Monday, September 08, 2014

How Long Can the Business Model Last?

8 September 2014

Jillian D'Onfro at Business Insider has just written a thoughtful analysis of the business model. If you follow e-commerce at all, then you know that Amazon plays to maximize market share, slash margins, and make customers happy.

I read this article and the reader comments carefully, because I am a core Amazon customer. I'm not into streaming media, etc., but I live in a small town in Canada where I would have to travel hundreds – or thousands – of miles to find even slightly specialized items. 30-40 years ago, I was ordering odds and ends at the local small-town Sears outlet (we still have one). But Amazon is for sure the new Sears if you live in a small town.

Now I honestly don't see how Amazon can stay a going concern based on its present policies, but everything they do is by all means customer friendly. I have the Amazon card, etc. (No need for Prime, however, which isn't so great in Canada, anyway).

Let me share just one example of a surely non-sustainable business practice. I basically outfitted my home gym at Amazon (though I bought my weight sets years ago, in Winnipeg, about 150 miles away). So, I order a Ringside 100-pound heavy bag from for maybe $139, and the shipping is listed at maybe $270, but it's eligible for free super saver shipping. I mean, the delivery guys had to haul it to my house and bring it up the stairs to my door (something I would have had to do if I'd made the purchase at a store). So for no shipping charge, I have this 100-pound bag waiting for me at my door.

Logic insists that this cannot last. But yes, I am trying to buy everything I could possibly ever need now, because I can't see Amazon still delivering hundred-pound packages for free, 5 or 10 years down the road! But for consumers, there has been nothing better.

And, to do a business analysis, Amazon clearly has one competitive advantage, which is the massive number of partners. (The local competitor is, which is a home-grown Canadian former bookstore chain turned e-tailer, but, “no competition.”)

In recent years, it has indeed gotten easier to search Amazon than Google, if the intention is to make a purchase. Given that AMZN has a massive market cap, and Sears is on death's door, it has crossed my mind that Amazon might want to buy up Sears just to get their distribution system, and the Kenmore brand name may or may not help --- not that important. But if I had to drive the one-mile trip to the Sears distribution centre to pick up my Amazon order (still with free shipping), I would not be complaining. 

This advantage really shows up in Canada, where, historically, no retailer has ever given any customer anything for free. Canadians are used to paying top dollar for services in most categories, and that included shipping, until showed up. (Sears usually had the best delivery deal, before Amazon arrived on the scene – but they would not deliver a 100-pound item to your door for free --- you still had to go to the outlet yourself, and pick up the new washer and dryer, snowblower, or what have you, possibly with the van you had borrowed from your neighbour!)

So, I certainly wish Amazon well, but I'm buying all the heavy stuff now!

Monday, September 01, 2014

Patiently Awaiting Recession Number Three

1 September 2014

I have posted before that the US government, in my opinion, doesn't manage money very well. These charts are meant to serve as one illustration of that.

Basically, "reserve bank credit" is new money printed by the Federal Reserve Bank to keep the economy moving along when things slow down (most notably after 2000 and 2008, but it's actually been going on for a long time on a smaller scale).

One interesting factoid, the total US (broad) money supply as recently as the year 2000 was less (about $2.8 trillion) than just the Fed's balance sheet today (about $4.4 trillion).

Fed injections of "new money" (a euphemism for money-printing) have brought the current US money supply up to the $10 trillion range.

So, if you're not feeling 250% richer, that is probably because money-printing mainly just causes inflation.

The official statistics show inflation as "low," but as they say, it's easy to lie with statistics. If you have noticed necessities, in particular, getting more expensive, it might have a lot to do with the antics of the Federal Reserve.

Does money-printing solve anything? No, it actually makes things worse, by encouraging short-term thinking, and by giving more options to the ultra-rich (who are able to play games with money) than to anyone else.

As soon as all this stops, the economy will slow down --- again, and a lot.

That won't be fun, but it will cause people to start making longer-term and better decisions.

The Federal Reserve may not be permitted to do this a third time, as people may eventually figure out that economies improve through capital investment (based on having a real business plan and confidence in the future), rather than through running the (now-digital) printing presses.