Amazon: A Creativity Profile

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25 Νοε 2013 (πριν από 4 χρόνια και 7 μήνες)

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Amazon: A Creativity Profile

Team Ideovation:

Rachel Griffin

Jay Lee

Rachel Lewis

Adam Russell

MGT 450

Dr. Stark


Introduction and Background

Today,, Inc. is the world’s largest online retailer with separate retail
websites in 10

different countries and a customer base of around 30 million people.

started off slowly, using strategic moves to get to the position they are in today.

Amazon was
founded in 1994 with headquarters in Seattle, Washington.

They began as an online

called Cadabra and eventually began to diversify, expanding their product line to include CDs,
DVDs, electronics, video games, and more.

They changed their name to Amazon in 1995, after
the Amazon River.

In 1997, the company went public and b
ecame the first online retailer to ever
reach one million customers.

Amazon’s focus was mostly on market share and not on profits, so
they didn’t see their first profits until 2001; but that strategy of concentrating on market share has
definitely paid of

Amazon has continued to diversify and has acquired many different
companies in various industries including Zappos

an online shoe retailer, Kiva Systems

robotics company, and IVONA which makes speech to text software, in addition to many others.

Amazon’s unusual business model and use of strategy have definitely helped to make them the
immensely successful company they are today (Funding Universe, 2013).

Amazon is primarily an online marketplace; they provide the service of giving retailers
an on
line location to
find consumers.

They also offer

consumers an online location to compare
different products, and find the best available prices for those products.

Today, almost anything
can be found on Amazon, from books to electronics to even clothing
and gourmet food.

amount of products that can be found on Amazon is growing constantly and

therefore, Amazon
can appeal to many different markets of consumers.

In addition to this main service that
Amazon provides, they also have a primary product t
hat they produce and sell

the Amazon

This isn’t just an electronic device being sold on Amazon’s marketplace by another
retailer, it is created and manufactured by Amazon itself.

The Kindle is an electronic reading
device that can be used to do
wnload books, games, movies, and more from the online Kindle

Although Amazon owns many different companies, providing a vast array of products
and services, they are best known for their online marketplace and Kindle.

Business Strategy:

Amazon’s b
usiness model, sometimes referred to as the “Get Big Fast” or “Land Grab”
model, is about raising a lot of capital and focusing all of their efforts on growth without
worrying about profitability (Spolsky, 2000).

Jeff Bezos, Amazon’s CEO, has always been
much more concerned with gaining customers and market share than he has been with gaining

Amazon was able to grow so quickly because, as an online retailer, they have huge
network effects.

Having network effects means that the more customers yo
u have, the more you
are going to acquire (Spolsky, 2000).

The more customers Amazon has, the more retailers and
merchants will want to sell on Amazon, the more customers they will get due to their increased
product line.

One of the major advantages Amaz
on holds over brick and mortar competitors is
that they are not confined by their inventory.

If you walk into a bookstore and they don’t have
what you are looking for, you leave and they lose your business.

Amazon is able to offer goods
that they don’t n
ecessarily store

house because they have the means to get the goods
after they
take an order
and ship them to the consumer.

Much of Amazon’s success can be attributed to
their unconventional business model and ability to fulfill almost any customer’s

Innovative Products and Services

Amazon’s main service is their online marketplace.

Retail companies on Amazon offer a
large range of products which allows Amazon to appeal to almost any consumer.

In addition to
offering practically any product that a consumer could ever want, Amazon al
so offers many
other benefits to consumers.

There are often many different retailers offering the same product
at different prices.

Consumers have the ability to shop around and see the types of deals they can
get from different retailers.


anyone has the ability to create a merchant account on
Amazon and sell their used or new goods themselves.

This benefits the merchants because they
have found an easy way to sell old possessions and it helps new consumers because they can find
products t
hey want for cheaper prices.

Consumers also have the ability to sell back their items

movies, books, games, etc

to Amazon directly.

Amazon will buy these goods, using Amazon
credits, from consumers at a price that Amazon determines, and then sell the
m on the
marketplace for a profit.

This appeals to the consumer who wants to get the transaction done
quickly and doesn’t care that they might make less money than if they sold their goods

With their expansive network, Amazon’s marketplace ca
n fulfill almost any
customer need.

Amazon’s main product that they manufacture and sell is their tablet e
reader, the
Amazon Kindle.

Amazon has a unique strategy when it comes to selling their Kindle product
that definitely helps to differentiate themsel
ves from competitors.

Unlike Apple, who makes a
huge profit from their hardware for the iPad, Amazon sells their Kindle at cost (Conlin, 2012).

They then make up for this by profiting through their Kindle Store and making money off of the
books, games, m
ovies, and more that consumers can download from their Kindle.

The idea is to
get the Kindle into as many hands as possible and relying on the larger market to purchase apps
from Amazon.

Amazon’s Kindle is much more affordable than even Apple’s iPad mini
, so it is
more feasible for a greater number to purchase.

This strategy mimics Amazon’s overall business
strategy of being less concerned about profits and caring more about reaching a large number of

The decision
makers at Amazon
, Jeff Bezos

in particular,

believe that the key to
success is reaching a large target market

and making profit through that

large reach.

With the success of their marketplace, as well as the success of their Kindle, this strategy
seems to be work

One of the reasons that this pricing strategy has worked is because the apps on the Kindle
are also affordable.

Amazon has a royalty system in place where publishers get 70% of royalties
if their book is priced between $2.99 and $9.99, but this royal
ty drops to 35% if the book is
priced over $9.99 (Rao, 2011).

This strongly encourages publishers to keep their books priced
lower than $10.

With books’ prices so cheap, customers will definitely be willing to purchase
large quantities of books.

will profit because customers are buying books from their
online store and publishers will profit because they are making a large percentage of royalties.

With the way that it is set up, publishers will make more in royalties pricing their books at $9.99
than they would if they priced them at $15.

It is also very easy to be published on a Kindle,
which is further encouragement for publishers to strike a deal with Amazon.

With all of these
incentives for publishers to put their books on Amazon, more books

will end up being available
through the Kindle store, therefore reaching a larger target market.

This is the same strategy that
Amazon has employed over and over again

the more people you are able to reach, the more
successful you will be.

Amazon’s Kin
dle doesn’t just appeal to consumers by price, Amazon increases their
market by making different types of Kindles that appeal to various groups of consumers.

original Kindle, priced at $69, is for those consumers that just want to use their Kindle to
download and read books.

The next option is the Kindle Paperwhite, priced at $119, which is
also used just for reading books but offers, better battery life, more storage, and better screen
quality than the original Kindle.

This Kindle variant would be f
or someone who uses their
Kindle frequently, probably every day, but has no need for other features besides books.

the Kindle and the Kindle Paperwhite come with a 3G option at an additional cost for those
people who want to download books wherever t
hey are.

The third and most advanced class of
Kindles is the Kindle Fire.

The original Fire costs $159, but also comes with options for an HD
screen, for an 8.9 inch screen, and for 4G

all at additional costs.

The Kindle Fire is an
alternative to the

iPad and other tablets and consumers can download books, movies, games, and
much more.

Amazon is able to increase their market for the Kindle by coming up with different
options for consumers with specialized needs.

Amazon Prime is a service that members

can opt into to receive special benefits from
Amazon. The largest perk is the free two day shipping, which is very valuable for frequent
buyers. Additionally, the $79 annual membership fee allows member to stream thousands of
movies and watch TV shows. Am
azon offers a lower rate to college students, which will help
retain the college students’ business after graduation.

The Prime service connects Amazon
customers to the organization and adds value for all the customers. Furthermore, the service put
high s
witching cost to customers by offering variety of value added services in one location.

The free shipping motivates customers to purchase more items to make back the original fee.
Prime encourages members to begin buying items from Amazon that they may n
ot have
purchased from them in the past, just to take advantage of free shipping.

Amazon’s 1
Click ordering is a service that speeds up shopping times by reducing the
number of mouse clicks and downloaded pages required to purchase products. In the standar
“shopping cart” approach, the customer must click on each product and then download a new
page to confirm purchases with additional clicks. 1
Click removes the necessity to use a
shopping cart. Once Amazon obtains the customer’s payment and shipping info
rmation, the
customer can purchase products with a single click.

Amazon filed the patent for the 1
technology in 1997 and it was granted by the USPTO in 1999. The result of this innovation is
that Amazon achieves extremely high conversion from its e
xisting customers. This technology is
so valuable that 1
Click checkout increased sales by nearly 5%.

20% percent of sales comes
from 1
Click checkout button.

Amazon also makes money from this technology by licensing it

Apple licensed Amazon’s 1
ick technology in 2000 and are now using it in

iPhoto, and the Apple A
pp store.

This 1
Click service is an example of an innovative idea that
has helped Amazon
differentiate themselves from other competitors.

Customer Recognition Software:

zon has over 29 million customers and tens of millions of items.

The products sold
on Amazon are gathered from almost every industry. The large amount of data that needs to be
stored and linked to the network presented an opportunity. Instead of using som
eone else’s
technology, Amazon created their own algorithm to take advantage of the opportunity. The
outcome was an algorithm that generates recommendations to the customer.

ording to J.P.
Mangalindan (2012
), “the retail giants recommendations are base
d on a few simple elements;
what a user has bought in the past, which items they have in their virtual shopping cart, items
they have rated and liked,

and what other customers have view and purchased.”

Amazon uses real time item
item collabora
tive filtering to recommend products to
their customers. This matches past user purchases an
d their rated items to similar
items, then
combines those similar items into a recommendation. Algorithm tables are constructed to find
items that customers purchas
e together. Matrices are gathered from the tables, then item pairs
create product to product metrics for the pairs. The item
item collaborative filtering can
handle monumental amounts of data entries and is

able to produce higher quality

than other collaborative methods (Linden, 2003). Moreover, item
collaborative filtering can produce high quality recommendations even with just two or three
purchases. All of the filtering is done in real time, so the user is recommended with
item suggestions (Chi
n, 2011).

Competitors use offline e
commerce recommendation algorithms to match user’s interest
to similar customer interest to recommend products.

The major problem Amazon’s competitors
face is that their e
commerce recommenda
tion generators must be computed online. This delays
the information transmission and leads to lower quality recommendations than real time
recommendation generators. Amazon’s e
commerce competitors are attempting to fight
Amazon’s innovation by using; Tra
ditional Collaborative Filtering, Cluster Model’s, and Search
base or Content Base methods (Linden, 2003).

Traditional Collaborative Filtering uses a few number of users who are most similar to
the target user to create recommendations. The algorithm compa
res various aspects of two
customers, A and B.

Similar customer data is computed by the algorithm to make
recommendations also. The algorithm can rank each item to determine how many customers
have purchased it. Traditional collaborative filtering uses th
e total amount of users and the total
amount of items to generate recommendations. However, a large number of users and data sets
creates issues. Extremely popular items that are ranked high can dispute the data and lead to poor
quality recommendations.

he computation is done offline and is very time consuming. Finally,
is it extremely expensive to do and the costs increase as the number of users and data sets
increase (Linden, 2003).

The Cluster Model method uses personalized information to help find int
eresting items
for the user. The foundation of the model begins with users rating items. Once the items are rated
and calculated,

the users are clustered together with those with the most similar ratings. Each
cluster has center measure which can be used
to determine the location of

target user and to
pinpoint other customers that are most closely related. The closest customer opinion ratings are
averaged offline to generate a recommendation to the target user.

However, the Cluster Model

method has its
issues, getting more complicated and less accurate as the number of users and
data sets increase (Gong, 2010)

Search Base Method’s or Content Base Method’s goal is to create recommendations for
the users that are related to similar items that have been
purchased. These methods combine the
user’s rating of the item and their past purchase history to make related suggestions.

recommendation may be written by the same author, category or genre. However,

this can
reduce opportunity for the users to fin
d something different. Furthermore, the fewer number of

and purchases can constrain the quality of recommendations. Large data sets can distort
a user’s rating influence if they shop less frequently. Finally, Search Base Methods must be
offline, reducing the effectiveness of

the recommendation (Pazzani & Billus, 2007

Amazon’s item
item collaborative filtering method is extremely personal and

Since this method is done in real time it much more effective than the methods o
competitors that use offline recommendation generators. Furthermore, Amazon has an advantage
due to their large size and product scope, since they can match many more items. They have also
created a long reach to their customers by making an algorithm th
at generates such high quality
personal recommendations. The major difference between Amazon’s item
item method and e
commerce competitors’ recommendation methods, is that Amazon’s method focuses on pairing
items that are likely to be purchased together
, not by matching similar customer clusters, or
related searches. Finally, Amazon’s ability to create an algorithm that generates high quality
recommendations under the monumental load of data is a huge threat and barrier. Competitors
methods are outdated,

they leave little room for increasing the user base, and lack real time
personalization which customers want online.

The Mechanical Turk:

Computers are very good at computing data and exchanging information of networks.
However, even the biggest computer
s cannot solve some problems at fast as humans. Computers
cannot recognize patterns, the meaning of images, or learn new concepts, which humans can
process unconsciously.
Knowing this problem,
Jeff Bezos came up the idea of the Mechanical
Turk, which is ar
tificial intelligence with human oversight. The Mechanical Turk idea originated
as a intraorganizational tool to organize data. The tool was used to eliminate duplicate
information in Amazon’s database (i.e. duplicate images and webpages).

The Mechanical
is powered by computers, however when it is easier for a human to complete the task, a human
will be called (Dobson, 2013).

The Mechanical Turk uses crowdsourced workers who work to
answer a Human Intelligence Task (HIT). This is a concept where a wo
rker will submit an
answer to the requester and receive payment. A request becomes a HIT when it more efficient to
a human than a computer to complete the task, for example, entering information from business
cards (Dobson, 2013).

The Mechanical Turk is a
creative leap in the digital world in terms of utilizing resources
and effectively reducing cost. This novel intraorganizational tool has grown to help Amazon
enter new markets where they have little overhead and prior experience.

Amazon set many entry
rriers by being first to market with a service that solves “computer problems” with an
inexpensive solution. It would be very difficult for a competitor to enter the market and construct
the network infrastructure Amazon created. An associate professor at
New York University,
calculates that between $10 million and $150 million of transactions go through Mechanical
Turk each year, with Amazon collecting 10% to 20% (Dobson, 2013).

Moreover, the service is a

alternative to hiring a larger workforce
, it is much cheaper than direct labor, and less
time consuming.

Currently, social networking sites are using Mechanical Turk services to
update trending information and ad changes. “Twitter uses Mechanical Turk since it is cheaper
than hiring a permanent

workers or staff.

Amazon provides a ready source of workers to ensure
scalability and to ensure that everyone is utilized and efficient” (Brown, 2013).

Industry Structure and Competition:

Venkatesh Rao, a writer for Forbes, believes that Amazon is the b
est strategic player in
the technology industry.

He came to this conclusion by looking at the way that Amazon came to
be the success that it is today (Rao, 2011).

Rao says that unlike other big tech companies such as
Google, Apple, Microsoft, or Facebook
, Amazon didn’t come to power by inventing a new
product or service of its own.

Instead, Amazon came to power by “systematically taking down
an entire existing industry.” (Rao, 2011).

Borders no longer exists; a major contributing factor to
this is the e
mergence of Amazon and its online marketplace.

Consumers were able to order
books at less expensive prices more conveniently on Amazon and Borders just couldn’t keep up.

Although Barnes and Noble still exists, they have had to make strategic moves just t
o keep up
with Amazon.

They have created their own online marketplace on their website and have
produced their own e
reader, the Nook tablet.

Without these measures, Barnes and Noble might
have gone the same way as Borders.

Amazon disrupted the book ind
ustry so much that
competitors either had to keep up or get out.

Gregory T. Huang provided an analysis of why he believes Amazon to be more
innovative than its fellow giant, Microsoft (Huang, 2013).

He chose to compare these two
companies because they are

the two largest publicly traded technology firms.

While Microsoft is
38 years old, Amazon is much smaller and younger at only 19 years old.

They have “vastly
different customers, business models, and technologies.”

Huang makes an interesting
n that Amazon is currently quite similar to how Microsoft was in 2000, when
considering size and revenues (Huang, 2013).

Some of the main differences between Amazon and Microsoft include senior leadership
and product lines (Huang, 2013). Amazon and Microso
ft’s senior leadership are drastically

While Bezos with Amazon likes having a hands
on approach when generating new,
creative ideas, Gates and Ballmer with Microsoft are very different.

Gates certainly likes being
involved in the process, but
on a more managerial level.

Typically, Microsoft’s product teams
will generate ideas and then bounce them off of Gates.

Another big difference between Amazon
and Microsoft is their product lines.

Amazon is focused on selling their customers’ products.

They want to provide the best services and are willing to change and adapt in order to do this.

On the other hand, Microsoft is more focused on internal product competition.

Even when new,
creative ideas are generated, they are often dismissed in order t
o protect their best products such
as Windows and Office.

Amazon’s product teams are also much smaller than Microsoft’s.

Therefore, it can take much longer for a great idea at Microsoft to actually be executed.

Microsoft is more focused on the long term

and maps out release dates sometimes as far as years
in advance.

Amazon on the other hand is much better at acting quickly.

They are constantly
creating new products, testing them, and changing them as needed (Huang, 2013).


Amazon’s culture def
initely reflects their focus on creativity and innovation.

though Amazon is a very large company, they have many characteristics that reflect a smaller,
less centralized company.

They tend to hire new employees who are young and fresh out of
. Therefore, they don’t have “ingrained habits, ideas, or other corporate baggage” and can
be “indoctrinated in the Amazon Way.” (Huang, 2013).

Amazon really concentrates on who
they hire, they choose people that they feel will be best for the company cul

Bezos says that
he would rather interview 50 people and not hire any of them than hire the wrong person
(Schneider, 2013).

Additionally, Bezos is very involved in decision making.

While other CEO’s
of large corporations like to maintain a more man
agerial role, Bezos likes to be actively involved
with the idea generations at all levels. He enjoys being a part of the innovation process and takes
a hands
on approach.

Although Amazon is the largest online retailer, they operate and have the
culture of

a much smaller company.

One aspect of Amazon’s company culture that helps to make them creative is their focus
on frugality.

Amazon isn’t the type of company to spend tons of money on their headquarters
just to make it look glamorous.

Jeff Bezos has
always refused to spend money on things that
weren’t important.

In Amazon’s early headquarters, Bezos’ desk was a wooden door from Home
Depot with two
fours as the legs (Blandino, 2012).

Although Amazon has grown into a huge
company, this culture has
not changed and some employees still use doors as their desks.
Amazon’s value statement says that “We spend money on things that really matter and believe
that frugality breeds resourcefulness, self
sufficiency, and invention!” (Schneider, 2013).


is able to focus on providing the best products and services possible, and not worry
about having the appearance of being extraordinarily wealthy.

Their success speaks for itself,
without Amazon having to showboat.

Strategies for Creativity:

One practi
ce that Amazon uses to insure creativity and productivity is to keep groups and
meetings small.

Bezos uses a “two
pizza rule” for teams which means that the team should be
small enough that they can be fed by two pizzas (Bulygo, 2013).

Teams are generall
y kept to
around five to seven people.

This rule increases efficiency and helps to reduce potential waste.

This technique has proved to be successful and is responsible for coming up with an innovation
for Amazon that is commonly used: Amazon Gold Box.

Amazon Gold Box is available to any
customer with an Amazon account and uses their customer information to provide them with
deals (Amazon, 2013).

Customers will be presented with different types of deals that they can
pick and choose from, that are selec
ted specifically for them.

Amazon Gold Box is a good
example of the successful innovations that have resulted from Jeff Bezos’ “two
pizza rule”.

Jeff Bezos says “If you double the number of experiments you do per year, you’re going
to double your inventi
veness.” (Bulygo, 2013).

Amazon strives to constantly experiment in
order to come up with innovative ideas.

Amazon’s willingness to experiment and invent have
become part of their culture, ingrained in the way that they do business.

One of Bezos’
ments was Super Saver Shipping, which is free shipping on orders of over $25.

It would
appear that with companies who have low margins, as Amazon does, could sustain this venture
profitability. However, the customers were very receptive to the idea so Bez
os decided to try it

The experiment of Super Saver Shipping proved to actually pay off in the long run due to
increased customer loyalty resulting in a higher frequency of orders (Bulygo, 2013).

Amazon Prime service discussed earlier is another
successful example of experimentation at

Bezos believes that experimentation is the best way to discover whether an idea has
the potential to be successful and it has certainly paid off for Amazon.

In an interview with Charlie Rose, Jeff Bezos sa
id “We’re not competitor obsessed, we’re
customer obsessed.

We start with the customer and we work backwards.” (Bulygo, 2013).

Amazon and Jeff Bezos believe that it is much more important to focus on the customer than it
is on the competitor.

As Bezos s
tated, “if you’re competitor focused, you tend to slack off when
your benchmarks say that you’re the best.

But if your focus is on customers, you keep
improving.” (Huang, 2013).

A large part of this improvement process is thinking about what the

wants and changing business practices to meet those wants.

Amazon starts with the
customer’s perspectiv
e, looks at their needs and
problems and comes up with innovations that
fulfill those needs. This is the opposite of what some competitors do, which is

come up with an
idea, build it, and then take it to market and see if customers want it.

One idea that Amazon
came up with using this strategy was to help customers avoid accidental duplicate orders
(Bulygo, 2013).

If a customer is viewing the page of a

product that they have already purchased,
a banner will show up at the top letting the customer know that they have already purchased this

Bezos hopes that this will help to increase customer loyalty and satisfaction.

Another customer
centric ide
a that Amazon had was to provide customer reviews on the
product page, regardless of if they were positive or negative.

Amazon was actually a pioneer of
the customer review (Bulygo, 2013).

Many publishers sent angry letters to Amazon saying that
they cle
arly didn’t know how to do business if they were publishing negative customer reviews.

The publishers said that the purpose of Amazon is to sell and that they couldn’t do that if they
had reviews discouraging customers to buy.

Jeff Bezos ignored these cl

As it turns out,
Amazon has become a virtual hub of product information.

Customers will go to Amazon just to
read user reviews of different products.

This increases customer traffic and interest in Amazon
(Bulygo, 2013).

By ignoring publishers an
d doing what he thought would suit customers best,
Bezos successfully implemented a new innovation for Amazon that would help catapult it to the
vastly recognized brand it is today.

Another creative strategy that Amazon employs is to focus on things that w
ill not change.

Amazon knows that their customers will always want a wide range of product options, low
prices, and fast delivery (Bulygo, 2013).

Bezos thinks about the next 10 years and what will be
the same 10 years from now.

Bezos says “On Amazon Web

Services, the big ideas are also
pretty straightforward.

It’s impossible for me to imagine that 10 years from now, somebody’s
gonna say ‘I love Amazon Web Services, I just wish it was a little less reliable’.” (Bulygo,

Bezos knows the values that

will never change, and works to meet those values with
Amazon’s products and services.

Customers will never say that they wish their products got
delivered later, so Amazon focuses on fast delivery.

This really shows the long
term orientation
aspect of
Amazon’s culture.

This strategy proves to be very effective to help Amazon focus on
what customers want, what they will always want, and Amazon can ignore passing fads.


Amazon and Jeff Bezos have a strategy unlike any other which helps them to

be the creative,
innovative, and successful company they are today.

Amazon came in second on Forbes’ list of
“The World’s Most Innovative Companies” (Forbes, 2013).

A large part of this success came
from Amazon’s creative techniques and strategies that
keep the innovative ideas coming.

Amazon has been hailed as a pioneer, an industry disruptor, and a powerful brand.

Jeff Bezos
has a large part to do with Amazon’s creative success, always encouraging experimentation and
new inventions.

Bezos has really

helped to shape Amazon’s company culture to encourage
creativity and innovation.

Bezos has always been more concerned with appealing to as many
customers as possible

than they have with making profits.

This unique business model has
radically changed the retail industry and has fostered a huge sense of almost unprecedented
customer loyalty with Amazon’s users.

With Amazon sticking to their creative strategies and
centric techniques, they will most certainly be an innovative company for years to


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