'Customer Fulfillment in the Digital Economy\r'

'client fulfilment in the digital frugality virago. com E-tail guest fulfillment shed light on fetchs Pi unrivaleder â€Å"The logistics of dispersal S unioncard argon the iceberg infra the waterline of online admitselling.B-web type â€Jeff Bezos, founder and CEO, Amazon. comAggregation (e-tail) / agora (auctions, Zshops) hybrid ens antiophthalmic factorle KEY PARTICIPANTS â€Å" x grades from without delay, no one put across re extremity whether Consumers and business grease ones palmsers Context providersContent providersAmazon. com and little(a) online merchants (Amazon. com associates, Zshops, auctions) Suppliers and b-web partners ( publishing firms; producers [OEM]; distributors e. g. Ingram Micro, Baker & axerophthol; Taylor playscripts, and former(a)s) nodes Amazon. com spent an unneeded $100,000 upgrading fargon from the West Coast to the eastern United States Coast. every(prenominal) that impart matter is whether electronic commerceGave spate a good or bad cons honest.2 â€David Risher, senior vice chairwoman for merchandising, Amazon. com Commerce supporters\r\n• Infrastructure providers\r\nâ€Å"This [the Amazon. com scattering wargonhouses and CFN] is the fastest expansion of dispersal competency in peacetime history. ”\r\n3 â€Jeff Bezos, founder and CEO, Amazon. com whirl\r\nAmazon. com and online merchants (Amazon. com associates, Zshops, auctions) Amazon. om and merchants participating in auctions and Zshops Third companionship shippers (UPS & adenine; USPS) Amazon. com Drop shippers much(prenominal) as Ingram Technology providers such as visionary, acquit Perceptions, and i2 Technologies Third party shippers (UPS, USPS) The declamatoryst online e-tailer of books, music, videos, toys, and gifts Recently grow service religious offering to include auctions (March 1999) and Zshops (September 1999)â€an assembling of merchants on its Web site Aspires to establish a one-stop shop for mer chandise on the Web CFN regard as proposition\r\nâ€Å" farming’s largest alternative” of merchandise at belligerent prices, a validated produce assortment, nd consistent client service from â€Å" crustal plate page to home bringing”â€24/7 universal resource locator\r\nhttp://www. amazon. com 360 Adelaide street W, 4th Floor Toronto, Ontario. Canada M5V 1R7 Tel 416. 979. 7899. facsimile machine 416. 979-7616 www. digital4sight. com © two hundred0 digital 4Sight Corp. Re harvest-timeion by all means, or revelation to parties who atomic number 18 non employees of digital 4Sight member organizations is prohibited. thank you for your cooperation. 1. 1 guest Fulfillment in the digital thriftiness Amazon. com few barriers to unveilingâ€but one of those barriers is node fulfilment. In 1996â€97, Amazon. com was more often than non exclusively in the e-tailing business. Now the Web is eeming with e-tailers c ar debase. com (which aggressi vely undercuts all(prenominal)one else, including Amazon. com), CDNow, and barnesandnoble. com. There are in every case Web portal-run malls, m severally of which are write and offering features ( ilk the ren holded â€Å"one-click obtain”) that study thus far differentiated Amazon. com. chawbacon’s online mall offers 7,000 stores with all everyplace quad one thousand one cardinal million circumstances and walmart. com’s planned origin appearance in 2000 poses a signifi thronet threat. Amazon. com’s low moving confederation expediency, e- stag equity, and sign embody advantages (stemming from lack of investments in prime substantive estate for storefronts) are gradually eroding.Its brinks are falling, art object operate expenses from mergers and acquisitions are increasing. As of the balance of 1999, Amazon. com expected to post around $600 million in wantes for the year, at a time when growth in book sales is falling (from around 800% in 1997 to a little over 100% in 1999). On the add-on side, client retention rates exceeded 72% in the third quarter of 1999. 8 But average tax income upgradement per node in 1998 was $98. 4, time average selling, full general and administrative (SG& adenine;A) and distribution be per client (excluding follow of goods sold) were nearly $71. 30, leading(a) to an average net earnings loss of around 21%. Amazon. com Founder Jeff Bezos wants to transubstantiate Amazon. com into the largest and close to client-friendly one-stop shop on the Web. already the largest online e-tailer of books, music, and videos, the social club has expanded its product offering to include toys, gifts, and electronics, and in September 1999 launched â€Å"Zshops,” a newly initiative (online flea trade on Amazon. com’s Web site) which offers guests â€Å"universal selection. ”4 Zshops empower small merchants and customers to set up online stores on the Amazon . com Web site for a monthly gift of $10, and a dealings fee of 1â€5% of all sale.With a market detonatoritalization of round $31. 4 billion (as of November 1999), 12 million loyal customers, 18 million items on sale, projected 1999 sales of $1. 4 billion, and the intimately recognized brand appellation on the Internet,5 Amazon. com aspires to become the supermall of choice for online shoppers. Its recipe includes induction driven by â€Å"customer obsession” and the ability to provide a secure, pleasant shopping generate online, but its controller is due to a customer runment process that delivers. A carefully orchestrate and adroitly executed â€Å"sell all, put up few” schema apologises Amazon. com’s winner ith e-tail customer fulfillment. Its business web (b-web) (for books) includes Ingram earmark Group and Baker & Taylor, the twain largest book wholesalers in the US, as well up as dozens of other(a)s. In 1998, Amazon. com o btained 60% of its books finished Ingram, which operates septet strategically regain US warehouses. Amazon. com pays Ingram a wholesale markup a few percentage points above the publisher’s price for its confuse shipping services. 6 How has Amazon. com responded to these formidable challenges? First, to add-on tax per customer, Amazon. com added product lines or capabilities practically every six weeks in 1999.In February, the party bought 46% of drugstore. com. The following month, it launched online auctions. It bought a 35% endorse in homegrocer. com in May, 54% of pets. com in June, and 49% of gear. com in July. The Zshops and All carrefour seek (a â€Å"search the Web” service) initiatives crap moved it even closer to its refinement of providing â€Å"earth’s largest selection. ” For Amazon. com, the Zshops initiative is 80â€90% grossmargin rich, since its fringy costs for providing one-click shopping and acknowledgment card collectio n on Zshops is nearly zero. In 1999, Amazon. com opened cardinal new automated distribution c engraves of its take in the US (this is in ddition to ii centers already operational in Seattle and Delaware). The tone is to improve declining margins in a cutthroat business (e. g. by sourcing books directly from publishers), diminish dependence on Ingram and other distributors, and extend and control its online fulfillment process to enhance belligerent advantage. Amazon. com now offers its customers resembling(p) to coterminous solar day shipping (in the US) on al most(prenominal) items. In the 1999 holiday season, the con provideeration move much portions†maybe in unneeded of 15 millionâ€to more good deal than all(prenominal) other e-tailer or mail- fix seller in the country. 7 Amazon. com’s leaders in customer fulfillment etworking (CFN) get out be critical to its supremacy as the landlord of the largest shopping mall on the Web. Second, its custo mer fulfillment networking (CFN) strategy is pictureed to increase gross margins by sourcing directly from publishers and other producers, rather than from wholesalers (e. g. distributors like Ingram) who provide pearl shipping for a premium. Amazon. com will in any case reduce costs per sale by cross-docking recites (books, electronics, and toys all in one set up) at the warehouse closest to the customer by means of state-of-the-art make forecasting and optimization solutions from i2 Technologies. 10 Business contextE-tailing is fast enough a crowded marketplace with © 1. 2 2000 digital 4Sight Corp. echo by any means, or disclosure to parties who are non employees of digital 4Sight member organizations is prohibited. convey you for your cooperation. client Fulfillment in the Digital economy Amazon. com So, what are the implications of Amazon. com’s push into more warehouses for better customer fulfillment? piece of music the investment in five superfluous wa rehouses has been immense (in excess of $200 million), it enables same or next day fulfillment in most casesâ€driving great customer satisfaction and loyalty, and naughtyer evenues and gain per customer. It also lowers direct expenses and empowers Amazon. com to respond to imploreures from bulwark Street for shekels. The strategy appears to be stipendiary offâ€5. 69 million crotchety Web exploiters (excluding its 12 million registered customers) shopped at Amazon. com in the 1999 holiday season (an 81% increase over 1998), with average spending per customer of $128 (a 30% increase over 1998). 14 However, maintaining stock in 7 warehouses also increases schedule carrying costs, which the guild will need to balance and control by means of efficient customer fulfillment intend and execution. 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. convey you for your cooperation. little compelling spicy Complex*E-BRAND AS BARRIER TO ENTRY E-CUSTOMER EXPECTATIONS AMAZON. COM (Circa 2001)• Landlord of largest Web supermall• oecumenical selection, one-stop shopping, and same day customer fulfillment = competitive advantage• taxs: $2. 7 one million million (est. )• Registered customers: 19. 5 MM• Items Offered: >18 MM AMAZON. COM (1998)• Book E-tailer• Investment in brand come oning• Customer fulfillment largely outsourced to Ingram and Baker & Taylor• grosss: $610 MM• Registered Customers: 12 MM• Books Offered2. 5 MM natural depression Low This strategic fracture (figure 1) makes hotshot because Amazon. com’s e-brand will be a less compelling barrier to entry beyond 2000, compared to its customized, cooperative, and integrated online fulfillment qualification for â€Å" recites of one. ” fit in to Andrew N. Westland, Amazon. com’s vice chairm an of warehousing, transfer and engineering, it would risk losing its competitive advantage from its broaching and innovative one-to-one customer fulfillment excellence if it hired another company to handle distribution.As he points out, â€Å"we would be the t to each oneer and thus they would offer those services to our competitors. ”13 Designed and make for online say fulfillment, Amazon. com’s CFN and warehouse distribution system is among the first of its kind (another is Webvan). As such, it confers competitive first mover and learning curve advantage. ONLINE fruit ASSORTMENT Amazon. com’s business computer simulation consists of two different but completing revenue, pricing, and profit models. In the case of auctions and Zshops, comparatively small topline revenues (at least as of the end of 1999) contribute gamey gross and direct margins.In contrast, for the traditional e-tailing model, lower gross and operating margins offset high topline reve nues. 11 The company wants to utilize both models: cross-sell the high margin Zshops/auctions offering to its registered e-tailing customers (immediately enhancing both revenue and profits per customer), and cut the cost of sales and operating expenses through efficient customer fulfillment. mellowed Simple Third, its strategy of providing hassle- remedy, same or next day fulfillment on most items will enhance customer satisfaction and loyalty, driving plagiarize business, referrals, and increase market share.CUSTOMER FULFILLMENT AS CORE-COMPETENCE High * Complexity of product assortment implies both high breadth and depth of product lines offered. mental image 1. Amazon. com’s strategic shift: from book e-tailer to landlord of Web super mall. 12 Value proposition Amazon. com’s value proposition is â€Å"earth’s largest selectionâ€24/7, at a competitive price. ” The world’s most â€Å"customer-centric company” gives its customers what they want (universal selection), how they want it (in one amalgamated package), and when they want it (same or next-day by the year 2000), by orchestrating an enjoyable purchase experience at the front end and einforcing it with seamless fulfillment at the back end. Bezos, who describes his squad members as â€Å"customer obsessed… genic pioneers,”15 give notice take credit for numerous innovations, including customer recognition and one-click shopping, free book reviews, recommendations (suggestive selling), Purchase Circles ( scoop vender slant by region, country, company, and industry), All proceeds hunt (shop the Web), free e-greetings, Auctions, Zshops, and seamless customer fulfillment. from each one of these has been a first on the Web, and competitors clear copied most of them. Recent innovations include a system that lets shoppers ut together a big enounce and then broadcast each item, tagged with an individual message, to a different individual and address (September 1999); a â€Å"wish list”â€much like a wedding registryâ€that lets people tell the world what gifts they want to intoxicate; and an â€Å"Amazon. com anywhere” initiative with panache (announced declination 8, 1999) that facilitates wireless shopping through Sprint PCS Internet-enabled smart cellular phones. 16 1. 3 Customer Fulfillment in the Digital economy Amazon. com 1 Customer places array; credit card processed for compensation 4 E-Customer All items picked, packed and assembled at nearest warehouse & shipped ia UPS or US Postal Service 5 Order delivered from the nearest warehouse via UPS/USPS AMAZON. COM warehouse WWW Electronics OEM Amazon. com’s servers in Seattle contend forecasting visibility and optimization through i2’s tack on strand OptimizationSoftware 2 Customer order parsed out to curb suppliers (if not stocked in Amazon. com warehouse). Books sourced from Ingram or other book publisher medical sp ecialty company LEGEND list randomness 3 Producers dispatch goods to Amazon. com warehouse. omen 2. Amazon. com’s customer fulfillment network (CFN)â€circa 2000. CFN strategy Amazon. com is a CFN pioneer. Its innovative CFN trategy enables true impulsive commerce that provides a customized experience to not only fulfill, but also nominate demandâ€profitably, and in real-time. This is a innocuous round of golf realized through consolidation of the customer relationship steering applications with the order fulfillment applications and its b-web, as well as intelligent and combat-ready demand- affix synchronization. It is rendered possible by the following CFN value drivers: • • • • Business processes and applications Sourcing quadruple line items from disparate suppliers and assembling them to a customer’s order and specifications for same/next day fulfillment involves ramatically great logistics and supply compass complexity th an delivering gigantic pallets from warehouses to shelf spaces (brick-and-mortar retail). Dynamic and intelligent personalization that manipulates dynamic content insertion and cross-selling (enhancing revenues and profits per customer) while matching the customer’s demands with Amazon. com’s fulfillment abilities Virtual integrating cross personal manners the b-web (from customer to supplier and warehouses) that ensures synchronicity across business processes, delivering intelligent and bankable order fulfillment Dynamic demand and supply planning and ptimization to minimize parentage carrying and passage costs and reduce one shot measure, leash factorsâ€selling an expanded selection of products online (Amazon. com offers 18 million items), the need to move a large volume of small parcels, and locomote customer expectationsâ€combine to put new pressures on order fulfillment systems. According to Toby railroad tie, CEO of e-Toys, â€Å"Inventory ma nagement is the great ecommerce business process that no one seems to know much just about. It is the true barrier to entry. ”17 Amazon. com, which has depended largely on a drop shipping and just-in-time arrangement for books with © 1. 4 aximizing profit and service levels supreme visibility and responsiveness to supply and demand variability and anomalies through dynamic expulsion notification (e. g. an electronic alert taper if something goes wrong) 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. Customer Fulfillment in the Digital providence Amazon. com Order Management System (OMS) reference point card entropy verification, e-ordering (if needed), reconcilliation of shipping and customer charges Inventory Management System (IMS)Which items and categories to stock, where and in what quantities? What is available and what needs to be request? I2’s Demand Optimizer Inventory overthrow info by product, category, country, region, state, industry, etc. I2’s Available to Promise (adenosine triphosphate) Can we fulfill these orders profitably? Oracle database of products and consumer pens All harvest Search What are customers looking for? Customer Orders What are they purchase? Warehouse & Transportation Management System (WMS & TMS) Pick, pack and ship orders most efficiently & profitably Purchase Circles (Best seller listing by country, region, industry or company)WWW E-Customer untried Customer Profile Who are the e-customers (demographics, etc. )? What are their preferences? Suggested Selling (Cross-sell and exculpate Perceptions up-sell profitable, Collaborative Filtering: in-stock items that What items and categories of customers want) products are customers likely to buy based on affinity? a nagement (CRM) Decision Support, S upply Chain provision & Execution Custo mer family relationship M Figure 3. Amazon. com’s entourage of CFN applications. 20 Ingram and Baker & Taylor, has now primarily moved to a from-stock hybrid model (that also includes the other options) with its seven US warehouses. In ddition to enlarging its Seattle and Delaware warehouses in 1999, the company has invested over $200 million to adopt five distribution and warehousing facilities in Fernley, Nevada; Coffeyville, Kansas; Campbellsville and Louisville, Kentucky; and McDonough, Georgia. of Digital Equipment Alpha Servers and Netscape Commerce Servers strengthened around an Oracle database server and Oracle Financials Enterprise Resource Planning (ERP) system. 21 According to Jeff Bezos, 80% of the company’s investment in computer software teaching since its founding in 1994 has not bypast into its famously user-friendly screens, but to back-office logistics. 2 In 1998, two-thirds of Amazon. com’s 2,100 employees worked on customer fulfill ment. 22 These seven warehouses, comprising 3. 5 million square feet of total space, will ensure fulfillment in 24â€48 hours in most cases in the US. 18 The CFN comprising Amazon. com’s warehouses, b-web of suppliers and drop shippers, and end-to-end desegregation is specifically designed for online retailing from the footing up (i. e. , shipping merchandise item by item to individual customers). 19 It is one of only a smattering of such networks. Amazon. com developed most of its own front end e-commerce applications, including page design and rder management systems (OMS). The acquisition and incorporation of Junglee, a highly sophisticated XML-based shopping bot, forms the groundwork of Amazon. com’s New Product Search application. It sourced its highly acclaimed suggested selling collaborative filtering software from Net Perceptions and recently acquired a tally Chain Planning and Optimization package from i2 Technologies. 24 All other softwareâ€includin g middleware and the much-praised and patented one-click shopping applicationâ€is customized for Amazon. com or proprietary, and zealously guarded for competitive advantage. Amazon. com’s CFN, including its network of istribution centers, is illustrated in figure 2; figure 3 shows CFN applications deployed. Amazon. com’s initial hardware and software consisted © 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. 1. 5 Customer Fulfillment in the Digital Economy Amazon. com Amazon. com is in the process of integrating its b-web (suppliers, distributors, and customers) with its supply chain planning (SCP) and ERP, as well as management systems for orders (OMS), document (IMS), warehouse WMS), and transportation (TMS) (figures 2 and 3). This strategy will lead to intelligent demand forecasting, optimization, and profitable distributi on execution. The customer relationship management (CRM) entourage at the front end, which consists of one-to-one personalization and collaborative filtering from Net Perceptions and Amazon. com’s own order management system (OMS), works in sync with i2’s Supply Chain Planning, Optimization (SCPO) and Decision Support Systems (DSS) at the back end. These form a staring(a) cycle that reachs profitable demand while delivering a customized buy experience in real-time, as well as ntelligent, profitable fulfillment that ensures customer satisfaction and referrals. Figure 3 presents a hypothesis of how the applications work to deliver intelligent end-to-end order fulfillment: • • • • • This is a true â€Å" horse sense and respond” CFN based on Amazon. com’s move towards a â€Å"real-time blood solution” (if the customer can order it, it is available, and can be shipped) to drive customer loyalty, revenues, referrals, an d profitability. Data is gathered initially from the customer to form a customer compose in the Oracle database. Information on items customers are looking for, and ctually buy, is gathered through the All Product Search office and customer orders, respectively. Data from All Product Search drives the categories and product lines that Amazon. com keeps adding to its colossal assortment. The get data is queried to yield inventory long horse volume (for every item) by zip code, state, country, business, company, and industry. The inventory overturn data is used to tell Amazon. com’s inventory on an A, B, C foot (e. g. ‘A’ items could be best sellers, ‘B’ items have medium turnover, and ‘C’ items are one-off orders). The inventory turnover data (XML tagged by zip ode) is fed back to the customer by way of Purchase Circles (best-seller listing) to seduce the customer into buying the item. As well, data from the customer profile and p revious buying patterns are mine (using collaborative filtering from Net Perceptions) to predict affinities surrounded by customers and products. This enables real-time suggestive selling recommendations (the dear suggestions to the recompense buyer at the right timeâ€right now) relevant to each customer’s buying objectives. These recommendations vary browsers into buyers, increase revenue and profits per customer, and jar repeat buying. 25 2’s demand planner uses the inventory turnover and buying data to dynamically harbinger customer needs by spotlessly predicting customer demand on an on-going basis. By integrating these with i2’s available-to-promise (ATP) inventory management and distribution systems, Amazon. com ensures that B-web organization Amazon. com’s b-web is an Aggregation (e-tail) and Agora (auctions and Zshops) hybrid model powered by its CFN. Win-win b-web relationships and electronic integration with suppliers, distributors, p ublishers, producers, and software and hardware providers account for Amazon. com’s winning experience and fulfillment.These partners contribute significantly to, and derive benefits from, its success. In addition to large and assured revenue streams, learning from this e-tailing and CFN pioneer assures competitive advantage in the high velocity arena of e-commerce. In book e-tailing, for instance, Amazon. com ties Ingram’s inventory data to its customer interface. This gives Amazon. com available-to-promise (ATP) capabilities that lets customers know when they can expect to adopt their merchandise. As soon as an order comes in, Amazon. com sends it to Ingram electronically (if it doesn’t carry the staged item); Ingram then ships the rder, usually the same or next day, to Amazon. com’s customer fulfillment center for cross-docking and shipping via UPS/USPS. Key lessons intravenous feeding factors explain Amazon. com’s in success e-tailing: â₠¬Â¢ © 1. 6 it maintains an optimum inventory of its most ordered books, CDs, videos, toys, and electronics in its warehouses for in-stock fulfillment. Continuous rapprochement of order and inventory data via the ATP function enables Amazon. com to commit to lead times on its Web site that it can profitably fulfill. Distributors like Ingram will drop ship one-off items (‘C’), or Amazon. com will order them (through theOMS) on a just-in-time basis from other suppliers for cross docking at its warehouse closest to the customer (figure 2). intelligent distribution, warehousing (WMS), and transportation (TMS) optimization ensures that Amazon. com picks, packs, and transports orders for delivery, via US Postal Service (60% of orders) or UPS (40% of orders), â€Å"from buy button to customer doorstep” 24â€48 hours for in-stock items, and within seven long time for others, in the US. 26 First, it translated its customer-centric understanding of market need into a n easy-to-use, intuitive buying experience that pleases customers and drives evenues and referrals 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. Customer Fulfillment in the Digital Economy Amazon. com • Second, Amazon. com invested tens of millions of dollars in building the most precious brand on the Web Third, Amazon. com built loyalty and barriers to entry by investment funds in innovative technology solutions such as suggested selling from Net Perceptions, Supply Chain Optimization (i2), Purchase Circles, and All Product Search, and integrating them into a irtuous cycle for dynamic commerce Fourth, and arguably most important, Amazon. com’s commitment to fulfillment has translated into slurred and effective b-web relationships with distributors and suppliers like Ingram and a core competence in one-to-one inventory management and distribution • • Thanks to these four factors, Amazon. com forecasts a customer base of 22. 3 million and revenues of $3. 15 billion by 2002. The company’s strategic investments in its warehouses, technology, and b-web integration (CFN) to enable reliable and accurate same or next day customer fulfillment are a key part of its first mover dvantage and a significant barrier to entry. Amazon. com can strategically leverage this â€Å"killer app” CFN in a number of ways:26 • • • First, Amazon. com can offer excess subject in its warehouses to Zshops’ merchants on a â€Å"fee for fulfillment” basis. This would accrue considerable borderline revenues for a significantly lower marginal cost incurred. Second, by installing Web-enabled buying kiosks (as well as interactive television receiver sets and wireless Webenabled devices like PDAs) at high traffic areas in malls, office buildings, and other locations, it can move its W eb buying experience to the real world for ess Web-savvy customers. Third, and perhaps most radical and innovative, Amazon. com can build free customer buying portals for each of its registered, loyal customers. For an incremental cost, Amazon. com can create customized buying pages (similar to Dell’s phase modulation Pages for its business-to-business customers) that will allow customers to go online and enter their buying requirements as needed. Amazon. com can then deliver the items it carries, and turn over rest orders to its Amazon. com associates, Zshops, or other b-web affiliates for fulfillment. â€Arindam (Andy) De © 2000 Digital 4Sight Corp.Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. 1. 7 Customer Fulfillment in the Digital Economy Amazon. com Amazon. com: Key mathematical process Indicators (see Table 1 and figures 4a to 4f) Table 1. semblanc e of 1998 performance: Amazon. com, Barnes & Noble, and Borders. 28 • • • 117. 8 million US adults, or 60% of the adult population, recognize the Amazon. com brand lean, fashioning it the most recognized brand name on the Web, followed by Priceline and e-Bay. 29 Amazon. com, with a low customer acquisition cost of around $2930 compared with $109 for a new e-tailer) and a customer retention rate of over 72%31 enjoys huge competitive advantage in terms of repeat revenue streams and significant growth in its customer base. Analysts estimate that Amazon. com’s customer base will be about 22. 3 million users by 2002 (figure 4a). 32 With an average revenue per user of $141. 25 (figure 4b), this would translate into $3. 15 billion in revenues. Gross margins over the same terminus would increase from 22% in 1999 to about 25% in 2002. • © 1. 8 Amazon. com, with $610 million in sales in 1998 and revenue growth of 230% (June 1998â€June 1999), had ero old age of receivables, 23 days of inventory, 87 days of payables (figure 4c) and a authoritative â€Å"gap in finance cycle”(figure 4d) of 64 days. 33 This implies that Amazon. com, unlike its competitors, is really financing working capital with cash flow from suppliers. Amazon. com’s revenue per employee (1998) was $290,476 (figure 4e) and revenue per dollar of fixed assets (figure 4f) was $20. 47 (appreciably high than the competition). Figures 4e and 4f show an interesting correlation among Amazon. com’s market capitalization of $31. 40 billion and its revenue per employee and revenue per dollar of fixed ssets, against the competition. This may help explain the significant upward disparity in market capitalization enjoyed by the company vis-a-vis its clicks-and-mortar competitors. 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your c ooperation. Customer Fulfillment in the Digital Economy Amazon. com receiptsS ($ MILLIONS) 19,500 22,300 $3, one hundred fifty 20 $2,700 2500 16,500 2000 13,300 15 $2,100 1500 10 $1,403 1000 6,200 Total revenue per user Annual net income per user $127. 27 Gross margins $138. 6 25% 25 $105. 49 90 $98. 39 22% 22% 21% 21% 20 60 15 30 10 0 ($8. 08) 5 500 30 $141. 25 120 $ PER USER 3000 $150 NUMBER OF REGISTERED USERS (MILLIONS) tax incomes ($millions) Number of registered users (millions) GROSS MARGINS (%) 25 $3500 $610 -30 ($19. 57) ($20. 09) 5 ($36. 73) ($45. 37) 0 1998 1999 2000E 2001E -60 2002E Figure 4a. Amazon. com: grosss & number of registered users (1998â€2000). 34 0 1998 1999 2000E 2001E 2002E Figure 4b. Amazon. com: Revenues & net income per user, registered users and gross margins (1998â€2002). 35 80 64 INVENTORY employee turnover OR CASH-TO-CASH CYCLE 60 Inventory turnover (1998) commotion” in finance cycle (1998) Revenue growth (1998-99) cd% 40 20 16. 14 0 -20 300 2. 4 AMAZON. COM 1. 83 B&N BORDERS 230. 1% 200 -40 -60 -80 100 (80) 6. 3% -100 Figure 4c. Book retail: Age of receivables, payables, and inventory (1998). 36 © 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. REVENUE GROWTH (%) 0 (90) 14. 5% 0 Figure 4d. Book retail: Revenue growth (June 1998â€1999) vs. inventory turnover & gap in finance cycle (1998). 37 1. 9 Customer Fulfillment in the Digital EconomyAmazon. com $350,000 300,000 $35 Revenue per employee (1998) Market capitalization ($ billions) $30 Revenue per $ of fixed assets (1998) $35 Market capitalization ($ billions) $31. 41 25 $30 $31. 41 $30 $20 200,000 $15 150,000 100,000 $103,641 $10 $95,404 50,000 0 $20 15 $15 10 $10 $5. 89 $1. 21 $0 $25 $20. 47 5 $5 $1. 64 20 $1. 64 0 $5. 26 marketplace capitalisation ($ BILLIONS) $25 REVENUE PER $ OF FIXED ASSETS ($) 2 50,000 MARKET CAPITALIZATION ($ BILLIONS) REVENUE PER EMPLOYEE $290,476 $5 $1. 21 $0 AMAZON. COM B&N BORDERS Figure 4e. Book retail: Revenue per employee (1998) and market cap (November 1999). 38Figure 4f. Book retail: Revenue per $ of fixed assets (1998) and market cap (November 1999). 39 1. Anthony Bianco, â€Å"Virtual Bookstores Start to maturate Real,” Business Week, 27 October 1998. 2. capital of Minnesota Hansell, â€Å"Amazon’s Risky Christmas,” The New York Times, 28 November 1999. 3. ibidem 4. Jeff Bezos quoted by Stefani Eads, â€Å"Is Amazon obtain for Profits in its Zshops? ” Business Week, 12 October 1999. 5. According to Opinion Research Corp. , 117. 8 million Americans, or 60% of the US adult population, recognizes the Amazon brand name, devising it the most valuable brand name on the Web. 6. Anthony Bianco, op. cit. 7.Saul Hansell, op. cit. 8. As quoted in SS Investor candour Research sketch on Amazon, declination 1999. 9. epi tome and estimates by Lauren Cook Levitan, analyst, Banc capital of Massachusetts Robertson Stevens, August 1999. 10. Jeanne Lee. â€Å"i2 Learns What Not to Say When talk to Analysts,” Fortune, 29 March 1999. 11. Jeff Bezos, quoted in an interrogate with Robert D. Hof, Business Week, 31 May 1999. 12. strategy map based on Digital 4Sight analysis of Amazon’s etailing strategy. 13. Saul Hansell, op. cit. 14. Media Metrix numbers quoted in â€Å"Amazon, e-Bay Get closely Holiday Visitors,” Los Angeles Times (Home Edition), 4 January 2000. 5. Jeff Bezos quoted by Chip Bayersin â€Å"The Inner Bezos,” Wired, (March 1999). 16. Amazon press release from its Web site, URL http://www. hoovers. com/cgi-bin/offsite? universal resource locator= http://www. amazon. com/exec/obidos/subst/misc/investorrelations/investor-faq. html/002-5319771-2477605. 17. John Evan Frook, â€Å"Missing Link Emerges: Inventory Management,” Internetweek, 9 March 1998. 18. bobsl ed Tedeschi, â€Å"Many Internet Companies Have rivet on Attracting Customers. The Bigger challenge Is Fulfilling Orders,” The New York Times, 27 September 1999. 19. Katrina Booker, â€Å"Amazon vs. Everybody,” Fortune, 8 November 1999: 120. 20.Digital 4Sight hypothesis based on secondary coil research. 21. Customer case study on Oracle’s Web site, URL: http://www. oracle. com/customers/ss/amazon_ss. html. 22. Anthony Bianco. op. cit. 23. Mary Beth Grover, â€Å"Lost in Cyberspace,” Forbes, 8 March 1999. 24. Jeanne Lee, op. cit. 25. Product data from Net Perceptions Web site. URL:http://www. netperceptions. com/product/home/0,,1091, 00. html. 26. Michael Krantz, â€Å"Cruising Inside Amazon,” Time, (December 1999). 27. Digital 4Sight analysis of Amazon. com’s e-tailing strategy. 28. Digital 4Sight Financial symmetry Analysis based on P&L and balance sheet data sourced from www. oovers. com. © 1. 10 2000 Digital 4Sight Corp. Reprodu ction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. Customer Fulfillment in the Digital Economy Amazon. com 29. Opinion Research Corp. stick to quoted in â€Å"Equity Research Report on Amazon,” SS Investor, December 1999. 30. McKinsey & association Data quoted in â€Å"Online Customer encyclopaedism Costs” Business 2. 0, (November 1999): 16-17. 31. As quoted in â€Å"Equity Research Report on Amazon. com,”SS Investor, December 1999. 32.Analysis and estimates by Lauren Cook Levitan, op. cit. 33. Gap in Finance Cycle = old age of Payables †(Days of Receivables + Days in Inventory). 34. Analysis and estimates by Lauren Cook Levitan, op. cit. 35. Digital 4Sight Financial Ratio Analysis, op. cit. 36. Ibid. 37. Ibid. 38. Ibid. 39. Ibid. 360 Adelaide Street W, 4th Floor Toronto, Ontario. Canada M5V 1R7 Tel 416. 979. 7899. Fax 416. 979-7616 www. digital4sigh t. com © 2000 Digital 4Sight Corp. Reproduction by any means, or disclosure to parties who are not employees of Digital 4Sight member organizations is prohibited. Thank you for your cooperation. 1. 11\r\n'