Best Fit Vs Best Practice Essay

amazon.comIn 1994, with a handful of programmers and a a few(prenominal) thousand dollars in scarperstations and servers, Jeff Bezos set out to change the retail orb when he attaind amazon.com (ticker AMZN). Shel Kaphan, viragos first programmer, assisted by an some other(prenominal)(a)s, including capital of Minnesota Barton-Davis, apply a collection of tools to create wind vane pages found on a informationbase of 1 meg hand titles compiled from the Library of Congress and Books in Print entropybases. Kaphan n geniuss that amazon was dependent on commercial and free database frames, as well as HTTP server bundle from commercial and free sources. m each of the programming tools were free software Collett 2002. In July 1995, amazon opened its nett locate for gross gross gross gross revenue. Using heavily discounted book prices (20 to 30 share infra common retail prices) amazon advertised heavily and became the leading ren admit of the mesh and e-commerce. Sales and Relationravishsvirago made its initial mark interchange books, and m some(prenominal) people still think of the follow in harm of books. However, al well-nigh from the start, the ships society has worked to expand into additional areasstriving to be get on with a global retailer of just closely everything. Some of the main events include 1995 books, 1998 melody and DVD/video, 1999 auctions, electronics, toys, zShops/MarketPlace, home amelioratement, software, and video games 1999 annual say. By the end of 1999, the companionship had forged partnerships with some(prenominal) other online stores, including Ashford.com, Audible, Della.com, drugstore.com, Gear.com, Greenlight.com, HomeGrocer.com, Kozmo.com, living.com, NextCard.com, Pets.com, and Sothebys. Of grade, most of those firms and Web sites later died in the dot-com crash of 2000/2001.virago alike established partnerships with several expectant retailers, including butt, Toys R Us, Babies R Us, and tr affic circle City. Effectively, amazon became a religious service judicature to manage the online presence of these large retailers. However, it as well as uses its distribution system to stand the produces. The Circuit City arrangement was slightly different from the others guests could pick up their incidents direct from their local stores Heun August 2001. After Circuit City went under, the consanguinity ended. By mid-2003, the Web sales and fulfillment serve amounted to 20 percentof viragos sales. Bezos points out that most companies realize that only a thin fraction of their total sales (5 to 10 percent) will come from online systems, so it makes sense to draw virago deport those portions Murphy 2003. In 2001, amazon took over the Web site run by its bricks-and-mortar rival Borders. In 2000, Borders lost $18.4 billion on total online sales of $27.4 million Heun April 2001. likewise in 2001, virago partnered with Expedia to offer travel services directly from th e virago site. However, in this case, the amazon portion consists of little to a greater extent than an advertising data link to the Expedia services Kontzer 2001. The thinks in 2001 continued with a twist when virago clear its lookup engineering to AOL. AOL invested $100 million in Amazon and payed an unrevealed license fee to use the search-and-personalization service on ShopAOL Heun July 2001. In 2003, Amazon launched a subsidiary just to sell its Websales and fulfillment engineering to other firms. Bezos remark that Amazon spends practical(prenominal)ly $200 million a category on indata formattingion technology (a total of $900 million to mid-2003). The reject of the subsidiary is to help recover some of those costsalthough Bezos believes they were critic onlyy inevit qualified-bodied expenditures Murphy 2003.With so many diverse products, and relationships, it mogul be tempting to defy everything separate. However, Amazon perceives goods from showing the entir e site to customers as a single, bounteous entity. Yes, customers click to the various stores to figure individual items. But, run a search and you will quickly see that it identifies products from any division. Additionally, the beau monde is experimenting with cross sales. In 2002, the Project Ruby test site began selling name-brand c fixhing and regainories. Customers who spend $50 or more on apparel received a $30 gift certificate for use anywhere else on Amazon Hayes 2002.By 2004, 25 percent of Amazons sales were for its partners. But, oneness of Amazons major relationships took a really bad overturn in 2004 when Toys R Us sued Amazon and Amazon countersued. The complaint by Toys R Us alleges that it had signed a ten-year exclusivity contract with Amazon and had so far paid Amazon $200 million for the right to be the exclusive supplier oftoys at Amazon.com. David Schwartz, senior VP and general counsel for Toys R Us stated that We dont intend to pay for exclusivity were not getting Claburn May 2004. Amazons initial gainnt was that We believe we atomic number 50 have multiple sellers in the toy category, emergence selection, and offer products that (Toys R Us) doesnt have Claburn May 2004.The legal philosophysuit counters that at least one product (a Monopoly game) appears to be for sale by third-party suppliers as well as Toys R Us. A month later, Amazon countersued, alleging that Toys R Us experienced chronic failure to maintain sufficient origin to meet demand. The court documents noted that Toys R Us had been out of descent on 20 percent of its most frequent products Claburn June 2004. Although the dispute sounds damaging, it is liable that both parties are using the courts as a means to renegociate the base contract.Small merchandisers accelerated a shift to Amazons grocery storeplace technology. By 2007, Amazon was simply the largest marketplace on the Web. For example, fundament Wieber was selling $1 million a year in refurbished computers done and through eBay. But increased rival and eBays rising prices convinced him to re line to direct sales through Amazon. Similar small merchandisers noted that although the fees on Amazon are hefty, they do not have to pay a listing fee. Plus, eBay shoppers only want to debase things at bargain-basement prices (Mangalindan 2005).In 2010, Target ended its contract with Amazon and launched its own Web servers. Amazon does not report sales separately for its partners such as Target, so it is baffling to determine what impact the change might have on Amazon. However, Amazon has many other sellers who offer similar products.Digital ContentAmazon has been expanding its offerings in digital glutin many ways extending competition against Apple, but also leading the way in digital books. Although it was not the first manufacturer, Amazon is reportedly the largest seller of e-readers with the flash. Amazon does not report sales separately for the Kindle. Amazon also note d in 2011 that ebooks for its Kindle reader have overtaken sales of paperback books as the most popularformat. The e-books had already exceeded hard-cover books the year before Wu 2011. For many of these reasons, Borders, a bricks-and-mortar competitor to Amazon went under in 2011.Amazon is also working to expand sales of music. The Web site has relatively standard pricing on flow songs, but often offers discounts on older albums. By 2011, Amazon was also onerous to expand into video streaming. Customers who pay $79 a year to join thePrime program gain faster shipping, and also access to a library of digital movies and TV shows. Unfortunately, with limited ties to the movie studios, the offerings ab initio were relatively thin. However, other video streaming sites, including Netflix and Hulu, were also struggling to lift long-term contracts with studios. In family 2011, Amazon announced a go on with Fox to offer movies and TV shows owned by the studio. At the said(prenominal) clip, Netflix announced a similar deal with the Dreamworks studio. It will take time for studios to determine strategies on streaming video services and for consumers to make choices Woo and Kung 2011.In late 2011, Amazon released its own version of a tablet computer. The beau monde continued to sell the Kindle e-book reader, but the tablet focused on audio and video, using a color LCD demonstrate harbor with a touch interface. Although it lacked features available on the market-leading Applet iPad, the Kindle table carried a price that was most half that of the iPad and other competitors ($200). The obvious goal was to extend a device that encourages customers to purchase more digital content directly from Amazon Peers 2011.Sales TaxesSales taxes have been a long-term bulge out with Amazon. The yearbook Report notes that several states filed formal complaints with the company in exhibit 2003. The basis for the individual suits is not minute, but the basic legal position i s that any company that has a physical presence in a state (nexus by the terms of a U.S. Supreme motor hotel ruling), is subject to that states rectitudes and must and then collect the required sales taxes and remit them to the state. The quarrel is that the level of presence has never been intelligibly defined. Amazon argues that it has no physical presence in most states and is consequently not required to collect taxes. The most recent challenges are based on Amazons affiliate program. Amazon pays a small commission to people who run Web sites and redirect traffic to the Amazon site. For instance, a site might mention a book and then include a link to the book on the Amazon site. some(prenominal) states have passed laws claiming that these relationships constitute a sales force and open up Amazon to taxation within any state where these affiliates reside. In response, Amazon dropped the affiliate program in several states, has initiated a legal challenge in the state of New York, and in 2011, negotiated a new deal signed into law in California Letzing 2011. In the California deal, Amazon obtained a delay in collecting taxes for at least a year, in exchange for locating a new distribution centre in the state and creating at least 10,000 full-time jobs. Amazon is also asking the U.S. Congress to create a new federal law to deal with the sales-tax issue. However, because the state sales tax issue is driven by the interstate commerce clause in the U.S. Constitution, a simple law will not alter the underlying principles. However, if Congress desired, it might create a Federal Sales tax law with some method acting of apportioning the currency to states. But, do not bet on any major tax laws during a Presidential election year. schooling engine roomIn the first years, Amazon intentionally kept its Web site systems separate from its orderfulfillment system. The separation was partly due to the fact that the programmers did not have the technical ability to connect them, and partly because the company wanted to improve security by keeping the order systems off the Web. By 1997, Amazons sales had reached $148 million for the year. The big book database was world run on Digital Alpha servers. Applications were still custom written in house. By early 2000, the company had over 100 separate database instances trial on a variety of servershandling terabytes of data.In 2000, Amazon stubborn to overhaul its entire system. The company spent $200 million on new applications, including abbreviation software from E.piphany, logistics from Manugistics, and a new DBMS from Oracle. The company alsosigned deals with SAS for data mining and analysis Collett 2002. But, one of its biggest deals was with Excelon for business-to-business desegregation systems. The system enables suppliers to communicate in real time, even if they do not have sophisticated IT departments. It provides a direct connection to Amazons ERP system either through programming connections or through a Web browser Konicki 2000.About the same time (May 2000), Amazon inked a deal with HP to supply new servers and IT services well(p)ridge and Nelson 2000. The new systems ran the open-source Linux operating system. Already by the third derriere of 2001, Amazon was able to avoid its IT costs by 24 percent from the same quarter in 2000 Collett 2002. By 2004, the supply cooking stove system at Amazon was a critical factor in its success. Jeffrey Wilke, Senior VP of worldwide operations, observe that When we think about how were going to grow our company, we focus on price, selection, and availability. All three depend critically on the supply chain Bacheldor 2004. Almost the entire system was built from scratch, customized to Amazons pauperisms. When a customer places an order, the system immediately connects to the distribution centers, determines the best way to ship the product, and provides the details to the customer in under deuce minutes. The entire go is automatic.Dr. Russell Allgor move from Bayer Chemical to Amazon and built an 800,000equation computer mildew of the companys sprawling operation. When implemented, the goal of the model was to help win almost everything from scheduling Christmas overtime to rerouting trucks in a snowstorm. Allgors forward work focused on one of Amazons most vexing problems How to keep inventory at a minimum, while ensuring that when somebody orders several products, they chamberpot be shipped in a single box, sooner from the warehouse the company had six that is nearest the customer Hansell, 2001. Dr. Allgors analysis is simple, but heretical to Amazon veterans.Amazon should increase its holdings of best sellers and break in holding slow-selling titles. It would still sell these titles but order them after the customer does. Lyn Blake, a vice president who previously ran Amazons book department and now oversees company relations with manufacturers, disagrees with this perspective. I worry about the customers perspectiveif we suddenly have a lot of items that are not available for quick carry throughy.Amazons merchant and MarketPlace systems are powerful tools that enable smaller stores to sell their products through Amazons system. Amazon continually works to improve the connections on those systems. This system caused problems in 2001the main issue was that the data on the merchant Web sites was being updated only once every eight hours. The merchants link to Amazons main database servers, and internal applications impart the data onto the displayed page as requested. As customers purchased items, the inventory quantities were altered in the main servers, but the current totals were not transferred to the display pages until several hours later. Consequently, customers would be told that an item was in stock, even it had sold out several hours ago. To solve the problem, Amazon installed Excelons ObjectStore database in 2002. The system functions as a amass management server, reducing the update times from eight hours down to twominutes. Paul Kotas, engineering director for the MerchantsGroup noted that with the growth of this business, we needed a zero-latency solution Whiting 2002.In 2003, Amazon added a simple object access protocol (SOAP) gateway so that retailers could easily build automatize connections to the system. Data is passed as XML documents and automatically converted to Amazons format Babcock 2003. One of the most successful technologies introduced by Amazon is the affinity list. When psyche purchases an item, system makes recommendations based on similar items purchased by other customers. The system uses basic data mining and statistical tools to quickly run correlations and display the suggested products. Kaphan notes that There was always a vision to make the service as useful as possible to each user and to take advantage of the ability of the computer to help analyze a lot of data to show people things they wer e most likely to be interested in Collett 2002.The system also remembers every purchase made by a customer. So, the Amazon programmers created the Instant Order modify feature, that reminds customers if they have already purchased an item in their cart. Bezo notes that Customers lead busy lives and cannot always remember if theyve already purchased a particular item. He also detectthat When we launched Instant Order Update, we were able to measure with statistical significance that the feature slightly reduced sales. Good for customers? Definitely. Good for shareowners? Yes, in the long run 2003 annual report.Capital expenditures for software and Web site development are not cheap $176 million, $146 million, and $128 million for 2010, 2009, and 2008 respectively (2010 Annual Report). But, in comparison, in 2010, net income tax render were $352 million.New ServicesAmazon requires huge data centers and high-speed Internet connections to run its systems. Through vast economies of sc ale, Amazon is able to achieve unbelievably low prices for data storage and bandwidth. Around 2005, the company decided that it could supplement those low costs into a new business selling Internet-based services. The company offers an online data storage service called S3. For a monthly fee of about 15 cents per gigabyte stored plus 15 cents per gigabyte of data transferred, any person or company can transfer and store data on Amazon servers Markoff 2006. Through a similar service (EC2), any company can use the companys Web servers to deliver digital content to customers. The company essentially serves as a Web host, but instead of paying fixed costs, you pay 10 cents per virtual server per hour plus bandwidth costs.Amazons network can handle bursts up to 1 gigabit per second. The system creates virtual servers, running the Linux kernel, and you can run any software you want Gralla 2006. By 2011, the company had several locations providing S3 and EC2 Web services. It also offered online relational database services using either MySQL or the Oracle DBMS. Anyone can pay to store data in the DBMS, with charges being levied per hour, per data stored, and per data transferred. The point is that Amazon handles all of the maintenance and other companies avoid fixed costs. Even government agencies are adopting the benefits of storing data in these cloud servicesincluding those run by Amazon. For example, the U.S. Treasury Department moved is public Web sites to the Amazon cloud. Pratt 2011.Perhaps the most unusual service is Mturk. The name derives from an18-century joke where a mechanical chess-playing machine surprised European leaders and royalty by beating many expert players. The conjuring trick was that a human was hidden under the board and moved the pieces with magnets. Amazons trick is to use human power to solve problems. Companies daub projects on the Mturk site and offer to pay a price for in small stages work. Any individual can sign up and perform a task and get paid based on the amount of work completed. Amazon takes a 10 percent commission above the fee. For example, the company Casting Words places audio files on the site and pays people 42 cents to transcribe one minute of audio files into text Markoff 2006. The Amazon EC2 and S3 services suffered some problems in the summer of 2011.A configuration error during an shape up in the East Coast facility triggered a cascade that hold up all services in the facility. Internet services including Foursquare and Reddit that used the facility were impacted by the problems for almost a week Tibken 2011. Amazon engineers learned a lot from the problems and the same issue is unlikely to come about again http//aws.amazon.com/message/65648/. But, the outage points out the risks involved in any centralise system. Ironically, the main problems were caused by algorithms designed to copy data to multiple servers to reduce risks. On the other hand, with multiple facilities, Amazon provide s the ability to spread content and risk across multiple locations. Adam Selipsky, vice president of product management and developer relations at Amazon Web Services observed that Amazon is fundamentally a technology company weve spent more than one and a half billion dollars investing in technology and content. We began by retailing books, but it was never in our business externalise to stay with that Gralla 2006.Financial PerformanceWhen Amazon started, it spent huge amounts of money not only building infrastructure, but also buying market share. It took Amazon nine years to achieve profitability. And the profits started to arrive only after the company changed its pricing modelfocusing on retail prices for popular items and smaller discounts for all books. In the process, the company lost almost $3 billion. It was not until 2009 that Amazon had generated enoughprofits to cover all of its prior losses (ignoring interest rates and debt).The companys monetary position has improve d since 2000. Most of the improvement is due to increases in saleswhich is good. But, those sales increased largely by selling products for other firms, and from one more twist. Amazon no longer discounts most of the books that it sells. In fact, it is in the main more expensive to purchase books from Amazon than to buy them from your local bookstore. For agonistic online pricing, check www.campusi.com, which searches multiple Web sites for the best price, but the selection might not be as large.Another source of increased sales is the international market (largely Britain, Europe and Japan). Notice in the table that media sales (books, audio, and movies) are higher in the International market than in spousal relationship America. More products are sold in North America, but all the way the growth path is the international market.Out of curiosity, where did all of that money go? In 2003, Bezos noted that $900 million went to business technology $300 million was spent on thefulfi llment centers and $700 million on marketing and customer acquisition Murphy 2003. That last part largely represents selling books at a loss or offering free shipping while trying to attract customers. Those numbers add up to the $1.9 billion debt, but what happened to the other $1 billion in net losses? Interestingly, according to the 2010 Annual Report, Amazon still runs a loss on shipping. In 2010, the company declared shipping revenue of $1.2 billion, against outbound shipping costs of $2.6 billion, for a net loss of $1.4 billion Amazon continues to expand aggressively.In 2011, Amazon estimated revenue increases of 28-39 percent but increased operating expenses by about 38 percent. Tom Szkutak, Amazons finance chief noted that When you add something to the magnitude of 23 fulfillment centers, mostly in the course of the second half of last year, you have added costs and youre not as productive on those assets for some time, Wu 2011. For the longer term, Amazons leaders clearly i ndicate that they are aware of the stiff competitionboth from bricks-and-mortar retailers and from online rivals including small start-ups and established rivals including Apple and Google.Case Questions1. Who are Amazons competitors?2. why would customers shop at Amazon if they can find better prices elsewhere? 3. Why did Amazon create most of its own technology from scratch? 4. If Amazon buys products from other firms and simply ships them to customers, why does it need so many of its own distribution centers?5. Will other retailers buy or lease the Web software and services from Amazon? can buoy Amazon make enough money from selling these services?6. save up a report to management that describes the primary cause of the problems, a detailed plan to solve them, and show how the plan solves the problems and describe any other benefits it will provide.Additional ReadingBabcock, Charles, Amazon Makes Online Merchandising Easier, studyWeek, family 15, 2003. Bacheldor, Beth, From Sc ratch Amazon Keeps Supply Chain Close To Home, Information Week, butt against 5, 2004.Claburn, Thomas, Amazon.com And Toys R Us Are On The Outs, Information Week, May 31, 2004.Claburn, Thomas, Why Amazon Is Suing Toys R Us, Information Week, June 29, 2004. Collett, Stacy, The Webs Best-seller, Computerworld, September 30, 2002. Goodridge, Elisabeth and Matthew G. Nelson, Update Amazon Drops Sun, Compaq For HP, Information Week, May 31, 2000.Gralla, Preston, Computing in the Cloud, Computerworld, December 21, 2006. Hansell, Saul. A Front-Row Seat as Amazon Gets Serious, The New York Times, May 20, 2001, http//www.nytimes.com/2001/05/20/technology/20AMAZ.html. Hayes, bloody shame, CDs, High Heels, Flannel Shirts, Information Week, November 4, 2002. Heun, Christopher T., Amazon, Borders Team For Superior Customer Service, Information Week, April 16, 2001. Heun, Christopher T., Amazon Loss Shrinks AOL Buys Amazon Search Service, Information Week, July 24, 2001. Heun, Christopher T., Am azon Plugs Into Circuit City In Profitability Drive, Information Week, August 27, 2001.Konicki, Steve, Amazon taps Excelon To Redo Supply-Chain administration, Information Week, October 30, 2000.Kontzer, Tony, Amazon Teams With Expedia On Online Travel Store, Information Week, September 26, 2001.Letzing, John, Amazon Wins Reprieve on California Tax in deputize for Jobs, The Wall Street Journal, September 23, 2011.Mangalindan, Mylene, Threatening eBays Dominance, More Online Sellers Go It Alone, The Wall Street Journal, June 22, 2005.Markoff, John, Software Out There, The New York Times, April 5, 2006. Murphy, Chris, Amazon, The Services Firm, Information Week, June 10, 2003. Peers, Martin, Launching New Tablet, Amazon Plays With Fire, The Wall Street Journal, September 29, 2011.Pratt, Mary K., Feds Race to the Cloud, Computerworld, July 13, 2011. Tibken, Shara, Amazon Cloud Snafu Disrupts Websites, The Wall Street Journal, April 21, 2011.Whiting, Rick, System Overhaul Boosts Amazo ns Inventory Update Time, Information Week, February 19, 2002.Stu Woo, Expenses erase at Amazons Profit, The Wall Street Journal, January 28, 2011. Stu Woo and Michelle Kung, Netflix, Amazon Add to Movies, The Wall Street Journal, September 27, 2011.