Post of the Day
November 8, 1999

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Subject:  Why Amazon is worth holding
Author:  coralville

Stuck in lab on a beautiful Sunday waiting for some experiments to run their course. Boy, the AMZN board sure has gotten pretty bearish recently. Being excruciatingly bored at the moment, I've decided to spread some bull.

First, I'm getting tired of bears making the point that investing in AMZN is speculation and based on faith, as if this is some kind of rare insight. I've got news folks, investing in internet and tech companies in general is speculation right now, even those making profits. AOL has a P/E of 212, YHOO's P/E = 700, EBAY's P/E = 6500, CSCO's P/E is at 100+, AMAT's P/E = 150. You can focus on AMZN if you want, but virtually any LTBH position in the techs today is more "speculation" than "investing," by traditional valuations.

Second, e-commerce is not simply an advanced form of catalog or mail order sales as some bears continually preach. That's just silly. The advantages of the internet is that (1) it provides potentially unlimited access to information and products, and (2) allows for novel and extensive communication and interactions not possible by other media. This will revolutionize retailing when companies learn how to take full advantage of these characteristics.

"Any idiot can produce a web site that will find a specific product."

Any idiot can produce a web site that will find a specific product. Not surprisingly, that is pretty much the extent of how most companies (and shop-bots) are currently using the web. They are only useful if you know precisely the product you want to buy. In essence, these sites come into play after you have made the decision to buy a product.

The revolution will come when companies realize that the internet could be the preferred way of selling to customers by being an integral part of the buying decision. For example, I want an e-commerce site where when I type in an area/product of interest, the site makes available to me an extensive array of relevant items, including stuff I didn't know existed, along with product information and customer reviews for each. In this way, the e-commerce company becomes involved early in the buying process, actively participating in my decision of what to buy and, perhaps, even creating demand for a product. In effect, the internet can act like an expert salesman with a huge inventory, who can provide intelligent product suggestions.

Such a site would be extremely attractive to the consumer, as it brings service and convenience up to a level that cannot be equaled offline. The advantages to the company are obvious. There is also almost limitless potential for additional profitable interactions with consumers, including the obvious gift registries and e-mail notification of new products of interest. Imagine buying a Palm Pilot from Amazon and then continually being alerted to new add-ons, software, etc. available at auctions, z-stores, or the main store.

"The online winners will be those companies that create extensive customer-business interactions..."

From what I can see, places like have a traditional "mail-order" business strategy (with the only appeal being low prices), while and Wal-Mart see the web as simply an extension of their Brick and Mortar offerings. Only Amazon seems to appreciate the full potential of how much the internet can and will change buying habits.

In my opinion, the advantages of online are such that I think the majority of sales transactions in many, if not most, commodities will eventually be done online. The online winners will be those companies that create extensive customer-business interactions, and develop an efficient and dependable distribution system that can get products to the consumer in a timely fashion. From Amazon's development to date, I think it has an excellent chance of being one of those winners, eventually obtaining a WMT level of valuation.