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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: Rob S. who wrote (52539)4/24/1999 2:18:00 PM
From: Al Chechatka  Read Replies (4) of 164684
 
Margins of the Auctions. Let me give you a lesson on margins, one that I learned from my own experiences. I used to sell prepaid phonecards in Florida when they first came out. I had the lowest rate in town and I was making a small fortune. My margins were 70% when they came out in '93. Then competition hit the streets and my margins fell fast and furious and by '95 they were down to 10%! Even though my retail level went up 5 fold, my profits actually went down because of the competition. I eventually took my business overseas to travelers coming to the US. That market too became saturated.

My point, auctions are commodities. The market will grow to 30-50 billion by 2003 just like phonecards did from '93 to '99. But the margins came down so much and the consumer has the best deal. When I first sold them, my rate was $.50 per min, now it's $.05. Same thing will happen with the commissions the auction houses make on transactions. If you can sell your product on one site and they charge you 10% and another site that has grown by leaps and bounds and only charges 5% and then 2%, then .5%. It will happen, because it is a commodity. That is why Ebay came under pressure when AMZN announced they were doing it. There will be hundreds of auction sites. Some big, some small. The ones that survive are the ones that are like the $.05 per minute phone card...No margins, high volume.

Al C.
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