The problem I have is I have yet see anybody mention competition in this model because the expense of traditional retailing (B&N stores, etc) also keeps out competition, whereas anybody can set up a website early on. The fact that amazon is investing for the future is irrelevant to customers, they don't see it.
Good point that competition must be considered. But the lessons from these early days of e-commerce seem to show that the barriers to entry on the web are far higher than some expected. Doing e-business involves much more than just throwing up a web site. Customers do see the investments made by companies like Amazon or Go2Net, even though they may not know they're seeing it. When a book buyer gets just about any book they order in a day using cheap delivery methods, they may not know that they benefit from Amazon's regional warehouses, but they do. They may not realize that the prescient recommendations that they see on the Amazon site are the result of millions of dollars spent on data-mining computers and on the tech-expertise to develop the processes, but they do know that it becomes easier to shop on the site.
To bring this on-topic, GNET is impressive partly because they seem to recognize the importance of the technology behind the web sites they offer -- something that's ignored by too many analysts. Consider these snippets from GNET's boilerplate description of its business:
Go2Net offers ... a network of branded, technology and community-driven Web sites.... The Go2Net's Labs division develops innovative technologies to deliver its content and to enhance the attractiveness and utility of its product offerings.
This month's Wired magazine has an interesting article on barnesandnoble.com (not yet available online) that details just how difficult it is for a company -- even one with the name and resources of B & N -- to compete with a technologically savvy company like Amazon.com.
One can also find a good analysis of competition in the e-commerce sector from Keith Benjamin (http://www.internetstocks.com/). Here's an example from this week's report:
...Consumers are already choosing the higher quality shopping experience and reliable service they get from Amazon over purely low prices. In addition, as an increasingly diversified e-tailer, Amazon can use the sharply priced bestsellers as part of a loss leader strategy to generate more traffic to its site, collect more customer information, and drive greater sales from its multiple product categories. We feel the vertical eTailers and those with limited content offerings are the most susceptible to competitive pricing pressures. Finally, as Amazon diversifies its business model to include a larger percentage of higher margin fee-based revenues, we believe margin pressure from aggressive pricing could be alleviated. Our conclusion is that Amazon remains the best positioned eTailer and believe current weakness creates a compelling entry point for investors. |
