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Amazon’s $4 Billion E-Commerce War Chest

from:..mThink.com by Chris Trayhorn

Forrester Research senior analyst Andy Hoar delivered a fascinating keynote at the Rakuten Linkshare Symposium last week.  His theme was the continuing evolution of e-commerce and the insights he brought will have a lot of consequences for the performance marketing sector. Some of his points restated things that anyone that has been paying attention already knows: mobile is going to become even more important than it is already, tablets are replacing laptops, and coupons/discounts are a critical part of any etail offering.

But how many of us realised that Amazon essentially has a $4 billion per year war-chest from its marketplace revenues that it uses to cross-subsidize its other businesses? Forrester take the view that Amazon Marketplaces is a very high margin business that has increased revenues by10x since 2005, and those profits are not reflected in Amazon’s global net income of only $631 million in 2011.

The Number of Marketplaces

Etail competitors have to try and compete by developing their own marketplaces – note Rakuten’s latest initiative rebranding buy.com as Rakuten Shopping – but it will inevitably be an uphill struggle if Forrester’s interpretation of Amazon’s cross-subsidizing strategy is correct.

The fact is that offline retail is flat; all the growth in the industry is online. Hoar pointed out that we used to be excited when Black Friday broke $1 billion in sales, but last year there were 10 other days that broke that barrier as well.

Several  1 Billion Dollar Days

Perhaps the most interesting part of the presentation came with an analysis of how Amazon dynamically changes its prices throughout the course of a day. Decide.com tracked pricing of a microwave on Amazon, Best Buy and Sears over 24 hours.  Sears maintained the same (highest) price for the entire period. Best Buy kept their price $90 less than Sears right through except for two hours early evening, when they raised their price to match Sears exactly.
Amazon though, has a totally different philosophy and an algorithm to match. They had no less than 9 price changes over the course of the day.  Most of the time they weren’t the cheapest, but clearly they have profit-maximization data that is driving a sophisticated pricing engine.

Perhaps it is not surprising that they can do this if it is true that they have $4 billion to spend on development. But it surely raises a question of just how major etailers and performance marketing networks will be able to compete in the long-term. Investment in technology has to be the priority.

Intra-day price changes

Amazon Upgrades the Kindle DX

from:..fastcompany.com by Kit Eaton

Kindle DX graphite

t's a big news week for Amazon: They've announced an update to the big-screen Kindle DX e-reader in a week or so, with an improved e-ink display and lower price. Way lower--down $110 to $379. Is this Amazon's first response to iPad? The new Kindle DX will come with a graphite body, partly to make it stand apart from earlier incarnations of the device and partly to demonstrate Amazon does take some elements of style seriously (and, we also wonder, partly because a dark gray enclosure may make the faintly grayish e-ink screen look whiter to the eye via an optical illusion).

The 9.7-inch screen itself has been updated with newer electrophoretic technology so that its contrast ratio is said by Amazon to be 50% better--which is a huge bonus as contrast one of e-ink's last remaining benefits over competing display tech. Inside the electronics and software driving the Kindle have had a much-needed warm-over, and there's now Twitter and Facebook connectivity in the updated Os.

The battery lasts a week of operating time with the wireless Whispernet system operating, and other features like the auto-rotation and keyboard are still there from the older model.

How Amazon is selling this upgrade is, however, pretty telling. It notes that Whispernet is free, that the e-ink display "reads like real paper" and "works in bright sunlight" unlike "backlit computer or LCD screens." Though this last phrase is slightly confusing (pretty much every portable device uses a back-lit LCD unit, as OLED tech is still pretty rare) we can forgive Amazon this as they've dropped the price of the device by $110 to $379--a 22% fall that's going to tempt many new customers to the Kindle platform. But all of these maneuvers are designed to combat Apple's iPad, which has a 9.7-inch screen but relies on LCD tech, its 3G service relies on paying a third party provider for access, and the base model with 3G capabilities is $629 which is a hefty $250 more. Amazon, in comparison to this limited description of the iPad, seems to be offering one heck of a deal.

Except it's not. The Kindle's e-ink tech may be more efficient power-wise, but only anecdotal evidence suggests it's easier to read e-books from than an LCD unit. The Kindle's battery life may be impressive, but the iPad can easily last a whole-day's worth of use. The new Kindle may deliver Twitter and Facebook integration, but the iPad's Twitter and Facebook interactivity, via Web browser or dedicated app, is significantly richer. And while the Kindle is cheaper, it's pretty useless for anything other than browsing e-books. Spending the extra cash on an iPad delivers a similar-sized platform that can let you play games, watch video, and compose content for work purposes. And you can get a free Kindle app for it that's fully integrated into Amazon's e-book ecosystem....



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