Two weeks ago I suggested that the Internet makes comparison shopping so easy, it’s a boon to consumers, but maybe not so much to investors. (I.e., tough price competition isn’t great for profits.) Last week I printed Joshua Rasiel’s response — which elicited more responses still. Among the most thoughtful . . .
Paul Johns: “I actually find myself agreeing with Joshua Rasiel in today’s column: service does matter, even on the Internet. I think you agree. The major point where I disagree with you is where you assume that the entry costs are ‘almost negligible.’ It’s relatively easy and cheap to do a ‘mostly good enough’ job, but to do the kind of consistently superior job Amazon does is hard — and relatively expensive, compared to other Web sites. Some customers will pay for the difference.
“Good people are, in this market, hard to find and expensive. I’d argue that the keys to Amazon’s success is that their site generally ‘just works’ and that their customer service is almost unfailingly perfect. For me, the amazing thing about Amazon is that they give what we call here in Seattle ‘Nordstrom-style’ customer service but charge steeply discounted prices. It’s true that their discounts aren’t as deep as some of their competitors, but having a rock-solid web site and having intellegent, customer-oriented people to back it up makes it worthwhile for me to shop with them.
“For instance: I had a problem with a gift certificate order (probably not due to Amazon). I sent email. I got a great response: it solved the problem. Moreover, it was spelled correctly and formatted neatly. Clearly someone cared enough to take the time to write me a good response. So I wrote a ‘Thank you’ to them. A DIFFERENT person sent another great response. I was so shocked that I sent a second thank-you. A THIRD person sent yet another great response.
“This sequence of events is no accident: Amazon must be selecting folks very carefully for customer service and writing skills. I don’t need to tell you how rare those skills are today. And hiring and retaining good people is frightfully expensive. Amazon gets to be picky because they’ve got lucrative stock options to offer folks. But that costs money none-the-less.
“Contrast this customer experience with what I had to go through the last time (there will not be a next time) I shipped a package with Airborne. When it hadn’t arrived a week later, I called. The first two times I called the people I talked to thought that ‘MI’ stood for ‘Missouri’ and ‘Minnesota,’ not ‘Michigan.’
“A week later, and still no package. I called a third time. This time, ‘MI’ stood for ‘Miami.’ I patiently explained that, no, ‘Miami’ is NOT a state and again asked what was up.
“A couple of days later, Airborne delivered the package. To a neighbor — they didn’t even find the right house. It appeared as though the major problem was that a driver had miscopied the address from the package to the clipboard and therefore was unable to find the address because the mistaken address didn’t exist.
“I believe that this sequence of events is also no accident. It reflects how Airborne is run. And whenever Airborne’s stock drops, I secretly know why, regardless of what the analysts say. (I of course don’t have a ready explaination for why it goes up.)
“The Internet commerece world isn’t really different from the ‘real world’: service will be a key differentiator for some (many?) customers. It’s only different in that you don’t have to have human contact with the vast majority of your customers — so there are some savings there.
“That’s why I think Amazon is a great company. And if their stock price were more reasonable, I’d be pleased to own some of it.”
I guess I would only point out that, while I, too, appreciate Amazon’s service, they did lose $138 million last quarter providing it.
(OK, the loss came from investing in growth. But something tells me that if Amazon had made $50 million from selling books, before all the other stuff that dragged them into the red, they would have announced that.)
So this just makes my point. The Internet is great for consumers, but not necessarily a gold mine of profits for Internet vendors.
And as to service, I expect buying a book may become pretty much like placing a call. Can you really tell MCI-brand long distance quality from AT&T-brand or Sprint-brand? Don’t they really sound pretty much alike?
Anne Speck: “Sure, you throw the box from Amazon away, but **the box comes!** Any company that operates at a loss will eventually go out of business. I think that Amazon will eventually balance the equation so that it runs in the black, and in the meantime, they go to an incredible effort to make shopping with them as pleasant and painless as a well-run bookstore. I know their box will show up.
“However, this week, I was checking out cameras and ended up at www.netmarket.com. They have two prices for every item they sell. A ‘guest’ price and a ‘member’ price. The membership you have to buy is $70 a year. Well, I’ve been doing my homework, and the guest prices are about $20 more than the cost for the same product at my local camera shop. The member prices are about $10 less (assume that the taxes I’d pay locally and the shipping I’d pay on-line are a wash). So, if I want, I can pay $70 to ‘save’ $10 on the camera. Suddenly, my modestly cheaper price (which would have fooled the net bot) has become much more than driving down the street. (I was also put off because several of the product descriptions were flat-out wrong… like they’d linked to the wrong product.)
“The [physical] camera shop also offers lessons for people who buy cameras from them and you get to walk out with the camera that day instead of waiting two weeks and then wondering what the delivery person will do with the box when it finally comes.
“I guess what I mean to point out is, some of the on-line ‘deals’ aren’t deals at all. If Amazon can cut me a percentage point or two off their price because they ‘only’ have to pay for stockers and order fillers and web masters and storage for the books (or clever people to do on-demand delivery scheduling) and can rent space in low-rent districts instead of high profile retail sites, then I will buy some of my books from them.
“But there’s nothing like touching a book to get me to buy it! And, I have been burned at Amazon. I did a search on ‘dog’ and ‘humor’ hoping to turn up something like ‘Poetry for Cats’ for a dog-owning friend. I got ‘How Dogs Work,’ which looked interesting. I ordered it. It was a children’s book. It was fun and funny, and my friend enjoyed it, but nowhere in the descriptions (at the time) did it say it was a children’s book. So now, I only order books I know something about from Amazon.
“The Internet will change a lot of things about business, but it won’t change everything. It will make it easier for companies who do what they do really well to replace companies that don’t do so well. I have an art supplies outfit I love. It’s called ‘Joe’s.’ They only do catalog sales, but the catalogs are funny and pithy and full of good quality names. By putting it on-line, they would easily replace the art supply stores that I have in town. At the four that I’m familiar with, the help is rude, the selection is small, and there isn’t enough information about the products. These places are in jeopardy.
“On the other hand, though I could beat the price I pay for my karate uniforms on-line, I love going to the funky little shop where I buy them. I always learn something new, I’m always happy to have gone there. I just can’t get too apocalyptic about the death of brick-and-mortar commerce.”
Anne, the karate chopping, water-coloring e-mail shopper. Is this a great time to be alive, or what?
And finally . . .
Joshua Rasiel (again): “Maybe right now, yeah, there isn’t much difference in getting the same book from amazon or booksamillion. My point was that I believe amazon will be adding more and more value to their site and to their books. This needn’t be limited to better packaging. Better customer service, for starters. Better guarantees and warrantees, better site navigation (cleaner, faster), all things I might pay a few more bucks for, just to get the same product. Amazon already does a lot of this: they invented 1-click shopping, which I love. And their suggestion software — where they figure out what you’ll like — is pretty cool, too.
“Which reminds me, if you wanna see a cool site, try www.moviecritic.com, it tells you what movies you like with uncanny accuracy.”
Quote of the Day
Very few American investors buy any stock for the sake of something which is going to happen more than six months hence, even though its probability is exceedingly high; and it is out of taking advantage of this psychological peculiarity of theirs that most money is made.~John Maynard Keynes
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