Comment by tptacek | Hacker News Reader

Comment by tptacek | Hacker News Reader

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This is a bell Matt Yglesias at Slate has been ringing for the last year; specifically, Amazon is financed by the public markets to an extent no other retailer is or can be (look at their P/E), enabling them to compete at a loss against established businesses. People like Charlie Stross ding Amazon for its predatory marketing in the media industry, assuming that it's part of a plot to dominate the market and collect rents.

Yglesias has an even more sinister theory: that there's no real rhyme or reason to Amazon's strategy, that it's acting on the assumption that having beaten the market into submission there will somehow, in some way, be a way for Amazon to capitalize on the resulting chaos --- but that it's equally likely that Amazon will itself crater, having destroyed everyone's profits in the process.

I like Amazon (we're Prime subscribers), but I have to bear that in mind every time I prepare myself to complain about Wal Mart (which I do not like).

In any case: it's close to impossible for a small-scale retailer to compete with Amazon once Amazon decides it's competing.

Most of amazon's business is profitable last I checked. The losses come from write downs and investments, but they aren't strictly operating in the red. The business they've built right now is sustainable just as it is.

Sure; the issue is that the outsize valuation they receive in the market gives them enormous leverage to compete at (or I suppose near) a loss; they simply have more opportunities to buy market share than other companies. As Yglesias would have it, it's as if the public markets are paying for Amazon to buy up that market share even without any coherent plan for how to profit from it.

The issue Yglesias seems to have with that is that the market can profit from volatility even if, over the long term, Amazon's actions are a net negative for the larger economy, and would fail without their intervention.

I don't know how much of that I buy. I'm just pointing out the hugely privileged position Amazon has.

The margins in warehousing were razor thin to begin with, Amazon simply mops up the profits of what many smaller players would make in aggregate but does so more efficiently due to its scale.

Its like grinding in poker, once your bankroll is much bigger then all the other players combined it is a forgone conclusion that you'll win it all if you play correctly.

This sort of thing is inevitable and why you have Walmart and Tesco for example. Mature industries settle around a few outsized players.

Royalty clubs like Amazon Prime are obviously the end game. They won't go broke, they'll become the single most important account for many millions of households.

Meh. Where are the tears for all the mom and pop ISPs who can't afford to blanked a city in fiber? How will they ever compete with market funded google? :)

For some reason I don't want to like what you've written. I up voted because I agree with you.

Amazon sells stuff for more than they pay for it or as they say product profit. But it costs lots of money to sell that stuff warehouses, servers, people after you back out those costs they barely make any money at all. After costs Amazon make less money per $ sold than the wal-marts of the world.

Claiming that "there's no real rhyme or reason to amazon's strategy" doesn't seem right, since amazon is considered great at strategy(and yglesias is the wrong guy to claim it, he's not a business expert and he's been criticized before about being out of his depth).

As i see it , their strategy is simple: identify the points along e-commerce where monopolies/quasi-monopolies can be formed and control them.

So they try to control the customer, the data, the warehouses, the marketing(the digital experience), the volume and now the financing.

My guess is, due to all those, e-commerce's end-game is a winner takes most market.

If they'll have monopoly powers, destroying everybody's profits(and everybody) wouldn't matter much. At that point amazon could increase prices and profits.

I'd be more focused on the personalization database Amazon is building/has built. There will be a market for "I need it now" but the larger opportunity is answering the question, "What do I need?"

Luckily for smaller businesses, they can compete with Amazon and other big box retailers on that front, but they're still learning how to use/leverage the tools the big guys have been using for years.

I'd never looked at AMZN before, but now I have it makes me giggle. No dividends, no history of dividends, a P/E of 124 as I type and currently just-about at an all-time peak. Just how big are they intending to grow?

This is one I will definitely leave for the smart investors.

For reference, Amazon does about 10% of the business of walmart. So 10x bigger seems a reasonable goal.

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