Michelle, I guess we part company on this. Simply because a company buys SCM software does not make it an infrastructure play. Frankly, I couldn't care less about the nuts and bolts of how a company is put together. The basic allure of e-commerce is that it holds the promise of significantly decreasing fixed-costs through a combination in reduction in investments in stores, improved efficiency in inventory management, and a more attractive product because of pricing. Basically, it is a catalog operation modernized to take advantage of cheap and efficient multidirectional communications made possible by the internet. Fine.
Now show me how the supply chain actually works. Show me how this system reduces inventory held by the retailer. If it does, then you can expect shortages which translates into upset customers who wait extended periods of time. If it doesn't, then that translates into either significant inventory levels or increased costs due to small order purchasing. Finally, I saw a picture in the Seattle PI of the CEO of AMZN helping to pull orders together. And do you know what he used? a shopping cart (a physical one, not a virtual cart!).
Now show me the money! Show me where there is the possibility of an excess of revenues over variable costs, and then I will get interested. But as Christopher pointed out in a previous post, as soon as they do that they will be squeezed by the real powerhouses, like BKS, who controls Ingram. And make no mistake about it, Ingram will be a major beneficiary of this business.
All of this is in stark contrast to Dell. Why? because Dell has a limited number of parts that it requires, and a highly automated assembly system. I don't know how many parts Dell requires for daily operation, but I can't imagine that it would be more than a few hundred. By comparison, AMZN requires tens of thousands. Secondly, the fungible nature of the computer makes this possible (this was your argument some months ago, and I still think it is a brilliant observation), but books are not fungible. If the local bookstore is out of Martin Chuzzlewit (the greatest novel ever written!) I am not likely to buy The Vampire Chronicles. Dell provides value to customers through virtual integration. But that kind of thing is impossible for retail customers. Why is buying Martin Chuzzlewit from Amazon a better idea than buying it from Barnes and Noble if the prices are identical?
Finally, my actual experience tells me Amazon is a poor investment. Back in the summer I ordered a book from them that had not yet been published. When the book arrived (in September), I found that it was not the edition that I ordered, and it was mispriced to boot! I called, and they straightened the situation out -- or so I thought. Last week I received a notice that the book I ordered (the order had actually been cancelled months before) had been shipped. Yet another call to them, and they reversed the charges on my credit card.
If you are looking at infrastructure plays buy into ASND or CSCO or COMS. If you want software used by these companies there are any number of web page designers, SCM companies etc. But buying the retailer to me is crazy.
Check out costco.com
But then, what do I know?
TTFN,
CTC |
