Review: Good Topic -
Rating: 4 out of 5
Date: 04 9, 2013
Amazon has focused on creating a super-efficient logistical system to deliver goods around the world, while managing inventories and fine-tuning prices. On the side it's also boosting a number of small businesses (2 million plus, including e-book authors who receive 70% of low retail ) that have partnered with it - running their marketing, customer relationships, and payments ('unbundling the corporation' for eg. a 15% commission, plus another eg. 10% if Amazon also handles distribution), and selling cloud computing services (eg. Netflix's video streaming service).The bad news is that Amazon earned only $631 million on $48 billion in 2011 revenues, followed by a net loss of $39 million in 2012 on 2012 revenues of about $61 billion (0.55% of sales). Worse, Target stopped running its website on Amazon's systems and brought the work in-house, Marks and Spencer is doing the same, while Toys R Us and Barnes and Noble did so several years ago. Its partners risk Amazon also being able to quickly become a competitor after learning what sells and what doesn't. These 'registered sellers' range from bricks and mortar companies to to those traveling the U.S. buying up merchandise, loading it into their car and sending the boxes to Amazon, and those emptying their garages - accounting for 39% of sales by volume.Amazon has more tricks available to it - in December, 2011 it gave discounts to shoppers using its Smartphone app to record a product's price in a store before buying it from Amazon.Analysts believe Amazon breaks even selling products from its own inventory, but makes an operating margin of about 10% on 3rd-party sales. (Walmart's is 5.7%).  It had 34 U.S. warehouses at the end of 2011, allowing it to offer same-day delivery ($8.99) to many consumers, in some cases aided by Amazon Lockers where customers can get packages delivered other than at home or the office - ironically, installed in other retailers' stores. The distribution centers are 'manned' by Kiva Systems robots (company acquired for $775 million) that can replace human shelf pickers who often walk 10 or more miles each day.Feedvisor, an Israeli software firm, provides tools allowing Amazon sellers to continually adjust prices to hit sales targets, defend profit margins, or joust with rivals. Sellers can eg. ensure that the price of a certain product is $2 less than the cheapest elsewhere; the software can also forecast whether a seller will sell of an item in a day at a certain price. Mercent, another software source, reprices 2 million Amazon items for clients every hour. Some products on Amazon may change every five or so minutes; some vendors are leery that such algorithms can trigger dangerous downward price spirals. (Conversely, in 2011, algorithms inflated the price of 'The Making of a Fly' (genetics book) to over $23 million.)An August 2012 survey found 31% had a credit card on file with Amazon, vs. 18% with Apple and 5% with Google. Amazon's strategy is to price Kindle to encourage sales of content; Apple prices content to encourage sales of its hardware. Amazon's $79/year Prime Membership is a means of encouraging extra sales.Amazon's Cloud contains cooling costs by running data centers hotter than many peers, justifying this on the basis that most server warranties go up to 95 degrees F. It sees the IT market as ripe for disruption because IT firms often enjoy gross profits margins of 70% or more. Analysts estimate Amazon's annual cloud business as having revenue of at least $1 billion, and that only 15% of corporate IT functions are in the cloud.Bottom-Line: Amazon has not proved it  can make big profits and the question of whether its business model is sustainable remains unanswered. Regardless, Bezos was named one of America's top business managers this year by both Harvard Business Review and Fortune Magazine. Time will tell.