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

AMZN 229.12

-0.2%

Nov 26 3:59 PM EST

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To: Sarmad Y. Hermiz who wrote (46467)	3/19/1999 11:16:00 AM
From: Rob S.	Read Replies (1) of 164684

Mostly sales. I think the analysts pay some attention to margins but in the past have been very willing to push out the expectations for improved margins and profits for the stimulation of higher sales. It is interesting to note that PlanetRX is giving away $10 with the first purchase at the site - very similar to DrugStore.com's sales tactic. These sites are very similar in all major respects except that DrugSore.com has the sponsorship of Amazon. What is also very interesting is that the prices at PlanetRX appear significantly lower than DrugSore.com. The rate at which price has become a major factor in e-commerce is greater than I expected. I didn't think it would be quite as important for another year or so. Now you have major companies, such as PriceLine who tout "pay your price" strategies or even offer products at cost in hopes of gaining enough ad revenue to make an eventual profit. That strategy may seem ridiculous to many but is similar in hoped-for result to what Amazon is about. It can make sense on a pro-forma spreadsheet if you figure that the new Internet media can target the 10%-20% promotional and ad budget that goes into the wholesale price of many products. What is unique about the Internet, (except if you consider QVC and other TV shopping channels), is that a significant portion of the ad/promo budget can be taken by the merchant (e-tailer). Give lots of product away at cost and get 10%-15% in ad and promo revenues. That makes sense on paper - as long as the efficiencies of the Internet and habits of the buying public don't change. But what if the tremendous efficiency of the Internet causes ad margins to decrease as well? Maybe it won't cost 10%-20% of a product's cost to sell it. What if that drops to 5%-10%? If that happens, and Internet marketers can only expect to gain a portion of that total, then their take may be only 3%-7% of the aggregate cost of the items sold. Not such a great thing for investors if the stocks are valued in the billions.

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