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The everything store

Over the last week Amazon has been in the news for a couple of things. The first is a dispute that is going on with a publishing house called Hachette Book Group over the pricing model of e-books. The basis of the dispute is over who controls the price and how the profits are split. The current model is where the publishing house gives wholesalers like Amazon a 50% discount on the retail price and then it is up to Amazon to set the price. The model that Hachette is fighting for is to have the publishing house determine the price and the profit margin of the retailer.


The problem lies in that an e-book is cheaper than a print book by about 30%, which to me seems fair given that there is no paper involved and no transportation costs. I think the fight is more a power play and a fight for survival. With Amazon and e-books, independent authors are now able to get their books to market, all they need is a computer and their idea of a good book. From there they put it onto Amazon and if the book is any good, it should be noticed and start to sell. Under this model there is no need for the publishing house. This is the power of the internet!


The other reason Amazon are in the news is they are applying to the FAA to allow them to do drone testing in the Seattle air space. Under current law drones are not allowed to fly for commercial use, unless special permission is obtained. The special permission was there to allow drones for inspection of buildings or tracking of things like fires, not for many drone to be flying around delivery things. If they do not get approval to fly in the US they will continue testing in countries that allow drones in their airspace.


The current ninth-generation drone can fly up to 50 miles an hour and carry a 5-pound (about 2.3kg) package. The goal is to have some packagers delivered within 30 minutes of ordering. If that becomes the case it could be quicker to do shopping online as opposed to getting in your car and driving to the store, searching for what you are looking for and then driving home again.


This is a stock that forms part of our US portfolios because of them ticking the retail box and the internet box. The vast amounts of money that they are spending to setup their distribution centres around the world will make it hard for other companies to compete. Amazons earnings will be coming out next week Thursday, where we will be able to see the spend on infrastructure and if their high PE of 540 will drop.



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