Quote:
Originally Posted by HarryT
Amazon need to be careful here, I think. If they set up large numbers of B&M stores, operated in such a way that they aren't intended to make a profit, but simply to drive traffic to amazon.com, they could reasonably be accused of using a dominant market position to disadvantage small B&M stores who do need to charge higher prices in order to make a profit. That could fall foul of antitrust laws.
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What Amazon needs to do is not send out (much less keep) any emails indicating they have *no intention* of making a profit. Given their proven (and validated) operational model of playing the long game and willingness to stay in low margin businesses proving intent (rather than bad luck/poor judgment/external forces) would be very hard absent a smoking gun like the arsenal the feds found when investigating the price fix six.
New businesses routinely incur losses during ramp up, after all, so *if* Amazon intended to retaliate against the BPHs by killing B&N (the instigator of the Apub boycott and the BPHs' biggest supporter) all they have to do is leave a paper trail showing "unmet expectations" of profit targets.
The problem with the "Amazon doesn't want to make a profit" meme is that Amazon does make a profit. Constantly and steadily, day after day. And, more damning to the ADSers in publishing; they have always made a profit selling ebooks. Documented by the feds, no less. The meme is born out of a lack of understanding of modern business practices in general and venture capital firms in particular.
Amazon is a very strange creature in the world of business but it isn't totally unique. It is, however, a new evolution of the old style conglomerate. Try this:
People keep pretending that Amazon is a book retailer with some minor interests in the back room when the reality is that Amazon, strictly speaking, isn't a retailer at all. Amazon is best understood as an emerging Japanese-style keiretsu more akin to Mitsubishi or Samsung or GE.
Modern businesses have two primary ways of returning value to their shareholders: dividends or via stock price. And the most common way to drive up stock value is to report profits regularly. But it is not the only way. Venture capital businesses (and real estate developers, btw) operate by investing into new projects and business and growing them into viability and selling them as soon as they become independently viable. They then reward their owners from the proceeds.
Conglomerates, on the other hand, use the profits from mature, profitable businesses to buy up small, newer, or distressed businesses and add to the stock value by expanding their holdings into new areas.
Keiretsus, like Amazon, (mostly) tend to invest their profits into developing new businesses internally. Which means that very often revenue goes out as soon as it comes in and what gets reported as "net profit" is simply what doesn't get spent during the reporting period. (The main difference between Amazon and the classic Keiretsu is that all the components in Amazon's web of interlocking businesses are totally owned by the same company.)
http://www.economist.com/node/14299720
If you look at Amazon's entire portfolio of companies, retailing is only part of the picture and book retailing only a small part of that. Retailing provided the funding for their logistics network, which serves more than just Amazon, LLC, and their IT hosting services business and those two in turn are now providing the funding for Amazon's media and gadget businesses. What most of their businesses have in common is distribution and service.
B&M bookstores are just as likely a new business for Amazon as streaming media, running university bookstores, groceries, or package delivery; they have the back end distribution infrastructure already in place so their investment effort will be much lower than it would be for somebody else starting from scratch.
As for the profitability of the rumored bookstore chain, if you think of Amazon as primarily a book distributor (since they deal directly with publishers big and small) and they *do* sell to resellers as well as hosting them, it can be argued that their primary competitors are Ingram and Baker and Taylor, not bookstores.
In other words, Amazon.com can be plausibly seen as an outlet store rather than a straight retailer. And, well, there is long standing precedent on both sides of the atlantic for distributors and manufacturers running outlet stores.
For all the posturing by the ABA and AU and whatnot, if they really thought Amazon is violating antitrust law they would have already sued. In the 90's that is exactly what they did. Twice. Won one, lost one.
So no, I don't see where Amazon runs much legal risk with their rumored stores regardless of how profitable they might be in the near term.
And they are still a rumor, as Nate pointed out.