OIM 210 Exam 3: Amazon, Network Effect, & Social Media

Congestion effects

when increasing the number of users lowers the value of a product or service. This is typ. due to over-consumption of finite resources. Ex. Sim City --> So popular, the server overloaded.

Peer production

when users work, often collaboratively, to create content + provide service.

Straddling or Accretive (coming together in cohesion)

- Competing w/ walmart + krogers - amazon books, amazon go, Whole foods - data collecting checkout hubs at stores

Firms Leveraging Twitter

- Contests --> ALS Ice Bucket challenge - Support sales --> Not as successful --> Baked a buy button into tweet (Apple Pay helps w/ this b/c they have all ur account info, eliminates interia of sale. Ppl trust apple pay, it has ur info, it makes things easy) - Scheduling --> Good for time sensitive things Ex. Where a pop up shop will be, bakery can let u know when fresh pastries are ready - Coupons - Performance Monitoring + Competitive Intelligence - Sampling - Philanthropy

Amazon Ad Spending

- Much of ad spending goes toward Echo + Kindle - They try to cover the needs of the customer, if someone is calling them for help, they have failed. - Every employee, even the CEO spends two days every two years on the service desk to answer calls + help customers - Keep empty chair in meeting room to act as the customer → don't have to bother with advertising

How to battle a Leader who has Network Effects

- Radical Innovation may be necessary if an incompatible technology is to overthrow an established standard. - Technical benefits for the new innovation must exceed the technological functionality, exchange opportunity, staying power, and complementary benefits of the incumbent

Amazon Data Advantage

-A/B testing -Personalization -Operations -Advertising (retargeting, Affiliate Program, Amazon-Specific Targeting)

Amazon's Personal Clouds

1. Amazon Cloud Drive 2. Amazon Cloud Player 3. Kindle Cloud Storage

Examples of Complementary Benefits Success and Failure

1. Black berry: Driving more users but Blackberry messenger did not create an API to make Apps available. You dont want to stay with a platform that won't let you use what everyone else is using. 2. FB created cross appl between Instagram messenger + FB messenger making FB more accessible across plaforms.

Key types of social media

1. Blogs 2. Wikis 3. Social Twitter/ microblogging 4. Messaging apps

Value Adding Sources

1. Exchange opportunities 2. Staying Power 3. Complementary benefits From a strategist's perspective this can be great news for dominant firms in markets where network effects exist. The larger your network, the more difficult it becomes for rivals to challenge your leadership position

Amazon Building + leveraging the Long tail

1. First-choice shopping - Brand: lower search costs, proxies quality, inspires trust 2. Third-Party Sellers - Up to 40% of unit sales - Risk of slow-moving & new products assumed by others. - Fulfillment option [3rd party vendors gain access to Prime 3. Amazon Keeps customer relationship (data) 4. Network Effect - Buyers + Sellers - Broaden reach (Amazon Associates = affiliate marketing)

Amazon Cloud Advantages

1. Lower costs 2. Scalability 3. Expertise 4. Speed + Flexibility

Four Roles of Corporate Social Media Presence (4Ms)

1. Magnet 2. Megaphone 3. Monitor 4. Mediate

Strategies for Competing in Network Markets

1. Move early 2. Subsidize Product Adoption 3. Leverage viral promotion 4. Redefine the market or leverage convergence 5. Alliances + partnerships 6. Distribution channels 7. Seed the market with complements 8. Encourage the development of complementary goods 9. Maintain backward compatibility.

What is Amazon doing as company?

1. Plowing as much cash they can to create assets that can give them global advantage 2. Amazon wants things done in 5 to 7 years (plant seeds + let them grow. Leads to smaller fraction of competition b/c not as many companies are willing to play the waiting game) 3. Can't beat them... Join them. Amazon is absorbing its competitors. Ex. Zappos, Audible

The Flywheel: 3 pillars of growth w/in amazon

1. Selection - Building as many warehouses as they can globally to make sure they can hit the world. - Amazon is not making huge profit b/c they are investing in scale (plants, IT, etc.) - Fulfillment centers 2. Low prices (lower cost structure) - 3. Customer Experience

A/B Testing

A randomized group of experiments used to collect data and compare performance among two options studied (A and B)

Where does 1/4 of Amazon's revenue come from?

Abt ¼ of Amazon revenues come from sale of media businesses that are rapidly shifting from atoms to bits

Amazon Kindle Moore's Law

According to Moore's law, The Amazon Kindle started at $300, within 5yrs it went down to $65. This is because the tech kept evolving and price kept dropping. ⇒ Being sold at loss and at cost, however, this is okay b/c more ppl are buying more books via kindle. Amazon did what it's excellent at, it sucks you in and recommends what u should read next, what app u should subscribe to, etc. Ppl will still by paper books all the while buying e-books

Fire TV, Echo, + Alex

Additional platforms for delivering digital content, sales, + data gathering. These platforms face sig challenges in growing market share, + none has seen the same success as the firm's e-book readers

Amazon Cloud

Amazon Webservice. The size of 3 competitors combined.

Amazon Kindle

Amazon does not make money by selling Kindle hardware; instead, it seeks to fuel media and e-commerce sales as well as side businesses such as on-Kindle and in app advertising It is estimated 20% of Amazons US customers own at least one Kindle device.

Amazon's negative cash conversion cycle

Amazon has a negative cash conversion cycle (CCC) b/c it collects cash from customers BEFORE distributing funds to suppliers. Companies want a negative cash conversion cycle because it means they have money to spend for a certain period of time before they need to start worrying about paying the supplier. Ex. Day 0: Product received at amazon warehouse. Day 22: Product shipped. Day 25: Customer Payment, Day 53: Supplier paid. ==> CCC = (Customer Paid - Supplier Paid) = 25 days - 53 days = -28 days

Meaning of Amazon's cardboard box

Amazon logo shows they deliver everything from A to Z, + a smile b/c ur so happy to receive your stuff.

Crowdsourcing: Amazon mechanical turk

Amazon mechanical turk - Radom ppl complete Jobs known as HEADS ( cannot be easily completed by robots or ppl, ex. Translating something, taking a suvey, sorting pics, etc). Allows a large pool of candidates, costs are low, and a fast process.

Amazon Delivery Cost then vs now

Amazon used to use companies like USPS (biggest partner), UPS, or FedEx. Then, Amazon started making their own shipping process which was more cost efficient and the delivery method gives them more control of customer experience. (Look at graph on slide 36). Amazon also launched Amazon Flex, which is like Uber for delivering your items, and Prime Air.

Scale

Amazon's growth is doubling. On avg Walmart is 19% more expensive than Amazon. Amazon, however, has been bumping up prices during high periods of supply + demand => Price discrimination, Ex. when competition has product out of stock, Amazon will raise its prices.

Success Factors w/in Social Media

Be DIverse Be Decentralized Be Independent Summarize

Complementary Benefits

Benefits provided by companies outside of the company that produced the product or service. Ex. the third party apps that work on your device. Uses platforms and APIs. --> Apply allows APIs which locks u in their ecosystem, ex. Apple Car Play

SMART: Engage

Create points of contact w/ trained staff; craft a compelling social media voice; liaison to internal communities.

Market Characteristics

Early competition, bandwagons, monopolistic tendencies. Ex. Blue Ray DVD vs HD DVD

social media + current events

Example of earned media. Ex. Oreo after power outage at super bowl "U can still dunk in the dark", how creative, how funny. Have to be aware abt what you're posting + the context

SMART: Set a Social media policy

Explicit guidelines (honesty, transparency, caution in representing firm, legal issues), Positive Examples, case studies showing potentially damaging consequences

The Fire Phone - What is it? - What contributed to its failure?

Fire phone providers a cautionary tale to late-movers. High price, entrenched rivals, consumer switching costs, + lack of compatible apps all contributed to the devices failure. The Fire Phone used an exclusive app store tailored to their devices. This forced ppl to make diff versions of their app to be compatible for IPhones, Androids, + Amazon devices (not worth it). Ppl could also not install apps like GMail, Dropbox, etc. Too large of a switching costs. Apple + Samsung created huge barriers to entry.

Wisdom of the Crowds

Individuals collectively have more insights than a single or small group of trained professionals.

innovation effect

Lowers competition against an established standard. Increases innovation within a standard. Ex. 56 diff versions of Monopoly boardgame.

Staying Power - Switching Costs + Microsoft

Microsoft was accused of being a monopoly and engaging in anti-competitive practices. Email that Bill Gates got from a general manager shows that Microsoft isn't the best, but that their switching costs keep the customers w/ them.

Are Network Effects the same thing as Economies of Scale?

Network Effects are NOT Economies of Scale. Volume of production massively reduces the costs. Ex. if you run out of butter, you have no problem using another butter.

Labor Network Effects: Two-Sided Market

Network markets that comprise two distinct categories of participant, both of which are needed to deliver value for the network to work (Ex. Ebay) --> Cross Side Exchange Benefits (Buyers benefit from more sellers; Sellers benefit from more buyers)

Was Amazon always predicted to succeed?

No, Jeff Bezos faced major critics and even though their sales were going up, profits were very very low. Predictions were not good

Do Network Effects harm innovation?

No, if you build something within a platform, you can develop an advantage

Is every product or service subject to network effects?

No, not every product or service subject to network effects

Labor Network Effects

One-sided or Two-Sided Markets

Amazon Fulfillment Flow Diagram

Online order by customer → Inbound shipping → Unloading + Unboxing → Stowing/ Picketpower/ Picking → Packaging → SLAM → Outbound Sourcing → Loading → Outbound shipping → Customer - Speed + cost determine warehouse + how things are going to be shipped - Employees does visual inspection to make sure order is in good condition - Weighs package, also ensures u have the right product

Amazon's first brick + mortar store

Pick up + drop off at store. Notifications via email + text when package arrives. At purdue university. Estimated to save students 40% on textbooks

Fulfillment Centers

Radically different from conventional retailers. They don't put similar items near each other, so that workers/robots don't get easily confused or mixed up. It used to take amazon 11 to 12 hours to fulfill an order, but now, thanks to Kiefa robots, but now it takes 15min. Robots bring product to worker who then packs it up.

4 Rs

Respect, Responsibility, Representation, Reputation

What does SLAM stand for in Amazon's fulfillment process?

SLAM = Scan, label, apply, manifest

Amazon Data Advantage: Advertising - Retargeting

Showing ads for products + services from a site that a user has previously visited/ Also called 'Remarketing' (the cookie you, giving you a unique # that tracks ur browser)

SMART

Social Media Awareness + Response Team

Staying power

The ability to maintain a client base. Companies create a staying power typically through high switching costs (lock-in power). Google, Microsoft, and Apple all did this by creating platforms such as The Cloud, Google Drive, GMail, and Microsoft Teams. You invest in the system

Crowdsourcing

The act of taking a job traditionally performed by a designated agent (usually at employee) + outsourcing it to an undefined generally large group of ppl in the form of an open call Ex. Amazon mechanical turk

If a large network implies staying in power, what does this mean for the value of a your product or service?

The value of a product or service cannot increase forever, eventually you plateau and the value of the product/ service becomes constant

How is amazon able to offer better pricing?

They have better margins. Specifically, they have private label brands. This means there is no middleman and there is pressure on suppliers to grant the best prices, payment terms, and complete product line access.

SMART: Monitor (external + internal)

Tools (Google Alerts, Twitter Clients, FB Insights, HubSpot, Hootsuite, Radian6), ORM Agencies ( online rep. mgmt), Deputies (reveal dark web)

SMART: Establish First Responder Network

Train 'War-game' scenarios; Escalation path to bring in experts (engineers, sr. executives, support specialists); Deeply involved customer service, PR, legal, tech staff

Amazon Automated Checkout

Using checkouts as data collecting hubs (they know what u buy so now when u log into Amazon account they know what you like and can suggest it to u). Just Walk Out tech reflects Amazon's strategy of building out internal capabilities and then turning its tech into lucrative services. Unknown who will own shopping data.

Amazon Data Advantage: Advertising - Affiliate Program

When program sponsors pay referring websites a percentage of revenue earned from the referral.

Astrosurfing

When you bomb the internet with bogus reviews. Cannot ask employees to post good reviews. Will be exposed

Prediction Markets

Where a diverse crowd is polled and opinions aggregated to form a forecast of an eventual outcome

Privacy in amazon's shipping process

Your name is covered until the final step. You become a code.

Phishing

a con executed using technology, typically targeted at acquiring sensitive info or tricking someone into installing malicious software. Security + social media

Labor Network Effects: One-sided market

a market that derives most of its value from a single class of users (Ex. Instant Messaging) --> Same side exchange benefits (consumers benefit from more consumers)

Platform

allowing for the integration of third-party software products + other complementary goods.

Owned Media

communication channels that an organization controls. Includes firm-run blogs + Web sites, apps, + organization accounts on social media such as Twitter, FB, Pinterest, UTube, + IG

Social Media

content that is created, shared, + commented on by a broader community of users.

4Ms: Mediate

customers & community dialog; ex. Ppl in the environmental department at Starbucks, address customer concerns abt the environment; can also lead to innovation through customer recommendations, ex. Splash stick

Zoom Case Study

easier to use than skype. Shorter code to get into a meeting. Automatically downloads compatible software to ur computer bts. Zoom is the low friction choice: its free for the most part and has a burdensome initial account set up.

Paid Media

efforts where an organization pays to leverage a channel or promote a message. Paid media efforts include things such as advertising + sponsorships

4Ms: Magnet

inbound from customers; follow what u want to say

Inbound Marketing

leveraging online channels to draw consumers to the firm w/ compelling content rather than conventional forms or promotion such as advertising, email marketing, traditional mailings, + sales calls.

4Ms: Monitor

outbound listening to customers, competitors, + 'best practice' role models; ex. HubSpot

4Ms: Megaphone

outbound to customer; once u attract customers, can influence them with ur attention; conduit to correct info, to clear the record, to share info, etc.

cash conversion cycle (CCC)

period between distributing funds + collecting cash for a given operation

Earned Media

promotions that grow organically from customer efforts or other favorable publicity. Social media can be a key driver of earned media (think positive tweets, referring FB posts, + pins on Pinterest. VERY VALUABLE

Amazon Data Advantage: Advertising - Amazon-Specific Targeting

target you by displaying ads from other websites, in doing so, Amazon can charge the other website.

Exchange opportunities

the more ppl use + are able to interact with a service or good, it becomes more valuable. This make it hard for other companies to compete b/c ppl don't want to leave a service everyone is on

Metcalfe's Law

the value of a network is equal to the square of the number of users connected to it. A phenomenon whereby a god or service becomes more valuable the more ppl use it. Among the most important reasons why you'll pick one product or service over another.