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Originally Posted by vxf
Regardless, I have absolutely no doubts that, in the long term, this will mean lower prices for everyone.
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Amazon stock has a current price to earnings ratio of
319.93. This compares to
15.47 for Microsoft and
15.99 for Apple. Even if you think the stock market valuation is based on Amazon revenue one day matching that of WalMart (maybe 9.5 times higher today), the Amazon valuation still can't be justified except with the idea that Amazon is going to substantially increase margins. If you go with the more plausible idea that the market doesn't think Amazon will get quite as big as WalMart, the implication is even stronger that Amazon will move towards the high profit margin model we see with other tech companies.
Stock market valuations are sometimes driven by emotions rather than facts. But there is something to weak versions of the efficient market hypothesis that would imply we can't know in advance if the valuation is irrational. I don't think the PE ratio's implication that Amazon is going to gain enormous market power, so as to become a profit machine, can be dismissed.
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Market share does not equal market power, in the absence of significant barriers to entry.
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Computer programming is hard work. I can't put a dollar amount on it, but creating a good web site for books is a high barrier to entry, if only because you mostly make your money off the backlist, which needs to contain hundreds of thousands of items.
EDITED: Perhaps more important as a barrier to entry than the cost of the programming is how long it takes us to finish big projects. Amazon.com, and barnesandnoble.com, required years to gradually build up to what they now have.