. Strategic Management Journal. Through the leadership of Jeff Bezoz the overriding philosophy of the company has been to focus on the customers. 22. This had a number of effects.
London W2 1LA.Lamb (ed.Y. (1997) The Economics of Electronic Commerce.P. 73.  Turban. Choi.demon. Macmillan Technical Publishing. S. pp 107-110. J. King. M.  Rumelt. pp 466-476.  Dutta. Prentice-Hall. Strategy. New Jersey. (1985) Competitive Advantage : Creating and Sustaining Superior Performance. J.). P. pp 31-36. pp 75-85..O.uk www.winpub. and Whinston. D. from R. E. Electronic Commerce : A Managerial Perspective. PrenticeHall.uk International Journal of e-Business Strategy Management November/December 2002 • 165 . Structure and Economic Performance. H. New Jersey. CASE STUDY Biography Colin Combe is a Lecturer in Management at Glasgow Caledonian University.P. D and Chung. Indianapolis. 2000) London.. UK Tel: +44 (0) 20 7915 9612 Fax: +44 (0) 20 7915 9636 E-mail: info@winpub. John Wiley..  Rumelt..co. Division of Research. Harvard Business School. Towards a Strategic theory of the Firm.S and Segev. Previously he was Director of Studies responsible for developing one of the UK’s first online doctoral programmes at the University of Northumbria in Newcastle. 55-57 North Wharf Road. Harvard Business Review. Competitive Strategic Management. He has research interests in the convergence of technology.A. (1995) Exploiting the virtual value chain. European Management Journal.co. His published work includes the management and implementation of online education at the advanced level and the restructuring of independent television in the UK.  Slater. New York.  Rayport. Boston. Free Press. Lee. A (1999) Business transformation on the Internet.  Porter. August 15. Vol. A.E. Englewood Cliffs.. The power of positive thinking. Internet applications in education and business and the structure of media and communications industries. (1984). (1999) Electronic Commerce: Strategies and Models for Business to Business Trading. (1998). Stahl.  Timmers. Chichester. The CIO. (1974). He holds a PhD for research into multimedia corporate strategy International Journal of e-Business Strategy Management November/December 2002 Winthrop Publications Ltd Brunel House. R.  The Economist (July 1st. D. J and Sviokla.. 17.H.. R. No 6.B. (2000).