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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 244.41

+0.6%

Nov 7 3:59 PM EST

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To: chucke who wrote (11038)	7/21/1998 1:04:00 PM
From: Rob S.	Read Replies (1) of 164684

Amazon.com is already spending 22.3% of sales on advertising and promotion (last qtr.). This new promotion will cost them more than what they will make on shipping and handling charges and will reduce their overall margins. Take it as early recognition that price competition is very important and that it will eat into Amazon's future profits - the profits many analysts and investors dream about to justify the astronomical stock price. Again the basic formula that many analysts have bought into is flawed; that by focusing on increased sales, in this case similar to tactics used by bulk mail retailers, Amazon.com is "buying" into protectable internet "real estate". Whereas mail programs tend to work because the only alternative to buyers were retail stores, internet users have easy access to comparative prices and suppliers. Sure, Amazon can get me to buy some stuff if they lose money on the introductory offer but I will go to a deep discount vendor when I want something that is not included in the special deal. This is similar to the way that the internet is influencing stock brokerages and investmetn information services; the deep discount brokers have flourished while the full-service brokers have grown their internet counterparts much more slowly and have had to adjust their pricing structure because of the increased pricing pressure. One argument is that Amazon.com can offer more information and better service than deep discount oriented e-tailers will be capable of. That is probably true. But just as many investors have two or more brokerage accounts - often one to gain access to analysis and reports and the other to do the bulk of their trading at deep discounts - the bulk of internet buyers will purchase from the source that gives them the most competitively priced product. And new inet brokers have flourished that offer "something in the middle" between ultra deep discounts and more in-depth service; E-Trade and Schwab have grown rapidly.

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