Article from Motley Fool:
"Not so simple is discussing Amazon.com (Nasdaq: AMZN). This
company's stock is up 400% from its $18 initial public offering that
took place one year ago. It seems that everyone has a strong
opinion about the stock, and so the discussion on our Amazon
message board, though good, is often heated. This week the
conversation is centering on a website called www.acses.com. At
this site you name any book that you're interested in buying and it
searches for the book on over twenty different online booksellers,
giving you the list of sellers along with prices and links. In this
manner you can find the best price for any book sold online.
Every book that I've searched for shows Amazon as one of the top
three cheapest sites. And, for me, Amazon is where I have 1-click
ordering in place, so it's much more convenient than going to a new
site that I don't know or trust -- not to mention Amazon's reliably
quick shipping. So on a book by book basis, I'm not going to worry
about saving a dollar or two if I need to use another service to do
so (having to give out personal information and credit card numbers
again for each new site). But, if I'm buying several books over time,
of course the savings could be substantial if I shopped around.
That's obvious. So websites like ACSE will certainly pressure pricing,
because all online book retailers know that their prices are being
compared to one another. In fact (and this is great for consumers),
the entire Internet will soon operate in this manner for all items that
are sold.
Anytime that you want to buy anything, you'll be able to do a quick
automated search of all relevant online sites for the best price.
Airplane tickets are already sold like this, as are books and several
other items. "Shop bots" are emerging all over the Web. These tools
search out the lowest prices for you, anywhere online, automatically
and quickly. So what does this mean?
This means that the Internet is going to be the place to buy almost
anything. E-commerce is going to be huge. Giant, even. No
holds-barred ENORMOUS. E-commerce will be the most convenient,
economical, and savvy way to shop in the world, and the majority of
the population will embrace it over the years ahead. I have no doubt
about this.
Due to the advantages that the Internet offers consumers, though,
retailing on the Web is going to be more price competitive than any
other retail environment. You can count on that, too. With books, I
believe that eventually all online booksellers will charge the same
low prices. Nobody will want to sell at a loss, though, so books will
be priced to sell at a small profit. Obviously, only the most efficient
retailers will be able to survive, because more efficient companies
will have lower prices and still make money where weaker companies
can't. Among the surviving retailers of books, the only distinction
between them will be the service and the name brand. (Arguably,
Amazon has the leading service so far, and the name brand.) The
margin on the sale of books will be razor thin, though, so the better
margin sales will have to come from advertising and from other
transactions (including referral transactions). Last September we
began to posit this in our Amazon buy report in the section about
virtual communities.
In the end, it's the traffic that counts. Retailers will need high levels
of traffic to produce other higher-margin revenue streams aside from
product sales. Bears see Amazon as a bookseller only -- a low
margin commodity seller. I see Amazon as a very popular Internet
destination. (If Amazon's management sees itself as only a
bookseller, I'd worry.) Amazon is a brand name destination that has
numerous possibilities for different revenue streams. Eventually,
books might even become loss leaders. Because for online retailers,
it's going to be the traffic that matters most (at least initially --
more on this in a minute), along with traffic-related advertising
revenue and value-added transactions that offer higher margins.
This is why America Online and Yahoo! are in such sweet spots, and
Amazon could be too -- if it can execute beyond book selling.
Viewing Amazon as one of the most popular Internet destinations on
the Web, we must ask: How can the company leverage this great
start?
How Amazon chooses to leverage its position will determine its
ultimate success and profitability. As for the retail business itself,
booksellers will succeed at the expense of other booksellers, until
eventually only a handful of leaders will be left standing and then
pricing might not be such an issue. After a shakeout, companies
might be able to make some money on book sales. (The pricing
competition won't be quite so fierce. Some little guy won't always
be undercutting you.) But efficiency and traffic are the first issues.
Who can attract the most people for the lowest cost, and thereby
charge the lowest prices? So far, Amazon has the market share by a
mile, so it's doing something right.
E-Commerce will be huge. Bigger than we could have imagined.
Eventually money will be made even in traditional retailing. In the
end, companies want to survive, and competition makes for
compromises. Don't expect any certainty in the next several years,
though. Expect competition, change, and shakeouts. And folks, this
is still entirely new. By being online, you and I are freaks. Most
people are not yet online. But eventually they will be. Eventually the
cost of not being online will overshadow the cost of actually buying
a computer and modem. The opportunity cost will be too great --
you'll have to be online. In fact, not too many years from now we'll
all wonder how we ever lived, as a society, without the Internet.
Talk about exciting! Now get out there and score that touchdown!
Or... wait. Fool on! "
--Jeff Fischer
P.S I buy all my books at Amzn! |
