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As Amazon becomes larger and larger, it makes more sense to vertically integrate. Assume half of AMZN's 2013 net shipping costs of $3,538 occurred in U.S. and
by jjallen 13y ago
As Amazon becomes larger and larger, it makes more sense to vertically integrate.
Assume half of AMZN's 2013 net shipping costs of $3,538 occurred in U.S. and profit generated thereon was ~10% of revenues (UPS 2013 operating margin was ~13%), AMZN has a guaranteed (and growing) chunk of change to go after. Not to mention the custom delivery options and probable long-term improved delivery metrics. Of course, this is a somewhat capital intensive business (relative to our estimates of the existing core businesses at least), but still could generate attractive long-term returns.
A much more interesting thought experiment is to do the same calculations on credit card exchange fee savings AMZN would generate if the company processed its payments itself. The savings would be into the billions of dollars and would be incomparably less capital intensive than any physical delivery system.
- milesskorpen 13y agoI'd guess that Amazon gets very very low fee rates for payments. Amazon's not going to start competing with Visa, and it seems unlikely they'd be a bank, so I doubt there's a huge amount of profit to be made in taking over their own payments processing.
- jjallen 13y agoWhy wouldn't they compete with everyone that is a material cost to them? 10 basis points on their revenues is already approaching $100M/year. My guess is they pay quite a bit more than 10 basis points too (spent a while looking for reliable source to corroborate this but couldn't find one). AMZN seems to want to do everything they can to expand and lower their costs; I don't know why credit card fees would be excluded from this. They could develop a completely novel solution over time. My guess is they will become much more serious about payments over time because of articles like this[1] and this[2]. [1] http://recode.net/2014/04/12/jeff-bezos-to-amazon-payments-team-go-faster/ http://recode.net/2014/04/12/jeff-bezos-to-amazon-payments-t... [2]http://techcrunch.com/2014/01/29/amazon-wants-to-include-peer-to-peer-payments-in-its-real-world-paypal-competitor/ http://techcrunch.com/2014/01/29/amazon-wants-to-include-pee...
- revnja 13y agoIf they did this, I would want them to branch out Amazon Payments to be a PayPal competitor. I would switch in a heartbeat. PayPal has incredibly high fees and unfortunately, is a necessary evil for me. I'm uncomfortable leaving any amount of money sitting with them.
- jliptzin 13y agoThey should also start burning their own coal and splitting some atoms in their own power plants. They could save millions by not forking over the utility company's greedy margins. So much for division of work.
- jjallen 13y agoAfter a second reading, it seems you're NOT being sarcastic, but I'll post my response anyways. They're already building their own backbone to their datacenter [1] [2]. Why won't they expand into producing their own energy (if they aren't already)? All evidence points to them moving into areas AMZN believes they can do better or are cost centers. [1] https://www.linkedin.com/jobs2/view/13014244 https://www.linkedin.com/jobs2/view/13014244 [2] http://seattle.jobing.com/network-engineer-aws-backbone-network/job/4101131 http://seattle.jobing.com/network-engineer-aws-backbone-netw...
- 30thElement 13y agoRelated, Google built their own water treatment plant at one of their data centers. http://googleblog.blogspot.com/2012/03/helping-hooch-with-water-conservation.html http://googleblog.blogspot.com/2012/03/helping-hooch-with-wa...
- Zigurd 13y agoGeneral Fusion has some of Bezos's money.