True . . . the market went up on Wednesday because Greenspan hinted that a rate cut was likely but then pulled back when the reality of the international crisis hit home again. The announcement of a rate cut will have little effect on ZNMA.
The Bertelsmann announcement has much greater long-term impact on Amazongonenutty.com: biz.yahoo.com
Bertelsmann, by far the worlds largest publisher and direct-mail book club marketer, will side-step both Barnes & Nobel and Amazonstockisforimbaciles.com. They declined numerous overtures to partner with them, including talks with AMZN and B & N, and announced that their internet efforts would be independent.
Why is this important? Amazon does not make a single product it sells. It sells generic commodities that any e-tailer can get. It buys the majority of books and music from distributors and pays the distys a mark-up for their warehousing and delivery service. The stuff originates with book and music publishers, including Bertelsmann's Double Day and Random House titles who reap the mark-ups they want to charge the distys and retailers. It was rumored that Bertelsmann would cut a deal with AMZN or BKS to joint venture on their internet business. These guys have the guts, the bucks and the savy to get down in the trenches and wage competitive battle. Now that Bertelsmann is going to sell their's and other's books and stuff directly to the public, that cuts out the "middle-man" mark-ups. So much for Amazon's prospects for increased margins. If the picture for margins wasn't already dreary enough, it's going to get a lot worse (even Jeff Bezos has warned repeatedly that margins will go down in the future). The much trumpeted idea that Amazon has a somehow unique and superior business model that reduces the cost of selling stuff by reducing the need for "bricks and mortar" is ridiculous and contrary to reality (Bizzaro World thinking). Losses are increasing and competition has been increasing and now a whole new dimension of on-line competition is about to start: manufacturer direct sales. Just as has been the case in the computer industry, selling direct works. The infant IBM microcomputers of the e-tail world, Amazonequalsbiglosses.com, is goin to get creamed by the Dells of the book and music world, Bertelsmann and other direct publishers and manufacturers. The argument that Amazon.com has current market share doesn't work either: AMZN's market share has already begun to slip badly: relevantknowledge.com and the ONLY argument for the current high price is based on fantastic earnings expctations for 4-5 years out. Large margins and profits just aren't going to happen. Bertelsmann and other direct e-tailers will have a huge competitive advantage - they can sell books and stuff on-line at 15%-20% above what they will charge AMZN to re-sell them. Even if Amazon is able to reduce their 45%+ cost of sales and overheads in half, the prospects for significant profits, if any, is dismal. |
