Amazon.com (US)

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Internet retailer Amazon claims to offer "Earth's Biggest Selection", a mammoth range of products which now goes far beyond books and music to include anything from automobile parts to groceries and from clothing to household furniture. The business is firmly established as the #1 internet retailer worldwide (though it faces increasingly strong competition from Chinese rivals operating mainly in Asia). No other company has done so much to establish the reliability and functionality of e-commerce. But Amazon also historically suffered from low profit margins, and rival companies tended to outpace it in earnings growth. That laggard performance appeared to change in 2007, helped along by the launch of the Kindle electronic reader. Huge subsequent investment in infrastructure and technology prompted another slump in profitability in the 2010s. However, the evolution of the Kindle device and its various offshoots, and the rapid evolution of the Prime membership club has seen the emergence of a new role for Amazon as an entertainment broadcaster and creator. At the same time, the group has made a renewed commitment to increasing its profit, not just its revenues, and the result has been a stellar increase in its stock valuation. It has also diversified aggressively, not least through a deal in 2017 to acquire bricks and mortar organic grocery retailer Whole Foods Market for almost $14bn.

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Adbrands Weekly Update 22nd Jun 2017: Amazon sent shock waves through the traditional supermarket sector with its deal to acquire Whole Foods Market for $13.7bn, its biggest-ever deal by quite a margin. The organic foods specialist has been considered a potential target for several months, but most observers expected a buyer from private equity or within the existing sector, not arch-disruptor Amazon. It is the eCommerce giant's first big move into traditional bricks and mortar retail, though it has already tested several trial physical concepts, including seasonal pop-ups and checkout-free grocery stores. This development, coming in the wake of the arrival of Lidl on US shores and increased investment from its rival discounter Aldi, will put immense additional pressure on the traditional supermarket sector. Despite its recent troubles, Whole Foods is a substantial business, one of America's top ten grocery retailers, with around 460 outlets. If nothing else, the purchase will increase Amazon's grocery delivery network by at least five times, and will give it access to a national refrigerated distribution system it currently lacks. It also gives the e-tailer valuable exposure to higher-margin natural and organic foods that it doesn't currently sell. The announcement prompted sizeable write-downs in the value of traditional supermarket groups, with Kroger - which had been tipped as a possible buyer of Whole Foods - down 10% and Walmart by 5%. Amazon has not divulged any information about how it plans to integrate its new acquisition; however co-founder & CEO John Mackey is expected to remain in place. He said the deal will "maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers."

Adbrands Weekly Update 11th May 2017: WPP is positioning itself to get much closer to Amazon. Though Amazon's advertising revenues are still small compared to Google and Facebook, they are growing rapidly, and the ecommerce giant also has unrivalled knowledge about individual consumer shopping habits. As a result, WPP's Possible digital network this week acquired Marketplace Ignition, a marketing consultancy that works with retailers and brands to increase their business on Amazon. This will now form the core of new specialist division Possible Commerce. Possible Americas president Jason Burby told The Drum "Fifty percent of product searches now start on Amazon. Not Google, as everyone expects - of course some still happen there - but on Amazon. Seventy-seven percent of every dollar right now spent in digital advertising is at Google or Facebook. We know that. It's a two horse race, but we're seeing Amazon emerging as that third horse." Estimates for Amazon's ad revenues this year are around $1bn, but some analysts forecast in excess of $20bn by 2020.

Adbrands Weekly Update 4th May 2017: Amazon delivered spectacular results for 1Q, coming in well ahead of analysts' expectations. Revenues rose by 23% to $35.7bn, slightly above consensus estimates, but the biggest gain was on the bottom line where net profit soared by 41%, despite big increases in expenditure across several areas, especially shipping. Analysts were especially excited by the 43% leap in revenues from Amazon's market-leading cloud computing division AWS. At $3.7bn it's still small by comparison with revenues from traditional retail, but it's Amazon's most profitable division by far, well ahead of even North American retail, and accounting for almost all of the company's reported net income of $724m. The resulting surge in Amazon's share price to new record highs pushed CEO and controlling shareholder Jeff Bezos into the top three of the world's richest individuals, neck and neck with Inditex's Amancio Ortega and not far behind Bill Gates.

Adbrands Weekly Update 30th Mar 2017: Amazon is widening its global footprint. There are currently eleven local sites around the world selling a full range of products. However, eight new markets could join that collection this year alone. The company agreed terms this week for the acquisition of Dubai-based Souq.com for an estimated $650m. This is the leading online retailer in the Middle East, delivering to the six main Arabian Gulf states as well as Egypt. There are also plans to upgrade Amazon Australia to a fully stocked store later this year. Currently, like a handful of other territories, the local storefront sells only Kindle and related digital content.

Adbrands Weekly Update 2nd Mar 2017: It may have been Moonlight and La La Land's night (indie distributors A24 and Lionsgate respectively), but last Sunday's Oscars also represented a triumph for Amazon and Netflix. They won four Oscars between them, the first for any streaming service. Amazon did best with no less than three trophies. Manchester By The Sea collected the prize for Best Adapted Screenplay and Best Actor (for Casey Affleck), while Iranian drama The Salesman was Best Foreign Language Film. Netflix collected Best Documentary Short for The White Helmets. Amazon appears to play the Oscars game more successfully, backing traditional movies as well as the long-form TV series favoured by Netflix, and allowing their releases to enjoy a standard initial release in cinemas before being offered to streaming customers. As mainstream studios focus their attention increasingly on big budget spectaculars (that rarely win anything other than technical awards), the hold of Amazon and Netflix on the independent movie market is only likely to tighten.

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Background

Free for all users | see full profile for current activities: In the early 1990s, investment banker Jeff Bezos saw the possibilities of selling products to a mass market via the new and expanding internet, which seemed to offer a sales channel unfettered by the physical logistics involved in operating a retail outlet and managing inventory. He selected books as his commodity because they were comparatively fashion-free and offered a high profit margin per copy. He moved from New York to Seattle in 1994 to be near a big wholesale supplier, and launched Amazon.com the following July. 

Even in those dark days of the internet, the site took off quite quickly, and by the end of the year, Amazon was selling more than 100 books a day. Embracing the communal nature of the web, the site encouraged buyers to submit reviews of the books they had purchased. While this surprised and angered some suppliers, it greatly enhanced Amazon's relationship with its customers. By the end of 1996, sales had risen to almost $16m, before rocketing to more than $140m a year later, encouraging the company to adopt the tag "Earth's Biggest Bookstore". The company floated in 1997, and in 1998 broadened its range with the addition of CDs and videos. Also that year, responding to plans by German group Bertelsmann to establish a rival book service in Europe, Amazon acquired two smaller rivals - Bookpages in the UK and ABC Bucherdienst in Germany - which rebranded as local versions of Amazon. 

In 1999, toys, electronics, software, video games and home improvement joined the mix. That year sales raced through the billion-dollar barrier to hit $1.6bn, and Time magazine selected Bezos as its Person of the Year. The company also established outposts in France and Japan for the first time. But within just a year, Amazon was already beginning to attract detractors, who warned that the business was spreading itself too thinly. Investments in other online services such as pharmacy drugstore.com, delivery service kozmo.com and pet supplies outlet pets.com all proved write-offs. As if to cement Amazon's tarnished reputation, the group reported a massive $1.4bn loss for 2000. 

Bezos launched a major restructuring in 2001, laying off 15% of its work force. The company also muscled into the territory of rival eBay, introducing person to person transactions via its ZShops third-party stores and auction services, as well as taking over the online operations of other companies struggling with their own e-commerce service, such as Target and Toys "R" Us. Those moves soon began to deliver results, and the group delivered its first modest quarterly profit at the end of 2001, and again in 2002. A year later the company reported its first two consecutive quarters of profit at the end of the year. In 2004, it established its seventh online portal with the acquisition of China's leading internet retailer, Joyo.com.

In early 2006 it began developing a music download service to compete directly with Apple's iTunes. According to press reports, the company was considering a subscription plan model broadly similar to that offered by mobile phone operators: users would subscribe to a dedicated Amazon download service and receive a custom-made music player as part of the offer, pre-loaded with a selection of promoted tracks which can then be swapped or updated online. By mid-year it became apparent that Amazon had abandoned the music service in face of the continuing dominance of Apple, but was instead preparing to launch a video download service. This arrived in September under the name Unbox. See full profile for current activities


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