Yogi, all book lovers,
"Stop me before I have to build another bookcase..."
How about building a book business? "For about the cost of one share of Amazon.com, you can be Amazon.com." And we thought the barriers to entry in the DD business were low!
Read on:
Friday, February 26, 1999
Copyright 1999 The New York Times
FOREIGN AFFAIRS / By THOMAS L. FRIEDMAN
Testifying before Congress Tuesday, Alan Greenspan wouldn't exactly come out and say that there
was a little irrational exuberance behind some of the Internet stocks, but he said these share prices had
reached levels that gave him "concerns."
Well, if you really want to be "concerned" about the levels of some of these profitless Internet stocks,
such as Amazon.com, you should pay less attention to Mr. Greenspan and more attention to what's
going on in a small house in Cedar Falls, Iowa.
There, a single Iowa family, headed by Lyle Bowlin, is re-creating Amazon.com in a spare bedroom.
I tell you this not because they're an immediate threat to Amazon.com, but to underscore just how
easy it is to compete against Amazon.com, and why therefore I'm dubious that Amazon and many
other Internet retailers will ever generate the huge profits that their stock prices suggest.
Lyle Bowlin is the director of the Small Business Development Center at the University of Northern
Iowa. He is also a book lover. But having grown up in small Iowa towns, he has always regretted that
he never had access to a good independent bookstore, with lots of titles. When the Internet and
Amazon.com came along, said Mr. Bowlin, "I realized that in my spare time I could create a virtual
independent bookstore."
So first he set up a commercial Web site -- www.positively-you.com. Then he contacted the very
same book wholesalers that Amazon.com uses and discovered something interesting -- that to get
virtually the same volume discounts that Amazon.com gets, all he needed to do was order five copies
of any particular book.
The other accouterments were just as cheap: He pays an Internet service provider, ACES, $30 a
month to house his very colorful Web site, and $30 a month to Americart to enable people to charge
books on their credit cards over a secure server line. He pays his bank $50 a month to manage the
credit card transactions, and has $40 a month printing costs, largely for his own monthly book
newsletter.
"I have no employees," says Mr. Bowlin. "My daughter does the accounting, I maintain the Web site
and my wife does the shipping. Altogether, I only need to generate $150 a month in profits to cover
all my expenses, and the rest is cream."
Once he was set up for business, Mr. Bowlin just spread the word among his neighbors, colleagues
and friends that not only could he offer them everything Amazon.com did, but he could do it cheaper
and make a profit from day one. He now has customers from 23 states and Canada. It is funny to go
to his Web site and see it offering "Millions Of Books At Great Prices," knowing that it is all being
done out of his spare bedroom -- as a hobby!
Here's the deal: Amazon.com offers "The Testament," by John Grisham, for 30 percent off retail
($19.57), plus $3.95 shipping and handling. Mr. Bowlin sells it for 35 percent off ($18.17) and $2.75
shipping and handling -- $2.60 less. How? Like Amazon, Mr. Bowlin buys "The Testament" from
the wholesaler for 44 percent off retail, but since he has no overhead or advertising budget he can sell
it for 35 percent off. He can deliver the book through the U.S. Postal Service within three days for
only $1.63, so he makes $1.12 more on shipping for each sale. Total profit: $3.65 per book. Plus,
says Mr. Bowlin, "when you charge a book, I collect your money within a few days from Visa, but I
don't have to pay my wholesaler for that book for 30 days, so I have a free loan which I earn interest
on -- just like Amazon."
Because his profit margins are razor-thin, Mr. Bowlin, like Amazon, needs repeat buyers. Amazon
gets them by offering useful information about books. Mr. Bowlin does it by offering any
government-certified nonprofit organization a donation of 10 percent of the purchase price of any
book that any nonprofit or its members buy through him.
So the next time your broker tells you that this or that Internet retailing stock is actually worth some
crazy multiples, just think for a moment about how many Lyle Bowlins there already are out there,
and how many more there will be, to eat away at the profit margins of whatever Internet retailer you
can imagine. It only costs them $150 a month and they can do it as a hobby! Or think about it like
this: For about the cost of one share of Amazon.com, you can be Amazon.com. |
