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Thin margins are a sign of an efficient free market. Any long lasting large margin is a sign of a market failure.

Maybe Amazon is just really good at that free market thing.

I agree though that it's starting to be time they get a more viable competitor. I'm sure, however, that when they decide to actually try and make a profit instead of just grabbing market share, competitors will pop up. In the mean time, while they continue to operate at zero profits, basically as a charity to consumers, this is a win for efficient free markets and consumers (read everyone) in general.

There's a few other players trying to do similar things. The big box stores are getting better at their online fulfillment. Sears is famously going that route putting a bunch of brands together. No one has come up with the silver bullet to really eat into Amazon's market though, so time will tell.

> The danger is when you do well enough that Amazon takes notice, because if you're little slice of the industry starts to look too profitable, Amazon will come in and start selling in your category direct. And they're bigger than you and can do it on a smaller margin. Entire verticals can be consumed in a matter of weeks if Amazon decides to set up shop next to you. Amazon is really good at destroying the retailers that they helped in the beginning.

Retailers have been doing this to manufacturers for years with store brands. All large retailers analyze their sales data to find out exactly when a product has reached critical mass in popularity, then commission their own store-branded version.

The only difference here is that Amazon doesn't just have their own sales data, but that of everyone that uses their platform. So they can take it a step further and do this to other retailers in order to come up with an ideal SKU mix. Then they do what other retailers have done and start cannibalizing the manufacturer's margins by commissioning store brands.

Reminds me of the story of Snapper lawnmowers and Walmart: http://www.fastcompany.com/54763/man-who-said-no-wal-mart

Or Vlasic pickles:

http://www.fastcompany.com/47593/wal-mart-you-dont-know

Mmm...that's very interesting. Surely Amazon can't do this too much before eventually attracting the anti-monopoly lobby, or am I being naive?

Certainly in the EU. I am not sure about the Walmart situation though, since something similar is tolerated here (Germany) with the supermarket oligopoly.

Given their size, you can be certain that Amazon is being watched. It's possible they are already running afoul of the rules:

http://ec.europa.eu/competition/consumers/abuse_en.html

Probably "depriving smaller competitors of customers by selling at artificially low prices they can't compete with", since they offer insanely cheap shipping.

Apple iBooks lawsuit by the US government is relevant here. Book publishers and Apple made a deal to change pricing to an agency model, where the publishers dictate the price. The US government sued them on the basis of anti-competitive price collusion. This slapped Apple and let Amazon go back to it's race-to-the-bottom pricing. In fact the US government is right that Amazon's methods are the essence of a free market. They are just bad for every other player and lead to Amazon expanding it's market share and thus making Amazon more of a monopoly.

Very interesting twist.

It gets bad for consumers if:

1. Once Amazon has all the market it raises prices.

2. The price pressure on manufacturers, publishers, and other producers of goods causes those businesses to fail and stop making their products, or to produce lower-quality products.

The thing is, though (1) largely hasn't been broadly observed and (2) consumers should be able to dictate to the market whether or not they are willing to pay for quality.

3. Amazon gives preferential treatment to merchants using their auxiliary services. They already give preferential treatment to merchants using Amazon Fulfilment by writing off (at least some of) the bad merchant feedback caused by fulfilment issues. This effects customers (as well as merchants) because from the customers perspective failed fulfilment is the same no matter who does it.