It is no secret Amazon has not, does not, make any money retailing online. Not that they make just a little, but that they take a loss there. Always have, probably always will, unless they can get all of their "stores" people to take a loss and then can shut down their own online retail sales operation. If the people who take my classes are any indication, people still believe B2C online sales is a viable business model.
Given that online B2C is not a viable model, step back and reflect how much of a false economy all the website development, telecommunications infrastructure and finance of the above, and more, is going on. Happily, online sales is less than 6% of USA retail, so the fantasy is not as damaging as people might believe. The same people who believe B2C online is viable believe online to be 50% or higher of retail sales. So we are all lucky they are doubly wrong.
What false economy? People go to work, get paid, things get sold, sushi gets eaten after work, vacations taken, doctors paid. What is so false?
There is no money there, it is all debt-based sans assets, or equity based and overvalued. Recall the big "mark to market" question in the 2008 crash? The rating agencies and home appraisers simply did what they were told, and assets were wildly overpriced. And loans made based on the value of those assets. In essence, the question was do we adjust now, or kick the can down the road? We kicked the can. To what degree is our accounting based on assets, and to what degree are the assets marked to market?
In 1984, the word went out that the previous decade banks had been making loans under the standby letter of credit facility, legally both off balance sheet and no rational limit, and picking up interest and fees for nothing. With corporations making their own financial arrangements, the banks found they could price loans bigger and cheaper, and with no asset reserve required, very profitably. "Be careful!" said the regulators. But noted at the time, in the previous decade, uncle sam always bailed out anyone in trouble. Immediately there was trouble, uncle sam bailed out, so between 1984 and 2008 the problems got progressively worse, bailouts progressively bigger, and there is no rational limit to how big a bubble can be blown. There is only the unknowable bust, which will come some time. The smart people who spotted the previous ones since 1984 say we'll have another, this year. Whether it is the last, who knows?
And I cannot pass up an opportunity to point out the "debt financing" aspect, called criminal in every religion, has never been so leveraged: usury (interest) on asset-less credit. Wow! As an example of no rational limit, in two months Amazon will be twenty years old, Amazon projects another ho-hum half-billion dollar loss next quarter. And its price is about $300 a share. And its PE is nearly 500, meaning it will take you about 500 years to recover your investment. This is prima facie madness, and people write whole books explaining why it is good, in essence capitalism. But one key factor blowing that bubble up is inflated wages are protected from heavy taxes by sheltering the money in plans that are limited in what they may invest, like AMZN. To what degree is it all Enron stock...? we'll find out soon enough.
Sure, having tallies that read you are "worth" $28 bil is nice, but one does want to turn a profit. And Amazon does turn a profit in some categories, with its server farms, hosting, logistics, advertising and contract computing, but not selling things. So Bezos keeps looking to make money by selling things.
Next, AmazonWholesale. Forbes has an article in a 26 May special issue (with the word trillion on the cover - for the last year or so billion and trillion appear on every cover...) in which they note that retail in USA is a $4 trillion dollar industry, but wholesale is $7.2 trillion in sales.
Amazons target: of USA's 35,000 distributors, almost all are regional, family owned businesses making $50 million or less. That is a whole lotta businesses. Think B2B toner cartridges, rubber gloves, sch 40 stainless steel pipe, shipping materials, body piercing shop tongue barbells, chemicals and so on. Everything B2B.
I know people who act as a broker with a website, having goods drop shipped, who swear they do well by this, that is, say set up a website for micrometers, and beat Fluke at service and price on micrometers by being able to run into Fluke and buy and ship one faster than Fluke can. So why do they come to me? No money in it, and they need to scale up. But it cannot be replicated by one person. Amazon can, and apparently will.
So far Amazon has been at this about 9 years and has some 2.2 million items at amazon wholesale, but big regional distributors may stock 50,000 items. And Amazon has the long tail advantage, and that is Amazon can stock the one time a year sale item no one else can.
One consultant to the distribution industry advises clients to become 3rd party supplies to Amazon. Exactly right. Take the ride. But not everyone will step aside for Amazon.
If you have been listening to the radio, you have heard ads for Grainger. "Get it? Got it? Good." Every customer of every wholesale distributor can relate to that attitude, "I need it now." You've never heard of Grainger, but Amazon has. The ads are brilliant. I've sold to Amazon for over a decade and I have never spoken to a person. The Grainger ad is a supplier talking your language. This is a titanic match-up. Which will be the iceberg?
B2B is very different than B2C. But if we go back to the world just before the internet, circa 1985, both B2B and B2C had catalogs from which people ordered. In B2C, it was at its height about 8% of all retail sales. In B2B, it was closer to 100% had a catalog. The catalog was the thing, that paper book mailed out each month or quarter to the customer list, and salespeople carried to leave behind after a call. Back in the day there was the telephone, yellow pages and the catalog. To keep a clear head marketing today, one must keep in mind that model, because the catalog is still king in real economies. School continuing ed programs still mail them out, wholesale supply houses still send them out, grocery stores.
What confuses people is they believe the internet is something new. It is not. It is merely the telephone, yellow pages and catalog all rolled into one. At B2B, I still go to the paper catalog to page back and forth to figure out which option is best for me. The internet is not so good for that. People consult the B2B catalog, and then place the order on the net. It's not the net that got the sale, any more than the telephone got the sale 30 years ago.
Now, I am not enough of a sample to indicate anything, and neither Amazon nor Grainger has begun to fight it out.
Amazon disrupted bookselling, an industry that was horribly disabled by progressives during the depression, and has not yet recovered. Amazon has done great things for anyone who has books for sale, and crushed the welfare queens, gate guards and their sinecures that kept media in USA in lockdown. But bookselling was unique. And the brick and mortar bookstore is making a comeback, as the industry practices reform themselves to a rational model.
The number one tech company in the world, Apple, has brick and mortar stores, and is building new ones every day.
Here is the problem: false economy. Because we protect in our patterns a practices under capitalism lending asset-less credit at usury, there is no rational limit to how far an Amazon can go. They can lose money forever, theoretically, while they wipe out the 50,000 B2B wholesalers. (Here we go again, get big or get out, the USA govt imperative.) Aside from destroying 50,000 businesses, and turning the independent owners into employees, we end out with too much in too few hands. We see it in food, medicine, housing, banking, clothing, furnishings, transportation... on and on.
We keep getting told capitalism is about the profit motive, about competitive advantage, and more better cheaper faster as clever people disrupt markets, creative destructionism. No it is not. It is about the ability to take losses until you wipe out just about everyone in a category, and collective industries on the Soviet model. We supported the destruction of the Russian economy and building the Soviet ecoom through the ExIm Bank, and what goes around comes around, and now we do it to ourselves.
Amazon has built the infrastructure to handle Christmas cyber Monday "426 items per second to 185 countries" What if that goes down, due to hack or solar flare. What happens when a MERS case shows up in a crowded hospital waiting room, or when anyone has to spend time in hospital, where MRSA awaits? Or when a disease wipes out piglets nationwide for the bigness of our industry?
Twenty years in and still losing money, financed by debt, if Amazon was going to make money it would have done so by now. But there is no rational limit to lending credit. Enough people's tallies keep growing to keep the system alive, what with economic power, ephemeral as it is, supported by those very tallies. There is no rational limit, but there is an end to it, sometime.
When it does, where will we be? What will be the array of skillsets available, and for the work of recovery necessary? Will the schools that are now turning java coders into roofers and roofers into java coders have any better idea then what to teach? When the banking system too big to fails fails commensurate with its bigness, and there is no credit, will anyone know how those 50,000 regional wholesalers once extended credit based on assets and worthiness tests? When all those roofers are unemployed in spite of leaky roofs for want of roofing material, due to Amazon going down, how will we get out of that? (Well, war. Command economy. Works every time.)
Get a business going, any business. It is the most revolutionary act you can perform, plus, there is no prepping like being able to serve others. Your savings and pensions aren't yours, and your gold and silver will only get you robbed. Learn to trade.
Mamet produced a movie on con artists, and it makes two points - the confidence artist must stay in character, and the confidence does not reside in the perpetrator, but must be formed in the mark. House of Games. Once the mark is confident in the scam being run, there is no risk of the scam failing.
Just as Author Yang could not make the connection between his father starving to death and maoist economic policies, so very few will understand how USA economic policies are the cause of their poverty. Just as in China, we march forward producing ever less as we are promised ever more. We waste ever more as we enjoy ever less. Real production is skimmed off for the very few, as everyone else gets less and less. But like Maoism, we have the best system ever!
Are you betting on that?
Feel free to forward this by email to three of your friends.
Given that online B2C is not a viable model, step back and reflect how much of a false economy all the website development, telecommunications infrastructure and finance of the above, and more, is going on. Happily, online sales is less than 6% of USA retail, so the fantasy is not as damaging as people might believe. The same people who believe B2C online is viable believe online to be 50% or higher of retail sales. So we are all lucky they are doubly wrong.
What false economy? People go to work, get paid, things get sold, sushi gets eaten after work, vacations taken, doctors paid. What is so false?
There is no money there, it is all debt-based sans assets, or equity based and overvalued. Recall the big "mark to market" question in the 2008 crash? The rating agencies and home appraisers simply did what they were told, and assets were wildly overpriced. And loans made based on the value of those assets. In essence, the question was do we adjust now, or kick the can down the road? We kicked the can. To what degree is our accounting based on assets, and to what degree are the assets marked to market?
In 1984, the word went out that the previous decade banks had been making loans under the standby letter of credit facility, legally both off balance sheet and no rational limit, and picking up interest and fees for nothing. With corporations making their own financial arrangements, the banks found they could price loans bigger and cheaper, and with no asset reserve required, very profitably. "Be careful!" said the regulators. But noted at the time, in the previous decade, uncle sam always bailed out anyone in trouble. Immediately there was trouble, uncle sam bailed out, so between 1984 and 2008 the problems got progressively worse, bailouts progressively bigger, and there is no rational limit to how big a bubble can be blown. There is only the unknowable bust, which will come some time. The smart people who spotted the previous ones since 1984 say we'll have another, this year. Whether it is the last, who knows?
And I cannot pass up an opportunity to point out the "debt financing" aspect, called criminal in every religion, has never been so leveraged: usury (interest) on asset-less credit. Wow! As an example of no rational limit, in two months Amazon will be twenty years old, Amazon projects another ho-hum half-billion dollar loss next quarter. And its price is about $300 a share. And its PE is nearly 500, meaning it will take you about 500 years to recover your investment. This is prima facie madness, and people write whole books explaining why it is good, in essence capitalism. But one key factor blowing that bubble up is inflated wages are protected from heavy taxes by sheltering the money in plans that are limited in what they may invest, like AMZN. To what degree is it all Enron stock...? we'll find out soon enough.
Sure, having tallies that read you are "worth" $28 bil is nice, but one does want to turn a profit. And Amazon does turn a profit in some categories, with its server farms, hosting, logistics, advertising and contract computing, but not selling things. So Bezos keeps looking to make money by selling things.
Next, AmazonWholesale. Forbes has an article in a 26 May special issue (with the word trillion on the cover - for the last year or so billion and trillion appear on every cover...) in which they note that retail in USA is a $4 trillion dollar industry, but wholesale is $7.2 trillion in sales.
Amazons target: of USA's 35,000 distributors, almost all are regional, family owned businesses making $50 million or less. That is a whole lotta businesses. Think B2B toner cartridges, rubber gloves, sch 40 stainless steel pipe, shipping materials, body piercing shop tongue barbells, chemicals and so on. Everything B2B.
I know people who act as a broker with a website, having goods drop shipped, who swear they do well by this, that is, say set up a website for micrometers, and beat Fluke at service and price on micrometers by being able to run into Fluke and buy and ship one faster than Fluke can. So why do they come to me? No money in it, and they need to scale up. But it cannot be replicated by one person. Amazon can, and apparently will.
So far Amazon has been at this about 9 years and has some 2.2 million items at amazon wholesale, but big regional distributors may stock 50,000 items. And Amazon has the long tail advantage, and that is Amazon can stock the one time a year sale item no one else can.
One consultant to the distribution industry advises clients to become 3rd party supplies to Amazon. Exactly right. Take the ride. But not everyone will step aside for Amazon.
If you have been listening to the radio, you have heard ads for Grainger. "Get it? Got it? Good." Every customer of every wholesale distributor can relate to that attitude, "I need it now." You've never heard of Grainger, but Amazon has. The ads are brilliant. I've sold to Amazon for over a decade and I have never spoken to a person. The Grainger ad is a supplier talking your language. This is a titanic match-up. Which will be the iceberg?
B2B is very different than B2C. But if we go back to the world just before the internet, circa 1985, both B2B and B2C had catalogs from which people ordered. In B2C, it was at its height about 8% of all retail sales. In B2B, it was closer to 100% had a catalog. The catalog was the thing, that paper book mailed out each month or quarter to the customer list, and salespeople carried to leave behind after a call. Back in the day there was the telephone, yellow pages and the catalog. To keep a clear head marketing today, one must keep in mind that model, because the catalog is still king in real economies. School continuing ed programs still mail them out, wholesale supply houses still send them out, grocery stores.
What confuses people is they believe the internet is something new. It is not. It is merely the telephone, yellow pages and catalog all rolled into one. At B2B, I still go to the paper catalog to page back and forth to figure out which option is best for me. The internet is not so good for that. People consult the B2B catalog, and then place the order on the net. It's not the net that got the sale, any more than the telephone got the sale 30 years ago.
Now, I am not enough of a sample to indicate anything, and neither Amazon nor Grainger has begun to fight it out.
Amazon disrupted bookselling, an industry that was horribly disabled by progressives during the depression, and has not yet recovered. Amazon has done great things for anyone who has books for sale, and crushed the welfare queens, gate guards and their sinecures that kept media in USA in lockdown. But bookselling was unique. And the brick and mortar bookstore is making a comeback, as the industry practices reform themselves to a rational model.
The number one tech company in the world, Apple, has brick and mortar stores, and is building new ones every day.
Here is the problem: false economy. Because we protect in our patterns a practices under capitalism lending asset-less credit at usury, there is no rational limit to how far an Amazon can go. They can lose money forever, theoretically, while they wipe out the 50,000 B2B wholesalers. (Here we go again, get big or get out, the USA govt imperative.) Aside from destroying 50,000 businesses, and turning the independent owners into employees, we end out with too much in too few hands. We see it in food, medicine, housing, banking, clothing, furnishings, transportation... on and on.
We keep getting told capitalism is about the profit motive, about competitive advantage, and more better cheaper faster as clever people disrupt markets, creative destructionism. No it is not. It is about the ability to take losses until you wipe out just about everyone in a category, and collective industries on the Soviet model. We supported the destruction of the Russian economy and building the Soviet ecoom through the ExIm Bank, and what goes around comes around, and now we do it to ourselves.
Amazon has built the infrastructure to handle Christmas cyber Monday "426 items per second to 185 countries" What if that goes down, due to hack or solar flare. What happens when a MERS case shows up in a crowded hospital waiting room, or when anyone has to spend time in hospital, where MRSA awaits? Or when a disease wipes out piglets nationwide for the bigness of our industry?
Twenty years in and still losing money, financed by debt, if Amazon was going to make money it would have done so by now. But there is no rational limit to lending credit. Enough people's tallies keep growing to keep the system alive, what with economic power, ephemeral as it is, supported by those very tallies. There is no rational limit, but there is an end to it, sometime.
When it does, where will we be? What will be the array of skillsets available, and for the work of recovery necessary? Will the schools that are now turning java coders into roofers and roofers into java coders have any better idea then what to teach? When the banking system too big to fails fails commensurate with its bigness, and there is no credit, will anyone know how those 50,000 regional wholesalers once extended credit based on assets and worthiness tests? When all those roofers are unemployed in spite of leaky roofs for want of roofing material, due to Amazon going down, how will we get out of that? (Well, war. Command economy. Works every time.)
Get a business going, any business. It is the most revolutionary act you can perform, plus, there is no prepping like being able to serve others. Your savings and pensions aren't yours, and your gold and silver will only get you robbed. Learn to trade.
Mamet produced a movie on con artists, and it makes two points - the confidence artist must stay in character, and the confidence does not reside in the perpetrator, but must be formed in the mark. House of Games. Once the mark is confident in the scam being run, there is no risk of the scam failing.
Just as Author Yang could not make the connection between his father starving to death and maoist economic policies, so very few will understand how USA economic policies are the cause of their poverty. Just as in China, we march forward producing ever less as we are promised ever more. We waste ever more as we enjoy ever less. Real production is skimmed off for the very few, as everyone else gets less and less. But like Maoism, we have the best system ever!
Are you betting on that?
Feel free to forward this by email to three of your friends.
2 comments:
What is the Mamet movie title?
House of Games
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