Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Jack T. Pearson who wrote (31150)	12/25/1998 3:42:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

Amazon originated their business model as a 100% on-line company. They planned very carefully how to take maximum advantage of the Internet and computer systems to minimize costs and maximize service. Jack, We are in total agreement. I still find it easier to find what I am looking for at their site than at the sites of competitors. I bought three books from Amazon two weeks ago. I emailed them that I got them a day later than I expected and they replied within 12 hours, apologizing and giving me a refund for shipping. I thanked them and they even responded to some of my comments in my thank-you message. I don't think Amazon copied their business model from another company. I agree here too. I have no problem with the technology and the customer service Amazon provides. By the way, Bezos started by listing 20 businesses that would have a distinct advantage by operating exclusively on-line. Books was what he chose to begin with. There is was small problem here that I suspect Bezos did not account for properly. This is not an insult to his ability because he sure has made his company consumer friendly and has made a big name in a small amount of time. The cost of fulfillment in the book business which consists of the labor to place the book on the shelves, pull the books from the shelves when ordered, box them, attach the mailing label and sort them to go on the correct UPS truck is more that the gross margin on the sale. This is not a fixed expense. As sales grow, so will the need labor, number of boxes, etc. There has not been enough data in the 10Qs to determine if this is true with music and video. The "brick and mortar" store still must stock their shelves which takes labor. However, the customer without even thinking about it, does the fulfillment for free. They look over the shelves,pick the books and take them to the cash register where they are paid for and placed in a relatively inexpensive back compared to a shipping box. I am not going to go out on a limb and say that Amazon can't possibly survive. There are solutons to this problem but not easy solutions. One is machinery to pull the books and pack them reducing labor. I have no clue what is available to do this. The second is to increase gross margins but I suspect that is difficult to increase them to a large degree in a commodity business. The third is to keep the book business as the lost leader that draws people to the site and hope theres people buy other higher margin products or other products that do not cost as much to fulfill. I am a not a mind reader. It is possible that Bezos was aware of this problem from day one and planned on books being a lost leader. My gut reaction says no but i clearly to not claim to know. In the meantime, a solution to get gross margins above fufillment costs is a must to ever turn a profit. Otherwise, as sales grow, losses will grow too. Glenn