On Amazon and world retail domination.
October 27, 2013 10:30 AM Subscribe
Ex-Amazon employee Eugene Wei on Amazon's "profitless business model" fallacy, and why the claims that Amazon is not profitable are fundamentally wrong. "If Amazon has so many businesses that do make a profit, then why is it still showing quarterly losses, and why has even free cash flow decreased in recent years? Because Amazon has boundless ambition. It wants to eat global retail. This is one area where the press and pundits accept Amazon's statements at face value. Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford." Wei also previously touched on this in Amazon, Apple, and the beauty of low margins.
Tech companies have an interesting ambivalence towards the public capital markets. They rebel against resource dependence theory because they don't believe their investors know how to run their businesses better than they do, but on the other hand, being public is a great boon to compensating knowledge workers who have a lot of job options.
This sounds much better than "it's fun to take the rubes' money," but does it actually mean anything different? It's a little disturbing how much of this piece seems to come from a sense of Olympian superiority, like the Silicon Valley in-crowd (or just "Jeff" and his friends?) knows things that the rest of the world, including the investors whose money they're happy to keep taking, doesn't.
Isn't this the same view that Wei is pushing?
Yeah, exactly. It seems to me like despite his claims, Wei is not actually contradicting any big myth, but just taking the same basic analysis of Amazon's business that everyone else subscribes to — like he says, all the basic facts are pretty obvious — and wrapping it in a different spin, one that attributes the soaring stock price to the brilliance of the company's management rather than either the hype or a surprisingly long-term outlook from its investors.
posted by RogerB at 10:54 AM on October 27, 2013 [1 favorite]
This sounds much better than "it's fun to take the rubes' money," but does it actually mean anything different? It's a little disturbing how much of this piece seems to come from a sense of Olympian superiority, like the Silicon Valley in-crowd (or just "Jeff" and his friends?) knows things that the rest of the world, including the investors whose money they're happy to keep taking, doesn't.
Isn't this the same view that Wei is pushing?
Yeah, exactly. It seems to me like despite his claims, Wei is not actually contradicting any big myth, but just taking the same basic analysis of Amazon's business that everyone else subscribes to — like he says, all the basic facts are pretty obvious — and wrapping it in a different spin, one that attributes the soaring stock price to the brilliance of the company's management rather than either the hype or a surprisingly long-term outlook from its investors.
posted by RogerB at 10:54 AM on October 27, 2013 [1 favorite]
Any time Amazon's aggressive business development practices come up -- particularly in contrast with the short term thinking that has characterized American CEOs since the 1980s -- I always think back to Pastabagel's classic comment about Sears' missed opportunity.
posted by George_Spiggott at 10:57 AM on October 27, 2013 [19 favorites]
posted by George_Spiggott at 10:57 AM on October 27, 2013 [19 favorites]
I first heard about Ingram when I started working in book publishing. The way bookstores work is they can order books direct from the publisher, or from a wholesale distributor. If they need a big load from one publisher, they can get good terms, but if they need a little of this and a little of that, they can save on shipping by ordering from Ingram. Ingram sells books at the same price they can be bought from the publisher. They have no profit margin. So how do they make a profit? They get better terms from the publisher. So the bookstore has to pay Ingram in 60 days, but Ingram doesn't pay the publisher for 120 days. Because of the huge volume they do, the interest from holding onto the money for 60 days makes for a huge income. I thought that was genius. I still think it's genius, just a sort of sick capitalist genius.
posted by rikschell at 11:06 AM on October 27, 2013 [6 favorites]
posted by rikschell at 11:06 AM on October 27, 2013 [6 favorites]
The key point that Wei is making is that Amazon does have a switch they can flip if they want to have huge profits. They just stop making the capital investments.
Thats where the difference is from other commentators.
posted by TheLittlePrince at 11:11 AM on October 27, 2013
Thats where the difference is from other commentators.
posted by TheLittlePrince at 11:11 AM on October 27, 2013
The key point that Wei is making is that Amazon does have a switch they can flip if they want to have huge profits. They just stop making the capital investments.
... and that is nothing more than a fundamental of good management.
posted by Ardiril at 11:20 AM on October 27, 2013
... and that is nothing more than a fundamental of good management.
posted by Ardiril at 11:20 AM on October 27, 2013
They just stop making the capital investments.
If Amazon does that, they die. Capital investments are what keeps them where they are today, otherwise everyone nipping at their heels will catch and overtake them.
posted by aspo at 11:20 AM on October 27, 2013 [2 favorites]
If Amazon does that, they die. Capital investments are what keeps them where they are today, otherwise everyone nipping at their heels will catch and overtake them.
posted by aspo at 11:20 AM on October 27, 2013 [2 favorites]
Profitless in the way that Star Wars never made a profit.
posted by sammyo at 11:29 AM on October 27, 2013
posted by sammyo at 11:29 AM on October 27, 2013
You have selected Supersaver free comment reading so I will post some idea what is going on in about 14-20 days from now. Then I will post in the wrong thread and five days after that I will post it in the correct one. It will arrive surrounded by excessive blank line padding.
posted by srboisvert at 11:46 AM on October 27, 2013 [7 favorites]
posted by srboisvert at 11:46 AM on October 27, 2013 [7 favorites]
otherwise everyone nipping at their heels will catch and overtake them.
Oh God if only there were actually companies nipping at their heels.
posted by incessant at 11:55 AM on October 27, 2013 [7 favorites]
Oh God if only there were actually companies nipping at their heels.
posted by incessant at 11:55 AM on October 27, 2013 [7 favorites]
Amazon = Buy n' Large
posted by blue_beetle at 12:25 PM on October 27, 2013
posted by blue_beetle at 12:25 PM on October 27, 2013
Amazon's strategy is not Jeff Bezos's stubborn dream, it is the strategy that its stockholders have demonstrated for going on 20 years that they want: revenue and market-share growth, always and everywhere. If Amazon were ever to show a string of more than a couple quarters where topline growth underperformed expectations but net income beat, the stock price would probably drop 75%.
That patient but insistent view of the investment world is not, however, the greatest ally. The greatest ally they have is the inability or unwillingness of the brick and mortar mass marketers to compete. The day ever title is 10% lower on Nook than Kindle, and Target.com will sell you the same stuff at 5% less price + shipping or 10% less if you waive the shipping and pick it up at the store ... that's going to be hard day. But they never have been willing to do so, although now I'm sure they wished they did 10 years ago when it would have been a lot cheaper.
posted by MattD at 12:31 PM on October 27, 2013 [3 favorites]
That patient but insistent view of the investment world is not, however, the greatest ally. The greatest ally they have is the inability or unwillingness of the brick and mortar mass marketers to compete. The day ever title is 10% lower on Nook than Kindle, and Target.com will sell you the same stuff at 5% less price + shipping or 10% less if you waive the shipping and pick it up at the store ... that's going to be hard day. But they never have been willing to do so, although now I'm sure they wished they did 10 years ago when it would have been a lot cheaper.
posted by MattD at 12:31 PM on October 27, 2013 [3 favorites]
Walmart never quite figured out how to exploit the Internet. I'll bet that by the time that regulators figure out that Amazon is a digital version of Walmart, Amazon will have eaten Walmart and become too entrenched in local economies (too important a source of tax revenue) to be constrained too much.
posted by Blazecock Pileon at 12:37 PM on October 27, 2013
posted by Blazecock Pileon at 12:37 PM on October 27, 2013
The key point that Wei is making is that Amazon does have a switch they can flip if they want to have huge profits. They just stop making the capital investments.
... and that is nothing more than a fundamental of good management.
No, it's called building a monopoly. The internet bubble let investors make money on amazon stock on speculation rather than earnings, which funded Bezos to undercut other players in various and sundry ways without facing investor pressure. The only difference between Bezos and the Rockefellers and Carnegies of the days of yore is that he has less blood on his hands.
Amazon is a digital version of Walmart
That's unfair to walmart, who actually have an innovative supply chain from manufacturers to consumers. Amazon is a crappy pre-2000 dot com which has largely cornered the internet general merchandise market .
Bezos is a hedge fund guy, not a retailer. He's built Amazon by exploiting the way business is financed in the US. Amazon is a triumph of financial wizardry but contributes little to the economy. In the end, having the internet doesn't make it any cheaper to sell books.
posted by ennui.bz at 12:45 PM on October 27, 2013 [4 favorites]
... and that is nothing more than a fundamental of good management.
No, it's called building a monopoly. The internet bubble let investors make money on amazon stock on speculation rather than earnings, which funded Bezos to undercut other players in various and sundry ways without facing investor pressure. The only difference between Bezos and the Rockefellers and Carnegies of the days of yore is that he has less blood on his hands.
Amazon is a digital version of Walmart
That's unfair to walmart, who actually have an innovative supply chain from manufacturers to consumers. Amazon is a crappy pre-2000 dot com which has largely cornered the internet general merchandise market .
Bezos is a hedge fund guy, not a retailer. He's built Amazon by exploiting the way business is financed in the US. Amazon is a triumph of financial wizardry but contributes little to the economy. In the end, having the internet doesn't make it any cheaper to sell books.
posted by ennui.bz at 12:45 PM on October 27, 2013 [4 favorites]
by the time that regulators figure out that Amazon is a digital version of Walmart...
I am interested in this vision of the future where we have "regulators." Is this from a Charles Stross novel?
posted by incessant at 12:47 PM on October 27, 2013 [14 favorites]
I am interested in this vision of the future where we have "regulators." Is this from a Charles Stross novel?
posted by incessant at 12:47 PM on October 27, 2013 [14 favorites]
I have to wonder what the profit margin on Amazon Prime is - how many people pay for it and rarely use it, versus people like me who use it ALL THE TIME, will limit searches to only Prime-eligible items, and often pay the extra $3.99 because I want something TOMORROW.
posted by mrbill at 12:52 PM on October 27, 2013
posted by mrbill at 12:52 PM on October 27, 2013
I am interested in this vision of the future where we have "regulators."
Regulatorsposted by mrbill at 12:54 PM on October 27, 2013 [4 favorites]
we regulate any stealing of orders
and we're damn good too
But you can't be any website
gotta be handy with the SSL if you know what I mean, earn your keep!
REGULATORS!!! LOAD UP!
Bezos is a hedge fund guy, not a retailer. He's built Amazon by exploiting the way business is financed in the US. Amazon is a triumph of financial wizardry but contributes little to the economy.
I didn't know that. Where can I learn more about this financial wizardry?
posted by Mike1024 at 1:39 PM on October 27, 2013
I didn't know that. Where can I learn more about this financial wizardry?
posted by Mike1024 at 1:39 PM on October 27, 2013
Amazon hasn't cornered anything. There is essentially 100% SKU overlap if you include only a handful of major competitors. Several of those competitors fund far cheaper (borrowing at very low interest) than Amazon can fund in the equity market. That those competitors choose not to be competitive, though price and price + convenience of in-store pick-up, is on them, not on Amazon.
posted by MattD at 1:43 PM on October 27, 2013 [2 favorites]
posted by MattD at 1:43 PM on October 27, 2013 [2 favorites]
When I had most of this post written, I started searching for articles analyzing Amazon's business model, and I found this fantastic post by Benedict Evans which already states much of what I've written above.
This is why you do your lit review first, not last =). And since he seems to have neglected a bibliography, here's the article in question, Amazon's Profits. And of course, The Innovator's Dilemma is a rather fundamental background reading pertinent to this discussion, which summarizes a lot of Harvard Business School research on sources of market failures, leading to phrases like 'disruption from below,' and who's introduction begins with a concise history of Sear's rise and fall. While published too late to claim credit as Amazon's inspiration, it does seem to have influenced a shit ton of tech startup middle management philosophy.
posted by pwnguin at 2:13 PM on October 27, 2013 [4 favorites]
The day ever title is 10% lower on Nook than Kindle, and Target.com will sell you the same stuff at 5% less price + shipping or 10% less if you waive the shipping and pick it up at the store ... that's going to be hard day.
Why wouldn't Amazon just lower their prices to match? They've proven willing enough to price match just about everyone else (although not always undercut them. I can usually do just as well on electronics by going elsewhere, but not better).
posted by It's Never Lurgi at 2:39 PM on October 27, 2013
Why wouldn't Amazon just lower their prices to match? They've proven willing enough to price match just about everyone else (although not always undercut them. I can usually do just as well on electronics by going elsewhere, but not better).
posted by It's Never Lurgi at 2:39 PM on October 27, 2013
Isn't ebay usually cheaper than amazon these days? You'll frequently spend less ordering directly form China though aliexpress.com, dx.com, etc. as well as many ebay sellers. Yeah, anything shipped from China takes bloody ages, but you'll feel better not feeding amazon.
posted by jeffburdges at 4:05 PM on October 27, 2013 [1 favorite]
posted by jeffburdges at 4:05 PM on October 27, 2013 [1 favorite]
> Isn't ebay usually cheaper than amazon these days
Depends what you're buying, surely. I just looked up a few things that I'd bought recently from Amazon on eBay and didn't see them for any less, and some of the eBay sellers looked like they might actually be buying things on Amazon and having it shipped to the eBay buyer. Maybe it's cheaper to buy electronics directly from eBay, but I mostly use Amazon for stuff like dish soap and office supplies and the occasional book.
(I feel I should say that Mr Corpse works for Amazon, and I do occasional work for them.)
posted by The corpse in the library at 4:19 PM on October 27, 2013
Depends what you're buying, surely. I just looked up a few things that I'd bought recently from Amazon on eBay and didn't see them for any less, and some of the eBay sellers looked like they might actually be buying things on Amazon and having it shipped to the eBay buyer. Maybe it's cheaper to buy electronics directly from eBay, but I mostly use Amazon for stuff like dish soap and office supplies and the occasional book.
(I feel I should say that Mr Corpse works for Amazon, and I do occasional work for them.)
posted by The corpse in the library at 4:19 PM on October 27, 2013
Several of those competitors fund far cheaper (borrowing at very low interest) than Amazon can fund in the equity market. That those competitors choose not to be competitive, though price and price + convenience of in-store pick-up, is on them, not on Amazon.
I assume you mean Wal-Mart, but I'm curious what other competitors you are referring to, with better funding than Amazon. Certainly Sears/KMart and B&N don't seem to be exactly swimming in cash these days. Target? It's a pretty short list.
That's unfair to walmart, who actually have an innovative supply chain from manufacturers to consumers. Amazon is a crappy pre-2000 dot com which has largely cornered the internet general merchandise market .
This is not the case, and it's certainly not the perception of people in the supply chain field currently. I recently had the opportunity to tour a Wal-Mart DC with a number of other SCM folks, and the general feeling seemed to be disappointment that it was WM and not Amazon. Wal-Mart seemed to be viewed as an innovator, past tense, but not necessarily innovative. The innovative stuff was happening, supposedly, at Amazon and its recent acquisitions (esp. Diapers.com, Zappos, anyplace with crazy Kiva robots basically).
Amazon's warehouse ops, comparatively, have a certain mystique about them, possibly because they aren't as open about showing off their DCs but also because they're just a generation newer. They have fewer hand-touches during pick-and-pack, and they don't have to split their focus between online-order fulfillment (individual items) and case-level store shipping. This latter thing is kind of a significant problem: W-M's DCs are for the most part set up to resupply their stores with full cases, with one destination store per outbound loading dock per shift, and the same equipment can't be used to process individual items that are getting boxed up for delivery by FedEx. One solution is to create a DC-within-a-DC separated by a fence (literally, a chain-link fence), which the main DC treats like a "store" and supplies with goods, which then fulfills the online orders. Either way, they end up with an extra step beyond Amazon, which doesn't have stores and can optimize itself completely for single-item picking.
More broadly, beyond actual warehouse management, I don't really see WM's and Amazon's supply chain philosophies as that similar. Yes, they both today sell general merchandise, but Amazon grew out of a bookstore while Wal-Mart originated as a discount retailer. Wal-Mart works with (arguably, coerces) its suppliers to bring costs down, and if it can't get a particular item at the price it wants, it'll obtain a substitute good from a different supplier at the price it likes better and ship that one, using its vast trucking fleet, to stores instead, knowing that consumers will buy it when it's on the shelf if the value proposition is right. That's very different from Amazon, which concentrates on wide availability of particular items. Bookstores don't really deal in substitute goods: if you want Stephen King, you're probably not going to just shrug and throw Dean Koontz into your cart if that's what happens to be on offer this week, like someone buying a lawnmower who picks up the Snapper instead of the Lawn-Boy. And I think that informs Amazon's whole approach to retail, which starts with selection and then tries to compete on price, vs Wal-Mart which starts off looking at price and then builds up a portfolio of items to fill a hypothetical shopper's cart.
An Amazon store, as often as it is put forward as "next step" for the company, would probably flop (unless it was solely a Kindle store, focusing on a select few items). They're not built to compete with Wal-Mart. But it's not clear to me that Wal-Mart is really poised to compete with them in the mail-order business either.
posted by Kadin2048 at 5:05 PM on October 27, 2013 [15 favorites]
I assume you mean Wal-Mart, but I'm curious what other competitors you are referring to, with better funding than Amazon. Certainly Sears/KMart and B&N don't seem to be exactly swimming in cash these days. Target? It's a pretty short list.
That's unfair to walmart, who actually have an innovative supply chain from manufacturers to consumers. Amazon is a crappy pre-2000 dot com which has largely cornered the internet general merchandise market .
This is not the case, and it's certainly not the perception of people in the supply chain field currently. I recently had the opportunity to tour a Wal-Mart DC with a number of other SCM folks, and the general feeling seemed to be disappointment that it was WM and not Amazon. Wal-Mart seemed to be viewed as an innovator, past tense, but not necessarily innovative. The innovative stuff was happening, supposedly, at Amazon and its recent acquisitions (esp. Diapers.com, Zappos, anyplace with crazy Kiva robots basically).
Amazon's warehouse ops, comparatively, have a certain mystique about them, possibly because they aren't as open about showing off their DCs but also because they're just a generation newer. They have fewer hand-touches during pick-and-pack, and they don't have to split their focus between online-order fulfillment (individual items) and case-level store shipping. This latter thing is kind of a significant problem: W-M's DCs are for the most part set up to resupply their stores with full cases, with one destination store per outbound loading dock per shift, and the same equipment can't be used to process individual items that are getting boxed up for delivery by FedEx. One solution is to create a DC-within-a-DC separated by a fence (literally, a chain-link fence), which the main DC treats like a "store" and supplies with goods, which then fulfills the online orders. Either way, they end up with an extra step beyond Amazon, which doesn't have stores and can optimize itself completely for single-item picking.
More broadly, beyond actual warehouse management, I don't really see WM's and Amazon's supply chain philosophies as that similar. Yes, they both today sell general merchandise, but Amazon grew out of a bookstore while Wal-Mart originated as a discount retailer. Wal-Mart works with (arguably, coerces) its suppliers to bring costs down, and if it can't get a particular item at the price it wants, it'll obtain a substitute good from a different supplier at the price it likes better and ship that one, using its vast trucking fleet, to stores instead, knowing that consumers will buy it when it's on the shelf if the value proposition is right. That's very different from Amazon, which concentrates on wide availability of particular items. Bookstores don't really deal in substitute goods: if you want Stephen King, you're probably not going to just shrug and throw Dean Koontz into your cart if that's what happens to be on offer this week, like someone buying a lawnmower who picks up the Snapper instead of the Lawn-Boy. And I think that informs Amazon's whole approach to retail, which starts with selection and then tries to compete on price, vs Wal-Mart which starts off looking at price and then builds up a portfolio of items to fill a hypothetical shopper's cart.
An Amazon store, as often as it is put forward as "next step" for the company, would probably flop (unless it was solely a Kindle store, focusing on a select few items). They're not built to compete with Wal-Mart. But it's not clear to me that Wal-Mart is really poised to compete with them in the mail-order business either.
posted by Kadin2048 at 5:05 PM on October 27, 2013 [15 favorites]
I assume you mean Wal-Mart, but I'm curious what other competitors you are referring to, with better funding than Amazon. Certainly Sears/KMart and B&N don't seem to be exactly swimming in cash these days. Target? It's a pretty short list.
Target has recently implemented online ordering with pick up at store locations for many of those items, within an hour. I'm sure that not every item they offer is available so quickly but they do still allow extra discounts during that order process if you use their credit card.
posted by JakeEXTREME at 6:50 PM on October 27, 2013
Target has recently implemented online ordering with pick up at store locations for many of those items, within an hour. I'm sure that not every item they offer is available so quickly but they do still allow extra discounts during that order process if you use their credit card.
posted by JakeEXTREME at 6:50 PM on October 27, 2013
I feel like a lot of analyses assumes that Amazon wants to be a store, but Amazon does not want to be a store, it wants to be a cybernetic mall/logistics company and is operating some of the stores in that mall itself for a time. I'm on the Prime and a decent number of things I buy are sold by third parties through Amazon's logistics.
Like humanities motherfuckers are on about Engineer's Disease, well, Amazon seems to me like a business model built on a successful channeling of it. There was another link on here about Jeff Bezos and there was a quote that the article didn't really pick up the implications of where they were applying "operating systems" and one other field to their warehouses. Basically the warehouse workers are human robots, their movements algorithmically determined & scheduled like your computer parcels out cpu time, memory, disk & network access to different components and programs. More critically, some kind of hyper-Taylorism. And then people complain that the jobs don't go anywhere and are temporary and it feels like well yeah, they clearly plan on replacing you with actual robots in about 3 years, not a job with a future.
It's like academics in CS will go on about how many items you can efficiently pack into a certain size box and problems like that. Amazon's ability to do it's locker service effectively relies on just that.
I don't like going in certain ordinary stores all that much, like I was in the flagship Bloomingdale's because someone was registered there and it was like DANGER YOUR ENVIRONMENT IS DESIGNED TO DISORIENT AND CONFUSE YOU. Amazon can play games with the search results and related items but it's still just listings on a screen.
posted by save alive nothing that breatheth at 6:58 PM on October 27, 2013 [1 favorite]
Like humanities motherfuckers are on about Engineer's Disease, well, Amazon seems to me like a business model built on a successful channeling of it. There was another link on here about Jeff Bezos and there was a quote that the article didn't really pick up the implications of where they were applying "operating systems" and one other field to their warehouses. Basically the warehouse workers are human robots, their movements algorithmically determined & scheduled like your computer parcels out cpu time, memory, disk & network access to different components and programs. More critically, some kind of hyper-Taylorism. And then people complain that the jobs don't go anywhere and are temporary and it feels like well yeah, they clearly plan on replacing you with actual robots in about 3 years, not a job with a future.
It's like academics in CS will go on about how many items you can efficiently pack into a certain size box and problems like that. Amazon's ability to do it's locker service effectively relies on just that.
I don't like going in certain ordinary stores all that much, like I was in the flagship Bloomingdale's because someone was registered there and it was like DANGER YOUR ENVIRONMENT IS DESIGNED TO DISORIENT AND CONFUSE YOU. Amazon can play games with the search results and related items but it's still just listings on a screen.
posted by save alive nothing that breatheth at 6:58 PM on October 27, 2013 [1 favorite]
Target has recently implemented online ordering with pick up at store locations for many of those items, within an hour.
How is this different from just, uh, going to the store and buying the thing? Maybe calling ahead to see if they have it in stock?
That's the source of a majority of my Amazon purchases; I could get the things locally (Portland, shh, don't tell anyone), sometimes for a little more, often the same price, occasionally a little less.
But with Amazon Prime, I can get almost anything I want within 48 hours and I don't have to get in the car and go to the frigging store.
posted by gottabefunky at 7:04 PM on October 27, 2013
How is this different from just, uh, going to the store and buying the thing? Maybe calling ahead to see if they have it in stock?
That's the source of a majority of my Amazon purchases; I could get the things locally (Portland, shh, don't tell anyone), sometimes for a little more, often the same price, occasionally a little less.
But with Amazon Prime, I can get almost anything I want within 48 hours and I don't have to get in the car and go to the frigging store.
posted by gottabefunky at 7:04 PM on October 27, 2013
Amazon.ca is not, in my experience, price competitive. And Target Canada is flailing and failing fast — it has been a case study in Doing It Wrong. Bare shelves?! And then there's Walmart, seller of C-grade Chinese crap.
I find it's worth shopping at specialty stores — the hardware store, the clothing store, the greengrocers, the butchers. I get a much better product at nearly the same cost. Makita drills made in Japan instead of China, free-range eggs, local produce.
YMMV.
posted by five fresh fish at 11:08 PM on October 27, 2013
I find it's worth shopping at specialty stores — the hardware store, the clothing store, the greengrocers, the butchers. I get a much better product at nearly the same cost. Makita drills made in Japan instead of China, free-range eggs, local produce.
YMMV.
posted by five fresh fish at 11:08 PM on October 27, 2013
I can't remember where I read it (probably on MeFi somewhere), but I love the idea of buying all Christmas gifts from small local businesses and/or small online retailers. It's an easy way to use consumer power to invest in these businesses, that is much easier to me than other strategies I've heard for dealing with Christmas consumerism obnoxiousness (make all gifts! Don't buy anything!) The wife and I will be trying it this year.
posted by iotic at 1:39 AM on October 28, 2013 [1 favorite]
posted by iotic at 1:39 AM on October 28, 2013 [1 favorite]
I think what people tend not to realise is how different the infrastructure has to be for web deliveries.
In a traditional DC (Distribution Centre/warehouse) most stock is kept on large pallets held on tall racks. Only the bottom rack is easily accessible: you need a forklift or equipment to get stuff down from the top rack. You're used to delivering fairly large quantities at a time: say a hundred items when the physical store needs restocking.
For online retail, you don't need to get down a pallet of a hundred items every couple of weeks. You need to get down one item at a time, much more frequently.
Ideally you need a different system of racks where everything is readily available. You need more pickers, using smaller carts instead of forklifts. You might need to do wave picking, which might mean different software to let you pick (take items off the shelves) more efficiently.
The cost of picking and packing the items for delivery is a part of the price the customer pays. If you can do it cheaper than your competitors, you can sell the same item for less. Even if it's pennies, for the same item, that's what the customer will choose to buy.
(This is one of the reasons Ikea can do stuff cheaply: they get the customer to do a lot of the picking. That's also why they're relatively reluctant to deliver: without the customer doing the picking for free, the price isn't so appealing.)
Amazon's network of DCs optimized for online retail is a bigger advantage than you might think. If you can consistently pick and pack slightly cheaper than the opposition, then you can consistently sell the same products a couple of cents cheaper, and basically rule the market. That couple of cents is your business "moat". It might seem fragile, but actually to beat it, your competitors need to invest in their own huge network of large, efficient, online-retail optimized DCs, which would cost them a vast amount of investment.
I doubt Amazon's profit margins will ever be huge. But I doubt they are going to be easily unseated by an upstart rival. Maybe if some competitor gets a patent on a super-efficient picker robot that can climb racks like a monkey. But not by anyone using currently existing technology or business models in a more efficient way.
posted by TheophileEscargot at 2:22 AM on October 28, 2013 [5 favorites]
In a traditional DC (Distribution Centre/warehouse) most stock is kept on large pallets held on tall racks. Only the bottom rack is easily accessible: you need a forklift or equipment to get stuff down from the top rack. You're used to delivering fairly large quantities at a time: say a hundred items when the physical store needs restocking.
For online retail, you don't need to get down a pallet of a hundred items every couple of weeks. You need to get down one item at a time, much more frequently.
Ideally you need a different system of racks where everything is readily available. You need more pickers, using smaller carts instead of forklifts. You might need to do wave picking, which might mean different software to let you pick (take items off the shelves) more efficiently.
The cost of picking and packing the items for delivery is a part of the price the customer pays. If you can do it cheaper than your competitors, you can sell the same item for less. Even if it's pennies, for the same item, that's what the customer will choose to buy.
(This is one of the reasons Ikea can do stuff cheaply: they get the customer to do a lot of the picking. That's also why they're relatively reluctant to deliver: without the customer doing the picking for free, the price isn't so appealing.)
Amazon's network of DCs optimized for online retail is a bigger advantage than you might think. If you can consistently pick and pack slightly cheaper than the opposition, then you can consistently sell the same products a couple of cents cheaper, and basically rule the market. That couple of cents is your business "moat". It might seem fragile, but actually to beat it, your competitors need to invest in their own huge network of large, efficient, online-retail optimized DCs, which would cost them a vast amount of investment.
I doubt Amazon's profit margins will ever be huge. But I doubt they are going to be easily unseated by an upstart rival. Maybe if some competitor gets a patent on a super-efficient picker robot that can climb racks like a monkey. But not by anyone using currently existing technology or business models in a more efficient way.
posted by TheophileEscargot at 2:22 AM on October 28, 2013 [5 favorites]
But what happens when it can only grow against taobao/Alibaba?
posted by mangasm at 3:09 AM on October 28, 2013
posted by mangasm at 3:09 AM on October 28, 2013
@TheophileEscargot
What about pickers on roller skates?
posted by mangasm at 3:11 AM on October 28, 2013
What about pickers on roller skates?
posted by mangasm at 3:11 AM on October 28, 2013
This is why you do your lit review first, not last =). And since he seems to have neglected a bibliography, here's the article in question
It's a blog, dude. Lighten up.
posted by slogger at 11:46 AM on October 28, 2013
It's a blog, dude. Lighten up.
posted by slogger at 11:46 AM on October 28, 2013
The cost of picking and packing the items for delivery is a part of the price the customer pays. If you can do it cheaper than your competitors, you can sell the same item for less.
Amazon bought Kiva a while back: Meet the Little Orange Robots Making Amazon's Warehouses More Humane
posted by mrbill at 1:13 PM on October 28, 2013 [2 favorites]
Amazon bought Kiva a while back: Meet the Little Orange Robots Making Amazon's Warehouses More Humane
posted by mrbill at 1:13 PM on October 28, 2013 [2 favorites]
Semi-related, from 2006 and 2008: Inside Newegg and Inside Newegg NJ
posted by mrbill at 1:15 PM on October 28, 2013
posted by mrbill at 1:15 PM on October 28, 2013
Why Amazon's Not Worried About Profits - "when we say Amazon is a nonprofitable company that doesn't mean they have no profitable businesses. Instead what's happening is that Amazon is taking money from its profitable businesses and investing it in new ventures..."
it is extremely forthright and honest about its business plans and strategy. It's the reason Jeff continues to reprint its first ever letter to shareholders from 1997 in its annual report every year
Amazon's Letter To Shareholders Should Inspire Every Company In America
-Maximizing shareholder value: The goal that changed corporate America
-How the cult of shareholder value wrecked American business
-The Dumbest Idea In The World: Maximizing Shareholder Value
-How The 'World's Dumbest Idea' Killed The US Economic Recovery
-How Shareholders Are Ruining American Business
-Markets or Shareholders?
posted by kliuless at 10:06 PM on October 28, 2013 [2 favorites]
it is extremely forthright and honest about its business plans and strategy. It's the reason Jeff continues to reprint its first ever letter to shareholders from 1997 in its annual report every year
Amazon's Letter To Shareholders Should Inspire Every Company In America
The way most companies do business is to focus primarily on today's bottom line: The prevailing ethos in corporate America, after all, is that companies exist to make money for their owners — and the more and the sooner the better — so every decision should be made in the context of that.The Dark Side of Fat Profit Margins
The result of this is that many (most?) companies scrimp on things like long-term investments, customer service, product quality, and employee compensation, in the interest of delivering a few more pennies to this quarter's bottom line.
[Corporate Profits/GDP: American profit margins just hit an all-time high.]
This obsession with short-term profits has helped produce the unhealthy and destabilizing situation that now afflicts the U.S. economy:
The profit margins of America's corporations are now higher than they ever have been in history, while the employee wages paid by America's corporations are the lowest they have ever been in history. Meanwhile, a smaller percentage of America's adults are working than at any time since the late 1970s.
Since the wages that America's corporations pay Americans become revenue for other American companies (most consumers spend pretty much every penny they earn), this fire-your-way-to-prosperity mentality is myopic short-term thinking at its worst.
[Wages As A Percent of GDP: American wages just hit an all-time low.]
So it's inspiring to see a striking example of success from a company that has never put short-term profits ahead of long-term investment and value creation.
Over the course of its spectacular 17-year history, Amazon has always put customers, and investing for the long-term, first...
It isn't hard to find reasons why margins are so high. The share of sales going toward workers' wages and benefits has declined precipitously. Companies have kept a tight lid on capital spending. Effective corporate tax rates have fallen. Interest rates are sharply lower.-Why the "Maximizing Shareholder Value" Theory of Corporate Governance is Bogus
Although such factors help explain why the environment has been so good, they leave unanswered an important question: Why aren't historically wide profit margins getting competed away?
-Maximizing shareholder value: The goal that changed corporate America
-How the cult of shareholder value wrecked American business
-The Dumbest Idea In The World: Maximizing Shareholder Value
-How The 'World's Dumbest Idea' Killed The US Economic Recovery
-How Shareholders Are Ruining American Business
-Markets or Shareholders?
posted by kliuless at 10:06 PM on October 28, 2013 [2 favorites]
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I thought he was trying to correct the misconceptions of pundits like Yglesias, but I've been reading Yglesias for a while and I think Yglesias and Wei have the same take.
posted by grobstein at 10:43 AM on October 27, 2013