Can Someone Please Explain the Amazon Business Model???

[jk]

Re: The Everything Store

Amazon's business model?

Think of the last 10 items you purchased via Amazon. They generally fall into two major categories.

1) You had a specific item and manufacturer/brand in mind and you knew it will be cheaper on Amazon so you searched for it on the Amazon site first and purchased it there.

2) You had a specific item in mind but did not know which manufacturer/brand to choose and needed to compare items in person before deciding. You locate a local retailer to taste, touch, or feel the items you are considering for purchase.

You made your decision on manufacturer/brand based on what you saw but do not buy the item there from the local brick-and-mortar retail store because the product was more expensive than on Amazon because all items there are subject to taxes and mark-up to cover rent, inventory float costs, and retail store labor costs. You went home and order it from Amazon. In fact, you knew all along it was going to be cheaper on Amazon so it is always your intention to purchase on Amazon.

there are certainly customers who are "show-rooming" at local stores, but as a regular customer of amazon i don't, and i don't feel like i need to. and amazon now collects sales tax in my state, so that's gone too.

what amazon does have is REVIEWS, tens, hundreds, sometimes thousands of reviews. yes there are sock puppet reviews, but they're usually easy to spot. but when i'm at a brick and mortar store [which i hate doing, except for groceries] i don't have nearly the information available to me at the amazon website. i can't distinguish on the basis of looks which item is going to function well, which is going to break down. i can't rely on brands anymore, either, since they've moved their manufacturing to china and the brand no longer carries any meaning for assumed quality.

i'd be buying on amazon if its items cost [somewhat] more, including tax, than what i can get locally because in a regular store i am at an informational disadvantage. i think someone won a prize for writing about the market for lemons, an analysis of information assymetry. this crowd-sourced informational value is rarely mentioned in analyses of amazon's business, but i think the amazon community, such as it is, is a tremendously valuable resource "owned" by the company.

[don]

Re: The Everything Store

thanks Milton!

[lektrode]

Re: The Everything Store

Amazon's business model?....
....
Amazon's brick-and-mortar retail competitors are all providing a costly in-person product evaluation service to Amazon customers for free.

This research paper concludes that if Amazon purchases were taxed as are local purchases, revenue will decline by 9.5% on average and 19.8% for large items.

....
If in addition to taxation Amazon also had to compete on a level playing field brick-and-mortar retail stores on rent, float, and labor costs then Amazon's revenue will decline by at least as much, by another 10%.

Amazon has a two-step business model comprised of a Competition Destruction Phase and a Quasi-Monopoly Pricing Phase, ....
....
Amazon's stock price reflects a future balance sheet of a company with Quasi-Monopoly pricing power across a broad range of retail markets.

some of which are just starting to wake up to the realties of...
curious if you read what i linked-to above?

which suggests that their labor practice$/strategy are a key underpinning of their ops.

and eye recall, Mr J - that you had mentioned something awhile back - to the effect of - that in the longer term 'mall operators are a sell' - which has dire implications for municipal tax bases (as we're already seeing lots of dead/dying malls, with 'marginal' retail ops barely hanging on)

so the question becomes: how much longer do you see amzn's 'strategy' being allowed to continue?
(esp considering the comparison to wmt, in the story above)

personally, i've bought very little from em - being the sort that likes to eyeball stuff up close, hold it in my hands to get a feel for it's ruggedness/sturdyness, texture, etc - smell, even (am definitely a 'tactile type') - and kinda like the 'instant gratification' of being able to pop into the closest (and usually cheapest) retailer of whatever item i'm desiring at the moment (with mere day to day survival items being my most likely desires)

so would think that it's going to take quite a bit more than simply 'low prices' to take out much more of the competition, esp as the sales tax issue (along with property tax - read: state/municipal revenue sitch growing more dire by the day), energy-cost-driven transportation/distribution costs - never mind a 'labor uprising' - start to take a bigger bite out of their top of the line?

course with the (his) wapo aquisition, they'll have a pretty awesome propaganda machine working for em....

[EJ]

Re: The Everything Store

Amazon's business model?

Think of the last 10 items you purchased via Amazon. They generally fall into two major categories.

1) You had a specific item and manufacturer/brand in mind and you knew it will be cheaper on Amazon so you searched for it on the Amazon site first and purchased it there.

2) You had a specific item in mind but did not know which manufacturer/brand to choose and needed to compare items in person before deciding. You locate a local retailer to taste, touch, or feel the items you are considering for purchase.

You made your decision on manufacturer/brand based on what you saw but do not buy the item there from the local brick-and-mortar retail store because the product was more expensive than on Amazon because all items there are subject to taxes and mark-up to cover rent, inventory float costs, and retail store labor costs. You went home and order it from Amazon. In fact, you knew all along it was going to be cheaper on Amazon so it is always your intention to purchase on Amazon.

Amazon's brick-and-mortar retail competitors are all providing a costly in-person product evaluation service to Amazon customers for free.

This research paper concludes that if Amazon purchases were taxed as are local purchases, revenue will decline by 9.5% on average and 19.8% for large items.

Due to low interest rates, inventory float costs for both Amazon and the brick-and-mortar retail store are insignificant but even lower for Amazon due to economies of scale with respect to purchasing inventory and also Amazon's ability to get the lower cost line of credit due to the sheer size of the company's receivables.

If in addition to taxation Amazon also had to compete on a level playing field brick-and-mortar retail stores on rent, float, and labor costs then Amazon's revenue will decline by at least as much, by another 10%.

Amazon has a two-step business model comprised of a Competition Destruction Phase and a Quasi-Monopoly Pricing Phase, which are implemented one market area at a time. During the Competition Destruction Phase Amazon uses the advantage of lower fixed costs to put it's brick-and-mortar competition out of business (e.g., Barnes & Noble, RadioShack, etc.). Later during the Quasi-Monopoly Pricing Phase Amazon then starts to raise prices for products in those markets where they no longer face effective competition.

Amazon's stock price reflects a future balance sheet of a company with Quasi-Monopoly pricing power across a broad range of retail markets.

[Milton Kuo]

Re: The Everything Store

(posting graphics on the 'tulip has become a disaster)

Links to ZeroHedge are no longer allowed and are automatically munged by the software. Here are the two graphics you tried to post.

1. Jeff Bezos' net worth compared to all profits Amazon has ever earned in its lifetime:


Jeff Bezos in perspective_0.jpg

2. A comparison of the change in Amazon's revenue, expenses, income, and stock price over the past 10 years:

AMZN wsj.jpg

[don]

Re: The Everything Store

too graphic, Jeff?




And as a bonus chart, this from the WSJ:



(posting graphics on the 'tulip has become a disaster)

[lektrode]

Re: The Everything Store

did you read the whole thing, jb?

until i read that story, i never really thot much about em - altho like GRG's question above - esp as it pertains to FB - have wondered how it is they have kept going this far - what, going on 20 years - headed toward 100 BILLION in sales - without a nickle in 'profit' ?

this piece really brings it all together - esp from the POV of those being 'disrupted' - and eye REALLY like that in a news story - even if it is more op/ed than 'news' - tho i tend to gravitate toward that section of newspapers anyway - on the idea that the writers of op/eds likely know more about the topic than i do (hopefully, anyway - not that its all that difficult on most topics ;) and appreciate some sort of analytical perspective vs 'just the facts, ma'am' (= why i'm here)

but wow - when WMT's 'efficiency' M.O. starts to sound 'outmoded' ? - one gets the idea that AMZN has been getting 'special treatment' from the lamerstream media - and never mind wall st - since its the first time eye've seen that kind of language used about AMZN in the same news space (without WMT getting bashed even harder)

and dont get me wrong here, i buy from whoever offers the best price vs service/quality - but a lot of times - hell, MOST of the time lately - the price is all i can afford to think about

altho once upon a time - the 'category killer' concept seemed like it was valid/good biz, acceptable even - but after reading this?

and the very idea that with its current course/speed, that tween them and wmt we'll end up with the same sitch as say like with the airlines (never mind TBTF, inc)?

methinks it just about time to bring back the trust busters

but i'll be very interested to hear lake-d's take on all this....

sez this disrupted type
(tho it wasnt amzn who caused it)

[jiimbergin]

Re: The Everything Store

We have been prime members since the beginning of prime and we do order a lot from Amazon. However, we almost always check other prices and the majority of the time the Prime price is better than other prices + shipping. We also get amazing service. However, if the price elsewhere is better including shipping we often buy elsewhere. We also take advantage of the prime instant video. We have a cabin on a fishing lake in Tennessee and we have internet there, but no cable. We use Amazon Prime Video there. In NC Amazon now charges sales tax, which is fine. NC had a use tax that you were supposed to pay which was to replace the sales tax and we did pay it. All in all we are very happy with Amazon Prime.

[shiny!]

Re: The Everything Store

Good article. Amazon now collects sales tax on Arizona sales.

Two customers are suing Amazon for jacking up prices to Prime members to pay for the promised "Free Shipping". Prime members pay $99/year to receive free shipping on "Prime" orders. Without Prime membership, orders must be $35 or more to qualify for free shipping. But Amazon encourages its Prime vendors to raise the price of items to equal the item+shipping charge charged by non-Prime vendors. So if an item costs $10 + $3.99 shipping, with free shipping if the order totals over $35, the same item under Amazon Prime will cost $13.99. Prime members are still paying for shipping, only it's hidden in the total price:

Amazon Accused of Cheating Customers Through Shipping Costs

[lektrode]

Re: The Everything Store

Wonder if the Washington Post came up

ya think?

wonder if the santa fe reporter will be mentioned...

amazing what one can stumble onto on a 'random walk down main st'
(read: didnt realize - or recall anyway - that JB was a wall st guy, its all starting to fill-in now)

The Birth of Amazon

LEGEND has it that the founding of Amazon is a classic story of a guy pulling himself up by his own bootstraps. In 1994, a bright, young fellow named Bezos heads off to the Seattle suburb of Bellevue, with not much going for him but old-fashioned pluck and a unique idea: Selling books on this new thing called the Internet. Some called him crazy, but the bold entrepreneur got his online “bookstore” started in his garage in 1995. And lo, 19 years later, it has sales of nearly $100 billion a year and has made Bezos the 13th-richest American.
REALITY Amazon did open for business in a Seattle garage, but guess where it was conceived? Wall Street! For the eight years between graduating from Princeton and landing in Bellevue, Bezos was a very well-paid Wall Street investment banker. In 1994, while working at DE Shaw, a powerhouse hedge fund, he came across a report showing that Internet marketing was about to boom, expected to grow by 2,300 percent a year. That’s when— click! —the Amazon light bulb lit up in Jeff’s head.
By the way, Amazon’s now-iconic brand name was not Bezos’ first choice. It was initially incorporated as “Cadabra,” as in abracadabra. But that sounded too much like “cadaver.” Then came a suggestion he really, really, connected with: “Relentless.” How perfect that would’ve been! But wiser heads prevailed. So Bezos finally settled on Amazon, noting with typical modesty that the mighty Amazon River is the largest, most powerful river in the world—literally a force of nature.

also kind of interesting how this/Mr J's concept of FIre is starting to 'bubble up' here n there - esp when the writer/publisher types start to really focus on whats happening (esp when it starts happening to THEM, eh mr don? ;)

never mind when ole wallywhirld - "the beast of bentonville" - is now considered the 'old model' - and how the 'new model' is being subsidized by sales taxes? (NOT collected)

seen on the above story/link:

Showrooming

Such ruthlessness is standard operating procedure at Amazon, which exerts it against any gazelle it chooses to eliminate. Small retailers everywhere are experiencing an ugly practice dubbed “showrooming.” For example, John Crandall, owner of Old Town Bike Shop in Colorado Springs, has seen a surge of shoppers who come in, check out the bikes he sells, ask a lot of questions, try out some bikes—and leave without buying anything. Then, some days later, they’ll show up at the store with the parts for a new bike and ask Old Town to assemble it for them! These shoppers have used their smartphones in Crandall’s store to scan the barcode of a product they like and then gone online to buy it from Amazon at a discounted price—lower than Crandall’s wholesale price.
Amazon’s new smartphone, called Fire (apparently meant in the sense of “shoot to kill”), is specifically designed to make showrooming fast and easy. Amazon has even offered $5 rebates to shoppers who scan items at stores, then buy them from the online brute. This is corporate murder. After 38 years in business, Old Town is hanging on, but it’s endangered. Crandall employs 11 people, pays rent and local taxes, supports all sorts of community events and is fully involved in Colorado Springs—a place Bezos couldn’t care less about.

Monopoly, For Real

Producers need the marketplace, the marketplace needs products. You’d think this would be a felicitous, symbiotic relationship, but when the market grows into a virtual monopoly, the monopolist can turn on suppliers with a vengeance. Amazon has done precisely that to book publishers. While Amazon’s fight with international publishing giant Hachette has been well publicized, it’s medium-sized and small publishers who are especially vulnerable. They don’t have splashy marketing budgets, so they’re largely dependent on access to the buyers coming to Amazon’s online market.

but ya really ought to read the whole thing - i'd repost all of it, but methinks the 'main st view' (vs wall st's) should get their share of the cliks/hits

of particular interest is the 'close to home' inset piece at the bottom - this is quite illuminating reading (which eye always appreciate, mr don)

[don]

Re: The Everything Store

One of the great young folks working for me at Amazon WAY back in the day is now in a fairly senior position within the company.

In the last week he's met with 3 members of congress.

Wonder if the Washington Post came up

[lakedaemonian]

Re: The Everything Store

Bezos purchase of a major newspaper, located in the regulatory nerve center of the nation, becomes a bit clearer, day by day . . . .

One of the great young folks working for me at Amazon WAY back in the day is now in a fairly senior position within the company.

In the last week he's met with 3 members of congress.

[don]

Re: The Everything Store

Bezos purchase of a major newspaper, located in the regulatory nerve center of the nation, becomes a bit clearer, day by day . . . .

[don]

The Everything Store

Selling as Hard as He Can

By MICHIKO KAKUTANI

THE EVERYTHING STORE

Jeff Bezos and the Age of Amazon


By Brad Stone
Illustrated. 372 pages. Little, Brown and Company. $28.

Amazon.com was named after the Amazon River, the largest river on the planet (by volume). According to Brad Stone’s absorbing new book, “The Everything Store,” some of the other names its founder, Jeff Bezos, initially considered were “MakeItSo.com” (after the command used by Captain Picard on “Star Trek: The Next Generation”), “Awake.com,” “Browse.com,” “Bookmall.com” and “Relentless.com.”

“Relentless” is certainly the perfect adjective to describe the company’s growth, and the tenacity with which Mr. Bezos has executed his vision: to use the web’s infinite shelf space to create what Mr. Stone calls “the merchandiser’s dream of the everything store — a store with infinite selection.”

Amazon started out modestly as a Seattle-based online bookseller in 1995: It was so small that every time someone made a purchase, Mr. Stone writes, “a bell would ring on Amazon’s computers, and everyone in the office would gather around to see if anyone knew the customer.” In 2012, its 17th year of operation, Mr. Stone reports, the company “cleared $61 billion in sales,” and it will probably become “the fastest retailer in history to surpass $100 billion.”

Amazon survived early prophecies of doom; branched out into selling music, movies, electronics and toys during the dot-com boom of the late 1990s; and made it through the dot-com bust of 2000 and 2001. After mastering “the physics of its own complex distribution network,” Mr. Stone notes, it expanded into selling jewelry, clothes, sporting goods, automotive parts and just about everything else, becoming the Internet’s top retailer and a leading platform for third-party sellers. The company would go on to revolutionize bookselling with its Kindle e-reader, even as it also positioned itself as a cutting-edge technology business, selling basic computer infrastructure like storage, databases and raw computing power; according to Mr. Stone, customers of Amazon Web Services include start-ups like Pinterest and Instagram, larger companies like Netflix, and divisions of the United States government, including NASA and the C.I.A.

Mr. Stone, a senior writer for Bloomberg Businessweek and a former reporter for The New York Times, tells this story of disruptive innovation with authority and verve, and lots of well-informed reporting. Although “The Everything Store” retraces early ground covered by Robert Spector’s 2000 book, “Amazon.com: Get Big Fast,” Mr. Stone has conducted more than 300 interviews with current and former Amazon executives and employees, including conversations, over the years, with Mr. Bezos, who “in the end was supportive of this project even though he judged that it was ‘too early’ for a reflective look” at the company.

“The Everything Store” does not examine in detail the fallout that Amazon’s rise has had on book publishing and on independent bookstores, but Mr. Stone does a nimble job of situating the company’s evolution within the wider retail landscape and within the technological revolution that was remaking the world at the turn of the millennium. He gives the lay reader an understanding of how Amazon was able to outmaneuver the already established book chain Barnes & Noble, and how it’s been able to grow and mutate and take on Internet giants like eBay and Apple.

Mr. Stone also provides a dynamic portrait of the driven and demanding Mr. Bezos, going so far as to track down his biological father, Ted Jorgensen, a former circus performer and unicyclist, whom Mr. Bezos hadn’t been in contact with for decades.

Two of Mr. Bezos’s basic principles are putting the customer first and thinking for the long term. Mr. Bezos and his lieutenants reasoned, Mr. Stone writes, that “lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site,” which “allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website,” which, in turn, led to greater efficiency and the possibility of lowering prices even further. At the same time, improving the customer experience — whether through deep discounts or free shipping — would lead to word of mouth, which would take the place of costly advertising.

One-click ordering allowed customers to purchase things with the single press of a button. Other initiatives, like offering a 40 percent discount on “Harry Potter and the Goblet of Fire” and express delivery, cost the company money, but, as Mr. Bezos saw it, helped to build customer loyalty. The introduction of Prime membership — which cost $79 per year, and provided free two-day shipping — similarly seemed to make little sense in terms of the immediate balance sheet, Mr. Stone says, but eventually justified its existence, turning “customers into Amazon addicts who gorged on the almost instant gratification of having purchases reliably appear two days after they ordered them.”

But if Amazon aspired to reduce friction for customers, Mr. Stone suggests that it remained a high-friction place to work. He describes the in-house culture as “notoriously confrontational,” and writes that because managers in departments of 50 or more people are required to “top-grade” their subordinates along a curve (and dismiss the least effective performers), “many Amazon employees live in perpetual fear” of termination.

Whereas other Silicon Valley companies like Google offer their employees lavish perks like free food, office gyms and day care, Amazon was known for its extreme frugality. In the late 1990s, Mr. Stone reports, a new executive “cut a rare office perk, free Advil, which he viewed as an unnecessary expense,” setting off “a near insurrection among employees.”

Manufacturers and retail rivals also became well acquainted with the sort of hardball that Amazon played. Small publishers dependent on Amazon sales of their back catalogs — and called, perhaps jokingly, sickly gazelles to Amazon’s cheetah — were pressured for better terms, Mr. Stone reports, while shoe brands like Nike and Merrell worried that Amazon was a “dangerous discounter” that would “very likely consign their new in-season products to the bargain bin in an effort to garner new customers and gain market share.”

As for rival e-commerce sites, some found themselves struggling to survive in the face of Amazon’s ferocious price-cutting. A New Jersey company named Quidsi, known for its website Diapers.com, Mr. Stone writes, was essentially forced into selling itself to Amazon after the introduction of a new service called “Amazon Mom,” with a “Subscribe and Save” program that drastically discounted diapers — at a huge immediate loss for Amazon, but with the achieved goal of “neutralizing an incipient competitor.”

What lies ahead for Amazon? Mr. Stone says he thinks that it’s likely that antitrust authorities will eventually “come to scrutinize Amazon and its market power,” but adds that the company has become “a masterly navigator of the law and is careful to stay on the right side of it.” He also predicts that Amazon might one day use 3-D printing (an evolving technology “in which microwave-size machines extrude plastic material to create objects based on digital models”) to print merchandise in its fulfillment centers, and that it will most likely introduce a mobile phone or an Internet-connected television set-top box soon, so that it can offer its services on all the connected devices its customers use.

The relentless Mr. Bezos, this book concludes, is not content simply to make Amazon an “everything store” but ultimately envisions “an everything company.”

[vinoveri]

Re: Can Someone Please Explain the Amazon Business Model???

good point. amazon appears to be taking over the world. I just ordered a heavily discounted 25 lbs pail of pool chemicals - and I get free 2-day shipping with Amazon Prime. For many years now I thought the business model was a customer grab on the way to effective monopoly dominance with losses up front (like a heroin dealer who gives away product). They continue to innovate and expand.