Bernard Moon, CEO of Vidquick, has written up his 2012 predictions over at Venture Beat. Among them, he opines that Amazon will have a tough 2012 because of looming sales taxes. His thinking is that with the addition of sales tax, Amazon’s pricing advantages will be diminished, therefore the overall business will suffer.

So, are sales taxes on internet purchases coming? You betcha. Does this surprise anyone? I hope not. Does this eventuality mean that it levels the playing field a little between online and off-line retailers? Sure.

But the advantages of no sales tax has not been what drives online sales. If that were the case, the catalogers would still be flying high! Most catalogers have not ever collected sales tax outside their own states. Taxes aren’t the tipping point. The real tipping point is low prices and amazing selection. That drives the interest and likely the first conversion. But it is the seamless service that drives repeat customers. It isn’t the lack of sales tax.

Further, every time that you visit Amazon, your home page is personalized. It changes to suit you. The last time I walked into a Best Buy, the store didn’t change to reflect my interests. Amazon tries to show me what I want to buy. The big box stores want to show me what they want to sell. This is a dramatic difference.

In a recent NYTimes article, Jeff Bezos talked about the discipline and advantages of thinking 7 years out. Amazon has been modeling and dealing with the threat of sales taxes since its inception. They aren’t surprised here. And, I suspect taht they have sophisticated pricing models ready to launch to alter all of their prices to maximize sell through. In Amazon’s core businesses, they aren’t terribly concerned about margins(they live off of their ad business and marketplace referral fees), so they can still undercut the big box stores in every respect.

Check out the incredible analysis of Amazon’s business put together by FaberNovel, it will illuminate many of Amazon’s advantages. Honestly, sales tax won’t even be a bump in the road for Amazon.

Amazon.com: the Hidden Empire

View more presentations from faberNovel

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Thanks, Tim. For me, it’s a matter of perspective. While Amazon has dominated the book category, it’s still a smaller retailer than Wal-Mart, Target and Best Buy (Wal-Mart: $421 billion in revenues, Target: $67 billion, Best Buy: $50 billion, Amazon: $34 billion). So while Amazon has been successful entering new areas of ecommerce, it still has a ways to go compared to the Big Box retailers. Maybe not you, but others have responded to my article and speaking as if they see Amazon as the big retail gorilla while it’s the opposite in terms of revenues.

While I emphasized the tax issue for the article, I also know that companies such as Wal-Mart are finally getting focused on their ecommerce efforts so 2012 and beyond will be interesting to see how Amazon responds not only to the tax issue but more focused competition.

As I wrote in my comments in my article, I believe Bezos is incredibly smart and has been hedging Amazon’s core ecommerce operations and has purposely expanded into new markets like the presentation you shared points out.

December 30, 2011 6:17 am

Here is an interesting statistic that shows just how much better Amazon’s model is…and how the face of retail will continue to evolve – over the last 4 years, Best Buy’s top line increased by 40%…pretty great. But net income dropped by 7%…ugh…more dollars, less money. Amazon, up 131% top line…very nice. But wait, here comes the kicker…net income up 142%! More dollars and more money. So, the big box guy grows more slowly and has profit that is 7% lower than it was 4 years ago. Amazon is firing on all 8 cylinders…

And as it transitions to a company that sells content as well as products, we should see profit accelerate…

December 30, 2011 3:23 pm



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