

The Trouble with Amazon - zoka
http://asserttrue.blogspot.com.au/2012/02/trouble-with-amazon.html

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sc68cal
_Let's be blunt: Amazon is just another department store, except they have no
physical storefront. But lack of a physical storefront doesn't mean they won't
suffer the fate of all the unwieldy, poorly managed department store chains
that have gone before. History has a way of dealing with do-too-much retailers
(and now, e-tailers)._

The author treats the fact that they don't have a physical storefront as just
a _minor_ quibble. As if it wasn't the fact that Amazon _didn't_ have a
physical presence, was accessible from the comfort of your own home, and had
incredibly reduced labor costs, that didn't end up being the disruptive change
that put Amazon on the map.

 _To survive in its present form, it badly needs to acquire an Airborne
Express (except that AE has already been acquired by DHL), or maybe a railroad
and a package delivery company. Ideally, it also needs to acquire a payment-
processing system (a PayPal). Why not just admit the obvious? Amazon needs to
acquire eBay._

This is ridiculous - what business reasons does Amazon have for acquiring
these companies, saddling themselves with physical infrastructure and
additional labor costs, which may only earn them marginally more income?

Why would Amazon rush to acquire a shipping company and more labor costs, when
shipping companies like FedEX are trying to reduce their labor costs by
shifting the burden of local delivery to the United States Postal Service?
(<http://www.fedex.com/us/smartpost/>).

There are so many differences between physical retail businesses and an online
retailer, that the analogy cannot account for.

There are many cases to be made for challenges that Amazon faces, but this is
not one of them.

~~~
newhouseb
The excess computing capacity story is a myth according to Werner Vogels,
Amazon's CTO, see: [http://www.quora.com/Amazon/How-and-why-did-Amazon-get-
into-...](http://www.quora.com/Amazon/How-and-why-did-Amazon-get-into-the-
cloud-computing-business/answer/Werner-Vogels)

~~~
sc68cal
Excellent - thank you for clearing this up!

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mmahemoff
"But in patio, lawn, and garden equipment, sports equipment, kitchen and bath
fixtures, and numerous other areas, they're never going to have monopoly
power."

I don't get it. The author doesn't provide enough rationale for this
prediction at all, other than the vague notion that Amazon's trying to do too
much. (Given they've successfully move into cloud hosting services, it's
hardly a stretch to suggest they can move from selling books to selling garden
equipment.)

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phamilton
_According to Amazon's 10K filing, EGM currently accounts for 60% of the
business. And that's precisely where the big trouble lies._

And 40% of the business is not in EGM. Compare that with 5 years ago, when 0%
was not in EGM. I call that the opposite of being stagnant. I call that
lateral growth.

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corkill
Seriously he thinks they might make a loss on kindle fire. Of course they
freaking do. I'm pretty sure they were open about why earnings were down.

Does he not realize how much freaking money they will make on the backend of
that selling digital stuff like apps and ebooks and also more physical stuff I
bet.

Doesn't mention anything about Amazon Prime. Is in Australia so possibly
doesn't know much about it, but yeah Amazon is a beast. Consumers don't wanna
search the web they want 1 click buy.

Amazons other meaty asset is all its reviews. Take any so called obscure
category he mentioned and you will probably find more reviews in there than
all other ecommerce sites combined.

Consumers want easy, fast, trust, peer reviews, cheap prices. Amazon does all
that. Article a good reminder to get me some Amazon shares and short sell on
traditional retailers.

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maytc
It is true that Amazon is attempting to be a one stop shop for all
merchandises physical and digital. However that goal have made Amazon's web
front crowded and convoluted.

If Amazon were to extend their product models to better express the
"qualities" of the products, and extend their search and recommendations for
products, I believe their web storefront can easily double or triple in sales.

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verelo
Interesting read. I hope you're wrong...

Our business wouldnt be possible without AWS, they are still innovating which
is good (and often lack of innovation is another sign of a company in big
trouble)

I have never found Amazon.com particularly useful, nor have i bought anything
from it. My girlfriend buys books a fair bit, but also admits the library is
cheaper.

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rrgg
The author wrote, "Ideally, it also needs to acquire a payment-processing
system (a PayPal)."

Why? Has he heard of payments.amazon.com? It's tiny compared to PP but also
isn't hated.

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jeffdechambeau
This guy has completely missed the point.

Shareholders like high margins. Amazon made some moves last year that
depressed their margins, specifically releasing the kindle fire, which they're
selling at a loss, and price-beating brick and mortar stores with gift cards
over the holidays to lure away customers. These moves have nothing to do with
a loss of efficiency in their EGM business, but they do produce the smaller
profits we see.

What the author mistakenly sees as a loss of efficiency is actually amazon
future-proofing their business. Knowing that the market would punish them for
taking all this profit and reinvesting it in growth, they went all in and took
all the punishment at once.

Amazon has bright days ahead.

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techdog
Thank you for posting this.

