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Comment by josh2600 | Hacker News Reader

Cool article, but I think the magic profitability button analogy ignores the underlying economic thesis of Amazon.

Right now, the only obstacle to Amazon's profitability is Walmart. If Walmart didn't exist, Amazon's pricing control supremacy would ensure they could operate at the lowest possible market price on every item, and as the market maker for product, they would control the cost floor as well.

In a sense, the end game for Amazon is this: it's fucking ludicrous to run a company without profit for years. At some point someone else is going to try to take more profits because of the volume pressure of Amazon. The end game for Amazon is choking all of the other retailers out of existence, IMHO.

They don't have to flip a switch, they just need to wait. They're playing the long game.

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All of which, ironically enough, was Walmart's original playbook: grow huge, realize economies of scale so drastic that nobody else can hope to compete on price, then use your size and buyer power to put even more downward pressure on supplier prices.

Amazon vs. Walmart is an extremely interesting battle to watch. Amazon has massive advantages in technology; Walmart has massive advantages in size, distribution, and logistics. Amazon is gaining a lot of ground in the US; Walmart is much stronger than Amazon internationally.

If I had to place bets, I'd take Amazon in the long run. They're much more forward thinking and are playing a much more strategic game. Walmart has become overly reliant on price leadership and has had a very hard time orienting toward the future of retail. The Innovator's Dilemma will catch up to it eventually -- but it'll take awhile, because Walmart is so damned massive and dominant right now.

Don't forget: All else being equal, Walmart takes a profit. That's why I'm bullish on Amazon from an economic perspective.

Culturally, I often wonder about the consumer value of monopolized markets.

Traditional economics holds that monopolies are bad for consumers. Essentially, this is because the monopolist can do whatever it wants, and the consumers have no alternative. The monopolist has no incentive to keep prices low, to innovate, or to improve its service level, because the consumer can't exactly go elsewhere.

These days, however, the threat of new entrants into any given market is much higher. Starting costs are drastically lower than they were when conventional microeconomic theory was being worked out. All things being equal, as a consumer, you still don't want a monopolist owning the market -- but the monopolist has to be somewhat cautious, for fear of disruption.

It seems highly unlikely that Amazon will ever operate a true monopoly over all categories of retail. Nor will the government (and competitive lobbying) allow it to get there. But an oligopoly is certainly possible.

(On a micro level, Walmart has basically functioned as a de facto monopolist in certain regions where it has virtually no competition. Those days are over, though.)

Monopoly profits, from the very beginning of capitalism, have always been necessary for significant investment. Micro textbooks are just wrong. For most businesses the supply curve slopes down, not up.

Walmart is much stronger internationally? They crashed and burned in Germany, and the map of their international locations is.. not very impressive.

Frankly, looking at the US map, as a non-american, even there their presence isn't particularly exhaustive. The USA just happens to be a big market.

Despite being a rich country, the US has a surprisingly wide wealth disparity. Walmart targets the lower end of that wealth gap. It seems that Walmart struggles in countries with a smaller wealth gap (at least w/r to local economics).

The US has a smaller income disparity than Germany...

Huh, on what scale?

http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...

I just hate people saying what-not about easily verifiable facts.

At your own link:

http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...

Citation? The OECD says otherwise (figure 4, Gini Coefficients for a number of OECD countries): http://www.oecd.org/els/soc/OECD2013-Inequality-and-Poverty-...

The US is on level with Turkey, only Mexico and Chile are worse.

http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...

I assume you meant the opposite ?

Nope.

The US disparity is equal with France and lower than that of Germany.

http://en.wikipedia.org/wiki/List_of_countries_by_income_equ...

Though the reason Walmart failed in Germany is most likely due to the strong competition by ALDI and Lidl and its effects on the competitiveness (and profit margins) of other German supermarket chains.

Walmart is huge in uk (asda) and china and Mexico. Amazon still is only really operating in a handful of European countries and just got into India.

Walmart is actually investing in startup ecommerce plays in brazil (where it has been established 40 years)

Amazon operates in China and Japan.

it's not number 1 though, which is hard for US to imagine ...

-http://www.4-traders.com/TESCO-PLC-4000540/news/Tesco-Market...

Walmart does $100B+ in revenue every year internationally, roughly accounting for 25% of its business. (For sake of comparison, Amazon earned ~$60B in toto in the year 2012). Walmart crashed and burned in Germany...and meanwhile, they basically own Mexico, large swaths of Latin America, have huge market share in the UK, do extremely well in China, etc.

So yes, I'd say that's significantly stronger than Amazon's international footing. Walmart has serious competitors internationally (Carrefour, etc.), and Amazon is barely one of them.

I'm as bullish on Amazon in the long run as anyone you'll find here. But even I have to admit that Amazon's international presence is one of its most glaring weaknesses, especially in specific juxtaposition to Walmart.

Walmart is quickly catching up on technology. It acquired bunch of startups recently and opened walmart labs in the valley. Their website also improved quite a bit in terms of recommendations and other services. I think they are improving quite a bit in this regard.

> The end game for Amazon is choking all of the other retailers out of existence, IMHO.

The trouble with this is that it plays exactly into the article's point. We can't disprove that Amazon will one day choke all the other retailers out of existence. We can always say, "tomorrow will be the day, just wait."

Meanwhile, Chinese factories are selling bicycle parts on eBay. Will WalMart fail but be replaced by manufacturers selling direct to end-users and disintermediate Amazon? I have no idea, but it's no less plausible than Amazon driving absolutely everyone out of business.

I'm not trying to debate eBay vs. Amazon, I'm simply suggesting that if we're talking "long games," there's a lot of uncertainties. Profitable companies are winning now.

Will WalMart fail but be replaced by manufacturers selling direct to end-users and disintermediate Amazon? I have no idea, but it's no less plausible than Amazon driving absolutely everyone out of business.

Seems unlikely, because the main reason to go to Walmart or Best Buy is to get the product the same day you want it, and also to see it in person before buying it. Amazon won't drive everyone else out of business until they offer both of those.

The expansion into same day shipping is happening. In terms if people who want to physically see the product, I don't think that is Amazons game. They are are better off giving up that market segment and the overheads associated with it. Same day shipping and no hassle returns is probably close enough for a lot of people.

Is amazon offering no hassle returns? How's it work?

I don't live in the US and have never made an Amazon return. I was under the impression though that they organised for a courier to picking the package from you, rather than you having to go and send it?

I have had UPS pick things up from house for an Amazon return before. I'm not sure whether it happens every time or not, or how that is decided. It certainly happens at least some of the time though. Really fantastic.

You box up the item using the original packaging, slap on a return label printed off Amazon's website, and drop it off at UPS (a box or a store). Item arrives back at Amazon, and your account is credited.

I've only done it once. It was a defective milligram scale costing in the low teen 2-digits, which arrived DOA. Taking a chance, I resubmitted my original order and dropped off the defective unit at the local UPS store. A couple of days later, I had a working scale and an account credited to reflect the purchase of one scale, net.

Returns though lockers. You don't like it, you bring it to a locker (ie 7-11 or college campus) and Amazon will eat the shipping fees.

I've never had a return challenged or refused, and I can immediately print out a shipping label. It's not entirely "no hassle", but it's the least I've ever had, and the only reason I've ever purchased "risky" merchandise (e.g., clothing) online to begin with.

Amazon currently plays a dual role; both a traditional retailer and a 3rd party logistics business, and they'll probably be quite good at both of those, see the kiva purchase for example.

I think they could probably beat ebay in this kind of game if they'll be interested.

There's a precedent of selling the product pretty much at cost and maintaining a profitable company. 80% of Costco's profits come from selling annual memberships, their product markups pretty much cover the costs of operating the warehouses, and yet even WalMart rarely beats Costco on prices

http://www.businessweek.com/articles/2013-06-06/costco-ceo-c...

Amazon is nowhere near the size of Walmart.

Bezos doesn't have an end game, he'll just keep driving growth until he gets sick of it. Then they'll get Steve Balmer to make the growth stop :)

In what market?

In cloud infrastructure I think it's safe to say Walmart is actually the smaller contender.

Over time cloud infrastructure could subsume all of retail, at least in theory. If that's the case wouldn't you rather own Amazon than Walmart?

I'm not implying this is reality, I'm just saying predicting future potential is not as simple as current Market Capitalization might imply otherwise IBM would own the NASDAQ today.

> Bezos doesn't have an end game, he'll just keep driving growth until he gets sick of it.

What is the 'end game' of Wallmart? I mean, don't most established companies just want to continually drive growth till they saturate the market, then reap?

Difference is walmart is actually making money, amazon isnt. So Walmart can continue what they are doing forever and thats ok, if it were clear that amazon intends to continue what they are doing forever investors would bail and the remaining investors would force amazon leadership out if possible.

As far as when the Amazon endgame starts, my guess is when they are doing as much business as walmart

Amazon is nowhere near the size of Walmart.

Walmart does ~500B in rev. Amazon did 61B in rev in '12 and is on pace for 72B-ish in '13.

I believe you're the one reading the strategy right. The fact they diversify a lot and squeeze revenue out of any by-product (AWS is an example, payments are another) might indicate that.

> They don't have to flip a switch, they just need to wait. They're playing the long game.

So.. why is that "fucking ludicrous"? Seems to me they're playing the Long Run Equilibrium game just fine: "In the long run, every competitive firm will earn normal profit, that is, zero profit."

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