Case Study: Amazon.com

Helping E-Commerce Sites Achieve International Success

By Diego Piacentini, Senior Vice President and General Manager, Amazon.com

"In its first month of operation after opening its virtual doors in July 1995, Amazon.com sold to customers in 45 countries," writes Diego Piacentini, senior vice president and general manager of Amazon.com, the world's largest e-commerce retailer. "Today, we sell in more than 150 countries." Adherence to local laws, establishing strategic in-country presence and providing impeccable customer service are the keys to Amazon.com's international expansion, Piacentini says. The following article is a case study of one company's efforts to make e-commerce work across borders.

E-commerce in the United States has evolved faster than anyone expected, quickly moving from a questionable "Will it survive?" mode into a powerhouse "Can't do without it" position in the American economy. Now, e-commerce is poised to take on the rest of the world in a similar fashion, and companies with an established online presence -- as well as newcomers to the e-commerce arena -- are looking for advice on conquering the international frontier.

The key to achieving international e-commerce success lies in understanding one simple fact: customers everywhere want better selection, more convenience, and better service. After recognizing this fact, online retailers will soon understand that the major challenge to international expansion is the ability to bring these universal benefits to customers around the world while honoring local customs.

Amazon.com has followed these principles to actively build our online retailing business in Europe, focusing primarily on our Books, Music, and DVD & Video stores. In 1998, Amazon.com launched a site in Germany, Amazon.de, and a United Kingdom site, Amazon.co.uk. By taking a steady, strategic approach and carefully evaluating our options, we've been able to transform our core competencies in the United States into international success. By examining how we have achieved our goals, we hope to help other e-commerce sites make the move across international borders.

The Universal Appeal of E-Commerce

The increasing popularity of the Internet around the world has e-commerce poised for phenomenal future growth. According to eMarketer's eGlobal Report (March 2000), non-U.S. markets currently account for 31 percent of the e-commerce industry. But this percentage is expected to increase to 40.5 percent by 2003, representing nearly $600,000 million. European e-commerce revenues alone are expected to grow from $16,810 million in 1999 to $425,500 million by 2003.

While the potential for international growth seems boundless, challenges do exist to altering customers' expectations and behavior. If Amazon.com's experience is any indication, the overwhelming universal appeal of e-commerce will eventually change international shopping behavior. To plan for this change, we must first examine the benefits of shopping online, which are valid for both domestic and international customers.

Selection: In countries where store selection is limited due to economic conditions or local customs, e-commerce can be a revelation, offering products and services that many consumers thought they'd never be able to purchase. In fact, our research shows that customers rank selection as Amazon.com's most important asset.

Convenience: Many business executives have faced the challenge of dealing with different time zones in trying to reach international customers. But online stores never close, letting shoppers place orders 24 hours a day, seven days a week, no matter where they are.

Customer Service: In the United States and around the world, customer service offers e-commerce companies the opportunity to stand out from physical stores. Shoppers must be able to have questions answered, easily return merchandise, and receive adequate communications from the retailer. For European and Japanese customers, who are not accustomed to 24-hour-a-day customer service, the Internet's capabilities provide e-commerce sites with a key differentiating factor over brick-and-mortar retailers. The challenge for online retailers is to have customer service representatives who adequately understand the needs of shoppers in different countries around the world.

Information: The Internet gives consumers access to a wealth of information, often considerably more than they could find on their own in the physical world, helping them make better-informed purchase decisions than ever before.

Security and Safety: All shoppers want to ensure that their online purchases are safe. The industry has come a long way in offering state-of-the-art encryption systems that virtually guarantee a secure and safe transaction.

Facilitating International Sales

The power of the Internet makes it easy to connect online retailers with customers around the world. When people talk about international e-commerce expansion, they often overlook the fact that a single Web site can sell to international markets without adding physical stores or warehouses overseas, or even making significant investments in researching the potential of non-U.S. markets.

In its first month of operation after opening its virtual doors in July 1995, Amazon.com sold to customers in 45 countries. Today, we sell in more than 150 countries. Currently, 22 percent of Amazon.com's sales come from outside the United States, and 14 percent of sales come from Europe alone.

Strategies for Expanding International Sales

The June 26, 1999 issue of The Economist summed up some of the challenges of international e-commerce very succinctly: "In Europe, the Internet will help turn the single currency into the foundation of a genuine single market for consumers. Yet Europeans are less prepared than Americans to buy electronically; they are less likely to have credit cards, have less experience of mail-order shopping, and are generally more conservative in their shopping habits." Because of such challenges, e-commerce sites must aggressively promote their benefits in order to effectively change buyer behavior or adjust their operations to respect local customs. For example, because European and Japanese customers do not regularly use credit cards, the Amazon.co.uk and Amazon.de sites offer additional payment options, such as checks and postal orders, that reflect international customer needs and behavior patterns.

In expanding internationally, Amazon.com has learned several key strategies that have helped us overcome a variety of challenges and barriers.

Adhere to Local Laws: The first priority for all e-tailers looking to expand internationally is following local laws. Before you can focus on providing better selection and service to customers, you have to make sure your company won't get into legal trouble for its efforts. For example, retailers are not allowed to discount the price of books in Germany. Because Amazon.com is highly regarded for our competitive prices, this law forced us to look at our strengths and find other ways to satisfy the German market's diverse needs, such as our comprehensive selection of products and services and the insight provided by local editors.

International agreements also are important. For example, some online privacy issues have been more sensitive in Europe than in the United States. In fact, the EU and the U.S. government recently reached a preliminary agreement on the treatment of personal and confidential data. At Amazon.com, we use personal information to bring added benefits to our customers, such as a more personalized shopping experience. For example, when a customer is considering a book purchase, we will offer other selections in subject areas where the customer has shown a previous interest.
In addition to respecting local customs, e-commerce sites must overcome customs such as limited hours or inadequate supply that can create unmet customer needs and spoken customer resentment.

Expand Through Acquisition: For some e-commerce companies, one way to help expand internationally is to buy existing retailers in the target market. Amazon.com purchased two European e-commerce sites in early 1998 (Telebuch in Germany, and Bookpages in the United Kingdom) then relaunched them as Amazon.com-branded sites. The sites had loyal followings, allowing Amazon.com to immediately gain a solid customer base in these markets.

Establish a Ground Presence: Even with the Internet's incredible capabilities, it can be difficult to run an international business without having some sort of physical presence in foreign countries. This can take the form of sales staff on the ground in key markets, international distribution centers, and customer service centers.

Because of the overwhelming support Amazon.com received from European audiences, we knew that our American warehouses and customer service centers would be unable to support the level of sales we expected in Europe. To meet this growing demand, Amazon.com opened customer service centers in Slough, England and Regensburg, Germany and most recently opened a center in The Hague to support requests from Germany, the United Kingdom, and the rest of Europe, employing multilingual representatives to serve Europe's diverse consumers.

Select a Receptive Market: Online retailers should look for markets whose needs are closely aligned with the products and services they offer. For example, many people have asked me, "Why Germany?" The United Kingdom is a common destination for many companies' international expansion, but Amazon.com also saw great potential in the German market. In this market, online retailers can flourish by providing a level of customer service that is impossible to find in brick-and-mortar stores. In addition, Germany is a significant publishing and reading nation, with approximately 2,000 publishing houses, indicating a strong desire for books, Amazon.com's core segment.

Never Underestimate the Importance of Customer Service: After an e-commerce site has established an international presence, it must continually focus on providing exceptional customer service. Because Amazon.com's goal is to build the Earth's most customer-centric company, the ability to offer the best customer service possible -- both domestically and internationally -- is the highest priority. To that end, we hired local editors in both Germany and the United Kingdom to provide us with the insight that only local residents can offer. We also made the overall look and feel of the Amazon.co.uk and Amazon.de sites consistent with the original Amazon.com site, offering a sense of familiarity among customers who knew our primary site. And we have offered the same innovative services on our international sites as on the U.S. site, such as Auctions and zShops, which allow customers to buy and sell products with other Amazon.com customers, expanding the product selection available through the site.

What it Takes

Through our attention to customers and careful research, Amazon.com's efforts have been rewarded with significant customer support. According to Media Metrix, Amazon.co.uk, Amazon.de and Amazon.com are the three most popular e-commerce sites among European audiences. Amazon.co.uk has built a customer base of more than one million in less than 18 months, and Amazon.de also has more than one million customers.

But in order for the e-commerce industry to continue expanding internationally, retailers and consumers must urge government to refrain from enacting regulation or taxes that could stifle its growth. It's difficult to remember that the Internet is still in its infancy, requiring policies that encourage growth and promote Internet access around the world. We cannot know how e-commerce will benefit our lives in the future, so governments should be careful not to limit the type of innovative thinking that has brought the industry to this point. Working together with government, online retailers such as Amazon.com can help realize the Internet's full potential.

Just as Amazon.com has succeeded internationally, other e-commerce sites can achieve results by respecting local laws and customs while serving universal needs and tailoring offerings to not only meet but also exceed local expectations. By providing better selection, convenience, and service than international shoppers traditionally receive from brick-and-mortar stores, e-commerce companies can build a strong foreign presence and pave the way for successful international expansion.