Case Study: Amazon Build-out

During the dot-com bubble, numerous internet based startups raised hundreds of millions of dollars through Initial Public Offerings (IPOs). The dot-com bubble largely centered around e-commerce, particularly, porting brick and mortar retail businesses onto the internet.

This phenomena had winners and losers. There were more losers than winners. So to better understand token build-out, one must understand what distinguished companies like Amazon from their unsuccessful counterparts such as Pets.com.

The brilliant insight from Jeff Bezos and Amazon was simple. E-commerce in its nascent form still relied on traditional infrastructure, specifically, warehouses, fulfillment infrastructure as well as postal services. It would usually take up to 14 days to deliver purchases to the buyer.

This was the limitation to work within. On the other hand, e-commerce afforded buyers a much wider selection through aggregation and cross-geographic reach.

These two facts can be concatenated into a single question:

What items are buyers willing to purchase, where the selection variety is much wider, but the delivery time much slower, when compared to traditional brick and mortar retail businesses?

The answer, and brilliant insight from Amazon, is books. Buyers are willing to wait up to two weeks for a book they can’t find in their local bookstore. The same cannot be said for pet food.