Friday, November 13, 2009

Tilting at Windmills

A customer came in today who had bought his D&D 4 gift set online. He needed some dice. I thought, great, another Amazon customer throwing me some crumbs. I should be grateful, right? I can't get too mad, it's not like the Internet is some newfangled invention that came out after I started my business. I knew the waters were dangerous before I jumped in.

Then I started thinking about whether Amazon actually made any money on their deep discount. Perhaps I was making more money on this dice purchase than Amazon was making on that much bigger gift set purchase.

I looked at the math:

Amazon: $104.95 retail. $66.12 their retail price. Cost of 52.48. Gross Profit: 13.64. (Estimated) Shipping: $7. 
Total profit;  $6.64

Game Store: $12.95 retail (D&D Premium Dice), $6.48 cost. 
Total Profit: $6.47.

Assuming Amazon isn't getting better terms than me and my shipping estimates are right on, they're making seventeen cents more than me on their much larger purchase. It's just astounding.

But they have a brilliant business model, right? Over the last 15 years, Amazon managed to lose over a billion dollars.  They may see return on investment in another seven years (22 years in). With business logic like that, I'm surprised they don't run a chain of game stores! 

Meanwhile, they've managed to gut the book trade. Sure, they're cheap. Sure, consumers love them for their impossibly low prices. But at what cost? Amazon could learn a lot from Google's "Do No Evil" philosophy.  Then again, maybe Amazon is doing good. An organization that spends a billion dollars to send books to people has got to be the biggest literacy project in the history of the world! 

Seventeen cents. Morons.