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

AMZN 221.24

-0.6%

Dec 17 3:59 PM EST

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To: llamaphlegm who wrote (28955)	12/5/1998 12:52:00 PM
From: Rob S.	Read Replies (1) of 164684

It is human nature - and the power of money - for people to focus almost solely on the sector's growth during the growth phase of the Internet market's development. That fact has been made over and over again as the Internet stocks soared to new heights - some would say to heights of total lunacy. People who are buying into a dream don't want to get a total understanding of the competitive forces that will eventually cause profit expectations, and therefore the stock price, to come down to earth. What most fools don't understand is that these competitive forces are as inevitable as the rain that falls from the clouds. It is part of the Internet's economic "system". IBM Commercial Research group used the same heavy metal computers that are used to model such complex systems as weather to model the growth and evolution of the Internet. They had lots of years of experience with other business system models but they built in such factors as ease of competitive entry, ease of finding products, development of "Shop Bots" and other factors unique to the Internet. What they found doesn't surprise me and is already starting to show up in the news and statistics: Ecommerce will grow very rapidly but within a relatively short period of time competitive forces will drive down profit margins. Profit margins are expected to end up being squeezed LOWER than traditional retail - 1%-3%. Although the Internet enables incredible growth it unleashes even more dramatic competitive forces. This won't make sense to arrogant ANALS or they can just ignore it because it is not apparent to the ignorant investor. It won't become very apparent to the Internut investors until the Initial growth spurt starts to level off. When will the tremendous growth of ecommerce level off? We are now in the midst of the early acceptance (cult phase) of ecommerce. There are about 300 million PCs in use and a large number of those users worldwide have yet to buy anything on the net. Maybe 60% of them will end up buying more than one thing a year. New customers are being added as PC use grows, but the "PC Revolution" has been going on for more than 15 years and new users are not being added at the rate needed to sustain current Internet growth rates. If you charted this relationship you would se the B-school text book "bell curve - rapid growth during the introductory phase followed by a lessening slope during the early maturation phase. We are several years away from the top of Internet growth. My guess is that ecommerce will continue to be in the high growth introductory phase for 2-4 years. But the incredible ability for the net to spawn competition will start impacting earnings expectations in just a year or two. We see plenty of signs of that increased competition even now but the effect is pretty easy to ignore - few investors are focussing on profits and few analysts can foresee the inevitable conclusion or profit from admitting it.

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