1. Private labels enjoy about 10% extra margin. Amazon is currently scaling private labels and exclusive products(same thing), like mad.
2. Low margin doesn't mean a business is bad, just hard. Walmart is an amazing business, with low margins.
3. Let's say amazon creates a system that can supply everything, to your home, in a few hours, at the lowest price. And customers will really like that.
How many other companies can build that ? maybe 1-2 in the US.
So now you have a duopoly.
4. Amazon controls demand. In the internet age, that's the most important thing.
Could they manufacture their own products ? be responsible to purchase inputs for their manufacturers ? Build something like AWS for manufacturing ?
Who knows.
5. Amazon is growing rapidly in B2B. Not sure, but i believe products there have much higher margins.
Let's see:
1. Private labels enjoy about 10% extra margin. Amazon is currently scaling private labels and exclusive products(same thing), like mad.
And any major corporation can use the same supply chain to make the same private label goods. All commodity products are a race to the bottom.
2. Low margin doesn't mean a business is bad, just hard. Walmart is an amazing business, with low margins.
Not a bad business, but low margin businesses don’t command the multiple that Amazon has.
3. Let's say amazon creates a system that can supply everything, to your home, in a few hours, at the lowest price. And customers will really like that.
Yes and then you increase the marginal cost for shipping....
How many other companies can build that ? maybe 1-2 in the US.
So now you have a duopoly.
You don’t need many companies to erase margins if they are competing on price.
4. Amazon controls demand. In the internet age, that's the most important thing.
Amazon doesn’t control demand. But Amazon retail has the highest marginal costs of any of the tech companies including Apple. Netflix, Google, and Microsoft (software not hardware and cloud) have much lower marginal costs. Software has basically zero marginal costs.
Could they manufacture their own products ? be responsible to purchase inputs for their manufacturers ? Build something like AWS for manufacturing ?
Who knows.
Apple is considered the best in supply change management in the world. They have huge bargaining power because they sell a lot of a few goods. Amazon would be selling a relative few of a lots of stuff.
5. Amazon is growing rapidly in B2B. Not sure, but i believe products there have much higher margins.
Businesses have an entire procurement department to make sure they are getting the lowest prices. Those margins should be even lower.
The B2B business Amazon is running is, IMHO, more of a competition for the office supplies and small kind of unimportant stuff. Everybody currently in that business should be worries, yes.
The industrial, Full Truck or Container Load B2B supply chain is different beast. Not that Amazon couldn't figure it out, especially the logistics side. They are doing anyway already for themselves. Organization wise I think it is a different story. And in that field I always have a hard time to understand all the potential profits customers leave on the table. At my current gig procurement is buying full containers from Asia that are than directly delivered to our sites. They buy from a European trader only placing orders in Asia after we did. And the Asian supplier is only starting production after the trader ordered. Crazy business, right? And there are a lot of B2B customers like out there, other people's lazyness seems to be a solid basis for a company.
Re: 1 - that statistic about 10% extra premium for private labels is supposedly data. I'm assuming it's correct(just a Google search, sorry no link , on mobile).
// You don’t need many companies to erase margins if they are competing on price.
Can you explain ? Because my mental model of this is wireless carriers, cable TV, etc, with good margins.
// Apple is considered the best in supply change management in the world. They have huge bargaining power because they sell a lot of a few goods. Amazon would be selling a relative few of a lots of stuff.
Xiaomi does that sucsessfuly over a large range of electronic products.
Also, sure Amazon won't get to 50% margins like in software.
Can you explain ? Because my mental model of this is wireless carriers, cable TV, etc, with good margins.
Cable carriers usually have a monopoly in the places they operate. We have seen carriers have to be more competitive as T-mobile got aggressive as prices did fall.
And they'll surely grow, globally.
Growing selling physical goods aggressively means setting up more warehouses, more expensive logistics, catering to different languages, etc.
In the worlds biggest markets - India and China they would have to compete with entrenched incumbents and in the case of China, government subsidized businesses.
1. Private labels enjoy about 10% extra margin. Amazon is currently scaling private labels and exclusive products(same thing), like mad.
2. Low margin doesn't mean a business is bad, just hard. Walmart is an amazing business, with low margins.
3. Let's say amazon creates a system that can supply everything, to your home, in a few hours, at the lowest price. And customers will really like that.
How many other companies can build that ? maybe 1-2 in the US.
So now you have a duopoly.
4. Amazon controls demand. In the internet age, that's the most important thing.
Could they manufacture their own products ? be responsible to purchase inputs for their manufacturers ? Build something like AWS for manufacturing ?
Who knows.
5. Amazon is growing rapidly in B2B. Not sure, but i believe products there have much higher margins.