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Game Changing

History is full of them.  You got most of them in grade school history so I won’t act like Miss Jones.  (Who said for a change? Not nice!)  I just read a Slate article that frankly didn’t make much sense.  It is about Amazon’s new business plan.  Now not getting it about business news from media types isn’t a shock.  Few get anchor jobs by way of the School of Business.  But, at least it get some of the Journalism and Liberal Arts folks off the welfare rolls.

The article says Amazon is going to same day delivery.  In doing so they have agreed to pay sales tax across the nation.  That was one of their draws and they are abandoning the advantage.  The article say they are going to compete with the local big box stores without a big box presence.  OK, there are ways to do that.  In fact they already are as the quarterly reports of Best Buy shows.  But, the new model makes it appear they are moving into competition with the low margin businesses.

Amazon started out attacking businesses that had extremely high margins — book sellers.  It moved to other high profit items which put it in competition with Best Buy.  I get it; understand it.  I tip my hat to Jeff Bezos who I think may be the best CEO/entrepreneur/Chairman and so on that is in business.  He has the ability to identify the thing we don’t like and avoid doing them.  He knows the consumer like few grasp.  He’s managed some pretty snaky things to add to his edge — things I don’t understand.

One of those things is his marriage to shipping.  You or I go down to the UPS store and ship a little package and are out 5 or 10.  He sells me a $3 item and the same outfit shows up on my doorstep with it two days later. (I have the $79/yr Prime service)  To get free shipping normally carried a minimum purchase which gave some semblance of controlling shipping cost.    Even there, items with weight made it seem like he’d incur a loss. But, he isn’t a guy to incur many losses and I doubt even there that he isn’t at least marginally profitable.  I could go on and guess about the interrelationship he has built with UPS.  That he’s using the post office and now I see small vendors delivering his packages show an unexpected change.  UPS is getting shafted or at least has lost the exclusivity they enjoyed.

Now Slate has this article about the new local warehouses.   That would blow a big chunk of Amazon efficiency out of the water.  I came from the grocery business and understand turns. (Turns are the amount if times you can replace inventory in the studied period and it is very powerful.)  With mega-warehouses he got turns.  You buy a framitz and he delivers from a controlled inventory with a pipeline behind it letting him stock fewer items and deliver more items than traditional merchants can.  The next day concept with little warehouses creates a nightmare for the current model.

I don’t doubt he’s throwing part of that out the window.  I don’t think it as great as Slate thinks because inventory cost would cause havoc and make for an ugly transition.  He has been selling items that didn’t make a lot of sense — grocery for example.  I think what he may have figured out is a working version of Peapod.  If you remember Peapod, it was local delivery of groceries and perishables.  It happened in that period where any company with Internet in its business model could get started.  Yeah, the bubble.  And like many of those it pop because grocery is the lowest of low margin business that survives on turns.

Bezo seems to have a plan he thinks will work.  And he’s smart enough to be better than pretty sure of that.  He is looking to come up with another game changer.  He’s been quietly putting piece in place.  He sees whatever he’s come up with as huge — really huge.   Giving up the sales tax advantage is the proof.

When the Internet bubble burst, Amazon dropped into the teens.  Yesterday, it close at 215.36.  That a hell of a run and a business plan you don’t expect a smart CEO to fool with.   Bezos is smart and fooling with.  He isn’t interested in what Wall Street says.  He is long-term oriented.  Not splitting the stock is in Wall Street’s face. I don’t see him changing unless the potential is huge and when you look at the base he is working from huge becomes monumental.

He has got something in the works that he’s been planning for for years.  What is there now is only hints.  I admit to not understanding what they are or how they morph into the next stage.  But it looks to be really interesting.  Bezos is a game changer and with that said it is possible we ain’t seen nothin’ yet.


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