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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Stephen who wrote (28635)	9/6/1999 11:16:00 PM
From: MeDroogies	Read Replies (2) \| Respond to of 50167

I'll take a quick crack at this... Basic microeconomics tells you that in a "perfectly competitive" environment, profits fall not TO zero, but actually to a level slightly BELOW zero. What creates profit are imbalances in supply and demand, and perceptions of the buying/selling public that creates these imbalances. In the short term, I agree that these business models appear to be unsound. HOWEVER, if you look at what most of these companies are trying to do, you realize they are engaging in near perfect competition....that is, brand building or differentiation marketing. This requires ALOT of cash. As a result, the initial business models appear unsound due to the lack of profits anywhere in the near future. What most are hoping for is that WHEN the shakeout comes, they will either be bought out, or even survive to take advantage of the imbalances that are soon to come. As low as the costs of entry appear to be, the costs are very high since entry requires aggressive marketing and support. Time will increase these costs, thereby exacerbating the supply/demand imbalances and eventually increasing profits. In the meantime, most venture capitalists are happy to finance these ventures because they expect 7 of 10 to fail (or be bought out), 2 to survive and be mildly profitable, and 1 to be a huge success. If they are lucky, the numbers are even more in their favor. This allows many companies to continue operations LONG after they should have been shuttered. In a sense, it is almost like a capitalist version of the Soviet model, in which companies where kept open despite losing money. The difference is that these companies will eventually be shuttered (if they can't prove they can make it). I, frankly, expect to see Amazon out of business in about 5 years. I might be wrong, but I just don't see how their model can work. They shun brick and mortar at all costs. Problem is, they have no assets to speak of, and no contracts or associations of any particular value AND no profits in the forseeable future. This is a recipe for disaster, especially since something like 85% of their revenues still come from books - and Barnes and Noble are now getting their act together. Other internets (AOL, YHOO, @Home) all have SOMETHING(s) of value, be it assets or valuable contractual arrangements. In the end, the companies that survive will be very profitable, since their costs will be very low, comparably speaking to pure bricks and mortar, and they will likely be highly diversified operations with very high brand recognition. I know you asked Ike, but what the heck....it's Labor Day weekend and I'm getting geared up for the new working week.