Amazon at least today, represents one of the great success stories in adopting technology transformational technologies, and making them disruptive for competitors. Amazon is thought to be the Wal-Mart of the internet. It's an e-commerce pioneer. It opened for business in 1995. Jeff Bezos, as we've mentioned before, was a founder. 1995 was an interesting milestone in the history of the internet. Up until that time it had been sponsored by ARPA, which is Advanced Research and Projects Agency of the defense department, now called DARPA, and by the National Science Foundation. And when the government is involved in an activity like this, it cannot be used for profit making purposes. In 1995, the government dropped all of its subsidization of the internet and it could be used for making profits. And Amazon was ready to take advantage of that. So if you were starting the first or one of the first online e-commerce companies why would you sell books? Well there are a number of reasons, first of all. There is not really a quality issue with books we know that publishers print books, they are printed well the product itself is of high quality its not like selling a used car or a used book even at this point its a brand new book so you don't have to worry about the quality, you don't have to worry about whether it fits so on early days of e-commerce. There are questions about whether you could ever sell clothing that way. How could you sell shoes, because they wouldn't fit and you'd be sending different pairs of shoes back and forth in UPS, to get the right size. So books had a lot of appeal, they also were a well-established product, people buy books. we love to read. Now another question might be why do this in Seattle? And one of the reasons for that was because there's a company called Ingroom which is a fulfillment house. It has a number of businesses. But one of them was as a book warehouse. providing books to book sellers and it's headquarters was very near where Amazon settled so that it could use Ingram as its warehouse. It didn't, at least in the beginning, have to build its own book warehouses. What, what Amazon would do would be to keep the best sellers in its own stock and then for other books rely on Ingram to supply them. So, alot of skeptics at this point in time said you know this E-commerce stuff isn't really going to work, because people are not going to be willing to buy things online. Question of credit card security, what if someone steals my credit card and starts running up the bill? Well in order to encourage people to buy online and use their credit cards, The banks say, look if something happens, we'll cover it, you don't have too. So, they removed at least some of the fears of credit card security, even though its a pain in the neck, to have to get a new credit card, because someone has run up illegitimate charges. We have had that happen to us. Mabye you won't like the product, OK? Well for books, I mean, you buy a book in the bookstore. You've just skimmed through it. You may or may not like it. But in fact for books there are a lot of book reviews. There are places you can read about a book to decid that you want to buy it. You can't try it out or on. Well that's not really so much of a problem with the book. You have to wait for it. This is where a lot of merchants were skeptical and denied that the internet would have an impact on their business, the bricks and mortar Merchants, because you have to wait. There is delayed gratification. And, and think back. This is the same argument that was used against Netflix, if I want a movie, I can go right to Blockbuster and get that movie now and watch it. If I go with Netflix, I've got to wait a day or two for it to arrive in the mail. Well maybe we aren't such bad planners,[LAUGH] , a, as, as we think because people seem to be willing to plan to get their next Netflix. And the same way for a book. Now, you know, sometimes I need a book right now because I'm doing research and I really want that book. On the other hand, most of the time, I can plan ahead. If I'm buying a book for leisure reading, I know I'm not going to get to it for awhile anyway so I might as well wait for it to come via UPS. Amazon remained a success throughout the dot com crash in the late 1990s. It had an IPO in 1997. It finally became profitable in the fourth quarter of 2001. It has a history of defying and disappointing analysts and its critics because Amazon has put growth, first. Let's call that number one, and profits second. And analysts don't like that. Analysts want to see profits each quarter. I think what Amazon demonstrated to everyone that an E-commerce business model could work. And by 20009, two thirds of internet users had made an Amazon purchase. So that's a pretty good testimony for growth. Amazon, is an interesting company. They do things, that defy conventional wisdom. And, I guess I like that because that, to me, is, is part of innovation. It's defying what everyone says is the way things have to be done. So, until 2006, it hoisted the, hosted[LAUGH] the Toys "R" Us website, because Toys "R" Us tried. And had a disatrous Christmas season when it was unable to fulfill its orders so it turned to Amazon. Now it got very unhappy with Amazon and this is the risk because Amazon started selling toys and Toys 'R Us thought that they had the exclusive franchise for toys and that Amazon shouldn't do that. As we mentioned before it hosted and managed the website for Borders until 2008, so that was 6 or 7 years, when Borders was learning nothing about E-commerce. And letting Amazon do all the work for it. Target, from 2001 to 2011, And operated retail websites, then, for a number of firms. And this is an interesting dynamic in today's, in, in today's business environment, where you cooperate, with some of your competitors on one front and you compete with them on another. we said the company is innovative and it takes risks. It moved beyond books steadily, adding product after product. Adding products that skeptics again said could not be sold on the internet. It let outside merchants come in and establish storefronts on Amazon in competition it was sort of like a department store inviting other stores to come in and set up booths and sell things in competition with its products. It started user reviews. These could have been a disaster, right? people saying that this product is no good and yet Amazon's still trying to sell it. Now user reviews have their problems, because you can't entirely trust them. people will try to game the reviews. But I think in general they're helpful. I have found them very useful in buying products that I might not ordinarily do much research on say I needed a new power drill or a new hedge trimmer its helpful to see what other people have said about htem. I, I trust that their mistakes aren't so large with a hedge trimmer that people are going to be making things up about it. it offered multiple vendors products on the same page, that was a big decision for Amazon. So instead of putting the merchant some place else, you see various people who offer that product all at the same time, and you can choose, one to buy from. It became an e-commerce technology provider, as we described. it did this thing called one-click checkout. It actually developed a patent, okay, which is a little questionable, on one-click checkout. Because again, if you're in business, you want to make it easy for people to do business with you. It started Amazon web services in 2008. This is the service that Netflix, and others, use as their processing power, as their video distribution mechanism, rather than develop their own. He started Amazon Prime, which is a flat $70 fee and everything you purchase is guaranteed for two-day delivery, plus they started adding other services on top of that, including, movie rentals, some free movies, some TV shows that will be streamed, to your television set. So Amazon Prime is about shipping. It then went into Kindle and e-books. Kindle has been a big success for them. And self-publishing. So the strategies that Amazon has are interesting, they're very, okay? One is let's sell everything after the first experience with Ingram, they started building warehouses to contain their stock and to fulfill as their orders grew and, and regional warehouses to reduce the amount of time required for shipping. here's a Zappos fulfillment center. Zappos is, a company that Amazon bought it's a shoe company. this happened to be the only public domain warehouse picture for Amazon I could find. [LAUGH] it's been fighting the states on sales tax for e commerce. e commerce companies were first sort of granted a sales tax holiday to promote the business. but states now are saying, you're generating a lot of revenue from us. if you don't have a physical presence in a state, as of now, you don't have to pay sales tax in that state. However, I think that's going to change as, as you probably are aware, the Unites States is kind of desperate for tax revenues. And I suspect that before long all of the sales that take place. Online will be forced to pay sales tax. there have been some protest by employees in places like the warehouses in terms of low wages and working conditions. Okay, so before we go further with Amazon, let's have you answer a few short questions and a quiz. Well now that you've looked at the quiz, what do you think about Amazon? Is it a pioneering leader in e-commerce? Or do you think, is it a fierce competitor? A public spirited company? A disruptive force in commerce, a disruptive force in publishing. All of the above. OK? Well, I think each of us has a different answer for this question. I believe Amazon is an extremely successful company that is well managed, that has had a strategy to. Adopt technologies, make them transformational for the business they're in and disruptive for its competitors. So it's an example of a company that has been extremely successful in the internet age. [SOUND] .
