Lecture 3 ( January 25, 2003)

1. Lecture 3( January 25, 2003) Personal Productivity and Business Operations Case Analysis Entrepreneurial industry: Amazon Co.

2. SMEs and Entrepreneurs Small and Medium-sized Enterprises (SME) - family business - small scale - certain criteria for members of SME association or government grants - not listed (just announced on 26 Dec 2002, conditions for SME supports to be relaxed)

3. SMEs and Entrepreneurs Entrepreneurs - “oddballs” - doing business for themselves - a new way to do things or to market a new product - a person who risks his or her livelihood to start a business from scratch

4. Entrepreneurial industry • The change – thriving and vibrant • From not getting respect to being admired and sought after • From failure in corporate ladder to became desired mind-set for corporate to succeed • Relying more and more on microcomputers due to decreasing costs and availability of off-the-shelf application systems

5. Someconsiderations • High risks, high returns • To be your own boss, try your best and prepare for the worst • A good idea or product is not enough, creating demand or market to grow • Capitalize on current trends, e.g. internet has exploded as it makes data gathering so much faster when people seem to have less time to spare • Use technology to give an edge • Grab incentives and grants from government in our local context

6. Business Operations & Transactions • A transaction is the exchange between individuals, areas or companies • All business revolves around transactions • The basic element of a transaction is data • Data elements are combined or collected to produce information • Technology’s first step has always been to capture, store and manipulate the basic data that surround a transaction

7. Retail sales • Retail sales industry encompasses all sales to end-product users, the consumers of the world • Retail sales generate the most transactions • It is expanding as new and innovative means of reaching customers continue to be developed • Internet as a new media for retail sales will capture a bigger piece of the retail shopping market as consumers are more pressed for time • Transaction processing systems are the oldest type of retails information systems. Customer Relationship Management (CRM) and data warehousing technologies are being used to obtain, gather and analyze customer data/purchasing habits etc

8. POS and NETS • POS (Point Of Sales) • NETS (Network for Electronic Transfers (S) Pte Ltd) • Capture transaction data at the location and time the transaction occurs • Accuracy of data is maintained • Up-to-date information can be used almost immediately • Amount of data and information used is enormous • Data obtained easily and voluntarily (active or passive) from consumers

9. Technological investments and analysis Using technology and tools to • Improve work efficiency • Increase productivity • Gain competitive advantage • Cut cost • Project image • Identify trends • Support decision making

10. Some basic personal tools • Microsoft Word, Excel, PowerPoint, Access and FrontPage • Web browsers and e-mail facilities • Similar tools and other vendor products like Star Office, Chinese software • Licensed product and freeware downloadable from the internet

11. Advanced technology is costly • Cautious investments on technology • Success and failure stories • Factors to analyze • Leader or follower • Conservative or risk taker • Corporate worker or entrepreneur

12. HIGH application of technology opportunity cost risk risk LOW TIME

13. HIGH acceptance financial risk technology risk LOW TIME

14. Cost and benefits • More cost, more benefits may be, but not directly proportional and may be not • Determine the functions/facilities required • Distinguish the need to have from the nice to have • Choose the options and add-ons available • Relevancy and obsoleteness • Return of investments • Incentives such as tax concessions and grants availability • Prestige and image

15. Some local assistance scheme • Start-up assistance • Same year depreciation on technical assets • Economic grouping • Information and advice – SME FirstStop • Subsidy on cost of external consultancy services • LEFS -- local enterprise finance scheme • LETAS -- local enterprise technical assistance scheme • LIS – Loans insurance scheme • MicroLoan Programme

16. Case Analysis: Amazon Co. www.amazon.com the online internet bookstore a Seattle based Fortune 500 company July 1995 start-up founded by Jeff Bezos, systems developer, Bankers Trust, New York average visitors 2,200 daily (December 1995) average visitors 50,000 daily (December 1996) average visitors 80,000 daily (December 1997) in November 1998 alone, there were 8,000,000 visits which work out to around 267,000 daily

17. market leader inventory of 2.5 million books competitive prices superior customer service stock value USD 300 m USD 15 b in market capitalization defensible market position

18. Stock performance IPO in May 1997 @ USD 18 per share Share price rose to USD 31 before closing @ 23.5, a 30% premium Share price once rocketed to USD 220 per share (April 1999) and the low and high for the past two years was around 5 to 25 USD respectively

19. Best performing stocks STOCKANNUALIZED RETURN Amazon.com +496% Yahoo +214% MindSpring +152% EarthLink +143% @Home +135% CMG +108% Onscale + 93% Broad Vision + 57% Mecklermedia + 52%

20. Net Profit/Loss to Sales

21. Net Profit/Loss to Sales

22. Losses despite increasing sales • Losses were expected for the first five years, accumulated losses already reached 3 b USD • Low margins on sales due to competitive pricing and superior customer service • Technology investments and overheads such as aggressive advertising • Commitment to gain market share at the expense of profitability

23. Challenges ahead • It’s all about the long term • Must establish itself as the dominant player before the internet becomes crowded with competitors • Although online retailers do not have the burden of maintaining physical stores, this is precisely current and new competitors can launch new sites easily and take away a share

24. Information broker co products customers consumers looking for books books publishers looking for consumers

25. More than books • Publishers and traditional book retailers cannot easily obtain demographic and behavioral data about customers, limiting opportunities for direct marketing and personalized services. • Online retailers are taking the advantage of increase functionality, accessibility and overall usage of the Internet. • Amazon.com added CDs in 1999. Videotapes, audiotapes, digital video discs and computer games were than added later. Next were electronics and software. • Go to the website www.amazon.com to see the wide varieties of merchandise and its design.

26. Components of successful online sells • specialty services • customer privacy • timely customer response • follow-up (e-mail) • more than sell books, offers information about books such as customer reviews and author interviews • customer reviews, input information on customers’ tastes • discounts in various forms

27. Competition from online & traditional bookstores Internet Bookshop www.bookshop.co.uk 1.4 m titles Bookstacks www.books.com 4 m titles (taken over by Barnes & Noble ) Barriers to internet entry are minimal. Current and new competitors can launch new sites at a relatively low cost. The big names in the retail industry, Barnes & Noble Borders Books have devoted substantial brick-and-mortar resources to online commerce. (www.bn.com or www.barnesandnoble.com and www.borders.com) Note that www.borders.com has been taken over by amazon.com

28. Into the future • More than books • Acquisitions: online bookseller Bookpages (UK) online bookseller Telebook (Germany) Internet Movie Database (UK) US web-based companies Junglee & PlanetAll • Improve distribution & delivery • From a go-to site to a go-through site • Aspirations: • Wal-Mart of the internet • to become an e-commerce

29. Resources & Reading Materials Chapters 2, 3 and 4 of textbooks. www.spring.gov.sg www.sdf.gov.sg www.amazon.com