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Amazon Tries to Turn a Profit
The NYTimes is carrying a story I thought was interesting about Amazon.com trying to actually, gasp, turn a profit. When you have a small business it isn't terribly difficult to make sure you're selling things for more than they cost you. For an outfit like Amazon, it's a little more challenging.
polyp@tesco.net writes ... The problem with Amazon , is there product range ,
most people associate Amazon with books , or CD's
Did you realise you can actually order Cars ? on Amazon. Cars ! Me thinks they are going slightly over the top. For me one of the best things about Amazon is the speed of which they dispatch orders. As the above article suggests they could begin to make a profit by reducing the amount of stocked items, if this leads to a noticable drop in the speedy service, people will start to notice and go elsewhere. polyp@tesco.net (nicholas fellows) support my tunez
Last summer, he moved from Bayer Chemical to Amazon.com and has built an 800,000-equation computer model of the company's sprawling operation
They should ditch the 800,000 equations and try these:
profit = revenue - expenditurefor +ve profit, require revenue > expenditure
+ve profit good
A Dot-com turning a profit? Has Hell frozen over? What's next...will Slashdot actually proofread articles & correct spelling errors? Only time will tell.
Are you sure you didn't give your name to your College or anything? I know the instant I got in college my name was on EVERY credit card companies hit list (Particularly GTE, who will not stop hounding you until you remember (at 7:00 Saturday morning!!!) to tell them to take you off of their list). Basically, you can expect to spend your first couple of semesters trying to get off of everybody's calling list.
As far as I can tell, Amazon has never sold my name to anybody, as I never got calls at my co-op apartments or once I got out of college.
Then again, I may just be lucky and missed all of the telemarketers Amazon sent my way...
Down that path lies madness. On the other hand, the road to hell is paved with melting snowballs.
I read the internet for the articles.
Interesting theory:
Selling one book costs us $5, we sell it for $4.50.
Now we sell a million of them and make a profit (when the integer holding your "profit" underflows perhaps?)
There are economic theories that allow you to reduce costs when working in volume, but if you sell everything below cost you will never turn a profit. See the previous post in this thread that goes into detail so gory it should be on The Stile Project.
Down that path lies madness. On the other hand, the road to hell is paved with melting snowballs.
I read the internet for the articles.
- They have used those users to create a very good set of reviews of a wide range of items. This makes them one of the better places to research the items they sell. Of course, then its convenitent to buy the item there.
- They also suggest things that other similar customers have bought, which can encourage impulse buying.
- They have collected information about the preferences of a large number of individuals and are able to provide (occasionally) useful recommendations.
Together these mean that the site is a lot more helpful than, say WalMart.OTOH, I am partially an Amazon defector. I have found that I can often order books for a brick and mortar store less expensively than through Amazon--- they can also order from the wholesalers and I don't pay shipping. Plus they recognize my face rather than my cookie.
Was it The Amazon management who claimed for years that they had to grow the customer base wide enough before they actually started charging more per book than it cost them to supply.
Or was it the critics who claim that the moment Amazon started charging profitable prices the customer base would vanish because there is no such thin as "a good location" in cyberspace.
All we gota do now is sit back and watch. This should be fun. Personally I think they are both right. Users will defect but not enough to cause Amazon much sweat.
--= Isn't it surprising how badly I spell ?
Amazon is supposed to be an e-business, where everything from the cost of capital to the quantity of sulfur exhaled when Jeff Bezos farts is supposed to be in some database somewhere.
If at this point they can't close their books in a day, let alone 10 minutes, then what the fuck have they been doing with all this stuff?
Everything they sell has a SKU and a barcode. It is all in the computer. Decent software should be able to handle this relatively easily, and decent hardware should push it thru very quickly.
Go fig.
Your Working Boy,
- Otis (GAIM: OtisWild)
If you read the article, you'll find that the guy begind the model used to develop models for Bayer, a quite profitable company. There's nothing magical about models -- they are just more complicated versions of the sorts of things everyone creates with spreadsheets
Yesterday I wanted to order some books online. My first place to go was amazon.co.uk. They had the books I wanted and cheaper than in the retail store. They advertised 8.49 UKPound for the one book (Thief of time, from Terry Pratchett) and 13.59 UKPound for the other book (The Truth, also from Terry Pratchett). I proceeded to the checkout and ...
Hey, that ain't right, suddenly the first book is 9.00 UKPound and the 2nd is 14.41 UKPound. I opened a new window and checked the prices. Sure as hell, they're advertised for one price, but actually sold for a higher price.
I decided to take my business elsewhere.
I went to uk.bol.com and they had the same books for 8.50 and 11.89, so I ended up cheaper, plus paying less for shipping. And they didn't try to sneak a more expensive price past my nose.
It will be a while before I look at amazon.com again, if at all. This is not the way to profitability for them.
--Tim
And JIT from the publisher's warehouse doesn't work, because the publishers don't want to carry inventory either ( they get taxed on it too heavily ). They try to print not much more than they will have immediate orders for, so if you depend on their inventory you're likely to get "Sorry, that book's out of print." when you call them 4 weeks later asking for more copies.
For some reason, nobody has mentioned what I suspect will be the most valuable "fringe" of this business, to the extent that it might bail them out pretty nicely even if everything they sell themselves only comes in at break-even:
Information on buying habits
Amazon has (and uses) a phenomenally large amount of information about what their customers buy, and the whole "customers who bought X often were also interested in Y" angle of the site that always freaks people out at first, until they realize how useful that can be.
I think that Bezos and company understood this pretty quickly, which is why they wanted to get into so many other product lines, since the richness of the customer database goes way up. It's nice and all to know that households who buy Object-Oriented Perl also buy the poetry of Wendy Cope, but it's way more important to know that such people also buy certain kinds of toys (for their kids), have a taste for certain clothing lines, and probably need a new car in the next 12 months. You don't have to be an e-merchant to make money on info like that, friends.
Or, if you think that trading in or selling info on individuals really won't fly, you can aggregate it and sell it to brick-and-mortar outfits so that they can better plan where to put their next round of locations. This can be seriously big money, if you play the game right.
Babar
Cost is more that an items wholesale price. Things that add/modify that initial cost are:
Shipping costs are billed per truck load not per item. Weight and size of items vary and cost of fuel is dynamic.
Wharehouse costs. Size (shelf space) is only a part of this cost. There is also rate of turnover cost. Keeping one book for a year has higher wharehouse costs than keeping 10 books that sell out each month.
There is also the cost of money. Most inventory is purchased with borrowed money. Turnover and interest rates make this part of the cost flucuate. Even when the money isn't borrowed from someone else the cost exists.
People costs per item. This is all the salesmen, buyers, office personel that need to be paid. Their wages add to the cost.
"shrinkage" Items are lost, stolen, and damaged in shipment. How fragil an item is adds to the cost. How likely an item is stolen adds to the cost.
Having done accounting programs for companies, the best anyone could ever hope for was an approximation of an item's real cost. At the end of a quarter you compaired your estimated costs/profits with your bank balance. When they are close you are doing pretty good.
Dyslexics Untie!
I can assure you that e-gold is nothing like Beenz or Flooz, which are glorified loyalty schemes that merely CLAIM to be currencies. If I have 50 beenz and you have 50 beenz, there's no way for us to buy something that costs 99 beenz. If I have 50 grams and you have 50 grams, it's fairly trivial (assuming we trust eachother, that is) to get something worth 99 grams.
:)
I'm not sure, anyway, how you can spend "cash" at Amazon. You may be able to use PLASTIC, but credit is hardly cash, it's a conditional promise to (eventually) pay. Ask the Pron-merchants about chargebacks sometime, and you'll get an earful! (Adult sites are -- FINALLY, after much urging from me! -- getting the clue about my currency, BTW).
e-gold is different because payments are instantly 'pushed,' so when you get paid you *STAY* paid (which can be a double-edged sword, plenty of criminals want e-gold for that reason and I have to deal with their victims every day). e-gold is not good for insecure computers or novice computer users who will click on any spam/attachment. We are working on improving all aspects of the currency, but I can't say what I know until it's not vapor, on penalty of the techs killing me slowly with dull knives.
Anyway, to answer your first question, there are dozens of folks who'd be glad to exchange your metal grams for "real" cash (and if you studied history, in most countries the paper USED to be backed by the real metal, instead of just by faith!). For more on playing with the value of money, art, and faith, do a google search on "JSG Boggs" and see what comes up! He's the "yin" to my "yang." For proof that e-gold is better money, take a look at the site, and if you like what you see, try it, and (as for any slashdotter) I'll click you enough to play with and hopefully get you hooked!
JMR
Try e-gold - (contact me). I'm NOT e-
No, you got it wrong. Shipping is expensive but it's not necessarily more expensive to ship, say a book, from the publisher's factory to say B&N's distribution center to a B&N store than to ship it from the factory to an Amazon warehouse to the customer's doorstep. You would think the first route is cheaper (and it is), but not necessarily so...
What you are missing is two somethings called inventory and opportunity costs. When Barnes & Noble buys X number of books, hoping to sell, say 0.1X and planning to return 0.9X, it amortizes the logistic costs of returning 0.9X books into the profit margins of the 0.1X that it will sell (actual percentages are not as lop-sided but not too far off). Amazon on the other hand may not have to; so in the end, they could sell cheaper and ship directly...
The problem with the brick model is that B&N ties up a lot of cash up front to buy X books. Which means it's losing potential return from these monies that it could have invested elsewhere (the stock market, for instance, ha-ha; in reality better-selling stock, Harry Potter books for example). The first cost is the inventory cost. The lost profits from investing elsewhere is the opportunity cost.
Now, the Dell model of doing business is zero (actually *negative*) inventory cost: the customer has *pre-paid* his computer's components when they enter Dell's factories for assembly. That extra cash (billions of $$$ worth) Dell can use to agressively invest, expand, do whatever on earth it wants. More importantly, near-zero inventory means that Dell can change model lines on a dime. It's an agressive, ultra-efficient PC-making jugernaut.
Amazon on the other hand, cannot use the Dell model and still try to stock every book in existence. Doing so means that it's tying up cash (see above) and warehouse space for low-selling items. So, Amazon has to try and do what retailers do already: aggressively manage its supply chain for that top-10% of items that bring in the majority of the profits. Not try to be the freaking Library of Congress via 1-Click (btw, I am a loyal Amazon customer and I love their service; it just doesn't make any logistical sense).
Yeah, it's a tough problem; Supply chain optimization pushes modern computing hardware and software to its limits, and there's still a long way to go. Oh, did I mention my company is hiring? I need that referrer cash, so drop me a line if you're interested (Atlanta; very, very good C++, Java required).
I typically only buy the slow-sellers--I am particularly interested in unpopular history (i.e, stuff not written by Court Intellectuals who are Lapdog Apologists For the Regime's Received Wisdom [tm] ). Nice to know I'm helping keep Amazon going. I do have an obscure book on order from Borders, but after four years of waiting, I think it's toast--never heard a thing from them about it. I did get it from Amazon 3-1/2 years ago.
But there is nothing quite like the rush of wandering through bookstacks and thumbing through new books.
--
Slashdot: Failed Car Analogies. Amateur Lawyering. Anecdote Battles.
I wonder how many other geeks are like this. If it's a large number, it must hurt them since geeks tend to buy a helluva lot of tech books...
If you put only 1 min per equation - (fast mathematician), work 24h/day (no sleep, no food) and 7 days/week (no holidays) that's roughtly 555 days of work. I'd say either the number is bogus or some equations were generated automatically.
Beside, if Amazon would cut the marketing, it would already be close to profitability.
When thinking of the all the talk that has gone on over the .com craze.... I am reminded of something a prominent figure once said, "Bork Bork Bork". The words our beloved Swedish Chef spoke then still carry with them as much validity.
.com failures or successes. Here on /. we talk so much of how you need to look past the whole internet approach. Still, we fail to realize, this is just another business. Just as some newly patented technology was merely the same old garbage repackaged with some electrons. Amazon is a business, if it does not do the things a business needs to do to survive, it will simply cease.
Ok, so I am on crack? No, I am just tired of reading about
So, lets not get to excited over a business wanting to make money. It was of course, the logical path to be taken.
"You should always go to other people's funerals; otherwise, they won't come to yours." -- Yogi Berra
dumping = You buy the stuff for 2 bucks, and sell it for 1 buck
selling at pricess that do not cover cost = You buy for 2 bucks, spend a buck on bureaucracy and sell it for 2.10 buck, cos you have no idea that the bureacracy cost a buck, instead of the 0.05 bucks you thought it cost.
1 is illegal, 2 is just stupid although the difference is trivial.
//rdj
No one can understand the truth until he drinks of coffee's frothy goodness.
--Sheikh Abd-Al-Kadir, 1587
When you have a small business it isn't terribly difficult to make sure you're selling things for more than they cost you
Maybe it's easy to take a look at the bottom line to make sure your net inflow was greater than your net outflow, but figuring that price ahead of time is no piece of cake.
First, you may pay something for an item, but don't forget there are a bunch of other costs involved. Rent, taxes, licenses, salaries, benefits, capital costs (a cash register costs something), business services, tax prep, legal costs, repair bills, utilities, insurance, costs, etc., etc., etc.
Now, a major corporation generally has major league accountants well versed in standard and acceptable (to VCs and institutional investors) accounting practices. A business usually has Quickbooks on an old PC and someone (if they are lucky) with an associate's degree in accounting.
Now, all you have to do is put that PC, the software, and Quickbooks together and try to figure out a price that will move enough merchandise at a low price or less merchandise at a higher price to keep up with those (usually variable) expenses (not to mention your competition, who may be a huge corporation), oh, and make sure it happens so that you always have cash on hand to pay your bills when they're due.
That may not be rocket science, but it ain't *easy*.
Amazon started as a cheap place to buy books online. Pretty much EVERYTHING was a loss leader. And contrary to what other posts say, they are planning to raise prices, little by little. The thing is, there comes a point where the amazon price plus shipping is just about the same as running down to barnes and noble and picking it up - except that barnes and noble is probably on your way home from work, and you can have the book NOW instead of waiting 2-3 days, and there's no chance of a shipping error if you go pick it out yourself.
Those things could combine to kill amazon. Unless they somehow maintain an advantage over b&n. Having a wide selection might just be that advantage. And that runs contrary to the advice given by Mr. MIT PhD. Of course they could still LIST a wide selection of books and actually order them after people request them, but that would increase the delay substantially... time will tell, I suppose, if people are willing to wait.
If they decrease their selection of books, what exactly is the advantage of amazon over any bookstore in town?
---
The only reason that I ever order from Amazon is because they stock those "slow-selling" books that I would have to special order from my local store. I don't want to pay extra for shipping (then wait for the book to arrive) when I can go to a local retail bookstore and buy the same "fast-selling" book and browse other new books. --Sean
This is what all those alternative forms of web-currency reminds me of. Why would I spend my cash to get something that I can use...just like cash!
Last night I shot an elephant in my pajamas. How he got in my pajamas I'll never know.
I noticed you go a number of clueless answers to your question, so I decided I might as well give you a more informative reply.
"Price dumping" is a term used largely to describe selling below costs in an export market. A corportation is encouraged to export at a price below the costs of production, which the corporation's government then makes up for by giving them money, below market access to materials, or other consideration. Governments typically engage in this kind of market manipulation in emerging industries which have 1] significant barriers to entry, 2] are lucrative, and 3] will result in significant numbers of high paying jobs.
Dumping is not illegal, per se. It is a government backed practice. However it does piss off other countries, and will typically cause them to raise tarrifs.
Selling below cost is not illegal. It happens all the time. Every time you see a going out of business sale, or even a regular "ultra discount" sale, the company in question is probably selling below cost. All they want is some money back on the product they weren't able to move within a certain period of time.
Even attempting to "buy market share", which is what Amazon was doing, is not illegal.
The only case where the law gets involved at all is with what is called "Predatory Pricing". This is where a big player attempts to establish a monopoly position by driving out the competition in order to later raise prices back up. By selectively engaging in price-wars with less deep pocketed competition, large owners can establish prices at a higher level than would otherwise be. This is illegal.
There is also a provision against using market power to stifle technologies that might cause you to loose a monopoly you might have. This is what Microsoft ran afoul of.
Repeat after me: Distributing books is the concept of keeping a large store of books somewhere in the central US, or keeping several 'satellite' warehouses with smaller supply, but faster time to destination, or keeping very little stock on hand and trying to do JIT from publisher warehouses. Shipping and delivery of books is the business of Federal Express. Selling books and arranging for shipping and delivery from distribution points to customer is the business of Amazon.com
Vintage computer games and RPG books available. Email me if you're interested.
There's a big difference between 'having all the data in computers' and 'having all the data in computers with systems that can actually talk to one another.' If your accounting system, order tracking system, warehouse system, and shipping system can't trade data easily, you can't use the data together very well, can you? And things like data warehouses are big big big expenses in both time, money and expertise.
Vintage computer games and RPG books available. Email me if you're interested.
At the moment it is not cheap to ship lots of diverse stuff in small packages to numerous different locations.
That's why hypermarts, stores etc rent/buy floorspace - to provide an area where customers can go get the goods themselves. Easy and cheap to move the goods in bulk from a few spots to a single spot.
The five warehouses are a symptom of this problem - Amazon still got floor space in the end.
Dell does ok because it sells profit dense items and knows how to keep inventories low, and is quite specialised.
So there's a point where shipping is cheaper than floorspace rental, but what?
Ebay's model is likely to be more profitable - the customers do almost everything themselves. E-bay just helps with the information - the very thing the WWW is good for.
Cheerio,
Link.
This is brilliant... truely Dilbert pointy-haired-boss management at its best. In the next few paragraphs she goes on to shoot down the optimization phd guy's quantitive analysis because her hunch is (paraphrase) "it's better for us to incur huge costs storing loadsa books than to only stock popular ones we might have a chance of ever selling".
The fastest way for amazon to turn a profit would be to turf out Ms Blake because distributing books is a numbers game...
not_cub
q='echo "q=$s$q$s;s=$b$s;b=$b$b;$q"';s=\';b=\\;echo "q=$s$q$s;s=$b$s;b=$b$b;$q"
I'm not a stocks-and-business person. But following Amazon as a sort of case study has taught me a lot. (Perhaps a real financial person can correct me where I err...)
Here you all go: http://channel.nytimes.com/2001/05/20/technology/2 0AMAZ.html?pagewanted=all
Richy C.
Nope, nope, nope! It's the other way around.
Haven't you ever been to a department store? Put the things people want at the *back* so you have to wade through miles of purses and perfume to get to them...
It works, I've gone to Amazon at least once to search for a specific book and ended up following a random link and buying something I didn't expect---just acting like a good consumer I guess!
Just sell the One-Click-Patent. Someone will buy it!
hmm... for fun I enjoy launching DDoS attacks against 127.87.42.5
How many profitable firms find it necessary to build such a complex model?
And no, its not because Amazon.bomb' business is so complex.
This is just more of Bezos' BS. Stuff that will hopefully impress folks in the capital markets so he can raise more money.
800K equations. Shees!
A message from our sponsor
Sorry if I sound incredibly dumb, but I never got it.
I get it when you sell items ever-so-slightly above cost to make a profit selling large volumes, and still out-profiting the small guy. (Wallmart, Barnes and Noble -bricks and mortar stores-)
I also get it when you sell something below cost (or even give away), so that you can then sell other items at a hefty profit (razors, ink-jet printers)
Could some of the Economic/Politic/Corporate knowitalls at Slashdot explain this to me?
Or was it just the byproduct of the "our stock price will go up no matter our business plan" sort of thing that just blew up these last months?
------
C'mon, flame me!
No sig for the moment.
cynical people will manipulate any system they can, yes, but it should be stated that it is the goal of accounting to give an accuate financial picture, not a dishonest one. Accountants are always looking to close loopholes in accounting practices, but it's hard to get everybody. That's what analysts are supposed to do, BTW, keep track of the "meaning" of standard accounting in each industry to decode the financial statements more accurately. They only track big companies, though.
Oh, and set some money aside to cover returned merchandise... how much?
advanced accounting is a highly technical and extremely fascinating subject. 101 is kinda boring, but it's the only way to get there... To sum up, there is no "correct" answer to whether you made money from the $6-$5 book. Over periods of time, the entire firm can be seen to make money or not, but it's always in the context of what came before and what position they'll be left in for the future.
I think if they were to redesign their site, according to a simple law of organization I choose to call "Common sense", they would probably start gaining a profit quicker.
They can't do that. If their site was better organized, they might have more sales. And if they have more sales, they'll lose more money!
-- dR.fuZZo
for those of you who don't have one:
username: slashdot_reader
password: slashdot
--
jX [ Make everything as simple as possible, but no simpler. - Einstein ]
Is dumping illegal ?
I'm still trying to figure out what people mean by 'social skills' here.
Well bear in mind that they had to appear aggressive in order to keep the faith on Wall Street. I personally think that the Amazon model is a solid one, but with no capital they are gone. If they can turn a profit even in this "changing" economy, they can prove to Wall Street they are here to stay and that they deserve the investment. Otherwise they are toast like all the legendary Dot Coms who weasled away the venture capital I would have received for sending a Chipmunk to Mars in a milk carton. But I'm not bitter.
They do claim to be making a profit selling books, for merchandise that they stock perhaps they should just stick with books and such.
Get rid of the electronics, I am not buying anything from there mainly because of their limited selection.
Amazon just needs to realize that they cannot be all things to all people. The internet will reward those who concentrate on getting one thing done and done right.
If they can't make a profit now, just how do they plan to make one once the government starts taxing internet commerce? How much more of a free ride do these companies need?
* Winners compare their achievements to their goals, losers compare theirs to that of others.
The idea of Amazon not allready making a good turnover is pretty neat, yet they are obviously not. And come to think of it - I can understand why. All right, they've got quite a good store going on there, but HOW THE HELL are people supposed to find things, expecially when going there for the first time! I think if they were to redesign their site, according to a simple law of organization I choose to call "Common sense", they would probably start gaining a profit quicker.
But theres annother problem: The laws of information architecure are so simple when it comes to this: You cannot create a perfect database, whereas for each item of information in the database, the complexity of the database itsself goes up.
They may therefore be better off the way they are today... who knows?
And so Amazon makes a profit.
At the next stockholders meeting, Satan shows up.
Instead of his usual pitchfork, he holds a snow shovel. He glares at the CEO, shakes the ice encrusted shovel. and shouts:
"THIS IS YOUR FAULT ISN'T IT?!"
------- I saw a VW Beatle the other day. The vanity Plates said "FEATURE"