Amazon will eat your children

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Vikram Bath

Vikram Bath is the pseudonym of a former business school professor living in the United States with his wife, daughter, and dog. (Dog pictured.) His current interests include amateur philosophy of science, business, and economics. Tweet at him at @vikrambath1.

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162 Responses

  1. Avatar Kazzy says:

    Hmmm… If I’m understanding this correctly, I feel like maybe I’m supposed to be bothered by all this. And, don’t get me wrong, I certainly don’t want Amazon to eat my baby son (though if he keeps snoring, as he is doing right now next to me on the couch, maybe it wouldn’t be so bad). But I’m otherwise unperturbed by this. If I’m understand this correctly, it seems that Amazon is assuming a certain amount of risk… running an unprofitable model right now with an eye towards dominating in the future, something which is by no means guaranteed. It might pay off for them, it might not. If it does, it might be bad for me. But, well, lots of things happen in the business world that might be bad for me but which I would just be wasting breath to be upset about. So, for now, I guess I’m cool with all this.

    TL;DR: I, for one, welcome our Amazonian overlords.Report

    • Avatar Vikram Bath in reply to Kazzy says:

      I am in agreement that Amazon will probably not harm consumers by executing their strategy. They are unlikely to ever be a true monopoly anymore than Walmart is now. Big retailers, for all their power, usually can’t increase their prices arbitrarily. It’s worth noting that despite Walmart’s reputation, they can’t actually increase their prices without losing customers, which to me means the system is working as it should.

      When I say Amazon will eat your children, I say that to explain why it isn’t bothering to try to make money off of us now when it can. Your children will probably better off for it even with Amazon making money selling to them.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        I think some people (not you) reflexively assume if something is good for a business (or business in general) it is necessarily bad for consumers.

        I do not share this assumption.

        Bad Liberal Kazzy is similarly not bothered by WalMart. When I read articles about the lawnmower company that fought WalMart and won, instead of thinking, “How awful of WalMart!” I think, “More companies should do what the lawnmower company did if WalMart is so awful.”Report

      • Likewise, but they again, I’m the one who decided to go get a PhD from the business school. I would wear this t-shirt unironically: http://store.theonion.com/p-4799-mens-i-just-love-corporations-t-shirt.aspxReport

      • Avatar Kazzy in reply to Vikram Bath says:

        I think a corollary to my argument about not conflating act and actor would have to be something about just because a member of group X does something bad doesn’t mean that there is something inherently bad about the qualities that make someone a member of group X.

        There are some corporations that absolutely do awful things. This says more about the people who run those corporations than the process of incorporating a business.

        I will now go to Whole Foods for my weekly flogging.Report

      • I think of corporations as collection of people. Some have different roles than others, but ultimately just a collection of people doing some stuff. Shifting to that definition help free me from a lot of assumptions I once had.Report

      • @vikram-bath

        I think of corporations as collection of people. Some have different roles than others, but ultimately just a collection of people doing some stuff. Shifting to that definition help free me from a lot of assumptions I once had.

        By “collection of people” do you mean you see each corporation as a collection of people (so that its members constitute the “corporation”) or do you mean you see each corporation as one among many, and “corporations” are just a large group of entities, some good, some bad.

        If the latter, I agree.

        If the former, I see it a bit as more than a mere collection of people, although it is that, too. I think a corporation is a form of organization that is empowered by law to do certain things, and what the law empowers a corporation to do changes by location (state/nation-state) or by time (limited liability for shareholders, for example, wasn’t a definitive feature of corporations until the mid to late 1800s).

        Accordingly, I see the corporate form as a tool, that can be used for good or ill, or something putatively “neutral” like profit seeking (although I reject the notion that things can be so easily dismissed as value free or value neutral). So some corporations do good things or bad, or are better or worse at what they do, but they do whatever they do in part because they have a certain status granted by the state.

        I don’t mean this as a jibe against corporations. In fact, strongly dislike the “the courts say corporations are people, it’s an outrage!!!!” mentality. I do think, at least in the abstract, that the corporate form can enable certain actions that can be harmful to others which might be more difficult to pursue. But then, the corporate form can also enable beneficial actions or “neutral” actions.

        Finally, I also think a good-faith, plausible argument could be made that there is something extra-political about the corporate form, so that an organization might in practice have some of the attributes we might assign to a corporation without the state necessarily assigning those attributes or recognizing them. I’m not sure I agree with that argument (I’m not even sure how many, if any, advance it) but I think it can be made.Report

      • Avatar Rod Engelsman in reply to Vikram Bath says:

        I think of corporations as collection of people. Some have different roles than others, but ultimately just a collection of people doing some stuff. Shifting to that definition help free me from a lot of assumptions I once had.

        I have to push back a bit on this. Corporations are indeed a collection of people, but they’re a collection of people organized in a particular fashion with a definite legal and social structure. This structure both inhibits and compels certain kinds of actions by the people in that structure that direct its activities.

        Think of it as akin to a genetic predisposition. Given the constraints of being profit-seeking entities competing for investment funds, certain behaviors, both socially desirable and not, are reasonably predictable, at least in general.Report

      • @rod-engelsman

        The problem with your comment is that it’s too concise and says in a very few words what I was trying to say in more than twice as many. Why can’t you vague it up a bit and be incomprehensible like me?

        Or to put it more concisely: I agree with your comment.Report

      • I should admit that I don’t mean to offer that as a *real* definition of a corporation. It is clearly underspecified. There are things that are true of 99.5% of corporations that are missing from the definition.

        I really just mean that it’s a mental exercise I will occasionally will go through. (For example, when asking if corporations should have speech, I think it’s useful to think from such a definition than something more specific. The worst way to ask the question would be even more specific, e.g. “should Exxon be able to speak about what regulations apply to the oil industry.”Report

      • @vikram-bath

        Thanks for the response. When it comes to speech, my position is less “don’t violate the freedom of speech rights of a collective of people [who presumably can speaking each one on his/her own]” but whether we want to empower the state to engage in the line-drawing necessary to limit corporations’ speech. (I don’t in principle have a problem with empowering the state to curb what a corporation may or may not do, but I think when it comes to speech, it’s a dangerous thing to do in practice.)

        At any rate, I have no problem with Exxon speaking out on regulation of the oil industry. I would have a problem with Exxon donating money to candidates for Congress, or sponsoring ads to support or defeat them. My having a problem with the practice does not extend to endorsing a ban against it, but I do see tolerating the practice as an unfortunate price to pay for my near absolutist free-speech stance.Report

      • Avatar Kim in reply to Vikram Bath says:

        Vikram,
        The greatest tragedy of the commons is the American Consumer.
        Monopolies increase their prices “until the customer cannot afford to pay more.”
        I do not know whether Walmart fits this description (need to pull their stats), but PLENTY of American businesses do.Report

  2. Avatar Glyph says:

    Nice Blofeldian Bezos pic. Does he own a cat?Report

  3. Avatar Jaybird says:

    Amazon is completely different from Wal-Mart.

    I am not ashamed to say “Oh, I bought some stuff from Amazon” in front of you all. We can discuss what the stuff was! Was it a book? Was it a movie? Was it a DVD drive for a 360 to replace the old crappy one that didn’t open reliably anymore?

    If I say “I went to Wal-Mart”, I have to come up with a story explaining why in God’s name I would have gone to Wal-Mart instead of Whole Foods or Target or something. Was it 3AM? Were you going for one of your relations who said “just go to Wal-Mart, I don’t want to argue about it!”? Quick! Come up with something!Report

    • Avatar Kazzy in reply to Jaybird says:

      “I said I went to WalMart… I didn’t say I liked it.”Report

    • Avatar Vikram Bath in reply to Jaybird says:

      I think reputationally, Amazon in the future will be thought of in a similar way as Target is now.

      I’m not generally ashamed of having gone to Walmart. I’m just disappointed with whatever I buy there and feel like there should probably be showers available at the exits.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        The snob in me feels too good for WalMart. But when I see a mother of four walk out with a cart full of clothes for her kids for less than $100, I think that is a good thing. Especially since most kids grow out of their clothes in a year anyway so investing in something to last longer than that is silly.

        My snobbery is more of an issue that WalMart helping that woman clothe her children.Report

      • I’m self-aware enough to know that part of the reason that I feel the desire to shower when leaving Walmart is that people like that mother shop there and people who are more like me shop at Costco.

        But intellectually, I believe Walmart does good things for its customer base.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        I’m a bit confused… what do you see as the difference between you and that woman? That she has to shop at WalMart while you are not burdened similarly?Report

      • Yes. Just the basic class difference, which I know is awful of me, but I feel it anyway.

        But the biggest thing for is that they can’t seem to keep the store orderly or clean. There’s all this stuff laying around. It’s no wonder the price tags use 1-foot fonts because you’d be too distracted otherwise.

        The second biggest thing is that I’ve gotten too many products there that were incredibly cheap, but the quality was so low that it didn’t even make a good value. The canonical example for me is a metal foot-operated bicycle pump I bought there that twisted and deformed one of the times I tried to use it. It was $8, so I didn’t even bother trying to return it. That kind of thing has happened often enough that it is annoying.

        If I had gone to Target, there probably wouldn’t have been any $8 pumps. It would be $13, but it would have worked.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        Gotcha. Well, I applaud your willingness to be reflective and self-aware.

        I don’t think there is anything wrong with making a determination that WalMart and/or its products do not work for you. Zazzy and I are situated such that we can afford to invest in more expensive things of greater quality. And we work hard to make sure we are not conflating high price tags with better quality, but actually seeking out that which is of verifiably good quality and pricing it accordingly. But not all people are situated thusly. For some people, it doesn’t make sense to spend $400 on a table that lasts 5 years; it makes more sense to buy the $100 table that lasts just one year. They might not have the $400 available upfront, or benefit from the additional cash flow the cheaper one allows for, or the interest they would pay on the $400 debt makes it more expensive in the long run. Whatever. It is good that there are WalMarts for the people of the world who need WalMarts and Targets for the people of the world who need or can make use of Targets, etc.

        I, too, am bothered by the way WalMart tends to be run. The 30+ checkouts, only 2 or 3 of which tend to be manned, frustrate and confuse me. I can never find anything. The one near us tends to be pretty well maintained, so that isn’t an issue, but I’ve seen ones such as that which you describe.

        I do know that I need to work on my snobbery, but that is a personal thing. I have reached a point where I don’t look down on people simply because they shop at WalMart. This was not easy.Report

      • Avatar Mike Schilling in reply to Vikram Bath says:

        Amazon and Target both have excellent customer service. Walmart treats its customers like shoplifters they haven’t caught just yet.Report

      • we work hard to make sure we are not conflating high price tags with better quality

        This is *really* hard. I frequent slickdeals.net, and the folks there can only do it with spreadsheets and other tools tracking prices over months and years. For the most part, I muddle through, and I think I do best when I piggyback of their efforts.

        Walmart treats its customers like shoplifters they haven’t caught just yet.

        Oh, that’s a devilishly excellent way to put it.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        I’m not familiar with slickdeals, but with pretty much any purchase I care about, I spend a good amount of time researching… probably TOO much time. I read user reviews at a variety of sites and aim for people who actually seem to know what they’re talking about. I combine that with my own experience. I’m far from perfect, but I know enough to say, “Just because it’s more expensive doesn’t mean it’s better and just because it’s cheap doesn’t mean it’s worse.” That alone is something too few people understand.

        I think there are also different ways to consider “value”. We have gone with all Apple products in our household. This means we probably paid more for our desktop than was necessary; given our limited computer usage (surfing, word processing, photos, social media), we surely could have gotten a much cheaper computer that would have met our needs. But we really, really value being able to “cloud” all our devices together to help manage all our schedules and what not. We value that. Apple products allow us to that do easily and reliably. So, it was worth it to us. That might not be the same for everyone.Report

      • Avatar Stillwater in reply to Vikram Bath says:

        This is *really* hard. I frequent slickdeals.net, and the folks there can only do it with spreadsheets and other tools tracking prices over months and years.

        Remember that line about an overexamined life?…. …… .. . …..Report

      • Avatar BlaiseP in reply to Vikram Bath says:

        Consumer Reports, maybe a few dis-assembly articles, those are worth considering. Beyond those, I pay no attention to reviews. Such commentary is mostly bought and paid for.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        I find CR’s reviews to be pretty useless. We subscribe but use them with less and less frequency. It is usually pretty easy to suss out faux reviews; read enough and you can get a real sense of things. If a product has 1500+ reviews on Amazon and 200+ on NewEgg, you’ve got enough of a sample that you can make good use of the data therein.Report

      • We use CR on our car hunt. I used it more recently to make sure the baby’s new crib wasn’t going to implode and kill her.Report

      • Avatar Kazzy in reply to Vikram Bath says:

        It is definitely good for some things, cars chief among them.

        I think the important thing to remember when using reviews is to look at the “why” as much as the actual rating. Sometimes people rate a product low for a reason I don’t particularly care about or which might prove to be a positive. And vice versa. It is more important to know what people like/dislike about it than it is to know how they felt about it in a vacuum.Report

      • Avatar BlaiseP in reply to Vikram Bath says:

        I’m a devotee of local merchants. When I first met JustMe and she told me she wanted to become a coder, I had a computer built for her from scratch, by a local merchant just up the road from her home. Told him I wanted Fedora Linux put on it, let him make the hardware decisions so he could ensure all the hardware drivers worked correctly, install some of the major software development tool kits. Only met the guy who built the machine two years later, when he upgraded the memory on the same machine.

        Same machine, wanted to use dual monitors on it. Went down to another local merchant who sold hardware. Bought the video card, knowing I had a seven day return policy on it. Fought with it for a while, got it all working just fine.

        If you know exactly what you want, fine, go buy it online. Surprisingly few things in my life are thus purchased. A local merchant will back the products he sells. He’ll recommend the correct item, in the case of the video card, the cheapest one in the store. He knew it worked well with Linux. It did.

        An honest merchant is the salvation of the world.Report

      • @stillwater , good point. And that’s why I piggyback rather than do it myself. 🙂

        I feel like I’m giving away the keys to my kingdom here, but my references are slickdeals.net for value and consumersearch.com. The latter tells you what are the good products in any particular product category based on their research. I’ve never been unhappy with anything I bought that they had told me to buy.Report

      • Avatar Kim in reply to Vikram Bath says:

        Vik,
        ah, so you’re more like WV farmers than suburban dwellers?Report

      • Sorry, I don’t understand the reference.Report

    • Avatar Damon in reply to Jaybird says:

      Well, anyone who “judges” where someone else when shopping is a pretentious twit, but so is someone who brags about where they shop. The only reason I might mention where I got something is if I got a low price on something. Then I’m clueing in someone on a good deal. I’ve shopped at Walmart, Target, and Costco. I go to Walmart to get stuff I can’t get at Target. I’ve gone to Target because it was closer and the Customer Service is better.

      Amazon: I think the OP has some good points about the corporate strategy. But frankly, for me, Amazon is a convenience and a “annoyance reducer”. I live less than a mile from a large mall and I rarely go. Shopping on line is easier, I don’t have do deal with parking, idiots wandering the mall like power walking seniors or teenages. Plus I get product reviews.Report

  4. Avatar Mike Schilling says:

    Going for market share rather than profitability isn’t a unique strategy. It’s what made Oracle the dominant relational database. It’s also one of the keys to succeeding at open source software — it’s better for someone to be using your stuff for free than your competitor’s stuff for free, so you work at making your stuff attractive to people who won’t ever pay you a dime. What’s unusual about Amazon is how long they’re keeping it up. In principle, shouldn’t this affect the stock price, which is supposed to reflect the expected value of the income stream?Report

    • Going for market share rather than profitability isn’t a unique strategy.

      It’s not, but Amazon’s flavor is a bit different. Walmart has plenty of volume, but it doesn’t bother to try and channel some of that advantage into superior customer service.

      shouldn’t this affect the stock price, which is supposed to reflect the expected value of the income stream?

      Yes, that’s a paradox. From the Fortune link in the post:

      “We believe in the long term, but the long term also has to come,” says Bezos, explaining that periodically Amazon wants to “check in” with its ability to make money. Thus, in 2007, Amazon more than doubled its profit, to $476 million, on a 38% increase in sales to almost $15 billion.
      The “check-in” made a dramatic impact on investors, including short-sellers who had wagered against Amazon’s shares. “There were so many investors that were short Amazon’s stock in 2006 and 2007 that when the shares moved from $35 to $100 they lost their jobs,” says Brian Pitz, a bullish-on-Amazon analyst at investment bank Jefferies.

      Bezos, in other words, is the Man. Wall Street is flat out afraid of him while Tim Cook seems to be barely holding on to his job judging from the constant criticism from various hedge funds.Report

  5. Avatar J@m3z Aitch says:

    Is there any evidence that this strategy actually works in the long run? From what I’ve read in the econ lit, absent barriers to entry, the moment woukd-be monopolist raises prices to finally make a profit they expose themselves anew to competitition.

    And contra what some folks believe, size itself is not a barrier to entry. Granted that returns to scale can mean size results in lower per-unit costs, but a) economies of scale are primarily found in capital intensive businesses, not labor intensive ones (and perhaps I’m wrong, but isn’t Amazon more of the latter than the former?), and b) the economies of scale are offset to some degree (sometimes great) by the unweildiness of coordinating larger and more complex organizations.

    In some ways it almost seems like Amazon is embracing an industrial-age model in the industrial age–it will be interesting to see if it ultimately works out well for them.Report

    • Nob Akimoto Nob Akimoto in reply to J@m3z Aitch says:

      Ordinarily I’m not a conspiracy theorist, but sometimes I think Bezos isn’t actually a businessman. Instead he’s a mad economist who wants to craft a perfect equilibrium market in the retail space and Amazon is his giant plan to make that happen.Report

    • Avatar Mike Schilling in reply to J@m3z Aitch says:

      Is there any evidence that this strategy actually works in the long run?

      It did for Oracle. Though software is a unique market, and enterprise software is unique even within that. For one thing, size does matter. If you’re going to run your company on a database, you want to be damned sure that the company that sells it is going to be there with support and upgrades indefinitely. Thus being the market leader is a huge selling point. Also, since every large deal is a separate negotiation, raising prices can mean just lowering the discount off list you’re willing to offer. And the marginal cost of producing another unit is zero, though you do of course need to figure in the added support costs.Report

      • I’m no technophile, so can you elighten me as to what business/product monopolizes? (And please let it be better founded than the claim that Microsoft has. Monopoly.)Report

      • Avatar Mike Schilling in reply to Mike Schilling says:

        Let’s avoid the word “monopoly”. Sacrificing short-term profits to gain market share and then using the resulting market power to become extremely profitable can be very successful. Oracle is the best example I can think of. Microsoft is a different beast, since it was making significant profits from DOS and Windows from the start, though, once MSFT achieved market dominance, it was completely ruthless in using it.Report

      • Oracle is not a monopoly, but it is a very good business for a number of reasons.
        1. It’s the default choice. When I was a consultant in my prior life, we always proposed using Oracle for our database because not doing so would be something we would have to justify. It just didn’t make any sense to try and save money on a license by using DB2 or make someone anxious by proposing MySQL.
        2. Little is to be gained by switching. Yes, Oracle licenses are expensive, but let’s say you switch successfully to something cheaper. If you’re a business of any size, you saved a tiny bit of money using time that could have been applied to doing something new.
        3. Switching is risky. Well, not really. It wouldn’t be that big a deal to switch, but it does entail risk, and given #2, why bother? As a manager, if it doesn’t work, everyone hates you, and if it does work, you didn’t really save that much anyway.

        If “no one ever got fired for buying IBM” applies to any company today, it is probably Oracle.Report

      • Avatar Brandon Berg in reply to Mike Schilling says:

        Oracle makes database management software. There are competitors, including Microsoft’s SQL Server, IBM’s DB2, and the free MySQL. Oracle’s market share is highly sensitive to how you define the market. Generally speaking, the bigger the business, the more likely they are to use Oracle.Report

      • Avatar Mike Schilling in reply to Mike Schilling says:

        It’s interesting how, once we’re discussing facts rather than politics or ideology, we can find things we all agree on.

        I’ll add to one of Brandon’s points, that Oracle’s market share depends on how you divvy up the market. The companies that were Oracle’s competitors in the platform-independent enterprise RDBMS market [1] are all gone. In that segment they’ve got 100%.

        1. That is, not IBM or Microsoft, whose databases run only on their platforms.Report

      • Avatar Brandon Berg in reply to Mike Schilling says:

        I’ll admit that I’m not familiar with it at all, but Wikipedia says DB2 runs on several platforms.Report

      • The really important questions then, are:
        1. Is Oracle using its market share to raise prices significantly above market levels;
        2. Is it using its market position to reduce innovation, quality, customer service, etc.?
        3. If it does either 1 or 2 can it do so without losing market share?

        If the answers are all no, then it’s an interesting case study, but not of much real importance. If the answers, particularly to 3, are yes, then we’ve got a real live case of interest on our hands.Report

      • Avatar zic in reply to Mike Schilling says:

        James, I suspect Oracles misstep was in trying to leverage free labor in the form of open-source development without actually bothering to invest in open source development or developers.

        They made a lot of enemies, and wrapped themselves in shame.

        this is a sample, a long line of complaints from within the open source development community. I’m sure @BlaiseP knows more.

        http://www.itwire.com/business-it-news/open-source/60370-oracle-doesnt-understand-open-source-montyReport

      • Avatar Mike Schilling in reply to Mike Schilling says:

        Back when I was in the DBMS business, DB2 only ran, or at least we only ever saw it installed, on IBM mainframes and AIX boxes. It may have run on other Unixes then too; not sure, but if so its market share was tiny. And this was before Linux.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        Oracle is a cautionary tale of what happens when a one-trick pony tries to Go Big. Oracle’s vertical market products are horrible. Its forays into government contracting should have been made into an Inspector Clouseau movie for geeks.

        Oracle has made a botch of the Sun acquisition. Its ham-handed approach to Java is annoying everyone. I’ve long since reached the point where I’ve abandoned Java as a strategic recommendation for my clients.

        I do continue to write in Java but I’d prefer not to: I remember the same subtle stench emanating from Microsoft’s software offerings when I backed away from them. I like MariaDB for moderately sized business database models and PostgreSQL/PostGIS for geospatial models. If I reaaaaally am pushed to a closed-source database, I’ll go with DB2 every time. Or Teradata.

        Oracle has failed me and I have not forgiven them. Enterprise solutions, my ass. I would be remiss as a consultant if I were to tell my clients to hitch their wagon to Oracle’s star. I go back to Version 3 of Oracle’s database. Did a stint as an Oracle JDeveloper evangelist after they’d forked the Borland JBuilder IDE.

        Faulkner once said “People to whom sin is just a matter of words, to them salvation is just words too.” I don’t trust Oracle. I don’t believe anything they’ll ever say again.

        There’s no point in paying money for a good database, not when I can get better for free, from people I do trust. If my clients want support, they’re quite willing to pay good money for that. Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        @jm3z-aitch : Consider the following problem. When you go to the grocery store and purchase an arbitrary number of products, all the items are scanned. The codes are looked up in a database. When you slide your consumer discount card through the reader, your identity is looked up in a database.

        Every aspect of the business can use this same database. Your purchases affect inventory. At a certain point, the things you purchase are reordered. To keep you happy as a consumer, the store observes when you purchase things, for your purchases are repetitive. They’ll go to the trouble of restocking the shelves to make sure what you want is available — at the time of day you’re in the store. Really, it’s becoming that sophisticated.

        Programmers do not use these databases directly. They interact with them using Structured Query Language. Software designers call it a Model, where data resides — not programs — data, neatly stored away in tables, rows and columns, often other more sophisticated constructs, but usually in tables such as INVENTORY and CUSTOMER and CUSTOMER_PURCHASES.

        Data is the most precious of all commodities and Oracle databases have proven reliable over time. They’re fast, they can grow large, they’ve solved most data-related problems of supporting complex transactions. An entire discipline, the database analyst, (DBA) has grown up around the domain of data and a good DBA is worth his weight in gold, for the entire business is dependent upon him keeping these Models alive for programs to use.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        …but to your point about Oracle being the 800 pound gorilla in the database market space, here I must simplify matters to the point of error, though not much.

        The previous comment alluded to Models and Structured Query Language (SQL) supporting business transactions. Though SQL is a standard, after a fashion, Oracle’s SQL is far more than a standard. Over many years, Oracle has added sophisticated extensions to its own database not found in others. Database analysts (DBAs) and programmers prefer to use only one database vendor and Oracle has become a de-facto standard. Using multiple database vendors is considered a strategic error. Oracle has become a corporate standard. Oracle holds a larger revenue share than four closest competitors combined and leads its next closest competitor revenue share by 29%.Report

      • Avatar Mike Schilling in reply to Mike Schilling says:

        Everyone extends SQL. The likelihood that an application of any complexity is written in wholly standard SQL and can thus be easily ported from one database server to another (e.g. Oracle to DB2 or SQLServer to Oracle) is close to zero. That’s yet another reasons it’s unusual to change database vendors.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        Google has switched from Oracle MySQL to MariaDB.Report

      • Avatar Jim Heffman in reply to Mike Schilling says:

        “Google has switched from Oracle MySQL to MariaDB.”

        Remember back when Python was going to, as it were, eat the programming industry?Report

      • 1. Is Oracle using its market share to raise prices significantly above market levels;

        Sorry to quibble about terminology, but I don’t think you mean to ask about “market” levels. Customers are paying Oracle’s prices, so prices are at the market level. You could ask whether Oracle’s prices are unfair, but trying to figure out a “fair” price for something is usually an exercise in futility. Oracle could charge less and still make a profit. But most of its customers could pay more and still justify using Oracle.

        2. Is it using its market position to reduce innovation, quality, customer service, etc.?

        Well, if switching costs were lower, it probably would invest more in those things than it does now. But part of why Oracle has so much recurring revenue from the same customers quarter after quarter is that their customers find what they provide satisfactory. They are, after all, able to give IBM or Microsoft a call.

        3. If it does either 1 or 2 can it do so without losing market share?

        Eh. Oracle’s customers are fairly price insensitive, but there are limits beyond which customers will defect. It’s nowhere near the kind of power your local cable provider has.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        Every new language has its fanbois and fangrrls who loudly proclaim its impending victory over all the others. MariaDB is just MySQL without the Oracle brand name. Every good idea will promptly spawn useful variants in accordance with Stephen Jay Gould’s theories of Punctuated Equilibrium. Hence github.

        I despair of technology zealots. Likewise sick and tired of Know It Alls who Sit in the Seat of the Scoffers, casting aspersions upon everything which didn’t live up to the hype, which seems to be your current location, Heffman. Python’s awfully useful, in its own domain. It’s given rise to Ruby and Groovy — again, horses for courses.

        I don’t scoff at anyone’s technology stack. I’ll leave that to the likes of you. It is the hallmark of the n00b and the idiot in my line of work, that he wanders into someone else’s installation, throws his hands in the air, declares it all a bag of shit — only to create a bigger bag thereof. Sure wish I was as smart as the scoffers. Of course, I’ve also survived in the coding business longer than most people, mostly by watching and learning from other people’s failures.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        But part of why Oracle has so much recurring revenue from the same customers quarter after quarter is that their customers find what they provide satisfactory. They are, after all, able to give IBM or Microsoft a call.

        Vendor lock-in, not customer satisfaction, keeps that call from being placed.Report

      • Perhaps “satisfaction” is too strong a term.

        My only point is that they *do* have options. They choose not to explore them. If Oracle’s DB crashed once per day, they might. Absent that, they won’t.Report

      • Avatar Mike Schilling in reply to Mike Schilling says:

        MariaDB is just MySQL without the Oracle brand name.

        So they support the same dialect of SQL, and the applications written against them will just run. Nothing like switching from Oracle to SQLServer.Report

      • Avatar Mike Schilling in reply to Mike Schilling says:

        I heard this one yesterday and couldn’t resist.

        Why is it called Oracle?

        One Rich Ahole Called Larry Ellison.Report

      • Avatar BlaiseP in reply to Mike Schilling says:

        Comparison of MySQL and MariaDB here.Report

    • Avatar Brandon Berg in reply to J@m3z Aitch says:

      economies of scale are primarily found in capital intensive businesses, not labor intensive ones (and perhaps I’m wrong, but isn’t Amazon more of the latter than the former?)

      Amazon has about $600,000 in expenses per employee. Wal-Mart has $200,000. Yum! Brands has $21,000.

      Amazon’s business model is built on automated sales, with fulfillment performed by low-wage employees working in huge, heavily automated warehouses. Or outsourced to third-party sellers entirely.Report

    • absent barriers to entry, the moment woukd-be monopolist raises prices to finally make a profit they expose themselves anew to competitition.

      Good question. My claim is that Amazon is attempting to build barriers to entry secretively, e.g. through warehousing automation and expanding its physical presence and learning how to compete in every single market out there.

      Further, I am not claiming that Amazon will eat your children by raising prices much. I think they always will be competitively priced if not the cheapest. My claim is that despite their pricing they will be enormously profitable once all these investments pay off and Bezos feels he is in a position where no competitor can match what they can do.

      Granted that returns to scale can mean size results in lower per-unit costs, but a) economies of scale are primarily found in capital intensive businesses, not labor intensive ones (and perhaps I’m wrong, but isn’t Amazon more of the latter than the former?), and b) the economies of scale are offset to some degree (sometimes great) by the unweildiness of coordinating larger and more complex organizations.

      These are good points, and it is part of why Target can match Walmart’s prices on most products sold in both places while still being tiny in comparison. Scale alone is not what Bezos is going to rely on though.

      Regarding capital vs labor, it’s worth noting that Bezos has been steadily making Amazon more capital intensive over the years. It’s still a labor-intensive business, but less so than competitors. If wages ever do improve in the sector, Amazon’s competitors will suffer much more than it.Report

      • Hmm, a lot we could discuss here. I’ll just note that I’m skeptical about calling smart competitive business practices a barrier to entry. It reminds me of the antitrust ruling against, iirc, Standard Oil, where the judge wrote that (paraphrased) “it was not inevitable that the firm would always innovate new techniques that made it more successful than its competitors,” and treated its success in doing so as a suspicious thing, demonstrating through this continual competitive the firm’s nefarious anti-competitive nature. It’s a perverse argument that demonstrates the judge’s failure to understand markets.

        I almost get that sense from your post and response, except that just doesn’t seem to square with what I’ve seen from you, so I’m pretty sure I’m not following you, or am reading too much into you, perhaps making an unwarranted assumption about what implications lie behind your use of the phrase barriers to entry?

        (Obviously a successful firm’s competitiveness does make it harder for potential challengers to successfully enter the market, but a) if a quasi-monopolist is in fact acting like they’re in a competitive market, then it doesn’t really matter (for consumer benefit), correct? And b) at the least it seems then that “barriers to entry” is too inclusive a category, and needs to be divided into market and non-market sub-categories.

        But I fear I may just be missing the overall point of your post, and if so, that’s my bad.Report

      • “Further, I am not claiming that Amazon will eat your children by raising prices much. I think they always will be competitively priced if not the cheapest. ”

        I do think that by using “Amazon will eat your children” you are strongly implying the former, so much so that even after one reads your actual OP, they might struggle to fully realize you’re not saying that. I guess that’s one thing catchy titles are supposed to do, but it can be a bit….”misleading” is not the right word, but something not entirely above board.

        I mean this only as a comment on your title, not on your OP or your comments here.Report

      • @jm3z-aitch

        I was going to ask you to clarify your “size isn’t a barrier to entry” statement, but in your comment here you seem to clarify what you meant, especially this part: “Obviously a successful firm’s competitiveness does make it harder for potential challengers to successfully enter the market….”

        I do wonder if there’s something missing about the amount of time in between the construction of the successful competition and the entry of challengers, so that maybe consumers might, in a short interval, be screwed.* I don’t want to make an idol of “competition,” but I do wonder if there are cases where things get very messy in practice and for at least a short period of time, consumers and competitors are indeed “harmed,” at least in the sense of suffering something.

        I fear I’m being unclear here. But there seems to be something missing right at the point where those who object might have the strongest (but not dispositive) point. Perhaps I’m saying all this because I’m rereading Donald/Deirdre McClosckey’s “If You’re So Smart” (and I’m probably misunderstanding it.)

        *That’s not fully your point, because you’re suggesting that the would be successful firm’s actions are already being checked by the possibility of future entrants.Report

      • I’ll just note that I’m skeptical about calling smart competitive business practices a barrier to entry.
        @jm3z-aitch , I get the sense that part of our disconnect is that when you read “barrier to entry” you think “bad thing” while I meant “good thing”. (Since I study businesses, it’s hard for me to not mentally step into their shoes.) In reality, it’s probably just a thing. I would define a barrier to entry to be something that makes it more difficult for a new competitor to enter a segment.

        Another part of the disconnect is that I think my post was read as implying Amazon was going to be a monopoly. I don’t see how that is going to be possible. There will continue to be limits to the prices Amazon can charge. It’s just that even at those prices they will be able to make lots of money. That’s part of why I think Walmart is a reasonable comparison. A Walmart store can mint money at lower prices than its competitors because it has made investments to reduce its costs. And Walmart does this with no ability to increase prices on the customer side. And that’s going to be Amazon’s strategy too once it develops the same capabilities of wringing costs from its delivery system.

        I mean this only as a comment on your title, not on your OP or your comments here.

        Yes, the title is problematic. Titles, however, are responsibility of the editor, who is an idiot. Apologies for the confusion.Report

      • Vim,

        Thanks, that clarifies a lot. We are indeed using barriers as you say. Getting past the confusion, it seems I’m largely in agreement with you.Report

      • Yes, the title is problematic. Titles, however, are responsibility of the editor, who is an idiot. Apologies for the confusion.

        No apologies necessary. I was just being pissy.Report

  6. Avatar Brandon Berg says:

    I thought this was going to be about the jungle. That would be fairly plausible, if I a) had children, and b) took them camping there. I’m white, so there’s about an 80% chance that (b) will happen, contingent on (a). And yet somehow you thought it was more important to write about some bookstore than warning me that the Amazon is going to eat my children. Jerk.

    …Anyway, I have some stupid accounting question: Could this be, to some extent, just an artifact of accounting? For example, suppose they start a long-term infrastructure project that takes more than a year to start producing revenues. Do they start depreciating it after the first year, even though it’s not producing anything yet, or do they start depreciating when the project is completed and comes on line?

    Also, what about the accelerated depreciation rules in the Bush tax cuts? I don’t know much about these, but as I understand it the entire point is to defer profits. Do these only apply for tax purposes, or are they used for financial reporting as well?

    Finally, is R&D depreciated at all, or just expensed? If Amazon is two years into a three-year R&D project, and the costs for the first two years were expensed, does that mean they have some un-accounted-for profits due to the fact that they’ve already paid most of the costs but have all the revenues in the future? Or is that factored into goodwill or something like that?

    If all of these could theoretically be factors, do you think that any of them actually are significant factors in Amazon’s case?Report

    • For example, suppose they start a long-term infrastructure project that takes more than a year to start producing revenues. Do they start depreciating it after the first year, even though it’s not producing anything yet, or do they start depreciating when the project is completed and comes on line?

      For financial reporting purposes, the project would not be depreciated until it is completed. For this to be the explanation, it would mean that Amazon has had a lot of spending projects that it has refused to depreciate. That’s something its generally not supposed to do. It’s essentially lying to investors by saying your assets are worth more than they are. (It’d be akin to saying my wife’s car is worth the $21k she paid for it in 2005 rather than what it is now.)

      Is Amazon lying in this way? I don’t think so. They don’t have much to gain by overstating their assets at this time. There are other businesses in which this might be more of a concern.

      Also, what about the accelerated depreciation rules in the Bush tax cuts?

      Good thought, but like you asked tax depreciation schedules are different than financial reporting schedules. The tax depreciation is done at whatever the IRS says you are supposed to do it at. The financial depreciation is based on management’s perception of the useful life of the asset.

      is R&D depreciated at all, or just expensed?

      If you buy an electron microscope for R&D, you depreciate it over its useful life. (If it breaks one year, you depreciate it all that year. (This is what people mean when they say “writing it off”.)) If you hire a scientist to do R&D, all of his salary is expensed in that year. Her work is not depreciated, and if I were to have evidence that it were, I’d short the company and then alert the media and the SEC.

      If Amazon is two years into a three-year R&D project, and the costs for the first two years were expensed, does that mean they have some un-accounted-for profits due to the fact that they’ve already paid most of the costs but have all the revenues in the future?

      Yes! And that’s the accounting-speak way of saying what I did in my post. I suspect that large amounts of Amazon’s capital expenditures are not realizing any value now and will not for some time. Bezos is running the business to make these investments, not to make shareholders money…yet.

      Or is that factored into goodwill or something like that?

      Again, if it were…SEC.Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        For financial reporting purposes, the project would not be depreciated until it is completed. For this to be the explanation, it would mean that Amazon has had a lot of spending projects that it has refused to depreciate.

        Eh? Wouldn’t refusing to depreciate capital investments result in overstating profits, rather than understating them? My thought was that they might have a bunch of in-progress infrastructure projects (fulfillment centers and such) that they’d already started to depreciate before they finished building them. But if depreciation doesn’t start until the investments are actually in use, that can’t be a factor.

        Anyway, thanks for clearing that all up for me.Report

      • Wouldn’t refusing to depreciate capital investments result in overstating profits, rather than understating them?

        Gah. You are correct. The discussion became a bit twisty for me.Report

  7. Avatar Brandon Berg says:

    Out of curiosity, how many people here who do not work or dabble heavily in software know that Amazon is the dominant player in the cloud computing infrastructure* market?

    *Basically, they have huge data centers full of computers that you can rent by the hour and operate over the internet.Report

    • Avatar Mike Schilling in reply to Brandon Berg says:

      That leaves me out, of course.

      The interesting thing to me is that Amazon’s cloud computing business is a natural outgrowth of how they run their internal data center: lots of compute power used by different internal customers as needed. They turned the infrastructure and experience they had already built into a new business. If you’re a customer of cloud computing, the difference between Amazon, who knew what they were doing pretty much from day one, and their competitors, who are trying to figure things out as they go, is obvious.Report

      • Avatar Brandon Berg in reply to Mike Schilling says:

        The story—perhaps apocryphal—is that in order to deal with the Christmas rush, Amazon needed to build out huge amounts of infrastructure that would just sit around unused for most of the rest of the year, so they decided to rent it out to the public.Report

    • Avatar zic in reply to Brandon Berg says:

      Well, I have family that dabbles. . . but we’ve been renting amazon cloud computing facilities for some time.Report

      • Avatar zic in reply to zic says:

        And while posting this comment, I got a cloud error.

        I suspect the corporate overlords took an interest in this topic, @vikram-bath; and they’ve flagged your files as someone to watch for his subversive thoughts.Report

    • I don’t think I count as a dabbler, and I knew. I don’t know that that should count or not since I am a massive ex-Nerd.Report

  8. Avatar zic says:

    I do business with a lot of very small, highly-specialized companies I’d never have known about because of but for Amazon. I need a lot of speciality items for my design work. Used to be, you could go down to the local yard-goods center (often in a department store) and get quality items — buttons, zippers, fabric, yarn. But those days are long gone; and what’s carried in the ‘yard goods’ dept. of WalMart is mostly trash; not up to the standards I need.

    Through Amazon, I’ve found companies that specialize in buttons, in zippers, in high-quality fabrics, and gotten top-notch service. And I had a first interaction with these businesses via amazon, which gave me some sense of security. Now, I skip amazon and go directly to these small vendors.

    Since I’m a reformed business journalist, I always ask business questions of businesses when I can. And over and over, I hear the same story: small store front, would not be able to stay in business without the additional customers amazon brings in.

    So you may be right, but I remain unconvinced.Report

  9. Avatar NewDealer says:

    One of Matt Y’s themes is an End of Retail Watch. Specifically he seems to think that there will be a day when all shopping is done on-line at places like Amazon and Zappos and there will be no such thing as a physical retail establishment. Farhad Manjoo seems to believe in the same thing but to a lesser extent. Though Manjoo did get famously racked over the coals an autumn or two ago for a column on why the bookstore needs to die and now.

    Both Matt Y and Manjoo seem to love to talk about retail shopping being inefficient while also not understanding how economists use the word efficient. At least according to my economist friends.

    Do you believe this is true? If not, what do you think the exceptions will be?

    At least in urban areas or possibly college towns as well, there seems to be a tendency to support local merchants and thinking that it is good for the community, good for the local economy, urbanity, etc. Interestingly this tends to be a lefty idea. Some might call it upper-middle class left but I know plenty of liberals of more moderate means who are also very pro-local merchant and spending it there.Report

    • Avatar Stillwater in reply to NewDealer says:

      I’d say (not that you asked me) that any predictions about people’s long term behavior based on an idealized model of narrow rationality in the present – even in a context! – will inevitably be wrong. So a fortiori, MattY is wrong. QED.

      Eg. lots of people like shopping, even tho that behavior is … ughh … “irrational”. Irrational is the new rational. (It’s the old rational too, of course…)Report

      • Avatar NewDealer in reply to Stillwater says:

        I also enjoy shopping in certain contexts (browsing a bookstore, a music store like Amoeba, wine and beer stores for new and interesting trys, plus somethings like clothing need to be put on before purchase)

        There are somethings that I would not trust others to select for me like produce and meat. Other stuff still needs to be seen in person and somewhat tried out like sheets, furniture, art, silverware, etc. Things don’t look quite the same on-line as they do in real life.

        Of course once I discover a brand/company and now my sizes, I can buy on-line cheaper but there are stores I know that develop a good and loyal customer base.

        My economist friends describe efficiency as something that you value. Hence, going to a bookstore is efficient to me because I value the experience of browsing the shelves for a new find and because bookstores are nice places to spend some hours.Report

      • There’s nothing irrational about liking shopping. Our likes are exogeneous to the model of rationality, so by definition, likes cannot be economically irrational. I can’t personally understand why people like shopping, but as long as they do, indulging their shopping interests is rational, both for them and for retailers.Report

      • Avatar Stillwater in reply to Stillwater says:

        Yeah, I agree with that. Plus, it seems to me that most people who value being able to touch things, try them out, try them on, etc., will be return customers precisely because they value the ability to touch, try out, try on.

        Matty’s prediction is based on a radically oversimplified model of why people make the decisions they make. It reduces things in ways that aren’t descriptively accurate. For example, part of customer loyalty is based on intangibles like service, or the aesthetics of the place, or even the ability to make better decisions about what you’re actually purchasing because you can touch and feel and perhaps even try out the items your interested in purchasing.

        I mean, most people aren’t dicks and they realize that paying the added cost of purchasing an item from a storefront is entirely “rational” even if you could go online and get it for 3% less.Report

      • Avatar NewDealer in reply to Stillwater says:

        It depends on what I am shopping for. I don’t particuarly like going to the supermarket but spending time at a Farmer’s Market on a sunny morning with vendors giving free samples is a lot of fun.

        So is browsing the bookshelves at a good used bookstore. Didn’t you say you were happy when I mentioned that Green Apple Books and Booksmith were still around? Surely you have good memories from those places.Report

      • ND, I totally have good memories of those places. Absolutely the only things I miss about city life are good bookstores and a variety of ethnic cuisine.

        My guess about Matt Y’s “efficiency” is the idea that total costs could be lower without bricks and mortar, a sort of net social efficiency. But as many businesses have learned, simply reducing costs does not necessarily result in higher net returns, and there’s nothing efficient about cutting costs to the point where you actually make less money.

        We’re all correct–some folks like the shopping experience, whether the touching, the trying on, the ability to have the product instantly, the free samples, the people watching, or just the dazzle of all the bright shiny objects. In a nutshell, shopping seems to be about more than just buying.Report

    • Avatar J@m3z Aitch in reply to NewDealer says:

      I’d say either Matt Y ( who never has excited me as much as he seems to excite a lot of other folk) has a touch of the naive futurist in him, or just knows how to write what sells.

      Your economist friends are right that he’s using efficiency incorrectly. People shop online for convenience, but they also shop brick and mortar for convenience. Convenience, of course, is part of efficiency. When my sawblade broke in the middle of a job, or when I needed a can of refrigerant for my car’s AC, it wasn’t efficient for me to get online, shop around, then wait for it to arrive. When my daughter needed a t-shirt to tie-die it was more efficient to run diwn to Hobby Lobby than buy from tshirtsrusdiotcom. But books are convenient for me to buy online because I don’t have a good bookshop nearby. Some Christmas gifts are convenient to buy online, not all.

      Matt Y seems to make the rookie mistake of extrapolating current trends as though they will go on into the future at the same rate of increase/decrease, without trying to understand the factors underlying them.Report

    • Avatar LeeEsq in reply to NewDealer says:

      How will the end of retail work for clothing? Even in these days of standardized sizes and factory made clothing, finding something that both fits right and looks good can be hard. This is especially true if you are larger or smaller than normal. I have very small feet for a man and finding shoes and sneakers that fit can be hard.

      Likewise, I kind of like seeing the food that I’m buying rather than trusting the merchant. If I want cheese, most supermarkets and cheese stores will give me a taste. Online, I can’t taste and sample before I buy.

      How do I know what furniture or art or dishes would really look good where I live?Report

    • Avatar Brandon Berg in reply to NewDealer says:

      One of Matt Y’s themes is an End of Retail Watch. Specifically he seems to think that there will be a day when all shopping is done on-line at places like Amazon and Zappos and there will be no such thing as a physical retail establishment.

      Yglesias, in his own words::

      Some people feel sentimental about independently owned neighborhood stores, and many of them will find ways to turn those good vibes into a viable business strategy. But nobody feels sentimental about Kmart and Sears. That’s why the mall vacancy rate is still near its recessionary high point, even though retail sales have revived. Individual big-box retailers may still prosper, of course. Wal-Mart, for example, may well succeed in its effort to push into the big city markets that have thus far eluded it. But that kind of growth will come largely at the expense of existing supermarkets and other incumbents. As a whole, the big boxes will find themselves fighting over a brick-and-mortar retail pie that will almost certainly be stagnant or shrinking even if overall economic growth strengthens.

      Report

    • Avatar Brandon Berg in reply to NewDealer says:

      In economics, “efficiency” has a couple of different meanings, but I think the most relevant one here is maximization of utility given available resources.

      That said, I suspect that what they’re actually saying is more nuanced than your summary. For example, here’s Manjoo, in a piece on the inefficiency of local bookstores:

      I get that some people like bookstores, and they’re willing to pay extra to shop there. They find browsing through physical books to be a meditative experience, and they enjoy some of the ancillary benefits of physicality (authors’ readings, unlimited magazine browsing, in-store coffee shops, the warm couches that you can curl into on a cold day). And that’s fine: In the same way that I sometimes wander into Whole Foods for the luxurious experience of buying fancy food, I don’t begrudge bookstore devotees spending extra to get an experience they fancy.

      Report

    • Avatar Kim in reply to NewDealer says:

      5 years till our credit cards get cracked. Clocks ticking.Report

    • Avatar Vikram Bath in reply to NewDealer says:

      One of Matt Y’s themes is an End of Retail Watch.

      @newdealer , So stated, I disagree with him.

      The real work is in determining which sectors of retail will ultimately end up online and which will continue to be done in stores, and in the link Brandon provides, it seems he skips that. The demise of individual retailers does not mean everything is moving online. Retailers go bankrupt all the time. Also, we don’t see that the aggregate revenues of brick and mortar stores are going down and a commensurate increase in retail store sales.

      Some sectors that I see staying primarily offline:
      – furniture (e.g. IKEA – hard to ship; benefits from in-person contact)
      – home improvement (e.g. home depot – hard to ship; often you want your tool right now)
      – Superstore (e.g. Walmart, Target, Costco – some will still want one-stop shopping with a bunch of items. Also, some of their stock will not ship cheaply)
      – Convenience stores (7-11 because they are convenient!)
      – premium clothes (people want to make sure stuff fits even if it costs extra.)

      Books are one foot in the grave. “Support your local store” may be a nice sentiment for some people, but in the long run it will have all the effectiveness of those “Union made” labels that were sewn into clothes way back when.Report

      • Avatar NewDealer in reply to Vikram Bath says:

        I think you are about right. I would also add some form of grocery store for people who like to look at their produce before picking it out and potentially needing last minute items. Whenever we cooked a Thanksgiving dinner, we would always run to the store at the last minute to pick something up. Just one little thing that got neglected in the rush or we did not get enough of.

        I think big cities will always have some used/new book stores like The Strand, Green Apple Books, Moe’s Books, Elliot Bay Books, Powell’s etc.

        Interestingly some premium clothing stores (usually individually owned instead of big chains) have websites but do not sell on-line. Their web presence is a kind of fashion blog/bookmark/advertisement.

        Art Galleries and Art Supply stores will also stay retail.Report

      • Avatar Kim in reply to Vikram Bath says:

        Vik,
        Ikea is easy to ship. that’s the point. Map Ikea stores, map major airports.
        It’s a major part of their business model. The “shop to store” is also sharply limited, in order to have decent efficiency.

        “Wanting things right now” is unlikely to be possible in the future. Sure, one can have some inventory kept in major metros (ala Amazon)… But it’s the sale that I see being harder and harder to pull off.Report

      • When I say “books”, I mean dedicated bookstores. I could see a coffeeshop that also sells from a selection of a couple hundred books and CDs doing OK.Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        I see furniture going mostly on-line, eventually. Yes, it’s hard to ship, but it’s even harder to bring home from the store if you don’t have a truck, and it’s a pain to carry up the stairs if you don’t live on the first floor. It makes sense to leave the transport of furniture to people who specialize in it.

        The technology’s not here yet, or at least not widely used, but what it’s going to take, I think, is virtual- or augmented-reality on-line shopping that lets you see the furniture in your home. Then you buy it on-line and it’s delivered the same or next day from a local warehouse.Report

      • Avatar Kim in reply to Vikram Bath says:

        Brandon,
        you’re ignoring what happens when (not if) we lose access to credit cards, and online banking.
        And DromEd has been around for a long, long time…Report

      • Avatar NewDealer in reply to Vikram Bath says:

        Brandon,

        Most furniture stores do delivery for their items. Even IKEA delivers.Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        In that case, “hard to ship” isn’t really a problem for online sales, since they get shipped with in-store sales, too. Granted that shipping across the country is expensive, but you avoid that with local warehouses.

        The only real advantage brick-and mortar stores have, then, is showrooms. Find a way to duplicate that, and even improve on it, with augmented reality, and they’re strictly inferior.Report

  10. Avatar Dale Forguson says:

    I make a lot of purchases on line and I make a significant percentage of my purchases at Big-Box Discount stores. the buy local idea appeals to me on a number of levels and having been a small retailer in the past I feel a special kind of guilt when I don’t patronize the local retailers, but most often I persuade myself by saying “It’s faster” or “I’m more likely to find what I need at the first place” On the other hand when I buy on line I’m very unlikely to return an item I’m unhappy with. I just don’t have time to deal with it. It usually just sits unused till I eventually throw it away.

    It seems rational to me to accept that we have financed our increase in standard of living since WW II largely by increasingly importing goods which I translate to a significant degree as exporting blue collar manufacturing jobs. I look at other smaller economies where imports of manufactured products are such a small percentage of the market that they are trivial, In those countries the government doesn’t need to be protectionist because the consumer is. it’s considered patriotic to buy products made in their own country. There’s a lot of talk right now about the failure of the economy to produce “high pay” blue collar jobs. Most of the job increases have come in low pay service jobs which have resulted in stagnant or falling standard of living for many in the middle class and long term unemployment for high skilled workers. As long as consumers don’t look past the price of the commodities they purchase it seems unlikely that the long term employment prospects are likely to return to the middle class of the recent past.

    When I see a negative trade balance that looks to me like wealth leaving the country that isn’t coming back. Maybe that’s an oversimplification. I’ve heard talk about our economy transitioning from a “manufacturing economy” to a “service economy” but it seems like the benefit of that transition hasn’t been positive for all segments of the workforce. I don’t claim to be an economist and I’m willing to be shown the error of my thinking if someone with a deeper understanding wants to point it out to me. A lot of the economic woes this country is currently suffering from seem to have roots here to me.Report

    • When I see a negative trade balance that looks to me like wealth leaving the country that isn’t coming back.

      Not really. It’s an exchange of value for value. You value the item you bought more than the dollars you paid for it, so it’s a net value gain.

      And all that money (or very nearly so) ultimately comes back into our economy, as purchases of our goods and services or investments. Whenever we have a trade deficit we have an investment surplus, but our criminally stupid news media never report on that.Report

      • Avatar Jaybird in reply to J@m3z Aitch says:

        I actually tend to see a negative trade balance as wealth entering the country while what is leaving it is currency.

        (And that’s without getting into analogies such as “I’ve outsourced my pizza production to Louie’s”)Report

      • Nob Akimoto Nob Akimoto in reply to J@m3z Aitch says:

        The interesting part of the current accounts, though, is the whole value-added trade aspect. Since the whole value of the trade balance isn’t actually being spent to the “company of origin”, the actual net balance of payments is probably substantially in favor of countries who do the importing.Report

      • Avatar Brandon Berg in reply to J@m3z Aitch says:

        And all that money (or very nearly so) ultimately comes back into our economy, as purchases of our goods and services or investments.

        Much of that investment in the form of US treasury securities. How to sour libertarians on free trade: The money you spent to buy that Chinese computer is funding the NSA!Report

      • Avatar Brandon Berg in reply to J@m3z Aitch says:

        I’m not sure I follow that, Nob. Not that I disagree, necessarily, I just don’t know what you mean. Could I trouble you to show the math for a simple example?Report

      • Avatar J@m3z Aitch in reply to J@m3z Aitch says:

        Much of that investment in the form of US treasury securities. How to sour libertarians on free trade: The money you spent to buy that Chinese computer is funding the NSA!

        Heh, indeed. Here’s where I admittedly get a bit fuzzzy, but if we reduced our government borrowing, wouldn’t foreign holders of USD have to actually invest that cash in the private sector? I know Krugman’s persuaded thst there’s no crowding out issue with government borrowing, but he’s not yet persuaded me.Report

      • Avatar North in reply to J@m3z Aitch says:

        James, consider that this last period showed that people are perfectly content with an (effectively) negative interest rate so long as there’s zero risk. If US Treasuries suddenly became scarce wouldn’t people just stampede to the next nearest almost risk free instrument? Wouldn’t they just store their money in slightly riskier government backed bank accounts or the sovereign debt of other countries? Whatever that would be it wouldn’t likely be the private sector would it?Report

      • Avatar Brandon Berg in reply to J@m3z Aitch says:

        James:
        The argument, I think, is that crowding out is not a major issue if interest rates are low, since this tells us that only investments with low expected returns are being crowded out.Report

      • Avatar Stillwater in reply to J@m3z Aitch says:

        How to sour libertarians on free trade: The money you spent to buy that Chinese computer is funding the NSA!

        How to sweeten things up again: Given the way gummint works, the NSA would get their money in any event.Report

      • Avatar J@m3z Aitch in reply to J@m3z Aitch says:

        North–If we use dollars to buy sovereign debt from other countries, those dollars will still mostly come back to the U.S. anyway. The only exception is money that’s held in those countries as a better alternative than its own currency.

        Brandon–Yes, that’s the argument. And it’s logical as far as it goes. But it assumes interest rates can’t go down far enough to spur private investment. Or to be more correct, Krugman et. al, assume that in most recessions, the normal ones, interest rates will do the trick, but that some recessions are not-normal, like, they argue, this one, so fiscal measures are needed. I remain unconvinced that the problem is not being able to recover through monetary policy, but that the recovery isn’t happening on a timescale that is politically satisfactory.

        For my part, I tend to buy into the restructuring argument, which undermines the idea that this is just a recession that we need to get out of as quickly as possible, since that restructuring can–theoretically, at least–be disrupted and distorted by the government’s determination of what sectors the money shall flow into. In that sense there is, at least potentially, a crowding out. Krugman, however, doesn’t buy the restructuring argument–his assumption is that with sufficient money it will ultimately flow where it ought. He completely wipes the distorting effects of centralized planning (albeit small-scale, not intending a “it’s socialism! argument at all) and the rent-seeking it can stimulate, out of the analysis. I don’t think that exclusion is necessarily warranted. I’m no gold bug type, but I’m Austrian enough to think that the actual structure of the economic process and the incentives people actually face really do matter, not just equations that exclude those considerations.Report

      • Nob Akimoto Nob Akimoto in reply to J@m3z Aitch says:

        Brandon:

        So we have the whole balance of payments model with both current account (goods and services) and capital account flows. Statistically this is almost always supposed to result in a fixed “0” (in theory) hence you have something called “statistical discrepencies” in the balance of payments statistics when the balance of trade measurements don’t work out. The most recent US BEA figure for that is about $10 billion dollars. There’s an extra $10bn coming into the US they can’t seem to figure out why it’s not going into outflow for whatever reason, so they write it off as a statistical anomaly.

        Now the thing also with trade statistics is that they use whole value of item traded rather than value added. So for example a $200 iPhone if imported from China will be credited entirely to China and theoretically the value of components and other elements moving out of the US will be accounted for by exports, etc. In reality of course the value of the $200 is divided among a whole host of different companies that belong to different countries, and as a result trade balance statistics don’t do a lot to measure how much actual money is being sent or taken from a country (as opposed to asset purchases and capital accounts).

        Something I’ve been wondering mostly is how adjusting for Trade in Value-Added statistics would change how the balance of payments model would look like between service/post-industrial/advanced-industrial economies vs. bulk industrial economies. It may very well be that the import/export leger is exaggerating the outflow toward these countries making the total capital flow back into the US larger in contrast to what it’s giving to China, for example for electronics.

        It’s an idle musing and I haven’t done enough research into it to account for the actual statistics, so I really need to think about it a bit harder.Report

    • @dale-forguson , Thanks for commenting. I have a couple of comments though perhaps few answers.

      The balance of trade discrepancy is not solely a result of free trade. It’s not my area of expertise, so I’m not entirely sure why the US trade deficit exists. For whatever reason though, the US (if we define US to be the aggregate of all buyers located there) is happy to buy more than it sells, and other countries are happy to take dollars in payment. It is worth noting that ultimately those dollars have to be spent sometime for something to be useful. So, part of the cost of running a trade deficit today is that the US might have to run a trade surplus later should other countries decide they don’t want to continue selling to us more than they purchase.

      When I see a negative trade balance that looks to me like wealth leaving the country that isn’t coming back.

      Well, if it is *not* coming back, that would mean we don’t have to produce anything for them. But that begs the question what the other countries plan on doing with all those dollars. They could trade amongst themselves or sit on them. But neither of those prospects are accompanied by scary music in the background.

      I’ve heard talk about our economy transitioning from a “manufacturing economy” to a “service economy” but it seems like the benefit of that transition hasn’t been positive for all segments of the workforce.

      Yes, that is problematic. The two standard responses are (1) enact trade barriers or (2) say it sucks to be left out. As obnoxious as #2 is, it is not in fact as damaging as #1. Countries that don’t trade get left behind. Individuals within countries that do trade get left behind.Report

      • Avatar Dale Forguson in reply to Vikram Bath says:

        @ Vikram
        At the risk of further illustrating my lack of understanding on this subject. I’ll point out that the term “trade imbalance” seems to imply more value going in one direction than in the opposite. Dollars retain their value (hopefully) while goods are consumed and become worthless. Isn’t this so? While my 4 year old laptop is virtually worthless the dollars I sent to SE Asia for it are still of nearly the same value.
        By investment I assume you mean either purchasing positions in American publicly traded companies or purchasing US govt. obligations. Selling bonds to pay for an unsustainable entitlements program doesn’t give me a warm fuzzy either.

        I understand that markets change but when no one is actually making anything, we all just provide service to each other, that sort of seems a house of cards to me.

        So, obviously there is much I don’t understand. This isn’t the right venue for an indepth explanation. If any one would like to recommend a good book or two on this subject I’m listening.Report

      • Avatar Kim in reply to Vikram Bath says:

        Countries that don’t trade get left behind.

        …. countries that do get trade grow white hairs.
        JIT is not a failure tolerant system.Report

      • I’ll point out that the term “trade imbalance” seems to imply more value going in one direction than in the opposite.

        The value of the goods in one direction is more than the value of the goods in the other direction. I should note, however, that both of those streams of goods do have buyers at either end. The value of the goods the US receives is greater than the value of the goods other countries buy (in aggregate).

        Dollars retain their value (hopefully) while goods are consumed and become worthless. Isn’t this so?

        Yes. Though if you are a prudent purchaser, you hopefully manage to get something out of the goods you buy.

        I would agree with the general sentiment you state that most goods depreciate faster than dollars depreciate.

        By investment I assume you mean either purchasing positions in American publicly traded companies or purchasing US govt. obligations. Selling bonds to pay for an unsustainable entitlements program doesn’t give me a warm fuzzy either.

        Me neither. But I think I’ve lost track of where we were going. Bonds do have to be “paid back”, but it should be noted that “paying back” a bond is done by handing over dollars, which can then be used to buy goods and services, which will most likely be made in the US. The downside of running a trade deficit today is having to run a trade surplus “tomorrow”. If that tomorrow never comes, then that means that the other countries have found some other use for their dollars that doesn’t involve us (e.g. framing them as art work), which doesn’t seem so bad since we did get to buy things with those dollars before they moved out of circulation.

        I should admit that I have no way of knowing when that “tomorrow” will come. It might not be for a generation.

        I understand that markets change but when no one is actually making anything, we all just provide service to each other, that sort of seems a house of cards to me.

        I empathize with the feeling, but the house-of-cards thing really applies to any economy. An economy in which everyone gives everyone else massages (pure service economy) is just as much a house-of-cards as an economy in which everyone produces massage chairs (pure manufacturing). There is a seeming solidity to an economy based on manufacturing, but I think that’s illusory. If there is a reason it is better for people to be employed as manufacturers than service providers, I haven’t discovered it.

        If any one would like to recommend a good book or two on this subject I’m listening.

        I’d recommend “The Choice: A Fable of Free Trade and Protection”. It’s actually written as a novel–or perhaps a novelette.
        A more direct route would be to read a macroeconomics textbook. Greg Mankiw is a good author, and as much as he embarrasses himself in the Times, Krugman’s textbooks are also solid. Both are written for undergraduates.
        A third option would be to go straight to an international economics textbook. Krugman’s is the only one I’ve really looked at, and it is good.

        Regarding the textbook options, you might want to ignore who is the author and just grab one of the textbooks from your library. They are usually more than $100 new.Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        @dale-forguson Then why buy the laptop at all? Forget China and suppose you could find a 100% American-made laptop for the same price. If the money is going to hold its value better than the laptop, why do you trade the money for the laptop?Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        @vikram-bath New textbooks are expensive, but used copies of the last edition are cheap. And you can’t give them away when they’re more than one edition behind.Report

      • Avatar Stillwater in reply to Vikram Bath says:

        If the money is going to hold its value better than the laptop, why do you trade the money for the laptop?

        I think there’s an ambiguity in the word “value” no?

        He values the laptop more than the money he traded it for, but a used laptop has less value than the money it initially cost.Report

      • New textbooks are expensive, but used copies of the last edition are cheap.

        So are knockoffs, if you can find them.Report

      • Avatar Dale Forguson in reply to Vikram Bath says:

        @ Brandon Berg
        I hope this comment gets posted somewhere near yours.
        Perhaps a laptop was a poor choice. If I bought a pair of jeans or tennis shoes or a foreign car the point is still the same. The manufacturer uses the revenue to buy more inventory and make more sales. I have exchanged the dollars for a commodity which I do need but that will be consumed and end up of little value. The manufacturer might use his profits to purchase something exported from the US or he might not. I on the other hand end up with nothing but avoiding arrest for indecent exposure or freezing to death. I have nothing I can trade from the exchange. So, it seems to me that is the heart of the problem in a nutshell. its not an equal trading partnership. How trade imbalance affects currency exchange is above my pay grade but that manufacturer got paid in his own currency not in dollars. He can spend his earnings from the trade anywhere he wants but probably won’t spend them on an american made product.Report

      • Nob Akimoto Nob Akimoto in reply to Vikram Bath says:

        Trade in value-added statistics and measurements actually would substantially change how the US’s current accounts looks like, primarily because so little value is added in assembly and finish in things like iPhones which are customarily credited as being $200 worth of imports from China.

        There’s a lot of things that aren’t accounted for when we talk about credits and debits in this sort of trade relationship. I’ll see what I can dig up, but the fixation on manufacturing economics is one of those classical “common sense is wrong” fallacies where the tangibility of the item and the trade balance exaggerate the importance of the end result.Report

      • Nob Akimoto Nob Akimoto in reply to Vikram Bath says:

        Note also, all trade statistics are taken as part of the concept of a double-entry bookkeeping model. This means that an increase in the current accounts (goods and services, dividends and short-term capital gains) have to be offset by an equal amount in capital accounts. In the end the trade ends up at 0. The question is what’s happening in the process of churning all those dollars.

        Do you end up creating additional value by producing items of value or services that are valued, or do you simply create additional value by assembling products that others later resell? This becomes a pretty important measure when we start talking about capital flows.Report

      • Avatar Brandon Berg in reply to Vikram Bath says:

        @dale-forguson The specific item in question is irrelevant. The bottom line is that if you’re willing to buy something, you value that thing more than the money. The obvious reason is that you get to use it. Not starving to death is pretty damn valuable. Can you use money to do that without spending it?Report

      • Semi-related: my wife is Chinese, so I’ve been to China and spoken to some Chinese (through translation). At least some of them feel China is getting shafted because they make all this stuff which they could be using themselves and instead ship it to the US who just gives them dollars in return, which may or may not be worth anything in the future.

        I think it says something interesting about the human condition that people can repeatedly and voluntarily perform the same exchange year after year with both parties complaining that they are getting taken advantage of.

        Edit: When I say “some Chinese”, I really mean all the ones who had any thoughts on trade with the US. Nowhere did I find anyone who said anything to the effect of “it’s so great to be on the winning side of this trade imbalance!”Report

      • Avatar Dale Forguson in reply to Vikram Bath says:

        @ Vikram & @ Brandon

        I read somewhere lately that the Chinese have more people living in poverty than the entire population of Africa. It is also interesting to note that there are some products the Chinese do not export, steel being one. Everything they can make is used internally. They do seem to have a plan.

        @ Brandon – I agree completely with your point. Trying to clarify my point is causing me to reflect on my assumptions. Please be patient with my reasoning. To some degree I suppose that wealth can be thought of as a renewable resource. To the degree that it is renewable it allows the importer to replenish his supply of goods (dollarrs) for trade. Expressed in those terms the transaction of the trading partners seems sustainable. My concern is that when the importer trades away his means of renewing his resource the partnership becomes unsustainable. The middle class of America has long been recognized as the engine that has created the wealth of America. As we continue to off-shore manufacturing and replace the associated jobs with lower pay service industry jobs (if they are replaced at all) The resultant demand for goods and services by the middle class must diminish. if this is true, the ability of the nation to generate wealth is also diminished. The only bright spot being that our population growth rate is currently declining, which is a bit of a double edged sword, demand for goods will see a resultant decline over time but competition for jobs will also decline further depressing wages. But to return to my point, if the ability of the importer to renew its wealth is diminished either the partnership becomes unsustainable or the balance of trade has to be re-established. This seems to be the point where I lose the thread of the discussion. I don’t understand how we are winning in the current trading partnerships. We seem (to me) to be spiraling down into a national debt which could ultimately destroy our economy if we don’t take remedial action promptly.

        My apologies to those of you who are economics wonks for belaboring my expression of my partial understanding. Please allow me to retire from the discussion and do some reading.Report

      • My apologies to those of you who are economics wonks for belaboring my expression of my partial understanding.

        @dale-forguson
        Apologies really are not necessary. This is a blog intended for the general public. There is no height requirement for participating.Report

  11. Avatar Lyle says:

    It should be noted that Wal-Mart has a large online presence as well, carrying a far wider line of products than the stores (at least in electronics). They also are able to offer free shipping to their stores, (partly because it brings folks in and partly because the trucks run from the distribution center to the stores anyway, thus the real cost of shipping is low). Sam’s Club also provides a way where you can place and order and have it ready for pickup in a couple of hours.Report

    • Avatar Vikram Bath in reply to Lyle says:

      True, and good point.

      To be honest, I’ve personally not seen all that much benefit to shopping that way. It is nice to know that they have it, but if you order online, it actually means you can’t just go to the shelf and grab it.

      A special case in which it would be helpful would be if it let you buy something that wasn’t ordinarily in stock. It could allow Walmart to have the variety of an Amazon but without having to pay shipping to deliver it to your house.Report

  12. Avatar Mo says:

    Analysis of Amazon that only includes comments on income statement items is woefully incomplete. Amazon’s cash flows are impressive. They also have a negative cash conversion cycle. This means that Amazon could run at zero profit and still make a good deal of money on float alone.Report

    • Avatar Vikram Bath in reply to Mo says:

      They do make cash, but they spend it all on capital investments. Perhaps they could make money on float, but that doesn’t seem to be what they are doing, and it doesn’t seem likely that that is how they intend to make money in the long run either.Report

      • Avatar Mo in reply to Vikram Bath says:

        Their cash flow statement shows that they make significant cash after accounting for caital investments. Also, ignoring the negative cash conversion cycle is like ignoring Walmart’s logistics advantage. That has huge business implications. High inventory turns, a super short cash conversion, etc.all make for big barriers to entry that are explicitly not price/profit related.Report

      • Here are their annual cash flow statements. For 2012, they made $4.2 billion in operating cash flow. but they consumed $3.8 billion of that in capital expenditures.

        If I add up the last three calendar years of operating cash flows and subtract the associated investing cash flows, I end up with less than $900 million a year, which is certainly more money than *I* make, but this is a company the market values as of this minute at $139 billion.

        ignoring the negative cash conversion cycle is like ignoring Walmart’s logistics advantage

        I don’t really see how I’m ignoring it. The claim of the original post is that they are building a business that can execute well.Report

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