Mighty Amazon

theodp writes "Fortune reports that the patent-pending practice of selling partners' used and new goods next to Amazon's own was CEO Jeff Bezos' response to the emerging threat of eBay. Seeing an opportunity to overtake the online auctioneer as well as a way to slow the need to add warehouse capacity, Bezos 'bet big and put hundreds of his best people on it.' While Bezos' decision caused a lot of discomfort at the time, including the Authors Guild protest and the subsequent e-mail campaign in Amazon's defense, today almost 20% of the e-tailer's unit volume is sold through others, yielding revenue that is almost pure profit."

Comments

Nearly classical economics

[Walter Wart]

A lot of people don't like Amazon's practice of patenting everything under the sun. I don't like their practice of patenting everything under the sun. Ultimately it is destructive to the long term development of the industry in the same way that the new NDA-driven brand of industry/university research is to science. But these articles give some idea of the why.

Bezos wants to make money and survive. And it's darned hard to run something like Amazon like a business. Now this should be obvious. But it brings back memories of my days as an economist (oh, the shame! the shame!)

They, like ebay, are working in as close to a frictionless economy as we are likely to get. If any facet of their business can be done more cheaply by someone else, they're screwed. We're even seeing one of the previously fictional economist's assumptions becoming true. The market setting prices immediately through the auction mechanism.

How does a firm survive in nearly classical economic conditions? It reduces costs at every point and provide barriers to entry to new firms, and damn the effect on every other part of the information industry. You also see it in the way that they provide "like goods" ("People who shopped for this also shopped for this") and pricing that varies from person to person for the same item based on their best guess as to what that person is willing to pay right now.

This is particularly true when they are competing with ebay which really doesn't have any pricing mechanism except for the pure market-driven auction one.

An interesting view on nearly classical economics

Re:Nearly classical economics

[KrispyKringle]

Granting a limited monopoly in the form of a patent is arguably bad enough for innovation when patents are granted for actual technological advances, say, the cotton gin (or, probably more accurately, there is a very careful balance between encouraging innovation and hindering it). Granting a limited patent for a true invention makes some sense; if it were immediately clear how the cotton gin functioned, no one would gain anything by investing the money to invent it when others could simply rip off the designs for less investment afterwards.

However, granting monopolies for business practices makes far less sense. Business plans typically do not involve huge R&D expendetures the way actual technological advances do. Instead, business plans are "gee whiz" ideas to run a business more efficiently, an end result which is ultimately more profitable for the business to implement regardless of having a monopoly on the practice or not.

If Amazon were not granted a patent for "One-Click," would they not use it? Of course not; the idea took very little investment to develop and makes their business far more profitable, regardless of its use by competitors. Patents are not necessary to inspire innovation when it comes to business practices; the necessary motive is the increased efficiency and profitability. Further, issuing a profit for a new business practice means that there can be no direct competition between Amazon and anyone else, since no one else can use Amazon's same sales methods. Therefore, there is no driving incentive for Amazon to increase their product value or profitability, and, indeed, fewer, not greater, incentive to innovate (the same problem which arises with more traditional trade monopolies).

It's difficult to show any likly benefit in innovation from business practice monopolies, but the cost is clear.

Is Amazon Profitable?

[VoyagerRadio]

Is Amazon.com now turning a profit? I thought I heard mention of Amazon finally making some money sometime last year (or was it this year?). I know eBay has always been profitable, and as long as there is a huge gap between the poor and the rich, there will always be a need for an eBay. Amazon, however, is often too darn expensive, even their used listings (zMarket and such). Half.com(an eBay company)'s items seem to be cheaper than Amazon's used market items, even though the Amazon used market is full of items by many of the same sellers as Half.com. I'm wondering whether Amazon's used market is catching up with Half.com's, in terms of sellers, though.

Discovery, not Invention

[abcxyz]

As much as I am against the rediculious patent articles that show up on /. regularly (the articles aren't rediculious, just the patents), I've purchased several used books from Amazon using this "technology". In virtually all those cases, I would not have bought the book at retail prices, because I wasn't sure that it was worth it. It is an excellent idea, but I'm not sure it's an invention. Maybe more of discovering a way to use existing technology. Similar to the SARS DNA patent, that is not an invention, it's a discovery operation.

-- Rick

Hmmmm

[mao che minh]

From the story: "Bezos 'bet big and put hundreds of his best people on it.

from an investor's letter released in April, 2003:

"Amazon.com's employee base grew from 158 to 614, and we significantly strengthened our management team."

So Bezo directed a third of his workforce to pursue just this one goal? Interesting.

Why hard to run something like Amazon as business?

[reverendG]

I don't have a background in economics, so I'm asking out of true ignorance.

I don't understand why it is difficult to run something like Amazon like a business. They are simply cutting out the distrubutor, who demands a share of profits, selling items for marginally(in most cases) cheaper than their competitors, and then charging the consumer for shipping.

It seems to me that as long as they can keep their costs below what a distrubutor would charge, they should be making money. Also, because they already have the infrastructure in place, they should have a competetive advantage over newcomers to the market space.

What factors am I overlooking?

Computerization...

[Anonymous Coward]

Amazon recently had a mistake in their coupon code system for a Toys'R'Us buy one get free game deal. You could use the codes a certain way and get everything free with free shipping. I got $400 worth of games for free and there were a lot of other people on deal message boards who got a lot more than that.

There have also been price mistakes where people have gotten boxes of 20 modems for the price of one and other things.

I'm sure this is somewhat of a drop in the bucket, but all the computerization does have its price when no one is double checking orders.

Re:Publishing depends on inefficiency

[Anonymous Coward]

Yep, the Authors Guild can drive the used book market out of existence just like the RIAA is fighting so hard to drive used CD stores out of existence.

Except the Authors Guild is run by carebears, not evil profit motivated people looking at a bottom line.

Because when the RIAA tries to shut down a P2P service or local used CD store, slashbots jump and scream about how they are dinosaurs and need to change their business model.

But the Authors Guild, being made out of candy and gumdrops, can just go ahead churning out millions of copies of books that get left on the subway or stuck on a shelf because it's profitable for them to do so.

Re:profit.

[MsWillow]

Amazon could be profitable any time Jeff wanted it to be. The rules say that a company must show a profit at least once every "n" years, and when they show a profit, they end up paying taxes on it.

What Jeff did was to play that game, pouring any excess money back into making Amazon grow, until they finally had to show a profit. He's still doing that, and when people realize that Jeff knows the rules, and how to work around them, they'll better understand what he's doing.

I used to work with Jeff, years ago, at a place called Fitel, in New York City and London. Got to know him fairly well - he's actually a fairly accomplished hacker (in the old, good sense of the word) - as a child, overseas, he calibrated everybody's VCR digital counters, and had a BASIC program that converted between the different units, so that when the other ex-pats exchanged VCR tapes with indicators of where each show started, they'd be able to fast-forward to that spot on their VCR. Clever :)

So, please, folks. Realize that Jeff Bezos is one darned-clever dude, and react accordingly. He's not lost a bet that I know of in the nearly-twenty years that I've known him.

It's a good idea but not a technology

[yintercept]

Showing used items alongside new items is a great idea. It gives people a way to make a little bit of extra cash and makes the book market more efficient. I've made a little over a thousand bucks selling used computer books through Amazon. (About 70% of what I had paid for the books).

The technology that lets you find out what used books match new books is called a JOIN. The technology that lets you link from a new book page to a used book page is called a Hyperlink. The whole process is pretty much dependent on the fact that books have an ISBN to identify the books.

The first implementation of Amazon's joining the new and used books was needlessly rough, it is getting better. It takes a great deal of care to add functionality like Amazon's to a big site with millions of users, but the fundamental idea is not a technology.

What a joke.

[Anonymous Coward]

I rarely order from Amazon these days since most of their popular paperbacks are now selling at list price. I used to buy in bulk and save a lot of money. Now there's no point unless the book's not on the shelf at my local bookstore. Which brings me to my current order.

I placed an order for four books last week. None were in stock at the local bookstore and I figured I'd just order from Amazon and have them delivered to my door. I picked the free delivery option which groups the books into as few shipments as possible. During the checkout procedure I was advised that I would be receiving two shipments. One with the three books that were currently in stock, a second with the book that is being released at the end of the month. Seemed perfect. Until I got my order confirmation email.

"Delivery estimate: February 18, 2004 - February 25, 2004"

Wha???? That's over 9 months from now. Do they have to grow the trees to make the paper? I figured it was a glitch and waited for my shipment notification. Didn't get anything. A few days later, my order status still hadn't changed so I inquired. I got four responses.

Response 1, CSR A: Sorry about that. Technical glitch. It's been fixed and your order has been upgraded to 2-day delivery at no charge.

Response 2, CSR B: "I've checked into your order and see that the shipping instruction to "group my items into as few shipments as possible" was selected during the order process. This option can extend the estimated ship date for your order beyond the individual item availability estimates which are listed on our web site." ... "...[Book 3] is now back-ordered, and our supplier has not been able to let us know exactly when they expect to have more in stock."

Response 3, CSR A: Whoops. CSR B is right.

Response 4, CSR C: Looks like someone else already took care of this.

Odd. All three of the books that were supposed to be in the first shipment still show up as "ships in 24 hours" both in my order status page and the product description pages. I'll wait and see what happens.

Monday rolls around. I check the order status again. Oh, Goody! Two of the books have shipped. Funny. They shipped Sunday. That's a neat trick. And one of the books that was shipped is supposed to be out of stock. And one of the books that didn't ship is still listed as in stock and is supposed to be shipped today. Oh, well. At least something's on its way. Well, it will be this evening when the Sunday shipment is picked up.

Tuesday morning. Track the first package. Odd. It's still at "Billing Information Received". This is the UPS phrase for "They've told us they have a package but we don't have it in our hands yet." I check my amazon order status. Says the same thing but now I see that the other book that was supposed to ship monday has been bumped back. It's not going out until sometime between the 15th and the 20th.

So I placed the order a week ago and nothing's gone out. Half of my order is supposedly sitting on the loading dock. A quarter of the order is eluding the pickers.

Way to go, Amazon! From now on, I'm ordering my books through the mom-and-pop downtown. If I'm going to pay list price, I may as well support a local business even if I do have to get off my ass to go pick up the items.

OLD publishing depends on inefficiency.

[raehl]

NEW publishing depends on not having publishers.

If publishers won't make any money, they'll cease to exist, and authors will simply take advantage of new digital publishing techniques.

The argument that people will cease to write unless publishers can make a profit is no more valud than the argument that people will cease to make music if record companies cease to make a profit. People will always write, and people will always make music, and if they want to feed themselves without having to do anything else, they'll find a way to get you to pay for their goods.

Readers, as a whole, benefit from being able to buy a book that's part of a 20-book run for the same price as a book that's part of a 1 million book run. Arguing that inefficient distribution of large-run works will bring the consumer more choice than effecient distribution of large AND small run works is just silly.

Amazon not take, I give

[alien_tracking_devic]

I live in the city, so I don't have a "yard" or a used book store within walking distance. Even if I did, how much could I get for my personal CD collection? $2-$3 a pop, even if the locals had the same taste as I do.

Amazon allows me to get my stuff in front of thousands of people across the country who are actually looking for that obscure CD I have for sale. In many cases I've doubled my money with the hard-to-find stuff, all by just doing a search and fillng in a form. I just drop it all in the mail box at shipping time. That is really convenient and I'm glad to give a piece to Bezos for the help.