Post of the Day
January 19, 1998

From our Board

Subject: This discussion
Author: Trick

Thanks to all who are participating in this discussion about AMZN. Reading the views has caused me to take a step back and evaluate my feelings and analysis about many things concerning the company. It holds a little bit over 10% of my portfolio, so I feel like I'm fairly unemotional about the performance. On the other hand, this stock seems to represent an archetype of a startup company in this era of instant news, so it is instructive to pay close attention.

An important part of my method for choosing a stock is whether I understand the product and how it fits into the world as I know it. I understand the advantage of ordering from Amazon in terms of convenience. What I miss is the very real buzz I get when I go into a great bookstore. I live in a rural area and I frequently drive 1.5 hours just to get the buzz. When I travel, I always go to large bookstores, chain or otherwise. I like being buried in books. This is why Borders and Barnes and Noble will maintain their multibillion dollar sales, with or without the internet.

But I shop AMZN to save money and occasionally for convenience. I can get my buzz in RL, then order from AMZN if I can save 20%. There is the real problem with AMZN. If the big stores can come online and offer bigger savings... AMZN is dead in the water. AMZN is not the same as AOL, or Iomega in that they do not offer a unique product. I've always had a live internet feed (and arpanet), like it or not, AOL is the Windows for internet. No one else focused on the user like AOL. And there is a Zip drive in every (student) computer on my campus right now. Unless AMZN can offer something beyond the other bookstores, like reduced price, they will at best be *even* players. I suspect the chains will win because they offer the buzz of the RL store. AMZN must come down in price relative to the others or it is over.

Cheeze made the argument that there are plenty of other companies to short because of things like poor management, yet what do we really know about AMZN's management? Seems like they are spending money like it was made in the back room (where the investors seem to be printing it.) Is that a sign of great management? And I know only a handful of folks (5% of workforce) who work for AMZN, so buyer beware, but these were people who did not have regular jobs before they were offered employment with AMZN. Even now they don't share the work ethic of other friends of mine involved in startup companies. So I think that counts against them, too. They probably won't outsmart or outwork the competition.

Thanks jjp52 for a great post. I don't agree with many of your arguments, but they did make me re-evaluate my thinking. I hope all will continue to post their thoughts on both sides. I did want to address one of your points directly:

jjp52 said:

With a long enough history of being in the top twenty or thirty most visited sites, Amazon will eventually incorporate advertising into their business model. While the margins associated with this have been hotly debated, clearly Amazon would be one of the best sites to advertise on since they have a customer database that has a lot of information about the customer, and Amazon can tailor the advertisements to those customers that would most likely be interested. While this is done currently for targeted sites like the Motley Fool (pretty much limited to Investor related ads), Amazon could assure all advertisers that their ads would reach an audience who have a history of purchasing products related to the ad on the internet.

I now continue:
I think this would be a fatal mistake. Do you see advertising for other companies inside the grocery store or Nordstoms? A company must know what they sell. Advertising is not an "information product," so I doubt AMZN will go this route. If they ever do, go short and go big because the end will be near.

I'll buy AMZN long at 25.


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