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Author: babybull Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58823  
Subject: no barriers to entry? Date: 9/27/1998 1:55 AM
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A bear argument often made is that there are "no barriers to entry" in Amazon's business. Meaning, anybody can set up a web site and do what Amazon is doing.

I disagree. Why is Amazon losing money? Amazon is losing money because it is spending an incredible amount of cash paying for banners and establishing a web presence. It is not cheap, and takes a lot of guts.

In the September 21 Forbes (try http://forbes.com ), there is an interview with the Borders CEO. He has strong opinions about the internet and sounds like a real bear. Listen:

"We have not succumbed to the frenzy of doing a bunch of $40 million deals with search engines and trying to acquire customers at any cost. When you're trying to drive a bottom line and develop your company, it's difficult to throw everything out the window and say, 'Whatever we think this piece of business will be--say it's going to be 15% of the market in five or six years--do we literally tank the company to go out and build share in that business?"

Obviously, Borders is answering that question "no." So I question whether there are indeed low barriers to entry, as the bears have claimed. Yes, Borders has a store on-line. Heck, I can set up a store on-line. Carmichael Book Nook. Am I competition for Amazon?

The amount of debt Barnes & Nobles has accumulated suggests they take Amazon very seriously, and they in turn have become a competitor (as Borders is not). There is a lot of clutter in cyberspace and there will only be more (a lot more) in the future. A failure to spend money to establish a presence will relegate Borders to 1% of on-line book sales, if that, IMHO.


Taylor
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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7800 of 58823
Subject: Re: no barriers to entry? Date: 9/27/1998 10:30 AM
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The amount of debt Barnes & Nobles has accumulated suggests they take Amazon very seriously, and
they in turn have become a competitor (as Borders is not). There is a lot of clutter in cyberspace and
there will only be more (a lot more) in the future. A failure to spend money to establish a presence will
relegate Borders to 1% of on-line book sales, if that, IMHO.


Taylor,


One can make the agument that Borders and Barnes and Noble are validating the concept of online book sales by opening their own on-line departments.

Clearly, as you pointed out, BKS is being somewhat aggressive and BGP is not. It is my believe that on-line book sales will be such a small part of the total that there will be very little affect on the traditional sellers. The CEO of Barnes and Noble (names escapes me at the moment) is very aggressive and he enjoys the challenge of taking on any competitor and winning. I doubt it is really necessary for BGP and BKS to be on-line at all.

Barriers to entry are low. Just name recognition is not. One cannot argue with that. The numbers support it.

I keep trying to point out the missing equation here. Everyone seems to ignore it. The so called advantage to on-line book sales was the no need to carry a lot of inventory or tie much money up in brick and mortar stores. Keep in mind that the two US most succesfull book sellers have chosen to carry a lot of online inventory and to keep and add to their brick and mortar operations.

The reason is two fold. One is their cost of merchandise sold is lower if they buy carry their own inventory. They know this by being experienced retailers. Also, the brick and mortar stores are profitable and are also free advertising since they are typically located in high traffic shopping districts.

The question remains which business model will work. Carry little inventory, pay more for ones product and pay tremendous amount of money to get name recognition or carry inventory, receive close to free advertising via the brick and mortar stores.

We know only time will tell but I will go with the experienced retailer anytime. I believe you will agree with me when you see the status in fiscal year 2000.

By the way, good post on your part.

Glenn

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Author: Saltimbanque One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7819 of 58823
Subject: Re: no barriers to entry? Date: 9/27/1998 1:37 PM
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The question remains which business model will work. Carry little
inventory, pay more for ones product and pay tremendous amount of money
to get name recognition or carry inventory, receive close to free
advertising via the brick and mortar stores.
We know only time will tell but I will go with the experienced retailer
anytime. I believe you will agree with me when you see the status in
fiscal year 2000.


Agreed. No question, but that the bricks and mortar option will win, not just because of the advertising, but because the B&Ns and Borders of this world are booksellers, not unsupported middlemen, like AMZN. As I've posted previously, web-selling may or may not be profitable, but what we mustn't forget, IMHO, is that this new form of activity is adjunctival to a basic core business. It's not a revolution. Again, IMHO, this is common (Fool) sense. TMFJeff genuinely disagrees, I know. Maybe he and the bulls are right, but I doubt it.

Foolishly,

Saltimbanque

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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7848 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 7:45 AM
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GRudolph states:
Barriers to entry are low. Just name recognition is not. One cannot argue with that. The numbers support it.

First off, the posts being made by GRudolph are some of the best I've seen on this board. Glenn, I know you frequent SI, but I hope that you post here just as frequently because we'll all benefit a great deal by your participation.

As to your comments regarding barriers to entry, I think there is a very strong contrary argument. But before I get into the details of my argument, I should first address the arguments made on this point by some of the bearish posters (I'll present my argument in a second post since this is going to be quite long).

In general, there have been two bearish lines on this point - (1) anyone with enough money and management expertise can buy their way into the game, and (2) the low barriers are proven by the pending or potential entry of major retailers (B&N, Borders, Walmart, etc.) and publishers (Bertelsmann). The argument hinges on the claims that books are commodities and the Internet is not a revolution/paradigm shift for booksellers. My view disagrees with both of these points.

Books are commodities: I'm sure many bears (and possibly the bulls) are questioning my creditability by disagreeing with such an "easy" claim, but I have my reasons. Although I agree that the books themselves are a commodity, the question I ask is “Is Amazon selling books?” What!?! Amazon not a bookseller? If not, then what are they? Well, I view Amazon (and most other retailers) as both a service provider & product retailer. The service end of the business includes things like book reviews, book recommendations, one-click purchasing, a smooth purchasing interface, great selection, etc., while the product end of the business is purely the pricing of the product (since this is a commodity product with no product differentiation). One may then ask, “this service stuff is great, but how does this find its way to the bottom line since the only thing Amazon is charging for is the books, and they are low-margin commodities sold at a significant discount?” The answer is that because Amazon (or any other retailer that provides a service in addition to product delivery) is actually selling a service, the margins it receives on product sales will stay constant or increase over time due to customers valuing the service provided. This has yet to be proven for Internet book sales, but it has been proven in many other existing businesses.

The real argument here is not whether books are commodities or not, but rather whether consumers view booksellers as commodity retailers (price is most important) or service providers (quality of service is most important). My feeling is that due to the information-rich nature of books, the information provided about these products has a great deal of value to the majority of consumers. The brick & mortar stores provide this service by allowing the reader to actually page through a book. The online booksellers provide this service through reviews, automated recommendations, etc. Personally, I view the latter as providing a lot more value to me in the buying decision, and therefore I'm sold on the idea of buying my books online. I know this may not seem related to the “low barriers of entry” question, but I'm working my way there, so please bear with me.

The Internet is not a revolution/paradigm shift for booksellers: The bearish point of view is that books are books, whether the customer is contacted through the Internet, QVC, a catalog, or a retail outlet. In such a view, the Internet does not significantly change the underlying book selling business (purchase of books, inventory of books, sale of books). However, this view ignores the most powerful aspect of the Internet, the exchange, the capture, and the value of information. The current ability of online booksellers to provide published reviews, reviews of fellow readers, bestseller lists, author recommendations, customized recommendation, etc. makes this form of business very valuable to the consumer. In addition, the future ability of online booksellers to deliver e-books to be read on PalmPilot-like devices, to deliver out-of-print (or first run) books printable on demand at your nearest Kinkos, to allow authors to self-publish, and to use your purchasing information to target advertisers, other product sales or have recommendations made to friends and family for gifts is going to be a paradigm shift not just for booksellers, but for the entire book publishing industry.

As far as the current abilities of online vs. offline booksellers impacts the underlying book selling business, I'll agree that there is no more than a limited change, however the future possibilities will have a significant impact. Also, I don't view these future possibilities so much as “if's” but rather as “when's”. In the meantime, online-only booksellers will have to play the game as outlined by the bears on this board: higher marketing expenses to build and maintain a brand name without a real world presence, balancing the reduced costs of lower facilities expenses with the higher costs of products, the ease to comparison shop, etc.

Now on to how this relates to barriers to entry in my next post.

CouchPoDATO

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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7849 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 7:51 AM
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Part 2:

Low Barriers to Entry

Given enough money to set up the facilities and buy consumer mindshare, a new player could enter the game with a similar product and service offering. If this competitor has better management and/or more money, they could destroy Amazon through predatory pricing, better asset management and better a service/sales offering. In addition, if this competitor has some natural advantage, such as already being a bookseller (like B&N and Borders), a major retailer (like Walmart) or a major publisher/distributor (like Bertelsmann or Baker & Taylor), they will have an even easier time knocking Amazon down. This is the bearish position, a strong argument which may prove true in the long run, but it ignores some important factors mentioned in my previous post about how the service provider (not commodity seller) operates in the online, information-intensive world.

Working from the concepts raised by Don Peppers and Martha Rogers in Enterprise One to One: Tools for Competing in the Interactive Age, the first retailer who is able to establish a “Learning Relationship” with its customers will develop insurmountable barriers to entry and be able not only to protect their customer base and profit margins, but increase them over time. As such, the battle is not for current profitability, but rather customer acquisition and retention.

In short, a Learning Relationship is one where the consumer teaches a company about their preferences, and in return, the company remembers the preferences and customizes the service for the consumer. The more time the consumer spends teaching the company, the higher the barrier to entry. This is achieved because it is more convenient for the consumer to stay loyal rather than teach a new company about their preferences. In addition, once this Learning Relationship is established, it is only necessary to maintain a level of service that is equal to the competition and a fair price (not the lowest).

It is easy to see how this Learning Relationship will benefit the online booksellers in their efforts to retain customers and fend off new competition, whether it is price based or service based. As consumers use a service (whether it's Amazon, B&N or someone else who is providing a Learning Relationship), they build up a database that makes future uses of the same service even more valuable. The more valuable the service, the more you'd be willing to pay for the product, even if it is a commodity. As long as the quality of the service is on par with competition and the price fair, the consumer will choose to stay loyal out of convenience. The longer you remain loyal, the higher the cost of for you to switch to another retailer.

This leads us back to the real question of how do the majority of consumers view booksellers, as commodity retailers or service providers. Since I think that most consumers would rather pay $15 for a book they liked vs. $10 for a book they didn't like, I also think that the service component of these businesses will be the focus of the majority of consumers in the future. In addition, the increased value received from a Learning Relationship (which online booksellers offer, but offline booksellers do not, and probably will not) will drive more purchases online than the current estimates of 10-15%.

Amazon.com, the current leader in online book selling, and Barnes & Noble, the only real competition offering an equal level of service and ability to learn, are quickly locking up the new consumer mindshare and access to new consumers (through portal real estate and strong affiliate programs). As they develop deeper Learning Relationships with their customers, the cost for new entrants to this market will rise exponentially. Although companies like Borders, Walmart and Bertelsmann offer some natural competitive advantages, their continued delay in establishing Learning Relationships with a bulk of the existing online customer base may put them at an insurmountable disadvantage when they do decide to ramp up operations. Learning Relationships are why the “first-mover” advantage is so important. This is not simply a question of name recognition and consumer mindshare (although these are critical elements in obtaining new customers).

This same argument can be applied to CD's, videos, computer software, or any other repeat-purchase information-rich product. However, it should be noted that the current Learning Relationships being developed by Amazon are not directly transferable to these other product categories. In other words, although Amazon seems well positioned to extend their brand name across several product categories, they have not taken any steps to build a relationship that prevents me from buying books from them and CD's or videos from another vendor. If they can figure a way to develop Learning Relationships that cross product categories (and this may be the way they're headed with Junglee and PlanetAll, but we'll have to wait and see), they will be developing a very strong base to becoming a $5 billion company.

P.S. That last quip about AMZN becoming a $5 billion company is a joke, I know that they're already valued at that. But, after reading the many posts on this board, reviewing the projections provided by TMFJeff and Manish Aurora, and doing my own review of Amazon only as a book seller, I tend to believe that it is almost impossible to value this company now at $5 billion. Factor in the above arguments regarding Learning Relationships and crossing product categories and the value is ?????.

P.P.S. There are tons of other reasons why I'm bullish on Amazon, the company, but you can go back and read my past posts if you're interested in that.

CouchPoDATO
(An ex-shareholder waiting for the picture to clear on both the company and the stock)

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Author: Actlikeanowner Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7868 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 3:51 PM
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This barrier to enty argument has intrigued me for awhile. It seems that consensus is that large capital intensive businesses are more competitively sound.

But how does that square with Campbell soup spinning off its chicken raising operations as fast as it can? How does it square with Sara Lee spinning of its textile operations in favor of plastering the Haynes brand name on clothes made by someone else. How does it square with Nike never owning a manufacturing plant? How does it square with Sun Microsystems outsourcing its chip manufactuing to TI?

Is the argument that these brand name comapnies are now dogs or lemons because they are removing assets from their balance sheet as fast as they can?

Thoughts?

-- bob

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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7870 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 4:50 PM
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Actlikeanowner states:
This barrier to entry argument has intrigued me for awhile. It seems that consensus is that large capital intensive businesses are more competitively sound.

But how does that square with Campbell soup spinning off its chicken raising operations as fast as it can? How does it square with Sara Lee spinning of its textile operations in favor of plastering the Haynes brand name on clothes made by someone else. How does it square with Nike never owning a manufacturing plant? How does it square with Sun Microsystems outsourcing its chip manufactuing to TI?

Is the argument that these brand name comapnies are now dogs or lemons because they are removing assets from their balance sheet as fast as they can?


There are several "traditional" barriers to entry, which often work in tandem. In short, they are: (1) proprietary technology/government protection, (2) brand/product strength and (3) capital requirements. Also, you can add to this list the Learning Relationships with customers that are becoming more prevelent with the advances in information technology (see my previous posts on this subject for an explanation of Learning Relationships). Of these barriers, I would suggest that capital requirements is the least effective and not the consensus as the strongest. If the other 3 barriers are absent, and the investment risk/reward ratio is positive (i.e., if the business is worth entering), then new entrants will appear, regardless of the amount of capital required. The complexity begins to appear in the fact that the other 3 barriers are never completely absent. As such, capital requirements become a factor, but not related to typical balance sheet assets you mention in your various examples above. The real capital barrier is the money involved to buy/build the intangible assets a competitor may have acquired over time. These intangibles include items like brand, customer relationships, strength of management, etc., and they tend to increase in value with the passage of time. As such, the longer it takes for a competitor to appear, the higher the cost of entry.

As this relates to Amazon and the other online/offline book sellers, the question is "Have the intangible assets of the current players risen so high as to eliminate the effective entry of new competition?" Since I believe that this industry will remain a game for 3-4 large players, any new entrants will need to knock one of the existing players off the field (like B&N and Borders did to Crown). At the current time, I only see a handful of potential entrants that will have a significant impact on the current players. These potential big shots in the online book selling arena include Bertelsmann (the most likely, especially with their connections to AOL in Europe), Baker & Taylor/Ingram (no brand strength), and AOL/Yahoo & other high-traffic portals (but I highly doubt this as they will more likely continue to outsource the product fulfilment end of the product sales cycle).

With all the previous arguments I've presented as a foundation, my eyes are on Bertelsmann. If their entry to this business is as a mass book seller, stocking titles from all publishers and not just their own, and they present a service offering that is on par with the current competition (including Learning Relationships), the underlying economics and existing customer/industry relationships for the world's largest publisher may make them the team to beat. However, we still return to the question of "just how high are the existing barriers to entry related to the intangible assets of current players?" The answer: We'll all have to wait and see!

CouchPoDATO

P.S. If this industry is to reduce to 3 big players, and Bertelsmann is one of them, who will be the odd man out? My bet is that we'll be reading the recent comments by Borders' CEO about his delay to enter the online market in some WSJ article on the companies laid to waste as a result of the explosion of the Internet and e-commerce. I already know that the bears are betting on Amazon making an early exit upon maturity of the junk bonds, but I think they will be successful as a book seller, as well as a general retailer of other information-rich products. Expect a secondary offering at some point in the next few years to retire at least a portion of the debt.

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Author: babybull Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7871 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 5:37 PM
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If Bertelsmann was planning on being on the web they would have been here already. It's getting a little late, in my opinion. Amazon has locked up most of the big sites, and Barnes & Nobles has the rest.

Having money is not enough, you have to be willing to spend it (witness Borders). In fact, having money and being willing to spend it is not enough, there has to be something available to buy.

Suppose Bertelsmann puts up a website, and is willing to spend the money necessary to draw traffic. Where is it going to put its banners? The number nine search engine?


Taylor

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Author: mmmmmBeer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7874 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 5:52 PM
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babybull:

"Suppose Bertelsmann puts up a website, and is willing to spend the money necessary to draw traffic. Where is it going to put its banners? The number nine search engine?"

Radio? TV? Newspapers? Direct mail? Magazines? Billboards?

Or will all other forms of advertising disappear now that AMZN has a deal with AOL?

Cheers!

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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7878 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 6:21 PM
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First off, the posts being made by GRudolph are some of the best I've seen on this board. Glenn, I know
you frequent SI, but I hope that you post here just as frequently because we'll all benefit a great deal by
your participation.

As to your comments regarding barriers to entry, I think there is a very strong contrary argument. But
before I get into the details of my argument, I should first address the arguments made on this point by
some of the bearish posters (I'll present my argument in a second post since this is going to be quite
long).



CouchPoDato,

I am not sure we want to start a mutual admiration club but your post regarding barriers to entry is excellent. I would debate the issue but agree with almost everything you stated.

This paragraph I believe needs an addition:


Also, I don't view these future possibilities so much as “if's” but rather as “when's”.
In the meantime, online-only booksellers will have to play the game as outlined by the bears on this
board: higher marketing expenses to build and maintain a brand name without a real world presence,
balancing the reduced costs of lower facilities expenses with the higher costs of products, the ease to
comparison shop, etc.


It is my opinion that the booksellers will require a real world presence to exist profitably.I do not believe it will ever be possible to be profitable being on-line only. Too many consumers need the touch and feel of a product no matter what the product may be. The information exchange as you mentioned is very important. That also can be done via a computer in a store that is a real world presence.

As you can see, I have little to add to your excellent post.

Glenn

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Author: mmmmmBeer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7879 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 6:40 PM
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Gleen writes:

"Too many consumers need the touch and feel of a product no matter what the product may be."

Not to mention:

-Instant gratification
-Social interaction

or a myriad other reasons some people will prefer physical retailers to on-line (aka mail-order) retailers. On-line sometimes offers advantages in terms of price or convienece. But a lot of people are going to continue to purchase from "brick-and-mortar" stores. Even for products which are amenable to mail-order.

The "I know what I want, sell it to me cheap, and mail it to me because it ain't worth my time to go get it right now" crowd is only part of retail marketplace.

Cheers!

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Author: zaxbowow Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7880 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 6:46 PM
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My bet is that we'll be reading the recent comments by Borders' CEO about his delay to enter the online market in some WSJ article on the companies laid to waste as a result of the explosion of the Internet and e-commerce.

Couch, in the land of indicators your re-emergence on this thread sets my wonderful built-in contrarian horse-byproduct detector going like nobody's business.

In honor of your typically wordy reappearance here, full of sound and fury, and signifying either something or absolutely nothing, Zaxbowow predicts a significant drop in the value of the AMZN stock by Friday after next. AMZN closed today at 115 5/8.

AMZN, a pathetically overvalued earningless money-loser of a company, whose losses INCREASE every quarter has investors whose interests are ill served by accountants who have crystal balls built out of iron pirite.

-- Zax

:)

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Author: mmmmmBeer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7881 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 7:12 PM
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dato:

"My bet is that we'll be reading the recent comments by Borders' CEO about his delay to enter the online market in some WSJ article on the companies laid to waste as a result of the explosion of the Internet and e-commerce."

Perhaps, but will it be AMZN laid to waste? Or B&N? Or Borders?

Perhaps the story will herald the forsight of Borders management for not blindly chasing the e-commerce herd. Internet bookselling remains, by far, unproven as a viable commercial endeavor.

And even if it proves successful, there were hamburger stands before MCD, and bookstores before BKS, and hardware stores before HD, and discount stores before WMT. The first shall not always last. (I think that was in the bible.)

Cheers!

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Author: puumbaa Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7883 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 7:19 PM
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Baby Bull:

Bertelesmann -- you must be kidding -- the WSJ recently reported that it inked a $30 mm ad campaign with a Madison avenue firm & oh, btw, the company derives 40% of its revenues from music sales -- wishful thinking does not make something come true.

folks, am i the last person on earth who reads wsj daily??? i'd thought for sure someone here would've noticed this bullish note -- amzn to $400.

http://interactive.wsj.com/archive/retrieve

Internet's Relative Economic Impact
Is Played Down in Report by OECD

By KIMBERLEY A. STRASSEL
Staff Reporter of THE WALL STREET JOURNAL

Judging from the eye-popping revenue projections bandied about by
market researchers, one might assume that the whole world is rushing to
buy dish-washing detergent and software online. The OECD itself
estimates that total revenue from electronic commerce hit $26 billion last
year and will soar to $1 trillion by 2005.

Comparing Numbers

But those numbers need to be seen in context: The $26 billion, for
example, represented only 0.5% of total retail sales last year for the
OECD's seven-largest economies, according to the report, "The
Economic and Social Impacts of Electronic Commerce." Even at $1
trillion, e-commerce would amount to less than the current annual sales
that flow from direct marketing in the U.S. using mail, telephone and
newspapers.

"There is no other area of technological change with such a discrepancy
between the actual, current phenomenon and what people, policy makers
and businessmen believe and expect from the future," says Luc Soete, an
economics professor at Maastricht University who has read the report. "If
you consider the things that are still necessary to really make e-commerce
work, it is amazing that people are expecting growth anything near what
they are."
...

and continues on with a reference to amzn's great growth to date

interesting read.

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Author: Bozon Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7887 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 8:07 PM
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"In honor of your typically wordy reappearance here, full of sound and fury, and signifying either something or absolutely nothing, Zaxbowow predicts a significant drop in the value of the AMZN stock by Friday after next. AMZN closed today at 115 5/8."

B.A.R.F. contest no. 2: I say 92 3/4.

/Gary/

p.s. Max.

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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7888 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 8:12 PM
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Just a snippet from The Globe and Mail:

"Analyst Derek Brown of Volpe Brown Whelan in San Francisco estimates
the on-line book market could swell to annual sales of between $2.5-billion
and $3-billion (U.S.) in 2002.

Amazon.com, he estimates, could command 30 to 40 per cent of that market.

Largely because of such bright prospects, Amazon.com shares have bounded
to a high of $147 on the Nasdaq Stock Market in July from a 52-week low of
$21.12 in October of last year. On Friday, the shares closed at $109.25. "

Glenn

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Author: Bozon Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7890 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 8:36 PM
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"
Just a snippet from The Globe and Mail:

"Analyst Derek Brown of Volpe Brown Whelan in San Francisco estimates the on-line book market could swell to annual sales of between $2.5-billion and $3-billion (U.S.) in 2002.

Amazon.com, he estimates, could command 30 to 40 per cent of that market."

Oh yes, I know!

Just like QVC and Home Shopping Network. Annual sales in the billions!!

Does anyone have any stats on HSN? Particularly the size of the claims in the early days and compared to current revenues? And didn't QVC go out of business? Or did it become HSN? I can't remember any more and was out of the U.S. for eight years till last spring.

/Gary/

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Author: puumbaa Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7891 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 8:56 PM
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You might ask yourself whether, in the face of this sort of technology,
Amazon.com is ever going to be able to relax and just rake in the money.

In a series of papers (available at www.ibm.com/iac/high.html) the IBM
researchers suggest the results of this sort of automated price searching will
be a bloody, never-ending commercial war. 'The new filtering economy is
extremely prone to unstable limit-cycle price wars ... (which) undermine the
tendency of the system to efficiently self-organise itself," they write.

This polite language is economists' code for 'commercial horror". From
time to time you see price wars entrench themselves in an industry - US
airlines in the 1980s, for instance. The results are usually the same: chronic,
industry-wide unprofitability. By the early 1990s, the US domestic airline
industry was reputed to have eaten every dollar of profit it had ever made,
all the way back to Kitty Hawk.

The IBM work is only economic modelling, of course, subject to a thousand
pre-conditions and possibly just plain wrong. But it offers an intriguing
possibility - that for middlemen, the Internet will not merely eat money at
the start, but will go on eating money forever.

e-mail: dwalker@theage.fairfax.com.au


compliments of the ever-present and polite GR!!!


http://www.techstocks.com/~wsapi/investor/reply-5863073

LP

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Author: SChalice Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7892 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 9:00 PM
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Bozon queried:
<< Does anyone have any stats on HSN? Particularly the size of the claims in the early days and compared to current revenues? And didn't QVC go out of business? Or did it become HSN? >>

I forget too. I think QVC merged with HSN. Here is QVC's website. They claim Today QVC is the leader in electronic retailing. I think they may even sell books online:

http://www.qvc.com/hqfact.html?


I have a book called The Highwaymen that discusses the early success of QVC. To quote John Malone, "How big is the shopping-catalogue business? QVC does a billion dollars a year, and it's just scratching the surface." He believed QVC could be as big as Wal-Mart.

I remember everyone being simply amazed at the amount of revenue streaming on a minute to minute basis. It had blown away initial expectations.

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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7894 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 9:22 PM
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Couch,

Your post was so well written I had to read it again. I did find a problem in your thinking among others on the second read. This paragraph is worth addressing:



Working from the concepts raised by Don Peppers and Martha Rogers in Enterprise One to One: Tools
for Competing in the Interactive Age, the first retailer who is able to establish a “Learning
Relationship” with its customers will develop insurmountable barriers to entry and be able not only to
protect their customer base and profit margins, but increase them over time. As such, the battle is not
for current profitability, but rather customer acquisition and retention.

In short, a Learning Relationship is one where the consumer teaches a company about their preferences,
and in return, the company remembers the preferences and customizes the service for the consumer.
The more time the consumer spends teaching the company, the higher the barrier to entry. This is
achieved because it is more convenient for the consumer to stay loyal rather than teach a new company
about their preferences. In addition, once this Learning Relationship is established, it is only necessary
to maintain a level of service that is equal to the competition and a fair price (not the lowest).


The “Learning Relationship” has to be continually executed almost perfectly. Retail has no loyalty and any loss of good execution will be the loss of a lot consumers. A case in point is Kmart versus Walmart. Kmart was by far the first in its market, however Walmart determined customer preferences far better. Therefore, Walmart executed better and surpassed Kmart by a large margin.

Glenn

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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7895 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 9:30 PM
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Amazon.com, he estimates, could command 30 to 40 per cent of that market."

Bozon,

This estimate is lower than those proposing the bullish argument for AMZN. I thought it was getting closer to realistic. Many bulls talk about a 50% share.

Does anyone have any stats on HSN? Particularly the size of the claims in the early days and compared
to current revenues? And didn't QVC go out of business? Or did it become HSN? I can't remember any
more and was out of the U.S. for eight years till last spring.


I do not have the stats. I can say with certainty that I was told by many pundits of these firms that they would put my retail jewelry business out of business. Their present market share is miniscul but I do not know the numbers. This was never a concern even when the bulls were making these huge forecasts.

Glenn





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Author: ManishAurora One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7901 of 58823
Subject: Re: no barriers to entry? Date: 9/28/1998 11:37 PM
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Couch: Welcome back. I'm afraid, however, that I agree with zax here. The bears may be licking their wounds in the short term, but our tolerance for bullish statements from someone who has sold his positions is fairly limited. As I stated in an earlier post, a position in a publicly traded security is a signal in its own right. Your sale in the early hundreds spoke more than your words. It was a sell signal, and a smart one at that. You 'feel good' about a firm that made you money. However, your financial instincts clearly told you to get the hell out at these levels.

With the distance of a few days on the recent rally (and my losses:)) I looked again at the valuations of these firms: they all sell roughly at 100 times revenues, and their market caps are in the billions of dollars, not venture level tens of millions. This is not merely 'irrational' exuberance, it's cuckooland.

Manish Aurora.


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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7915 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 3:27 AM
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GRudolph states:
The "Learning Relationship" has to be continually executed almost perfectly.

I disagree. When a Learning Relationship is established there is a switching cost for the consumer that grows higher over time. In addition, the retailer's cost to execute the Learning Relationship drops as time goes on and more information is gathered. In the specific case of Amazon, the more information they accumulate in their purchasing database (about specific customers and customer population), the more accurate and valuable their recommendations should become. As such, the act of "executing perfectly" is less difficult and less costly than it may appear.

Because of these increasing switching costs, the company that establishes a Learning Relationship with its customers need only provide a level of service that is on par with its competition and a fair price (in other words, don't give them a significant reason to abandon their investment in the relationship).

The above comments relate mostly to the company's ability to retain customers, and not to obtain new ones. However, offering incentives, such as lower prices, for new customers to establish a Learning Relationship is a quite common strategy. This should not affect your current customer base. Although they may be paying more for their products, they are also receiving a much more valuable and customized service. In the end, you have loyal customers who contribute higher margin, lower maintenance sales (or at least that's the way the theory plays out).

Retail has no loyalty and any loss of good execution will be the loss of a lot consumers.

I agree, but this ignores the impact of the Learning Relationship I described. It should be noted that the customer loyalty achieved as a result of developing a Learning Relationship is not dependent upon emotional attachments, but rather is simply a matter of convenience for the consumer. The relationship creates a "barrier of inconvenience" - a reason for that customer never to want to deal with the competition again, provided only that you continue to deliver service quality at a fair price.

A case in point is Kmart versus Walmart. Kmart was by far the first in its market, however Walmart determined customer preferences far better. Therefore, Walmart executed better and surpassed Kmart by a large margin.

As far as Kmart vs. Walmart, there was no "Learning Relationship" involved. Therefore, when Walmart offered a better service/product/price bundle, consumers had no switching costs to shop at a new retailer. In order to establish a loyal customer base when a Learning Relationship is not established, the retailer must not only provide a service/product/price bundle that is on par with the competition, but it must exceed the competition's offering.

My decision to shop at B&N vs. Borders is made by the fact of which side of the street I happen to be on (they are located directly across from each other in Santa Barbara). However, that decision is much more complicated when it comes to my online purchases due to the factors raised in this and other posts.

CouchPoDATO

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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7917 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 5:53 AM
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Manish blabs:
Couch: Welcome back. I'm afraid, however, that I agree with zax here. The bears may be licking their wounds in the short term, but our tolerance for bullish statements from someone who has sold his positions is fairly limited. As I stated in an earlier post, a position in a publicly traded security is a signal in its own right. Your sale in the early hundreds spoke more than your words. It was a sell signal, and a smart one at that. You 'feel good' about a firm that made you money. However, your financial instincts clearly told you to get the hell out at these levels.

Manish,

I'm truly sorry that you and some of the other bears don't have the "tolerance" for my comments. I'm a business person, and my ability to review a business and its prospects is not affected one bit by whether or not I currently own stock, have previously owned stock, etc. I was not emotional about Amazon when I was a shareholder, and I'm not emotional about it now.

As for my sale of Amazon (in early July at 110), I've stated the reasons why I've sold and remain bullish on the company, but I'll repeat them again:

1. I became uncomfortable with the thin float and general market conditions. It looked like a short squeeze.

2. I viewed the risk of a major decline in price at that level to be much greater than a significant increase.

3. There were a number of "personal" reasons which factored into my decision to sell, and I don't need to tell you or anyone else about them. However, one personal reason that I did give was that these shares were in my wife's IRA account, and her being a beginning investor, AMZN was too volatile for her liking.

I've made many bullish statements about Amazon in the past, and I'm clearly bullish on the company's prospects going forward. However, I thought I also made it clear that I have no idea about the current valuation. In addition, the conditions that led to my sale of AMZN are still present today. As such, I will remain a "shareholder in waiting". When the conditions for my sale are removed, and assuming I'm still bullish on the company, I'll probably be buying back in. That buy-in may be at $40 or $140, but that is the least of my worries with this stock. I view it as a speculative play, and therefore, give more weight to qualitative analysis (VC-like) rather than quantitative analysis (value investor).

Regarding Zax's comments that my absence and reappearance represents some contrarian indicator (post #7880), I think you're reading into my behavior a little too much. I've been reading just about every message on this board for the past year. I post when I have something to say, and my comments are usually in reaction to something someone else posted here. This participation is not dependent on any decreases or increases in the share price. During the recent share price decline, it seemed that the majority of posters here were bears who were restating prior arguments. I have replied to these arguments in the past, and chose not to repeat myself. I had never directly addressed the "barriers to entry" topic, so I decided to speak up. These were not new ideas, but just a reaction to someone else's comments (you, of all people, should know this since I expressed similar thoughts to you directly in my e-mail dated 8/11/98). If there were more substantive discussions on this board, I may be compelled to particpate more frequently.

CouchPoDATO

P.S. Zax, I did get a laugh from your post, even though I know you were half serious.

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Author: Actlikeanowner Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7919 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 8:50 AM
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Couch,

Sounds like you are saying that intangible assets determine value more than tangible assets today (sorry to grossly oversimplify). I would agree. The next question is: How does this notion tie into the argument that AMZN is overvalued by any traditional valuation approach? Traditional valuation approaches are biased toward the tangible assets of an organization, are they not? If the intangibles are more important (relatively speaking), are the traditional valuation approaches less valuable? Or is this the explanation why many investors value a company like AMZN on "potential growth" derived from brand image, learning relationships, their economic web, etc. etc. Arguably intangible assets are much harder to measure, therefore does it not follow that corporat value will be much harder to measure as well?

-- regards

Bob

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Author: stockpup One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7920 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 9:03 AM
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Sounds like you're desperately trying to make an argument for AMZNs ridiculous valuation. When Amazon bulls start preaching that "intangible" (ie non-existent) assets are how you should value a company, then you know they're in trouble.

Thanks for a laugh, that was the funniest post I've read in a while.


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Author: TaffyII Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7921 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 9:38 AM
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manish< This is not merely 'irrational' exuberance, it's cuckooland.>
As far as Internet stocks are concerned, its definitely been the year of the cuckoo.
The winter is coming and I see cuckoo hunters hiding behind the books, cd's and video tapes.

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Author: ahatcher Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7925 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 12:25 PM
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Congratulations on getting post of the day.
I know I nominated you and apparently others did too.

Amazon.com was the first on-line site I purchased from and they've been the only one I've bought books and music from. I entered my credit card number on-line with trepidation and now I have no reason to change.

Here's my story. I have a wife and two kids (6 and 13), my wife and I both work outside the home. We have horrible commutes. I leave home at 7AM and get home at 6PM. My wife leaves for work at 6AM and returns at 5:30PM. Weekends are filled with grocery shopping and home repairs and time spent with friends and family. We're also very big readers. Browsing bookstores is fun, but frankly not that much fun.

When we decide we want new books, we put together an order with something for everyone. That doesn't mean that it's always just books. Sometimes it includes CD's and (rarely) videos. With four people, the subjects vary widely. Amazon.com has been the ONLY place that has had everything we've wanted.

Occasionally, I look to see if I can get a better deal somewhere else. About the only reason I bother doing that is because of bears on this board touting how much better a deal I can get somewhere else.

Sometimes, I can get better prices on some items at other places. Sometimes the price break is significant (in percentage terms), but no place except Amazon has had the complete selection I've wanted. In addition, the places where I can get better prices on some items have had worse prices on other items in my selection.

A few weeks back I posted an analysis of an order I made at Amazon. When I compared the prices, it ended up being pretty much a wash. I used acses.com to compare book prices and searched the music sites (Music Blvd and CDnow) myself. After posting my results, others chimed in to point out how I could have saved an extra 20% on one of my items at another site (usually shopping.com for books) or $3 on a particular CD at Music Blvd.

The end result was I could have saved about $10 (on my $114 order), if I had been willing to split my business between 3 sites. If I bought the books that were available at shopping.com and 2 of the 4 CD's from Music Blvd and the rest from Amazon (because they were either cheaper or not available in the other places).

I'm not willing to do that. I'm willing to pay 10% for the convience of going to a place I know, where I'm confident that they will have what I want and that the price won't be totally out of line.

--
Not anonomously.

Andy Hatcher
ajhatcher@aol.com


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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7932 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 12:51 PM
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As far as Kmart vs. Walmart, there was no "Learning Relationship" involved. Therefore, when
Walmart offered a better service/product/price bundle, consumers had no switching costs to shop at a
new retailer. In order to establish a loyal customer base when a Learning Relationship is not established,
the retailer must not only provide a service/product/price bundle that is on par with the competition, but
it must exceed the competition's offering.


I am being very brief due to the market being open. However, Kmart should have learned the needs of their customers in terms of product, service and price. They clearly did not. This can and and may happen to AMZN.

Glenn

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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7940 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 1:42 PM
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When we decide we want new books, we put together an order with something for everyone. That
doesn't mean that it's always just books. Sometimes it includes CD's and (rarely) videos. With four
people, the subjects vary widely. Amazon.com has been the ONLY place that has had everything we've
wanted.


Andy,

This does not have a lot to do with you post except I thought you might like to know that http://www.border.com

has any book you will want, CD or video. Amazon does not have really have video. Borders is the least agressive online but an excellent company.

Glenn


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Author: ahatcher Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7942 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 2:40 PM
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Andy,

This does not have a lot to do with you post except I thought you might like to know that
http://www.border.com

has any book you will want, CD or video. Amazon does not have really have video. Borders is the
least agressive online but an excellent company.

Glenn


That may be true now, but when I first starting buying on-line, their site was still "check back later". The ease of getting video's might be a reason to switch, except that I really don't buy many videos. What other incentive can they offer to get me to switch? I'm already using a site that has full selection and good prices.

I think this is exactly what CouchP was talking about with barriers to entry. For someone new to buying online, the video selection may be attractive (assuming they can find Borders on-line, but that's a different question). For book customers, Borders was late to market and now they have to overcome the "complacency" barrier to entry to be successful. I think Amazon understands this and that is why they are spending so much money trying to capture accounts now, before people become set in their ways. If they can get people to use their site first, there is tremendous resistance to change.


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Author: Actlikeanowner Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7943 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 3:32 PM
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Stockpup,

No, I'm really not desparate about anything. AMZN is overvalued by any traditional technique. I'm just not close-minded to new techniques. That's what I'm trying to work out for myself. I believe things do change. Others do not.

IT used to be that a strong balance sheet signalled value. But then investors got wise to the fact that a company with a ton of assets might be losing their top customers, or their employees might be defecting in droves, etc. Or, a start-up with a groundbreaking new product may seem like it is going bust. That's why valuation methods CHANGED from a focus on the balance sheet to a focus on earnings (and thus the income statement) some 40 years ago.

I am just open to the notion that things could CHANGE again given the fact that intangible assets are now seemingly more important (and alot harder to measure/value). Could their be a shift ahead that requires new valuation techniques? Is it possible that enterprise value will be determined by future propsects than current performance? That is the bull argument. Who knows? But it seems some investors are looking for the promise of growth as a sign of value, in an era where intangibles differentiate.

Sorry if I interrupted your fixation on AMZNs seemingly undeserved valuation.

-- regards

Bob

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Author: SChalice Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7944 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 5:10 PM
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Check the $1M comment from this dude in the industry:

http://messages.yahoo.com/bbs?action=m&board=yahoo.74.08.8728961&topicid=0m2&msgid=6uhjeo$o47$3@m2.yahoo.com

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Author: teamrep One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7948 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 7:07 PM
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I don't believe it, but let's say the business of selling books and other things on the internet is not a commodity business. There are now good competitors who offer equally as good of web experiences, prices and levels of service and Bertelesmann and others will start to compete agressively starting this fall. Amazon is already losing market share to its' competitors. This errosion in share has just begun and will accelerate - Amazon has dropped in reach ratings for two months in a row and is growing at a slower pace each succesive quarter and in relation to B & N. Bertelsmann will bring a new dimension to the competion soon. Amazon's current price, forget about future appreciation, canot be justified unless they maintain the level of market share - a battle they are losing already.

Amazon as a low cost supplier:

Amazon.com does not make anything they sell except for the "experience". They must buy the products they sell from companies such as Bertlesmann (they own Doubleday and other names people are very familiar with). Amazon purchases most of their books from distributors at a mark-up over the price they pay to the publishers. The books they buy from the publishers end up not saving them anything because of the increased costs of handling and carrying (according to Joy Covey, CFO). Publishers already have staff employed to develop artwork and reviews of books and music that they can use to flesh out their web sites more efficiently than Amazon.com. Amazon, a mere re-seller, adds a layer of duplication to the process that is costly to the consumer. The publisher can offer internet customers early releases of popular titles, autographed copies, special jackets or added freebies that Amazon cannot. The publisher can also cut prices to 15%-20% over Amazon's cost if they choose to do so while offering the same touchy-feely web experience.

Web shopping as a learning curve:

Consumers are not dogs who need to be trained. And the internet is not that difficult of a learning curve. In fact, several studies have pointed out that the majority of users do not stick to just a couple of major sites but that they spend time at many sites. internet shoppers have been shown to purchase from several sites - to shop around. The primary criteria for shopping is ease of finding the site, ease of navigation and speed of web page loading. Once you learn how to navigate the internet in general, the learning curve has largely been surmounted and the issue of staying with a site comes down to usefullness and speed.

Good discussion but your arguments are now more feeble than they were just a couple of months ago. Then you were arguing that Amazon.com had the field pretty much to themselves and that they offered supperior "technology", web experience, and cost efficiency. The argument was often along the lines of "they will kick B & N and Borders' butts because they are much more efficient than bricks and mortar rivals." Now that direct marketers are ready to enter the scene and B & N has a worthy site, the argument has fallen on fragile arguments that "users are stupid - they need to be trained to not go to the competition (on the floor?) and once they are trained they will loose all curiosity to compare Amazon with others." I don't think so, people are naturally curious and the internet offers the perfect electronic vehicle to enable that curiosity.

Your argument doesn't work, and even if the did, BOOK and Bertelsmann (maybe even Borders) will have it too!

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Author: puumbaa Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7949 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 7:09 PM
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Andy Hatcher;

1. if you're so busy, do you just ignore your children, have no friends and that's when you find time to read, or are you just buying books that you never read?

2. you're one consumer -- there are many types with different preferences and needs.

3. you want complete selection -- go to yahoo's shopping menu -- you'll get complete selection and great prices.

p

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Author: puumbaa Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7951 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 7:16 PM
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andy:

this is exactly what i mean -- your post makes it sound like you think that all, or most other consumers -- including those already on line and those not yet there -- think and will act precisely like you. i doubt that you actually think so.

p


<<<That may be true now, but when I first starting buying on-line, their site was still "check back later".
The ease of getting video's might be a reason to switch, except that I really don't buy many videos.
What other incentive can they offer to get me to switch? I'm already using a site that has full
selection and good prices.

I think this is exactly what CouchP was talking about with barriers to entry. For someone new to
buying online, the video selection may be attractive (assuming they can find Borders on-line, but
that's a different question). For book customers, Borders was late to market and now they have to
overcome the "complacency" barrier to entry to be successful. I think Amazon understands this and
that is why they are spending so much money trying to capture accounts now, before people
become set in their ways. If they can get people to use their site first, there is tremendous resistance
to change.>>>

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Author: ahatcher Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7952 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 8:11 PM
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Andy Hatcher;

1. if you're so busy, do you just ignore your children, have no friends and that's when you find time
to read, or are you just buying books that you never read?

2. you're one consumer -- there are many types with different preferences and needs.

3. you want complete selection -- go to yahoo's shopping menu -- you'll get complete selection and
great prices.

p


What is your point with #1? Any reason for this personal attack? As I said in my post (which you apparently didn't read completely). Weekends are for family and friends, not for shopping from bookstores. I read books at night. The kids go to bed before 9 and I read for an hour or two before going to sleep. Again what's you point?

As for #2, absolutely there are numerous profiles, and I don't know how many people fit my model. What's yours? And what's your point? Here in the Silicon Valley, I personally know many people who fit my profile. Maybe not millions, but a lot. I don't know of any way to quantify the number of people in my profile. I don't know of any way to find out what the different profiles are except for personal posts like mine.

As for #3, personally, I try to stay away from Yahoo. Back when it was new, it was slow. I've always found its search engine unhelpful. I went to the shopping menu at Yahoo, it points me too Amazon.com and other places. So what? If you read my post again, you'll notice that I complained about having to get stuff from 3 different places. The Yahoo shopping menu points me to a huge number of different places. How does that address my needs?

Why do I even bother replying to you? You never have anything nice to say about anyone. Everything you say contains a hint of contempt and ridicule. You are one of the people who hide behind anonymity that DG was talking about. You have no information in your profile, you post ridiculing posts and just laugh and dance away, no need to face the people you lash out at.

Time for a little self-examination. Ask yourself, why do you do this? Unhappy with your life? Product of a broken home? Seek professional help.


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Author: nowhearthis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7954 of 58823
Subject: Re: no barriers to entry? Date: 9/29/1998 11:38 PM
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Teamrep says:
<<<Consumers are not dogs who need to be trained. And the internet is not that difficult of a learning
curve. In fact, several studies have pointed out that the majority of users do not stick to just a
couple of major sites but that they spend time at many sites. internet shoppers have been shown to
purchase from several sites - to shop around. The primary criteria for shopping is ease of finding the
site, ease of navigation and speed of web page loading. Once you learn how to navigate the internet
in general, the learning curve has largely been surmounted and the issue of staying with a site comes
down to usefullness and speed.>>>

Teamrep,
Great argument in favor of intelligent consumers who are smart enough to shop around in lieu of merely clicking any convenience button. I am pasting the most relevant paragraph from your post, which discomfits the pathetic "brand name for idiots" argument so commonly, but ignorantly, used by the "Amazon only"
pundits.


Isaac

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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7956 of 58823
Subject: Re: no barriers to entry? Date: 9/30/1998 1:38 AM
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Teamrep states:
I don't believe it, but let's say the business of selling books and other things on the internet is not a commodity business. There are now good competitors who offer equally as good of web experiences, prices and levels of service and Bertelesmann and others will start to compete agressively starting this fall. Amazon is already losing market share to its' competitors. This errosion in share has just begun and will accelerate...

Teamrep, you miss the whole point of my discussion about companies that establish Learning Relationships with their customers. To put it briefly (just for you Zax):

In terms of retaining customers, companies that establish Learning Relationships with their customers can make themselves practically invulnerable to competition from other firms - even if the competition is offering not just the same products, but the same level of customization and relationship-building.

I fully expect B&N and Bertelsmann to copy the successful features of Amazon's business. No matter how much work Amazon puts into quality of service, they will never be able to prevent the competition from putting the same level of effort into their own quality. As such, the competitive success will go to the company that can establish relationship quality.

If Amazon is building these high-quality relationships with its customers, then the offerings by the competition may be moot. I happen to believe that both Amazon and B&N are trying to build Learning Relationships with their customers (Amazon had a head start, so their efforts are naturally further along), and therefore feel that the real battle will be for the new customers. Amazon has been winning this battle, if for no other reason than lack of a focused competitor, but the landscape has already changed (and will continue to change). Only time will tell who is more sucessful at grabbing the newbies, and then establishing high-quality relationships to retain them as customers.

Teamrep then says:
the argument has fallen on fragile arguments that "users are stupid - they need to be trained to not go to the competition (on the floor?) and once they are trained they will loose all curiosity to compare Amazon with others

If this is supposed to paraphrase the Learning Relationship that I've described in this and previous posts, you've got it backwards. In a Learning Relationship, it is the consumer who trains the company. In the case of the book sellers, this training is done by the consumer during each purchase. As more information is collected by the retailer, the service becomes more customized and more valuable to the consumer. The investment the consumer makes in teaching the company acts as a barrier to him leaving to the competition.

As stated previously, the real question is whether the consumer considers this information/service valuable enough to view the service of the book seller over the price of the commodity. Quoting from the Merrill Lynch analyst report (thanks GRudolph):

"Amazon.com has noted that it believes that the four most important parameters in the online bookselling market are selection, convenience, price and service (in that order of importance). We believe that, with the exception of service, those factors could be seen as subject to rapid commoditization in an online environment (selection becomes a function of simply downloading a database, convenience is a much more level playing field then in the physical world and price is not an area where Amazon.com has a great deal of flexibility)."

My view is that selection and convenience are now equal between Amazon and B&N, and although Amazon lacks flexibility with pricing, B&N is in the same boat. That means that the ultimate consumer decision should come down to service, a factor that is NOT subject to commodization. Developing and delivering upon a Learning Relationship is the pinnacle of service, and therefore, should be a quite important factor in the long term success of Amazon and B&N.

Finally, Teamrep says:
Good discussion but your arguments are now more feeble than they were just a couple of months ago.

If this comment is meant to imply that I have changed my story, let me assure you that I have not. This discussion regarding barriers to entry and competitive forces is not a replacement of past arguments, it is an addition to them. Just because I choose not to repeat the same argument over and over does not mean that I have changed my mind. Actually, if I do change my opinion on any of the things I have previously posted, I would let you all know.

CouchPoDATO


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Author: forestfan Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7967 of 58823
Subject: Re: no barriers to entry? Date: 9/30/1998 12:51 PM
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Couch states:
<<
In terms of retaining customers, companies that establish Learning Relationships with their customers can make themselves practically invulnerable to competition from other firms - even if the competition is offering not just the same products, but the same level of customization and relationship-building.
>>

1) BGP owns 850+ Waldenbooks stores
2) If you ever went into a Waldenbook store, you would be offered a "Preferred Reader" card. For $10 per annum, you get an extra 10% discount (on top of any existing discount!!) off your books for 12 months, and $5 gift certificates for every $100 you spend - books or magazine.
3) Waldenbooks gets your name and address, and tracks your spending...
4) Your card is good nationwide and there is a toll-free number for customer service...and yes, your discount is applied to special orders too!

This "relationship-building" has existed for years....
Care to guess how many Preferred Readers there are?
By the way, the $10 fee ensures that inactive accounts are not counted...unlike AMZN.

Further fact: B Daltons and Books-a-Million have similar frequent buyer programs.

Never once have I seen any mention of this "relationship building" on this board - yet it is hardly a secret! Yes, I know it is not "internet" but real world but most books are still sold in the real world...so why doesn't BGP or BKS market cap reflect this?




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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7991 of 58823
Subject: Re: no barriers to entry? Date: 9/30/1998 6:56 PM
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I said:
In terms of retaining customers, companies that establish Learning Relationships with their customers can make themselves practically invulnerable to competition from other firms - even if the competition is offering not just the same products, but the same level of customization and relationship-building.

Then forestfan replied:
If you ever went into a Waldenbook store, you would be offered a "Preferred Reader" card. For $10 per annum, you get an extra 10% discount (on top of any existing discount!!) off your books for 12 months, and $5 gift certificates for every $100 you spend - books or magazine...

Further fact: B Daltons and Books-a-Million have similar frequent buyer programs.

Never once have I seen any mention of this "relationship building" on this board - yet it is hardly a secret!


Short Answer: These frequent buyer programs do not build long-term relationships.

Long Answer: Price is a powerful motivator in the consumer decision to buy books, but how powerful? Is it enough to build customer loyalty? Can you buy long-term customer loyalty? Discounts/low prices are great at attracting new customers, but the long-term utility is limited. Low prices can be easily matched by the competition, and then the buying decision reverts to other factors (such as convenience, selection & service). You've even supported this very fact by stating that many book sellers have started programs like this. The long-term effects of a preferred customer card program would be much stronger if the retailer actually used the information received from the customer to build a stronger relationship. Problem is that they don't. The book sellers (and many other retail enterprises) who have issued these cards have consistently under utilized the information collected.

Is it possible for a brick & mortar retailer to build Learning Relationships with its customers? Sure, and the preferred buying cards were a good first step in that direction. However, it is inherently more difficult since the collection and use of the information that makes these relationships possible is much easier in an "information-based" environment like the Internet. Online book sellers are able to track the purchasing habits of ALL customers, not just the few who buy in to the frequent buyer program. As a result, the information that online book sellers collect is more complete, and can be used to provide a much more valuable level of customized service.

CouchPoDATO

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Author: forestfan Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7994 of 58823
Subject: Re: no barriers to entry? Date: 9/30/1998 9:28 PM
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PR cards are designed to keep people who buy books in shopping malls loyal to one chain - and they work!

Couch states:
<<Online book sellers are able to track the purchasing habits of ALL customers, not just the few who buy in to the frequent buyer program. As a result, the information that online book sellers collect is more complete, and can be used to provide a much more valuable level of customized service.>>

Aren't BKS,BGP also online booksellers? I don't see AMZN retaining market share based on this alone, there will be too much sampling....IMHO.

I sell "Playboy" and "Penthouse" etc over the counter and, believe me, most of the purchasers do NOT want to have this type of information collected and some tasteful erotica offerings e-mailed to their home!

Frankly, your argument is a BUY signal for EBAY because the entire (profitable) auction business is built around learning relationships (bridging the gap of trust between complete strangers offering and buying collectible items). Also, their gross margin is 88%! In fact, EBAY is a better buy because the whole transaction is e-commerce!


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Author: grudolph One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7997 of 58823
Subject: Re: no barriers to entry? Date: 9/30/1998 10:21 PM
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That may be true now, but when I first starting buying on-line, their site was still "check back later".
The ease of getting video's might be a reason to switch, except that I really don't buy many videos. What
other incentive can they offer to get me to switch? I'm already using a site that has full selection and
good prices.


Andy,

I do buy a lot of videos but that is really not the issue. Borders was late to market online. More importantly, their web site was not well tested when it opened. There were lots of bugs and still are. Borders is not taking the online business seriously. They admit to that.

I think this is exactly what CouchP was talking about with barriers to entry. For someone new to buying
online, the video selection may be attractive (assuming they can find Borders on-line, but that's a
different question). For book customers, Borders was late to market and now they have to overcome the
"complacency" barrier to entry to be successful. I think Amazon understands this and that is why they
are spending so much money trying to capture accounts now, before people become set in their ways. If
they can get people to use their site first, there is tremendous resistance to change.


I still tend to disagree. I do believe that the current internet users do know the name Amazon. The internet still is relatively small. There will still be a lot more people going online although the percentage growth will slow. Amazon has and is still spending a lot of money targeting a relatively small market. The other competitors may be waiting to do a much larger amount of spending when the internet is truly mainstream.

It is by believe that a retailer cannot exist profitably without a real presence too. This is something that will prove me right or wrong in time.

Glenn

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Author: RJMason Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8010 of 58823
Subject: Re: no barriers to entry? Date: 10/1/1998 1:03 AM
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CouchPoDATO wrote:
Is it possible for a brick & mortar retailer to build Learning Relationships with its customers?
Sure, and the preferred buying cards were a good first step in that direction. However, it is
inherently more difficult since the collection and use of the information that makes these
relationships possible is much easier in an "information-based" environment like the Internet.
Online book sellers are able to track the purchasing habits of ALL customers, not just the few
who buy in to the frequent buyer program.


Hmm, it seems to me this argument can be turned on its head though. Why doesn't every customer at Bricks&Mortar join a frequent buyer program? I can think of four reasons:

1. It's just too much trouble to fill out a form with my name, address, etc.

2. This is an airport and I'm just buying a book for the plane--I don't expect to pass this way again.

3. I want to remain anonymous. I don't like the idea of you having my name and tracking my purchases.

4. Your frequent buyer program is a scam to handcuff me to your bookstore! I think it will serve me better to remain a free agent and shop around among many bookstores.

All of these reasons are bad news for an online bookseller. An online bookseller will never see customers 1-3. Customer 4 may use an online bookseller, but is not likely to be loyal to one of them, when it's so easy to check them all and see which has the lowest price.

So instead of saying, the online bookseller gathers information from all and not just the frequent buyers, we might argue, no one will give an online bookseller any business unless they are one of the sort who would join a frequent buyer program at Bricks&Mortar. Instead of having more information, the online bookseller may just have fewer customers.

Comments?

Idea for Bricks&Mortar: Whenever a new customer makes a purchase from the online division, mail them a preferred buyer card along with their purchase. Then they can use the card at physical outlets for a small discount, and all their purchases, online and off, are tracked together.

Richard Mason


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Author: CouchPoDATO One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8016 of 58823
Subject: Re: no barriers to entry? Date: 10/1/1998 4:08 AM
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RJMason suggests:
Idea for Bricks&Mortar: Whenever a new customer makes a purchase from the online division, mail them a preferred buyer card along with their purchase. Then they can use the card at physical outlets for a small discount, and all their purchases, online and off, are tracked together.

This is a great idea. Too bad that as a shareholder of barnesandnoble.com I'd have a small problem with my company driving customers to the competition.

CouchPoDATO

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Author: RJMason Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8018 of 58823
Subject: Re: no barriers to entry? Date: 10/1/1998 5:59 AM
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Idea for Bricks&Mortar: Whenever a new customer makes a purchase from the online division, mail them a preferred buyer card along with their purchase. Then they can use the card at physical outlets for a small discount, and all their purchases, online and off, are tracked together.

This is a great idea. Too bad that as a shareholder of barnesandnoble.com I'd have a small problem with my company driving customers to the competition.


Good point. But if I understand correctly, "the competition" (Barnes&Noble with bricks) will own 80% of barnesandnoble.com, and 98% of the voting rights? So maybe the interests of the brick store will come first. It does seem that there is a potential conflict of interest here.

How are the earnings and expenses going to be divided among the two halves of Barnes&Noble anyway? I imagine every Barnes&Noble store will have posters or flyers or T-shirts or something that say "Click on barnesandnoble.com." Will Barnes&Noble charge barnesandnoble.com for this advertising? If so, how much? As a shareholder of regular Barnes&Noble should I be annoyed that they are sending business to the online division?

Maybe the B&N IPO is not such a good idea. What's that about a house divided?

Richard Mason


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