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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: FR1 who wrote (29027)	12/5/1998 4:10:00 PM
From: Rob S.	Read Replies (1) of 164684

Frank, your views are correct on many things, but I believe your thinking is at the other extreme of the pendulum - you don't see the longer term implications of price competition on the Internet. You understand the Internet as it is during this growth phase but still don't grok what it is yet to become. That's OK, you're up to par with most people's thinking and that's what important to the stock price. "Publishers deliver, at their expense, stock to Amazon's warehouses. AMZN pays nothing to the publisher until someone orders and pays for the title. AMZN sells stock to pubic at retail or at a slight discount. AMZN then pays publisher at a 55% discount to the retail. If publisher wants their stock back the publisher pays to have it shipped back. Lets see now - to make money you buy low and sell high. Let's take a $25 item. Buy Low (AMZN cost to acquire) = $0. Sell High = $25 - $11.25 = $13.75 profit. Even with a discount to the public you make money. Somebody please explain to me how this model is a money loser." The problem with the above is that this IS THE NORM for the book business - all competitors take advantage of the same supply dynamics. This model for supplying inventory up front and charging for it latter evolved because small book stores could not manage otherwise. Amazon.com buys 60% of their books from Ingram which is now owned by Barnes & Noble. With every supplier able to take advantage of the same supply and delivery dynamics as Amazon and the ease of competitive entry and comparison shopping greatly facilitated by the web, the outcome will eventually be devastating price competition. Amazon.com won't have the profits many nearsighted ANALS project, IMO. For the next year or so, the force is with you. But in relatively quick order as far as new market develops go, price competition will prove to be an over-riding factor.

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