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 : Internet Analysis - Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Reginald Middleton who wrote (54)	2/2/1999 4:20:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 419

Reginald, if you think about it you will see that the only way this scheme can work is if sales are increasing at a significant pace. Let me illustrate this. Suppose that variable costs (on a cash basis) are 105% of sales, and that all of those costs are paid in the next period, but all of the sales are converted to cash immediately. Then, sales would need to expand by 5% per period to just maintain a cash neutral position. If growth slowed below this point the firm would be in negative cash flow (neglecting the interest earned on the float). I am surprised more people are not concerned that their biggest competitor just bought the nations largest distributor which happens to supply 60% of AMZN'z books. I presume you are talking about BKS purchase of Ingram. Yes, you are correct that this represents a threat, but not in the way you perceive. Ingram sells to AMZN, and so long as AMZN is able to fund its liabilities BKS will make a considerable amount of money from the internet indirectly. So, to keep the pressure on, BKS has teamed ip with Bertelsman to generate barnesandnoble.com. This effectively prevents AMZN from raising prices, and since Bertlesman is a publisher (owns Random House and other publishing companies) with a formidable European retail presence, AMZN selling books at discount will create huge earnings for Bertelsman and BKS. I believe that AMZN is probably the worst example of how a business can profit from the interenet. The reason is simple. Customers buy one item at a time, so AMZN must maintain a huge number of SKUs. This requires people to unpack books and repack books, address parcels, etc. These are labor intensive activities. Wholesalers will be unwilling to take on these functions (they are essentially retail functions) without compensation. So the fact is that the internet bookseller saves only on the cost of the fancy retail store, but still must maintain efficient warehousing and distribution centers. TTFN, CTC