Amazon Reports First Quarterly Loss in 4 Years(nytimes.com)
nytimes.com
Amazon Reports First Quarterly Loss in 4 Years
http://www.nytimes.com/2012/10/26/technology/amazon-reports-its-first-quarterly-loss-in-four-years.html?_r=0
9 comments
Dumb question, as I literally know nothing about stock or savings: isn't it generally a bad idea to put 100% of your long term money in any one place?
Sorry, I'm only referring to new money: every 2 weeks I put $1000 into my brokerage account to buy whatever long term stocks/funds on my watchlist look good that week.
Lately that's been nothing but Target, but it might switch to nothing but Amazon next month, or 50% AMZN 50% something else, and so on. So it's just the new money coming into the account getting divvied up, but doesn't reflect the actual holdings of long term account as a whole (which might only be 20% TGT and 80% other stuff)
Lately that's been nothing but Target, but it might switch to nothing but Amazon next month, or 50% AMZN 50% something else, and so on. So it's just the new money coming into the account getting divvied up, but doesn't reflect the actual holdings of long term account as a whole (which might only be 20% TGT and 80% other stuff)
You might want to consider buying 2000$ every 4 weeks depending on your transaction fees.
$2,000 is better but even that's rough. Consider you have $7 commission. With each $1,000 purchase, you have to earn 0.70% just to earn back that $7. If you sell that $1,000 purchase, it'll cost another 0.70%, totaling 1.4% in fees.
Based on your strategy you're probably incrementally purchasing and the selling in bulk so the sell commission isn't as damaging but losing 0.70% of an investment right off the bat makes it hard to be profitable. Even half that amount, if you increase your lots to $2,000, is painful.
Based on your strategy you're probably incrementally purchasing and the selling in bulk so the sell commission isn't as damaging but losing 0.70% of an investment right off the bat makes it hard to be profitable. Even half that amount, if you increase your lots to $2,000, is painful.
That's a smart question. I hope simonsarris means 100% of his incremental dollars (new savings), and that he already has other other 'long-term dollars' in a broader range of investments.
Yes, it's a horrible idea. That's basically playing a lottery, since unexpected things happen all the time, successful companies go out of business (Yahoo, and AOL looked pretty damn good 10 years ago).
It's a good idea if and only if you believe your personal access to information and ability to perform analysis is greater than the aggregate capability of the market as a whole.
Yahoo! and AOL did not look good 10 years ago. They were selling at insane P/E ratios and had absolutely no way of making good on those numbers. If you invested in them - you'd be a moron.
Unexpected things really don't happen very often and black swan risk is way overblown. When things blow up - they're a long time coming - you just didn't see the data.
Unexpected things really don't happen very often and black swan risk is way overblown. When things blow up - they're a long time coming - you just didn't see the data.
Isn't it stupid to just to have one job, one car, be a citizen of one country, have one house and one family. I mean really - one must diversify. What would you do if you lost any one of those?
No, it's not stupid to concentrate wealth. Problems only arise when you do it stupidly, like buying too big a house, being part of the wrong family, living in the wrong country or buying an unsafe car.
Diversification does not reduce risk but it cuts your returns in half. All correlations go to one in a crisis and you can't hedge the end of the world.
Note: To all downvoters - putting all your eggs in multiple baskets does not protect you from an asteroid impact any more than a person with all eggs in one basket.
People who think diversification makes them safe are frankly wrong.
No, it's not stupid to concentrate wealth. Problems only arise when you do it stupidly, like buying too big a house, being part of the wrong family, living in the wrong country or buying an unsafe car.
Diversification does not reduce risk but it cuts your returns in half. All correlations go to one in a crisis and you can't hedge the end of the world.
Note: To all downvoters - putting all your eggs in multiple baskets does not protect you from an asteroid impact any more than a person with all eggs in one basket.
People who think diversification makes them safe are frankly wrong.
> Isn't it stupid to just to have one job, one car,
Indeed people who own a job, a car or a house are well advised to have insurance. And insurance is a form of diversification.
For countries the analogy is flimsy, but if you live in a country that has had any of: wars, dictators, property confiscation or high rate of violent crime in the recent past (which describes most of the non-developed world, including emerging countries), it's a good idea to have a passport and a way to move elsewhere.
Indeed people who own a job, a car or a house are well advised to have insurance. And insurance is a form of diversification.
For countries the analogy is flimsy, but if you live in a country that has had any of: wars, dictators, property confiscation or high rate of violent crime in the recent past (which describes most of the non-developed world, including emerging countries), it's a good idea to have a passport and a way to move elsewhere.
Then buy insurance - put out a costless collar if you are that worried.
If you want to diversify you need to actually buy reverse correlated assets. So go ahead - hedge with options, hedge with futures, hedge with shorting the indices.
But don't think buying disparate companies protects you - it doesn't.
If you want to diversify you need to actually buy reverse correlated assets. So go ahead - hedge with options, hedge with futures, hedge with shorting the indices.
But don't think buying disparate companies protects you - it doesn't.
There are degrees of protection. No protection is perfect, but you're a lot less likely to be totally wiped out with a diversified portfolio. 100% of my wealth is in company A, and it goes bankrupt, I have nothing. If I have it in two companies, unless they are perfectly interdependent, I lower my likelihood of being completely wiped out from 100% to <100%. Concentrating wealth in a single company increases the variance in your outcome, which is something most people consider bad in financial planning. It also requires active management, because even most temporarily successful companies do eventually go bankrupt.
This is basic personal finance. TBH, I'm really surprised your comments aren't all at the lightest shade of gray already.
This is basic personal finance. TBH, I'm really surprised your comments aren't all at the lightest shade of gray already.
> basic personal finance
I fully understand the arguments for diversification. Just like I fully understand CAPM, modern portfolio theory and the assumption that var=risk.
But it's all bullshit. Why are you investing in companies that have that risk? If you understand which companies return higher returns - why aren't you all in on them?
It's bloody hard to find good companies and when you do - why on earth would you diversify into their worse off counterparts? You need to have heavy concentration in great companies where you are perfectly fine having a 10 year hold on at the right price.
I fully understand the arguments for diversification. Just like I fully understand CAPM, modern portfolio theory and the assumption that var=risk.
But it's all bullshit. Why are you investing in companies that have that risk? If you understand which companies return higher returns - why aren't you all in on them?
It's bloody hard to find good companies and when you do - why on earth would you diversify into their worse off counterparts? You need to have heavy concentration in great companies where you are perfectly fine having a 10 year hold on at the right price.
> basic investing
Either I'm misunderstanding your argument or you are missing a fundamental tenant of finance (and indeed, most things in life). Higher returns typically comes with higher risk. A brand new startup is high risk with high reward if it pays out. The same thing applies to financial investments in high risk companies.
People take risks because they want to try and beat the historical growth in their portfolio. By taking on that risk, they know that they may lose money instead of grow their money.
Diversifying allows them to adjust how much risk they want to take above the standard market growth.
"Great Companies" is such a bad guide star for investing. Sears looked like a "great company" 10 years ago. Kodak? Any big box retailer?
Anyway, there are perfectly sound investing theories that say investing in the worst companies can result in higher returns than any "great company" investment portfolio. Value investing at it's most extreme. You just need a few of the losers to become mediocre to make huge gains, while trying to get great companies to grow past their high stock price is extremely hard.
I agree with your long-term strategy...but I don't see any reason to hold long-term stakes in individual companies. Why not just hold long term on index funds?
Either I'm misunderstanding your argument or you are missing a fundamental tenant of finance (and indeed, most things in life). Higher returns typically comes with higher risk. A brand new startup is high risk with high reward if it pays out. The same thing applies to financial investments in high risk companies.
People take risks because they want to try and beat the historical growth in their portfolio. By taking on that risk, they know that they may lose money instead of grow their money.
Diversifying allows them to adjust how much risk they want to take above the standard market growth.
"Great Companies" is such a bad guide star for investing. Sears looked like a "great company" 10 years ago. Kodak? Any big box retailer?
Anyway, there are perfectly sound investing theories that say investing in the worst companies can result in higher returns than any "great company" investment portfolio. Value investing at it's most extreme. You just need a few of the losers to become mediocre to make huge gains, while trying to get great companies to grow past their high stock price is extremely hard.
I agree with your long-term strategy...but I don't see any reason to hold long-term stakes in individual companies. Why not just hold long term on index funds?
Risk and return are not correlated. There are risks and there are returns. See AAA bonds during GFC. Great businesses are great companies at reasonable prices not overvalued growth stocks.
Most of modern economic and finance theory is based on fundamentally broken models of risk and return.
Most of modern economic and finance theory is based on fundamentally broken models of risk and return.
Define "great company".
Known risks and future returns are certainly correlated. Unknown risks (financial crisis meltdown) are obviously uncorrelated because they are unknown. You can't control for those, which is why you diversify.
What are you going to do when your "great company" has a horrible CEO scandal and sinks the company? That's an unknown risk that would be prevented by diversifying your investments.
Known risks (such as "can this company execute it's vision well enough to be profitable at 500m revenue/year?") are what you weigh against the return ("I personally think so, but the market doesn't, so I'm getting a discount on the stock price when it eventually succeeds").
Known risks and future returns are certainly correlated. Unknown risks (financial crisis meltdown) are obviously uncorrelated because they are unknown. You can't control for those, which is why you diversify.
What are you going to do when your "great company" has a horrible CEO scandal and sinks the company? That's an unknown risk that would be prevented by diversifying your investments.
Known risks (such as "can this company execute it's vision well enough to be profitable at 500m revenue/year?") are what you weigh against the return ("I personally think so, but the market doesn't, so I'm getting a discount on the stock price when it eventually succeeds").
Diversification reduces risk, it does not eliminate it.
Concentrating wealth in stock is a particularly dumb idea, because even public companies are relatively opaque. Enron looked like a pretty good deal to an outsider, right?
Using things like citizenship, cars, households and families is a straw man and not related to financial investment at all.
Concentrating wealth in stock is a particularly dumb idea, because even public companies are relatively opaque. Enron looked like a pretty good deal to an outsider, right?
Using things like citizenship, cars, households and families is a straw man and not related to financial investment at all.
Enron didn't look like a good idea. They ran a commodity business at insane valuations with huge revenue run up during a bubble.
Stating that Enron was a good idea was like stating Groupon was a good idea. Commodity companies that buy revenue (includes WorldCom and MCI) are always bad investments. Once again - had you invested in them you would be a moron.
It'd be fair to state that diversification protects against stupidity.
However, it does not reduce risk in the way people assume.
Stating that Enron was a good idea was like stating Groupon was a good idea. Commodity companies that buy revenue (includes WorldCom and MCI) are always bad investments. Once again - had you invested in them you would be a moron.
It'd be fair to state that diversification protects against stupidity.
However, it does not reduce risk in the way people assume.
Put it this way, from the outside they looked a lot better than they really were. Looking as bad as Groupon and actually going as sour as Enron did are two wildly different things.
Man with that 20/20 hindsight you'd be a perfect historian. Can't say it does you much credit as a stock analyst though.
Well here's my forward looking projection - Groupon, Zynga and Pandora will go bankrupt within the next 3 years.
It really isn't that bloody hard to see shit for what it was - if you aren't making any money, if you are buying revenue, and if your service is commodity then you will be both a bad investment and eventually go bankrupt. Enron, WorldCom, MCI, Zynga, Groupon, Pandora fit these cases and hence will fail.
It irritates me saying "Ohh who could've predicted the GFC, or Enron or WorldCom or the DotCom bubble or whatever". Just because you don't see the asteroid coming before it crashes - it does not follow that it was a black swan. Grab a telescope and you'd have seen it coming 30 years out.
If you aren't making money and your business model is neither defensible nor proprietary - you will go out of business.
It really isn't that bloody hard to see shit for what it was - if you aren't making any money, if you are buying revenue, and if your service is commodity then you will be both a bad investment and eventually go bankrupt. Enron, WorldCom, MCI, Zynga, Groupon, Pandora fit these cases and hence will fail.
It irritates me saying "Ohh who could've predicted the GFC, or Enron or WorldCom or the DotCom bubble or whatever". Just because you don't see the asteroid coming before it crashes - it does not follow that it was a black swan. Grab a telescope and you'd have seen it coming 30 years out.
If you aren't making money and your business model is neither defensible nor proprietary - you will go out of business.
I assume you don't bother to back up your data either.
Diversification only works if your assets are independent. Buying multiple stocks is the same as buying a call on the world - it only reduces localised risk.
But then again - why are you investing in companies that you believe have localised risk of bankruptcy and a low chance of attaining future profits.
But then again - why are you investing in companies that you believe have localised risk of bankruptcy and a low chance of attaining future profits.
Diversification does reduce the risk of losing it all, as it changes the probability distribution (https://en.wikipedia.org/wiki/Probability_distribution). It also reduces the probability of winning a lot, but people like stability.
Only if the assets are uncorrelated and independent.
Otherwise diversification often gives a false sense of security with higher systemic risk (see GFC).
Otherwise diversification often gives a false sense of security with higher systemic risk (see GFC).
Not "Only if the assets are uncorrelated and independent", but "As soon as the assets are not 100% correlated".
That is a huge difference. The dot com bust affected (almost) all tech stocks, but they didn't all go bankrupt.
That is a huge difference. The dot com bust affected (almost) all tech stocks, but they didn't all go bankrupt.
>a lot of their spending is on important business stuff (warehouses, kindle, web properties) that will yield returns later
This has been the Amazon story basically since founding. At some point, a company needs to yield real returns on their investments.
This has been the Amazon story basically since founding. At some point, a company needs to yield real returns on their investments.
Wal Mart's profit margins are only a few percentage points, maybe 5% if they're lucky. That's the nature of retail. There definitely seems to be some utility and efficiency gains being made by Amazon. I doubt investors are seeking the kind of explosive growth or profits seen in tech companies like Apple, but rather a steady gain in market share from companies like Wal Mart, Best Buy, and whatever else you can deliver to a home.
Hmmm I wouldn't normally say a P/E of 272.63 is a bet on slow steady growth.
I agree, but it seems to be a fundamentally different scenario than other companies with sky high P/Es such as LNKD and FB. While LNKD and FB have yet to figure out how to monetize their product, AMZN has a relatively simple (and demonstrated) growth plan. I think many investors are simply betting that Amazon will be able to capture significantly more of the retail market, and/or new revenue streams from places like cloud services.
Are you writing this comment from 2008? Both LNKD and FB have robust revenue streams that are growing; they have figured out how to monetize their products and they are doing it quite well.
Why, because of the large amount of reinvestment that makes E trend towards zero? How does P/E signal anything about a growth strategy?
Not quite, their operating income steadily grew until 2010, when it was about 5x higher than in 2003. That said, it makes sense. Amazon has very lofty but realistic goals, which are an intriguing combination. These goals would be impossible without all that investment.
Back during the dot.com days Yahoo Finance had a game where you could "play the market." (take note entrepreneurs this could be a lifestyle business :-) For each group you got $100,000 to invest and you were in competition with other people in your group for best return. I lost about $75,000 on Amazon stock :-).
However, my actual portfolio has done ok with Amazon so I'm not complaining.
However, my actual portfolio has done ok with Amazon so I'm not complaining.
I did something similar to this in high school a few years ago. I ended up losing to another team in the class that bought Gamestop and other related stocks. I stuck with stocks like Intel and GE. If the game had ended even a two weeks later, I would have won.
These games teach high school students very little about investing, especially long term. The other team's strategy was simply "I play video games and I like Gamestop, so let's buy Gamestop!".
These games teach high school students very little about investing, especially long term. The other team's strategy was simply "I play video games and I like Gamestop, so let's buy Gamestop!".
For non-professional investors, the "so let's buy Gamestop" strategy isn't necessarily a bad strategy. Assuming you are putting the bulk of your investments in low cost index and mutual funds, using a little bit of you savings to play the market by investing in companies that you are familiar with can be productive. I've had some big hits and some big misses, but overall, my picks have matched the pace of my index/mutual funds.
Our school once had this competition as well. Given the short time period of these competitions, you have to buy high beta stocks in order to do well, or very low beta if the market is falling overall.
In order to win this a friend and I decided to team up and split the winnings. Basically what we did was to get one of us to buy the riskiest investments that we could (penny stocks, other low cap stocks, risky derivatives etc.) and the other would short them. This way over the course of the few weeks one of us would be dead last, and the other far ahead.
Worked like a charm.
In order to win this a friend and I decided to team up and split the winnings. Basically what we did was to get one of us to buy the riskiest investments that we could (penny stocks, other low cap stocks, risky derivatives etc.) and the other would short them. This way over the course of the few weeks one of us would be dead last, and the other far ahead.
Worked like a charm.
They're also building up their human capital. They've recently been hiring quite a lot of engineers, which will certainly yield later returns. I'm basing this on my own experience with them, as I got a job offer, spoke with several recruiters, and toured their campus, and now live in Seattle.
Oh man! I lost a bunch on OCZ too. :\
Important tidbit buried in there: "Amazon said it lost 60 cents a share in the third quarter, but more than half of that was from its investment in the daily deals site Living Social"
About two months ago I was thinking that the bubble, of which everyones been talking about for the past years, might finally pop soon. I thought I might short some major tech companies and make some money off of it. I had two indicators that I was looking at to determine the start of it:
1-Zynga begins laying off people. (really, any big web 2.0 company begins laying off people, but zynga seemed like the logical choice.) The way I see it is this: if a flood of veteran web-devs, artists, PMs, etc hit the SF market, salaries will go down slightly as demand goes down. Since techies spend their money on tech, this will lead to revenues going down within the industry. This will begin a positive feedback loop because everything seems to be built on top of itself right now.
2-Second indicator is that Amazon's stock would fall. This is because they are essentially the bellwether of the tech industry: everyone runs their stuff on AWS. If their revs go down (which it doesnt look like they have), that means companies are feeling the pinch. Again, a positive feedback loop could quickly ensue.
Now that my two indicators have come to pass, I still don't believe strongly enough in the bubble theory to short the industry. But if anyone else wants to take my theory to the bank, I would be happy to take a 10% referral fee on any and all gains :)
1-Zynga begins laying off people. (really, any big web 2.0 company begins laying off people, but zynga seemed like the logical choice.) The way I see it is this: if a flood of veteran web-devs, artists, PMs, etc hit the SF market, salaries will go down slightly as demand goes down. Since techies spend their money on tech, this will lead to revenues going down within the industry. This will begin a positive feedback loop because everything seems to be built on top of itself right now.
2-Second indicator is that Amazon's stock would fall. This is because they are essentially the bellwether of the tech industry: everyone runs their stuff on AWS. If their revs go down (which it doesnt look like they have), that means companies are feeling the pinch. Again, a positive feedback loop could quickly ensue.
Now that my two indicators have come to pass, I still don't believe strongly enough in the bubble theory to short the industry. But if anyone else wants to take my theory to the bank, I would be happy to take a 10% referral fee on any and all gains :)
Amazon does not breakout revenue for AWS -- it's grouped into the "Other" category. Analysts estimate it could be nearing a $1B business, but Amazon has a yearly revenue exceeding $48B. I don't think the stock market places much value on AWS today, so a slowdown should not greatly impact the stock (if the market did, we would have seen the stock decline during AWS outages).
With its price-to-earnings multiple in the stratosphere, Amazon often comes up in conversation as being "overpriced." While this conclusion may be true, it's not because Amazon is unprofitable...
Publicly traded companies optimize for return-on-invested-capital (ROIC), which includes profits (dividends) plus increases in equity value (share price).
Stable companies in stable markets often make the greatest returns by increasing revenue and reducing costs (i.e., optimizing for earnings). Companies in high-growth markets (esp. competitive ones) typically optimize for long-term market share/growth (which manifests as increases in equity value). Amazon falls into the latter category.
Not sure this makes sense to/helps anyone, but yeah, that's why Amazon operates the way it does.
Publicly traded companies optimize for return-on-invested-capital (ROIC), which includes profits (dividends) plus increases in equity value (share price).
Stable companies in stable markets often make the greatest returns by increasing revenue and reducing costs (i.e., optimizing for earnings). Companies in high-growth markets (esp. competitive ones) typically optimize for long-term market share/growth (which manifests as increases in equity value). Amazon falls into the latter category.
Not sure this makes sense to/helps anyone, but yeah, that's why Amazon operates the way it does.
Get big fast. Amazon is still getting bigger, and accelerating the pace recently.
The "low margin retailer" comments about AWS are funny too. AWS is effectively a billion dollar company, eligible for HUGE subsidies (from retail), under effectively no pressure for revenue/profits, and is ok with 3% margins. That sounds like a nightmare to compete with.
The "low margin retailer" comments about AWS are funny too. AWS is effectively a billion dollar company, eligible for HUGE subsidies (from retail), under effectively no pressure for revenue/profits, and is ok with 3% margins. That sounds like a nightmare to compete with.
I think Amazon's profit per employee is around $6K. Compare to Apple at $600K. Amazon is practically a non-profit. Not surprising, as they play in a shitty, ghetto space--retail.
>I think Amazon's profit per employee is around $6K. Compare to Apple at $600K.
Amazon lost money, so what does it mean to say its profit per employee is $6k?
Anyway, a company that plows all its extra cash into growth doesn't make any profit in the short term, but if they're doing it right they'll make more money in the end. They went for a lot of years without making anything - now they're in a growth phase again.
Amazon lost money, so what does it mean to say its profit per employee is $6k?
Anyway, a company that plows all its extra cash into growth doesn't make any profit in the short term, but if they're doing it right they'll make more money in the end. They went for a lot of years without making anything - now they're in a growth phase again.
Besides what other people have mentioned, there is also the fact that Amazon employs a lot of people, and many of them are performing relatively mundane service jobs. Picking and packing products from the Amazon warehouses requires a large workforce, despite all the advancements in automatic warehousing.
Profit per employee isn't really a useful number in this respect.
Profit per employee isn't really a useful number in this respect.
This is my point; that Amazon is a shitty business because they have chosen a terrible sector: retail. That's what you get when your main competitor is Walmart. Look at the absolute profit numbers: 1/40th the profits of Microsoft; 1/100th the annual profits of Apple; 1/30th the annual profits of Google.
That said, they are desperately trying to get into real tech. businesses.
That said, they are desperately trying to get into real tech. businesses.
Fair point - everyone knows that retail is a razor-thin margin arena to play in.
I would argue that their profitability is a lot more stable than Apple. A few missteps and Apple is no longer the golden child. They have to continue to innovate or they lose their special status. Executing on a retail strategy is in many ways simpler than "build the next innovative consumer electronics widget...sell for astronomical price".
I'd take stock in Amazon over Apple any day.
I would argue that their profitability is a lot more stable than Apple. A few missteps and Apple is no longer the golden child. They have to continue to innovate or they lose their special status. Executing on a retail strategy is in many ways simpler than "build the next innovative consumer electronics widget...sell for astronomical price".
I'd take stock in Amazon over Apple any day.
You're comparing Apples and Amazons here. The two things have similarities but are not alike.
Apple is hardly the norm
If I had any cash sitting in my brokerage account, I'd probably buy a few more shares of AMZN with it right now.
> If I had any cash sitting in my brokerage account, ...
Uh oh, classic indicator.
Uh oh, classic indicator.
I like the company but at 250-300 times earnings it's a darn expensive stock.
I'm guessing everyone is waiting until Amazon is the only game in town and can increase margins every product but those that would allow a new competitor to survive to profitability.
Once they are in a position to increase margins without risk of lost market share, the current valuation will be justified.
Once they are in a position to increase margins without risk of lost market share, the current valuation will be justified.
Fresh competition is never more than a click away.
I get that Amazon is playing the long game, forgoe profits now to build a dominant company for the future. But how long have they been playing this long game for? How much longer before it pays off? This is a 17 year old company. People younger than Amazon are getting married and having kids.
I get that Amazon is playing the long game, forgoe profits now to build a dominant company for the future. But how long have they been playing this long game for? How much longer before it pays off? This is a 17 year old company. People younger than Amazon are getting married and having kids.
> Fresh competition is never more than a click away.
Two clicks, actually. They have a patent on one click.
Two clicks, actually. They have a patent on one click.
During that time, they've been building an amazing infrastructure, and that won't be easy for a new competitor to match.
I ordered from a different retailer last Saturday night, and I had forgotten how long it takes to get stuff shipped in the real world: FedEx didn't receive the package until Tuesday at 8pm. With Prime, I'd already have it by Tuesday night.
Shipping speed isn't the most important aspect of online shopping, but I think it's indicative of how Amazon's size is already providing a competitive advantage that is hard to match.
I ordered from a different retailer last Saturday night, and I had forgotten how long it takes to get stuff shipped in the real world: FedEx didn't receive the package until Tuesday at 8pm. With Prime, I'd already have it by Tuesday night.
Shipping speed isn't the most important aspect of online shopping, but I think it's indicative of how Amazon's size is already providing a competitive advantage that is hard to match.
The fact that people are willing to wait a couple of days for Amazon when they can buy exactly the same product immediately for slightly more money at the local Best Buy speaks to how much they're willing to put up with for a marginal cost savings. I think that anyone who expects a "sinister phase II" where Amazon takes advantage of their market share by jacking up prices fundamentally misunderstands Amazon. They are, and always will be, a low-margin retailer.
From my experience, sitting on the couch and ordering something is a whole lot easier than actually going out and getting it. And it comes right to the door. In a day or two. Subscribe and save was even better when the kids were little. Diapers and wipes. Delivered automatically.
I don't find that amazon's prices are that amazingly good. Sometimes they're better, sometimes they're not. I've found small things for half the price in local shops sometimes. Newegg will beat them for anything electronic, but their shipping is really erratic. And since I'm in WA, there's no tax savings.
Maybe I'm a special case. I don't live in a big city, but you can see one from the beach. It's 45 minutes to Walmart, 2x that to Target, Trader Joe's, the Apple Store and other pillars of civilization. Hell, it's 10 minutes to the nearest store (plus whatever time it takes to get the kids into shoes and strapped into the car).
Amazon wins on predictable convenience. They're the biggest store in the world, and they're right here. And whatever I want will be here in 2 days, shipped free. (yeah, we have prime. it's like crack)
I don't find that amazon's prices are that amazingly good. Sometimes they're better, sometimes they're not. I've found small things for half the price in local shops sometimes. Newegg will beat them for anything electronic, but their shipping is really erratic. And since I'm in WA, there's no tax savings.
Maybe I'm a special case. I don't live in a big city, but you can see one from the beach. It's 45 minutes to Walmart, 2x that to Target, Trader Joe's, the Apple Store and other pillars of civilization. Hell, it's 10 minutes to the nearest store (plus whatever time it takes to get the kids into shoes and strapped into the car).
Amazon wins on predictable convenience. They're the biggest store in the world, and they're right here. And whatever I want will be here in 2 days, shipped free. (yeah, we have prime. it's like crack)
I recall something about Bezos planning for the decade or longer, so any time they think the net present value of running a no-profit quarter is higher than the returns of profit-taking.
Could be another 20-30 years.
Could be another 20-30 years.
> Once they are in a position to increase margins without risk of lost market share
That day may never come.
edit: Every quarter with margins in the single digits is additional evidence that it won't.
That day may never come.
edit: Every quarter with margins in the single digits is additional evidence that it won't.
Single digit margins on $14 billion dollars in quarterly sales is still lots of money. 2.5%, as an example, is 350 million dollars a quarter, which is still 1.4 billion dollars a year.
I fully expect it to never come. I don't think it really matters. Amazon will continue to take market share off physical retailers, expand its product range and push into new markets.
Say what you want about some of their other business practices, but they appear to have successfully destroyed rents in the retail industry, which is great for consumers of retail. Regardless of how they do for their shareholders, that is a real benefit to society.
Right?
Right?
That is a difficult question to answer. A good parallel to what amazon is doing to retail is what globalization did to manufacturing. As we all know, manufacturing in the US has been gutted and is now largely based in developing countries. While this is good for the consumer because products are cheaper, this also resulted in a great deal of unemployment for a certain category of workers (primarily low skill). Retail, which is also a major employment source for low skill workers, is now facing similar pressure from companies like Amazon, who employ significantly fewer people than the companies that they replace.
Ultimately, developed countries are going to have a difficult time finding good paying, reliable jobs for low skilled employees. This is an inevitable by-product of our shift to a globalized, modern economy and is one of the primary reasons why the US and Europe are struggling to keep their social safety programs solvent.
Ultimately, developed countries are going to have a difficult time finding good paying, reliable jobs for low skilled employees. This is an inevitable by-product of our shift to a globalized, modern economy and is one of the primary reasons why the US and Europe are struggling to keep their social safety programs solvent.
> As we all know, manufacturing in the US has been gutted and is now largely based in developing countries
We all know it, and yet it's not actually true. America is the largest manufacturer in the world.
The main that happened is America switched from making many multiples of cheap item, to making smaller quantities of much more expensive and complicated items.
We all know it, and yet it's not actually true. America is the largest manufacturer in the world.
The main that happened is America switched from making many multiples of cheap item, to making smaller quantities of much more expensive and complicated items.
The CNC mills have revolutionized small production runs. For example, it used to be very hard to restore old cars for which parts were no longer available. For example, decades ago a guy down the street restored some old Mercedes limousine he showed me, and I asked him how he dealt with the unavailablity of parts. He said "oh, I just made them" and showed me his fully equipped machine shop in his basement.
That can now be done with a simple CNC machine.
A lot of shops have sprung up that apparently have libraries of CNC designs, and they manufacture the parts on demand.
That can now be done with a simple CNC machine.
A lot of shops have sprung up that apparently have libraries of CNC designs, and they manufacture the parts on demand.
I suppose I should change the language of my post to say that "manufacturing employment has been gutted", as that is what I actually meant.
You are correct, there has been a resurgence in manufacturing in the US. The issue is that these new facilities are much more autonomous then their predecessors, and they are not going to result in pre-1980 manufacturing employment levels. While output may reach record highs, employment won't.
You are correct, there has been a resurgence in manufacturing in the US. The issue is that these new facilities are much more autonomous then their predecessors, and they are not going to result in pre-1980 manufacturing employment levels. While output may reach record highs, employment won't.
I don't believe that. Throughout history, labor-saving machinery has put people out of work, and they become available labor for entirely new industries.
For example, there's a growing industry now of digitizing the zillions of documents, books, photos, movies, art, etc. This is low skilled labor.
Or Apple/Google/Microsoft sticking camera hats on people and having them hike trails to develop maps.
The list is endless.
For example, there's a growing industry now of digitizing the zillions of documents, books, photos, movies, art, etc. This is low skilled labor.
Or Apple/Google/Microsoft sticking camera hats on people and having them hike trails to develop maps.
The list is endless.
Both of those examples seem like temporary solutions at best. And robotic tech already exists that could theoretically replace humans for those tasks.
I may read too much sci-fi, but I am fully convinced that we are heading to a future where most menial, low skill tasks will soon be done by technology and robotics. We have been heading in that direction for quite some time and I don't see that changing. The end result is the near elimination of low skill jobs. This doesn't necessarily mean that people won't be able to find work, it's just that we will need to do a better job at educating them to prepare them for more high skilled labor.
I may read too much sci-fi, but I am fully convinced that we are heading to a future where most menial, low skill tasks will soon be done by technology and robotics. We have been heading in that direction for quite some time and I don't see that changing. The end result is the near elimination of low skill jobs. This doesn't necessarily mean that people won't be able to find work, it's just that we will need to do a better job at educating them to prepare them for more high skilled labor.
> we will need to do a better job at educating them to prepare them for more high skilled labor.
What about people who can't be educated for high-skilled labor? Seems like a taboo subject, but there are a lot of people like this in the world. What do they do?
* edit. These labor shake-ups are going to take place in "high-skilled" areas, too. IBM's Watson can probably be trained to be more talented at illness diagnosis than most MDs. It will be interesting to see what happens to those MDs.
What about people who can't be educated for high-skilled labor? Seems like a taboo subject, but there are a lot of people like this in the world. What do they do?
* edit. These labor shake-ups are going to take place in "high-skilled" areas, too. IBM's Watson can probably be trained to be more talented at illness diagnosis than most MDs. It will be interesting to see what happens to those MDs.
Regarding your first point, I don't have an answer. But, for a more ironic take on the issue, please read 'Player Piano' by Vonnegut.
Regarding your second point, I addressed this in the other post, but post-scarcity economics seems to be the best 'thought experiment' as to what a future society would look like. I truly believe that we are entering an age where human labor will become obsolete. It may take a while but, its going to happen.
Regarding your second point, I addressed this in the other post, but post-scarcity economics seems to be the best 'thought experiment' as to what a future society would look like. I truly believe that we are entering an age where human labor will become obsolete. It may take a while but, its going to happen.
> I truly believe that we are entering an age where human labor will become obsolete. It may take a while but, its going to happen.
I think you're correct.
For me, what's difficult is to understand what happens to us at that point...and I guess what happens to us on the way to that point. I can't tell if it will be good or bad (or a mixed-bag) for us/humans.
I think you're correct.
For me, what's difficult is to understand what happens to us at that point...and I guess what happens to us on the way to that point. I can't tell if it will be good or bad (or a mixed-bag) for us/humans.
Alas, technology is destroying higher skilled, white collar jobs at a furious pace. At least that is the main thesis of the recent book by MIT business school faculty:
Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy http://www.amazon.com/Race-Against-Machine-Accelerating-Prod...
They give three explanations for the current slow job growth: (1) business cycle lack of demand, needing normal Keynsian stimulus, (2) technology running out of steam in improving productivity, and (3) the opposite, technology accelerating and destroying the need for highly profitable businesses to hire more workers. The authors think technology acceleration has been underappreciated for its effects on suppressing job growth.
Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy http://www.amazon.com/Race-Against-Machine-Accelerating-Prod...
They give three explanations for the current slow job growth: (1) business cycle lack of demand, needing normal Keynsian stimulus, (2) technology running out of steam in improving productivity, and (3) the opposite, technology accelerating and destroying the need for highly profitable businesses to hire more workers. The authors think technology acceleration has been underappreciated for its effects on suppressing job growth.
Totally agree. Once again, I may read too much sci-fi, but I think the end game (as it should be) to technological progress is the elimination of labor, completely. This probably won't happen in my lifetime, but assuming civilization can survive long enough, I believe it is inevitable. I can't even imagine what a society would look like under these conditions..., a post-scarcity economy would be a good starting point, I suppose.
I will definitely put that book on my 'to read' list. Very rarely have I been disappointed by an HN recommendation.
I will definitely put that book on my 'to read' list. Very rarely have I been disappointed by an HN recommendation.
elimination of labor != post scarcity
We are physical beings with physical needs. We can't live on thin air, we need a basic input of energy and matter to survive. But our society is organized around private property. When you are born, you own nothing. So far, we've been exchanging labor in exchange or property. Once labor becomes valueless, the vast majority of people end up with no means to acquire property, which is essential for physically sustaining life. Something will have to give up, and I'm not placing my bet for the owner class suddenly having a change of heart and sharing their property with the rest of us. Which leaves the majority of people in a scarcer and scarcer world.
We are physical beings with physical needs. We can't live on thin air, we need a basic input of energy and matter to survive. But our society is organized around private property. When you are born, you own nothing. So far, we've been exchanging labor in exchange or property. Once labor becomes valueless, the vast majority of people end up with no means to acquire property, which is essential for physically sustaining life. Something will have to give up, and I'm not placing my bet for the owner class suddenly having a change of heart and sharing their property with the rest of us. Which leaves the majority of people in a scarcer and scarcer world.
Brick and mortar stores are essentially free showrooms for online retailers. How many of us decide which TV to buy at Best Buy, and then get it for less at Amazon?
We may not like the consequences if B&M retailers are driven out of business, and we're forced to rely on dubious online reviews to make purchasing decisions.
We may not like the consequences if B&M retailers are driven out of business, and we're forced to rely on dubious online reviews to make purchasing decisions.
My experiences with online reviews have been great, especially compared to anything a big box store can offer. With the help of websites explaining the technical details, forums discussing the product, and reviews at places like Newegg and Amazon, I am armed with much better information that I would have been had I gone to Best Buy to look at something and asked an employee there.
I can even look at manufacturer responses to reviews on Newegg, and ask other customers about specific issues I might have with a product. Of course, there is a possibility of the system being gamed, but I've had nothing but great experiences, although I am still vigilant for manipulated reviews.
Edit: I also don't have to choose from substandard consumer products sold at most stores, with high markups on trivial things like wires. With monoprice, Amazon, newegg, and others I can get reliable, quality products for what they're actually worth.
I can even look at manufacturer responses to reviews on Newegg, and ask other customers about specific issues I might have with a product. Of course, there is a possibility of the system being gamed, but I've had nothing but great experiences, although I am still vigilant for manipulated reviews.
Edit: I also don't have to choose from substandard consumer products sold at most stores, with high markups on trivial things like wires. With monoprice, Amazon, newegg, and others I can get reliable, quality products for what they're actually worth.
I feel like if Jason Fried were to comment on this article that he would say there is no time like the present to practice earning money.
I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?
I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?
I think the difference here is that Amazon is taking in massive revenue and investing it in future infrastructure. Jason Fried advises against taking no revenue now while expecting to "figure out" some way to make some revenue in the future. Both have little or profit now, but Amazon can reasonably expect to make profit in the future, while that SuperCoolFreeApp can't.
>I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?
Actually, Amazon did spectacularly well during the internet bubble with just that strategy. This is a return to the company's roots, in a way.
Actually, Amazon did spectacularly well during the internet bubble with just that strategy. This is a return to the company's roots, in a way.
Microsoft also reported their first loss not too long ago.
In other words, revenue is nearly identical and there's no profit, presumably because of these new things.
Amazon is one of the few very large companies that has extremely high potential for growth. I made an OK amount of money buying them after post-earnings panic and selling 1 day to 60 days later this year and last.
If it ever goes back down to 190 I might throw some % of my long term money their way.
(100% of my long term money, which is about $1000 every two weeks, is currently just going to TGT, another long term big company that already has a dividend but still has plenty growth potential)
((90% of my short term money, on the other hand, was buying 10K shares of OCZ at 4.90. Now its at 1.36. Ouch!))