The author misses one big implication of Amazon Prime: it's an invitation to start routing thousands of dollars in annual spending through Amazon.
I'm in Canada. If prime were available here, I would rarely go into a store except for groceries. Most other things I need I would just get shipped to me, much easier that way.
Not everyone in the US has figured out that free delivery of supplies is usually easier than driving to the store. But once amazon gets someone inside their ecosystem, it will be much easier to convince them to route more
and more purchases through amazon.
Given the broad range of amazon's offerings, it's a huge mistake to treat them as a book company, or an e-reader company.
Exactly this - I will often go check up Amazon before I go grocery shopping, because I am a Prime member. Shipping is fast and free. In our area, we sometimes have the option for same day shipping, and products ordered in the morning arrive later that evening. Often, two day shipping results in next-day arrivals.
While Amazon isn't something I'd think of for groceries (we don't have "Fresh" in the area), there are things that it works well for -- deodorant, dog foods, that sort of thing, and where ordinarily, shipping costs would keep me from buying things online, Amazon has made that barrier go away entirely.
Now I prefer to shop on Amazon wherever I can. Even if the only advantage is one less bag I have to haul from the car to the house, that's often worth it enough for me to buy on Amazon vs. brick and mortar. I won't pay more to shop on Amazon, but for things that are same cost or cheaper, it's usually the way I go, if only to justify my Prime membership.
I'm also a Prime member but the main reason I go with them is to reduce risk. It reduces the risk that I will by a faulty product due to the reviews and return policy and it reduces the risk that I will drive to a store and be unable to buy what I originally came for which may necessitate another trip.
I also use Amazon for "groceries" just not fresh ones. In the past I've bought snacks, ramen, and peanuts from them.
That opens up a whole other can of worms though. How is Amazon making money overnighting me deodorant for cheaper than what I can buy at Safeway? I know there is an argument about all the other higher-margin items I buy from prime, but seemingly 95% of my prime purchases are for items where I would be surprised if their margin exceeded the cost of expedited shipping.
Presumably they have good knowledge of the distribution of consumer behavior and have figured out how to make money in aggregate, despite the presence of people like me. I agree with Manjoo though, at times it's hard to believe.
How is Amazon making money overnighting me deodorant for cheaper than what I can buy at Safeway
Your local safeway had to have that deodorant shipped at some point, too.
Then they had a shop clerk unbox it, put a label on it, place it on a shelf, eventually drag it over a scanner and (in america) put it in a nice brown paper bag for you.
The brown paper bag, the scanner, the shelf, the label, the clerk, and no least the brick & mortar store surrounding all that costs Safeway significant amounts of money - in addition to the truck that initially shipped the deodorant.
1) Amazon is good at anticipating demand, so they can make sure some deodorant is always at a fulfillment center near you.
2) Overnight shipping is cheap if the distance is short, because then it's really just "shipping a short distance, which happens to be during the night".
3) You still have to pay shipping at Safeway, and you also have to pay for Safeway's smaller economy-of-scale inventory system.
4) Amazon wants you to love shopping with them, and they play the long game. They'll take a loss on deodorant to win a customer.
The thing is, most of the time, it isn't overnighted. It's a couple of days before you get your deodorant unless you pay $4 per item. For that expensive gadget you need tomorrow or the day after, it's worth it, not so for your deodorant.
There are great reasons to have Prime like carrying in less groceries, but it's irrational to buy at Amazon to justify your Prime membership because doing so doesn't provide you any additional benefit.
But once you've paid it, any given purchase is "should I drive down to the store to get it, Amazon it for 'free', or pay some other retailer for online shipping?". And at that point, the Amazon choice wins more often than not.
And while amazon does incorporate the price of 'free' shipping into their base (I often see, ON AMAZON, the same item from a non-prime-eligible vendor for $4 less than prime elligible), I know that when I order something with prime shipping, it gets there within 2 days at most, and has a hassle free return policy.
So really, the $80 serves too reasons: To defray some of amazon's costs, and to weed out serious buyers from non serious buyers -- they'll lose money on "free shipping" for people who only buy 5 items a year, so they pick a price point which is a no-brainer for anyone whom won't be a losing customer for them.
Yes, it does. The added discounts, added features (free video streaming, free MP3s from time to time, free 2-day shipping, occasional free ebooks), and convenience more than make up for the membership cost.
It's irrational not to use Amazon when you're a Prime member.
Sure, those are all reasons when considering my next purchase I should buy from amazon. But I shouldn't think to myself "I spent $80 on amazon prime, I should get my money's worth"
I know these comments sound dickish, but I really believe that making a habit out of avoiding the sunk cost fallacy is helpful
Well, for the most part, my expenditure on Prime is usually justified within weeks after I renew it. I work from home, in the suburbs, and do quite a bit of my shopping online.
I have, within the past month or so, bought inner tubes for my bike, other bicycle accessories for the new bike I just bought (pump, water cage, water bottle, wedge pack), a pair of boots, a new Aeropress, one paperback (for the daugher) and a smattering of Kindle books.
I don't shop just to justify the sunk cost, but it should probably go without saying that while some (or none) of those purchases may not have been the very best price I could have found them for, they were all priced reasonably, and I suspect, well below what I would have found them for at the nearby brick and mortars, without having had to leave the house for it.
That said, ignoring the 'sunk cost fallacy', as the chances of finding 'better-than-Amazon' prices locally are slim to none, I am an idiot if I don't buy from Amazon wherever it makes sense to. Obviously, packs of deodorant and shampoo are borderline, but free shipping on a lawn mower that's half the cost of Home Depot? Ideal use of Prime membership. Not exercising it means paying more, and going through considerably greater effort to do so (lugging the box around, borrowing an appropriate vehicle to carry a lawn mower, etc.)
Not sure why you're getting downvoted, as from a purely economic standpoint that is exactly right. I think the point other people are trying to make is that given you have already subscribed to Prime, things you would already have purchased are now available for less via Amazon.
While I've been a Prime subscriber for a few years and do order plenty of things from Amazon, I'm still pretty picky about what I buy from them.
Almost universally, items under $25 that ship free with Prime are more expensive than on other websites and in local stores. Especially as you get into sub-$10 items I'd normally get at a grocery store or Wal-Mart/Target/etc. The shipping cost is being built into the price.
Stuff that's sub-$10 is either not offered with Prime shipping at all, or is only sold in non-discounted multi-packs. For example, say you need some deodorant. Amazon will gladly sell you some Old Spice Classic... but only in a pack of 6 for $18. I can buy just one at a store for $2.50 or so.
In our household, my wife and I are professionals, no kids, quite a large percentage of disposable income and not such a large percentage of disposable time. We have a line item on the budget specifically to outsource things that make sense to outsource. Housekeeping, dog walking, uber cabs, taskrabbits, etc.
That's the value of Prime for us. When we need a pack of double-A batteries. Or Listerine. Or razor blades. Whatever it may be. It's a matter of supreme convenience and time-save for us to be able to just click, click, click, done. Especially so because our car sits in the garage most of the time. We can't just pop into target on our way home from work on the train. It would be a separate, special trip just for whatever little thing we need.
Even for some goods which are more expensive, once you add in Sales Tax (although that'll be solved soon enough) and gas for the car, and especially a quick time is money calculation, I would bet Amazon is cheaper overall every time.
I don't think it's fair to say the author missed this. He seems to be asking precisely if this is the strategy, and if so how well it's working.
> Is that Amazon’s real goal with the Kindle -- is Amazon in the device business only to sell Prime subscriptions, which the company sees as a key accelerant for sales across the rest of its site? And if that’s the case, how well is that circuitous business model working out? Is the Kindle helping to sell Prime? And are those Kindle-fueled Prime subscriptions moving more sales across the rest of the company’s inventory?
That's a good point. I should have said that I think the author missed the implications of increased Prime subscriptions.
The fact that other people made comments similar to mine tells me that the author's post read as though he hadn't thought through the long run advantages to having prime members, and how average people (and not just the author) are likely to behave once they realize they can get almost anything shipped to their door.
However, you're correct that he did show awareness that this might be amazon's strategy. If he wrote more on this specific point, he might actually agree with everything said here, but have some other doubts we haven't addressed. Who knows.
I used to be on prime, but now just subscribe to items. If you subscribe to many items amazon usually does a really good job sending them out in a single box for any particular month.
Oh, I recycle them, but Prime encouraged me to make individual purchases of what were often tiny items. So, I knew I was using way more box than I ought.
Remember, recycling is not perfect. It takes energy, and unlike metals and glass, often the recycled material cannot be reused the same way. As a raw material, it has degraded in quality and utility.
I do the same thing, prime is great. One thing that does make me feel a bit guilty about it though is the amount of packaging wasted when I'm constantly ordering all of these things from Amazon. I usually have a couple boxes stacked up every week, even if it is just a few small items ordered sporadically throughout the month they usually ship in a box about 8x10"... That's a lot of cardboard being used now compared to going to the store... At least that's what is seems like, I haven't actually measured the amount of gasoline and plastic or paper bags used when buying locally.
Regardless though, Prime still seems like a great business model if it is working for Amazon. Every time I have to order something online that Amazon doesn't carry I always feel like I'm going back to the stone age having to pay $20 for 4 day shipping.
When I need a new pack of dry erase markers, I spend 45 seconds giving Amazon $5. Two days later, I don't have a dry erase marker problem anymore.
I don't really know how I feel about the future world that's created by universal delivery like this, but there's something wonderful about every "pick up x at store" chore being reduced to a few moments.
Y'know, it's funny. I also hate "This" as a usage for, well, anything. Reading this comment made me go look to see what moron posted "Exactly this" only to find out it was me. :-(
It gets worse too, now that I think about it, in that I responded to a comment about the article without having read the article.
I suppose it's contagious? Ug. Now I'm having a crisis. Either way, thanks for pointing out it, however indirectly.
Y'know, it's funny. I also hate "This" as a usage for, well, anything. Reading this comment made me go look to see what moron posted "Exactly this" only to find out it was me. :-(
Lol, that's gotta suck :-) I'm sure this sort of stuff has happened to me before...
If you don't want to follow the "this" herd, don't :-)
I have the opposite attitude, I reflexively down vote grammar nazism and a lack of flexibility for language change. Languages change organically, people spoke differently 100 years ago even and there is nothing wrong with it. It's like razing people for using the word 'like' instead of 'for example', even though they are functionally identical.
Language is a way of associating yourself with a particular group of people. How you communicate determines whether you fit into a group or not. If a comment is just "This" it adds nothing to a discussion. However, the comment above is more valid than your own, because it isn't off-topic ranting.
What you are basically saying is "I use the voting system to attempt to ostracise others because they come from another group". It is never appropriate to dismiss someone who actually has something to say because you don't like their way of saying it.
If I had been granted the power to downvote, I would cast my first downvote on you, for this.
In a post-modern economy of people handing each other money for entertainment, rather than just food and fuel, I don't want any part of the way I express myself to be "stamped out."
Luckily for you your HN karma, which you will probably try to monetize somehow, cannot be devalued by me, but you can entertain schemes of priggish conformity under my nose.
I don't deny your right to downvote me. Don't deny my right to downvote what I don't like. Please go ahead and downvote my comments if you think they don't add to the discussion (this one is a particularly good candidate for that).
I can't downvote I don't have enough karma. I wouldn't downvote you anyway it's not my style. I can barely come out of lurk mode, I only comment when things annoy me.
Why not? 'This' is just like 'me too' or '+1'. By itself, it's a waste of a comment, but since harlanlewis elaborated, the "This." was just a prologue to the rest of the comment.
If the number of votes for a comment were visible people probably wouldn't feel the need to annotate their comments with "this" or "++1". So blame the commenting economy of HN. Or just accept it.
The odds are that Mr. Bezos knows exactly what he's doing. People asked questions like this when Amazon was transitioning from selling books to selling everything. Lots of people at the time thought it was crazy. Now it's recognized as a brilliant move.
Ask yourself, how many other things has Amazon done that seemed a bit out there, but turned out to be brilliant moves? How about competing with Apple with a tablet computer? Also ask yourself, how do these crazy or out-there seeming things fit with an overall vision in retrospect? I think the answer is: amazingly well.
My best guess is that Jeff Bezos has a roadmap for the next 5 years and vaguer plans for the next 10 or 15. (I happen to know that Intel had a roadmap out to 15 years in the late 90's, so it's not unheard of in tech to plan on this timescale. Probably a good thing to note for serious investors in the stock market.)
EDIT: I've said it before on HN -- Bezos is a player of the game at Steve Job's level. He's just not getting up on the really big stage and so avoids becoming a target of celebrity attention.
I agree that Amazon probably knows what they're doing. Amazon is Internet Walmart. The article seems to say, "Walmart is selling razors and razor blades for less money than the mom and pop store! How can this be a sound business strategy?"
More than that, eBooks have no marginal cost outside of the royalty they negotiate with the publisher. If they make Kindles super cheap, and make eBooks super cheap, they own the book market. If they own the market then they can dictate royalties to publishers. ("We've decided to sell your book for $10, so we're going to pay you an amount that makes that retail price profitable for us. Or you can sell your book at Borders... oh wait.") Then they can keep selling eBooks for $10, and do so profitably by paying publishers less. Like I said, Internet Walmart.
Or in other words, Amazon is the ultimate middleman. It's not about ebooks. It's about making Amazon the most frictionless way to buy anything.
If they own the market then they can dictate royalties to publishers.
If they own the market, they can disrupt the publishers. If I were Amazon, I'd be creating software infrastructure to enable serious businesses to create and market curated collections of content because that's all publishing is in its purest form, be it books, music, or whatever. Distribution is plumbing, and why would someone choose to compete with Amazon on that front?
A very dumb article. A shame, as it seems the author did have some interesting insights, but missed the main point completely.
Bezos is a very, very smart guy. He's the closest thing we have to Steve Jobs right now.
(Though that's not really a fair comparison -- Jobs excelled at product and branding. Bezos isn't as good in those areas, but he has a solid background in finance and tech, and he's far better at strategy.
Jobs was a samurai warrior that was so good at swordfighting he didn't need much guile. Bezos is a ninja; not as tough in a straight fight, but he never lets it get to a straight fight.)
E-books are a massive growth industry right now. In a growth industry, it's generally strategic to invest heavily in growth at the expense of profit. If you want to have a nice profitable business, within a few years your business will be undermined by the "foolish" guys that burned cash to gain market share. Walmart followed a similar strategy.
(Lesson: if you want a nice profitable business, don't enter a new, high-growth market).
First the publishers ignored e-books, then laughed at them and hated them. Now they're fighting, and some time in the next two years, Bezos will likely win. When you look at the Kindle strategy, you're looking at a business unit mobilised for war. An army doesn't return a profit until after the land is conquered.
I read Bezos' biography recently. From that, and from other comments about the guy, I think the guy is thinking long-term. Not just "a roadmap for the next 5 years and vaguer plans for the next 10 or 15" as another commenter said.
I'd guess he has concrete plans out to at least 2030 (though obviously with room for various contingencies and black swan events). His current areas of focus like retail and cloud computing are likely just preliminaries. As one internet commenter put it:
"I wouldn't be surprised if Jeff's secret goal is to achieve Singularity in space by 2030. That isn't my guess, but that's the scope you should be considering."
In a growth industry, it's generally strategic to invest heavily in growth at the expense of profit. If you want to have a nice profitable business, within a few years your business will be undermined by the "foolish" guys that burned cash to gain market share. Walmart followed a similar strategy.
Not always. I mean, isn't this the reasoning behind the first dot-com bubble? At some point you have to turn a (operational) profit, and the more money you invest, the more profit you have to turn in order to recoup your investment.
First the publishers ignored e-books, then laughed at them and hated them. Now they're fighting, and some time in the next two years, Bezos will likely win. When you look at the Kindle strategy, you're looking at a business unit mobilised for war. An army doesn't return a profit until after the land is conquered.
Wars are very risky things. The publishing industry (like the RIAA) isn't very large financially, but is disproportionately powerful politically. It's very possible that the publishing industry will lay legal obstacles that would make Amazon's "conquest" a very expensive affair. Let's remember that wars, historically, have not been profitable enterprises.
"Not always. I mean, isn't this the reasoning behind the first dot-com bubble? At some point you have to turn a (operational) profit, and the more money you invest, the more profit you have to turn in order to recoup your investment."
Yes. Very true. Amazon is one of the few survivors of the dotcom bubble. For every Amazon there's a Boo, Pets.com, Webvan.
My response would be: those companies failed because they grossly overestimated the size of their markets, or were too early, or there was no market at all. If you overspend, you risk being the next Boo.com -- but if you underspend, you risk being the next Books.com. It really is all dependent on the market you find yourself in.
BTW, I am not personally attracted to "get big fast" cash-furnace type companies. The startup ideas I'm considering tend to be those in non-winner-take-all markets (ie, lots of small competitors, no one big competitor) where it's possible to turn a profit quickly.
Well, yes, but like the OP has stated, Amazon is a huge company, doing everything from delivering deodorant to PAAS. My questions are 1) is Amazon Prime profitable and 2) is the Kindle profitable. If they are, then great. If not, what's the justification for keeping them around?
Jeff Bezos knows exactly what he is doing. Amazon is, at its core, an infrastructure company, much like your plumbing or your electricity, except it's one level above those. It's major offerings are infrastructure for web services, infrastructure for shopping fulfillment, infrastructure for digital publishing, and probably a few others. Sure, it is willing to make money by using its own infrastructure to sell you books, shoes, and industrial supplies. In fact, it built the infrastructure to do that, but even if the lion's share of Amazon's profits right now come from selling over the web to consumers, it is not the business that Amazon wants to be in.
Amazon wants you to build a business on top of Amazon where you do the marketing and decide what to sell, but use Amazon's Web Services, Fulfillment, Payments and Digital Delivery to run it.
I think what bezos does, is asking: in the e-commerce business, what are the difficult parts and the parts that change less often and how do we make sure that we are the best in every one of them?
This is the reason bezos thinks long term. because he can.
Some of those parts are:customer trust,the need for computing,fulfillment,delivery,payments and access to targeted eyeballs,all content will be digital, need for marketers(affiliates).
Serving as a leading infrastructure platform is a great way to achieve this.It gives you revenues , it puts you under customer pressure and i think the new market dynamics works better for amazon also as an integrated retailer, by letting amazon control prices and service levels and limiting the platform, by decreasing competition to a small number of companies in the industry and by pulling startups towards them.
Now combine the (small?)benefit of each platform gives you over competitors, together, and you got a big competitive advantage.
On the other hand, having a great platform let's you profit and learn from the things that change fast.
Amazon's mission to me is "Buy anything you want faster and cheaper than anywhere else."
I've been long on AMZN stock since an afternoon last year when I got home to a delivery of (a) Baby stuff from Amazon's Diapers.com (b) A handful of SSD drives for our business (c) Light bulbs (d) Chocolate.
Whenever something comes up that we need to buy the first thing we do in my house is type in Amazon.com. Everybody that I "infect" with Prime by telling them about it gets hooked nearly as fast.
Bezos pushing people to Prime from all sections of the site, as a result, makes me believe Bezos knows exactly what he's doing.
Well, I don't know what Bezos is thinking, but he always seems to be right.
Amazon in general is one amazing company. I can buy anything from them, and I know they can be trusted, their collection of reviews always help me decide what to get, and I just recently found out about Amazon SES - guess who's moving away from Aweber soon?
Amazon is giving away free stuff in order to get you to subscribe. There's nothing novel in this. It gets confusing when you consider the number of businesses Amazon is into and the way they interact. Does Bezos know what he's doing? Yes. A lot of things at once, likely with different levels of confidence and surely with different outcomes, which Amazon will adapt to and evolve into. They aren't afraid of trying things out. What's great about Amazon is that, like Apple, it hasn't settled onto what they do, except what they're doing right now; this isn't an issue with their focus, but evolution.
I'm not sure what's so confusing about this strategy - Amazon certainly wants to make money off selling content, and the fire is a content consumption machine. But, they also know how much extra $ prime users spend, and figured they could convert people to prime users by giving them other stuff. That doesn't mean it's not a product in and of itself - it's just also being used as a marketing channel.
"But giving away the razor and the blades in order to make money on a subscription loyalty program as a way to sell everything else?"
As reported by CNBC in a recent special about Costco apparently all of Costco's profit is from their annual fees and they claim they break even on actual product sales.
Here's an article about that from a different news source:
The author seems to completely miss the idea that Amazon can still profit by selling e-books to Kindle owners while still giving them one free e-book a month.
Bezos is trying to take over the world, like the guys at Google and Facebook. They are architecting the new world as they envision it. It isn't about just one industry or some obscure way of making profits, it is really about all of it.
Man, whenever me or a family has Prime, amazon is the first place we check. It's a great lock in. The trials and share with family functions help make it viral even.
Businesses love subscriptions too. Get paid even when they subscriber doesn't do anything? Yes, please! So now we've combined lock in and subscription.
We hear Zynga makes a ton of their profits from whales, so low numbers of prime subscriptions doesn't really scare me. Those are whales.
Amazon is a business, if they haven't already figured out this will make money and it doesn't end up making money, they'll stop after a while.
Makes plenty of sense to me. This isn't a big deal.
Might it more be that "the answer [the author believes] is no" which is only unfortunate if you believe the author in this case to be smarter or know something secret about Jeff Bezos. Since Jeff was ahead of the curve with the online book company and then again ahead of the curve with the internet architecture (AWS,EC2 etc) thing I'd say he's pretty bright and just because some semi technical author can't figure it out doesn't mean that the authors conclusion is correct.
Jeff Bezos is a brilliant mind and I'm thankful for all of his innovations within the tech community, but what interests me most is his 10,000 year clock project currently under development in a Nevada/Texas mountaintop.
The Long Now foundation was not started by Jeff Bezos, or run by him, I think it was founded by Danny Hillis and others, though they do have funding from Bezos and I think they're building it on his land.
Thanks for repeating what I told you by quoting the website. The long now foundation had this idea and the plans for the clock long before bezos gave them lots of money, it is not in any sense 'his' project, it's a team effort which started long before he became involved. Haven't read the wired article but I wouldn't use that as a basis for your opinions as wired is not exactly a reliable source. Do some more reading on the website though as it is a fascinating project, in some ways I prefer the Rosetta disk and wish he had taken an interest in that as well. Anyway, this is straying off topic.
> Jeff was ahead of the curve with the online book company
That's a popular belief, but it is wrong.
Back in 1990 (pre-web) there was an online books company at books.com. It was an outfit in Ohio, which started with telnet access and ordering from their online catalog.
Amazon came later and executed better. Books.com was sold to B&N around 2000, if memory serves.
Amazon Prime is not about books or Kindles, but everything else you would ever want to buy in all areas of your personal and professional life. That is why Bezos dangles all of these carrots in order to get you to become a Prime member. Bezos clearly knows that he is doing.
I'm guessing that with the advent of the Kindle, there is a large segment of customers who have a Kindle but not Amazon Prime. Having the lending entices Kindle customers to subscript to prime, which in turn entices them to spend more at Amazon in general.
Its only confusing if you still view Amazon as a book retailer or even book + X + Y retailer. They are a retailer of all categories of goods. Using ebooks as a loss leader to dominate a far broader market is a fairly straight-forward strategy.
I'm in Canada. If prime were available here, I would rarely go into a store except for groceries. Most other things I need I would just get shipped to me, much easier that way.
Not everyone in the US has figured out that free delivery of supplies is usually easier than driving to the store. But once amazon gets someone inside their ecosystem, it will be much easier to convince them to route more and more purchases through amazon.
Given the broad range of amazon's offerings, it's a huge mistake to treat them as a book company, or an e-reader company.