"1) Competition will reduce margins (and returns) in any business;2) Extraordinary returns will attract competition;3) Amazon is currently priced on the expectation of extraordinary returns."Dean, I'm afraid I'll have to take issue with your syllogism. Competition will reduce margins? You are assuming, I think, effective competition. Ineffective competition, after all, won't reduce anybody's margins. And there are lots of reasons Amazon's competitors won't be effective. Amazon has first-mover advantage, a very strong brand name in the e-commerce sphere, visionary management, a ton of cash, contracts locking up primo internet real estate, and an associates program designed to suck people in like the borg. Now, who are Amazon's competitors? AOL, a company busy running an isp. Yahoo, a company busy running its search engine. Brick-and-mortar whoever, companies that see the internet as an addition to their "real" business. And internet start-ups with no cash, no cachet, and no chance against the big river. Amazon's potentially serious competitors--who do have cash--are unfocused and too slow in understanding the revolutionary nature of this new medium. The companies who do understand it are too small and have no brand name worth mentioning. Right now Amazon is the top dog. I will remain an investor unless and until I see Amazon failing to keep ahead of its competition.Your notion that Amazon can be number one in e-commerce, and yet somehow may still have unspectacular profits, is foreign to me. I just don't get the argument. Can you name any company that is number one in a thriving, growing industry that is not (eventually) highly profitable, or that has not been a good investment for its shareholders? Assuming, of course, that said company remains number one, which you are willing to assume.I think you're making a mistake in not taking a serious look at Amazon's competition, and trying to figure out which one of them is going to win. There's money to be made in internet commerce--a lot of it. I think it bizarre to Amazon will lose when you have no idea who will beat them. Taylor
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