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Thomas Friedman in 1999: “Amazon.com is doomed!”
Most experts aren’t very expert. Most predictions are wrong. Most pundits are silly gasbags, bloated with self-love and ignorance.
For instance, here’s NYTimes’ seer Thomas Friedman, on the prospects of Amazon.com, in 1999:
…if you really want to be ”concerned” about the levels of some of these profitless Internet stocks, such as Amazon.com, you should pay less attention to Mr. Greenspan and more attention to what’s going on in a small house in Cedar Falls, Iowa.
There, a single Iowa family, headed by Lyle Bowlin, is re-creating Amazon.com in a spare bedroom. I tell you this not because they’re an immediate threat to Amazon.com, but to underscore just how easy it is to compete against Amazon.com, and why therefore I’m dubious that Amazon and many other Internet retailers will ever generate the huge profits that their stock prices suggest.
It gets stupider. Friedman, a lifelong journalist with no business experience, then pronounces on business models:
Here’s the deal: Amazon.com offers ”The Testament,” by John Grisham, for 30 percent off retail ($19.57), plus $3.95 shipping and handling. Mr. Bowlin sells it for 35 percent off ($18.17) and $2.75 shipping and handling — $2.60 less. How? Like Amazon, Mr. Bowlin buys ”The Testament” from the wholesaler for 44 percent off retail, but since he has no overhead or advertising budget he can sell it for 35 percent off. He can deliver the book through the U.S. Postal Service within three days for only $1.63, so he makes $1.12 more on shipping for each sale. Total profit: $3.65 per book. Plus, says Mr. Bowlin, ”when you charge a book, I collect your money within a few days from Visa, but I don’t have to pay my wholesaler for that book for 30 days, so I have a free loan which I earn interest on — just like Amazon.”
Because his profit margins are razor-thin, Mr. Bowlin, like Amazon, needs repeat buyers. Amazon gets them by offering useful information about books. Mr. Bowlin does it by offering any government-certified nonprofit organization a donation of 10 percent of the purchase price of any book that any nonprofit or its members buy through him.
So the next time your broker tells you that this or that Internet retailing stock is actually worth some crazy multiples, just think for a moment about how many Lyle Bowlins there already are out there, and how many more there will be, to eat away at the profit margins of whatever Internet retailer you can imagine. It only costs them $150 a month and they can do it as a hobby!
Or think about it like this: For about the cost of one share of Amazon.com, you can be Amazon.com.
Look, the point isn’t that Friedman made a stupid prediction. We all make stupid predictions. The point is that we have a pundit class that’s uniquely unqualified to pronounce on business, and business opportunities, and yet arrogantly and pompously does so anyway. There’s something monumentally irritating about Friedman’s flatulently confident assertions, backed up as they are without a shred of experience, knowledge, or skin in the game. It’s worth remembering — especially these days, when business and economic predictions keep erupting from the noisy, nasty, uninformed bowels of the pundit class.
Published in General
If only Friedman could run America for one day like the President of China runs his country, then he could make everything OK.
Friedman + unlimited power = disaster
Krugman + unlimited power = dogs and cats living together
Shockingly, Mr Bowlin of Iowa’s “positively-you.com” no longer exists. I guess we can’t all be our own Amazons either!
Making predictions in business is always the route to financial success/disaster. The first thing to remember is that even the professionals are mostly wrong. This does not mean that there is not a right way to go about making predictions. If lucky the route to the prognosticator’s success is paved with leading indicators as opposed to lagging indicators such as bankruptcy. What you try to do is limit the guessing you do, and where you guess you attach probabilities to the guesses. The value in prediction, when you know that you will very likely be wrong, is the plan that it forces the business to establish should it need to react to untoward events. What the foregoing should show is that prediction is of value and requires much work and an esoteric knowledge, which in the former case journalists are unwilling to do and in the latter they do not possess.
Edited on Apr 19 at 01:10 pm
The future ain’t what it used to be–Yogi Berra
Friedman married into one of America’s 100 wealthiest families. At one point, he and his wife were very close to being billionaires, but through mis-management of their portfolio, they’re now down to an estimated $25 million.
That explains it – thanks!
He should have listened to Glenn Beck, and bought gold – haha.
Thanks for the afternoon chuckle. The Business teacher punchline is right out of O Henry!
It’s the pomposity that gets ’em every time…
If only there’d been some wise-but-friendly dictator to tell Amazon.com what it was doing wrong.
If there had, then Friedman would have given Amazon a better prognosis.
I was always taught an “expert” was someone from out of town with a briefcase.
In fairness to Mr. Friedman, in 1999, Amazon.com, I believe, was only doing books and music (CDs). I’d be curious to know what percentage of their business is those things today. What I suspect is that it’s a relatively small percentage.
“If the world should blow itself up, the last audible voice would be that of an expert saying it can’t be done.”
Amazon is notoriously a pain about breaking out sales figures.
This and this suggest that the things you listed account for about half of their sales.
Part of business strategy is selecting markets with an idea of what *adjacent* markets you can jump into when the time is right. Jeff Bezos didn’t start out with the idea of being a bookseller; he started out with the idea of being an on-line merchant and then analyzed various markets to decide what product to get started with *first*. I’m sure he understood that the order processing software, the relationships with credit card processors, the business skills of negotiating with suppliers–in addition to the value of the Amazon brand–were all transferable. A columnist who actually had any business insight would have considered these things as well.
Part of business strategy is selecting markets with an idea of what *adjacent* markets you can jump into when the time is right. Jeff Bezos didn’t start out with the idea of being a bookseller; he started out with the idea of being an on-line merchant and then analyzed various markets to decide what product to get started with *first*. I’m sure he understood that the order processing software, the relationships with credit card processors, the business skills of negotiating with suppliers–in addition to the value of the Amazon brand–were all transferable. A columnist who actually had any business insight would have considered these things as well. ·
What is there to fair about? Friedman’s 1999 story was completely wrong. Amazon has thrived and Mr. Bowlin is selling tires somewhere. The adjacent market theory is nothing new–any smart business uses the strategy (I agree with David — it’s shocking that a guy allegedly as smart as Friedman is wouldn’t have known about it).
On the other hand, Friedman is predicting great things for this site.
Expert = x is the unknown factor, and a spurt is a drip under pressure.
Rob, it’s funny how lifelong journalists get other things wrong. I used to monitor media outlets for gun-related stories, and it was amazing the sort of myths they would perpetuate; such as .50BMGs able to shoot the wheels off train cars or shoot down airliners in flight, wild-west scaremongering over concealed-carry laws, criminals roaming the streets with assault rifles, that kind of thing. Groupthink does that, I guess. It’s easier to collect opinions from the collective than do your own homework.
Didn’t GE begin by selling incandescent light bulbs and alkaline batteries? I wonder what percentage of their business that represents today? Especially, when they are partly responsible for the eventual outlawing of those same light bulbs. As gassy bodies go Friedman is freaking Jupiter and deserves no sense of fairness because he knows no sense of fairness.
Most of the people predicting the end of the television studios, and publishing industry, are making a similar mistake. Yes, the market is scattered. Yes, webseries can be popular. Yes, self-published books can make money.
What the studios and publishers have is a distribution chain. As soon as Amazon and B&N and Google and Apple started supporting sales/rentals/streaming services for visual and print narrative entertainment, the studios/publishers were saved. They have Brand that has been earned over decades and that has an advertising budget.
TV and print are changing, but there is a reason that one of the most successful self-publishing e-book authors took the publisher deal when it came. Promotion is hard work. Creating content is hard work. Let someone else do the promotion, preferably someone skilled and with a large audience and good Brand.
Amazon spent a lot of effort building Brand. Now they are a large Cloud provider and online retailer. Soon, they will be an entertainment network/movie distribution company. As will Google, Microsoft (though they might just prefer providing the funcitonality), Netflix, and Apple. Companies like Warner are making a concerted effort to build online brand.
Bright guy. ·Apr 19 at 12:54pm
If only we had a leader with Friedman’s expertise and the dictatorial power of a Chi-com leader we would…uh, never mind, we have such a leader. : )
Here’s the deal: Amazon.com offers ”The Testament,” by John Grisham, for 30 percent off retail ($19.57), plus $3.95 shipping and handling. Mr. Bowlin sells it for 35 percent off ($18.17) and $2.75 shipping and handling — $2.60 less. How? Like Amazon, Mr. Bowlin buys ”The Testament” from the wholesaler for 44 percent off retail, but since he has no overhead or advertising budget he can sell it for 35 percent off.
Hmm. What’s wrong with this picture?
Oh yeah, where will the gentleman’s customers come from if he doesn’t advertise?
I guess they’re just supposed to show up because all internet traffic leads to Mr. Bowlin’s spare bedroom.
I think Tommy watched Field of Dreams one time too many.
The best part of Tom Friedman’s flatulent confidence is that he knows the wind is always at his back.
What was it William Goldman said? “Nobody knows anything.”
Ten minutes into the study of philosophy is enough to convince anyone to be skeptical. And when it comes to massive, interconnected systems where millions of variables are at play at any moment, no sane person would make confident predictions about the economy. And only a true idiot would try to control it through top-down legislation or expert regulation.
I saw a pic of Friedman’s house (in CT, if I recall) – he’s done pretty well outa his stupid predictions. All you need is enough stupid readers.
In the kind of country Friedman admires the present decides what happened in the past. There are memory holes and air-brushed photos for predictions that went wrong. Encyclopedias and histories have pages scissored out as well. These were all part of the original political correctness, which is much more sleek and modern these days.
Friedman doubled down:
You see, the guy got lots of hits thanks to a high-profile Times piece, and started selling more books. Friedman wrote about him again in 2000, when the fellow went out of business and returned to his old job: teaching business at a local college.
In 1999 there were many Internet retailers that indeed were overhyped and had a dark future just a little bit ahead. The brilliant Mr Friedman managed to carefully select for mockery one of the few e-retailers that was intelligently managed and had a product niche and a business model that made sense.
Has anyone done a study of Thomas Friedman’s writings to find a prediction that was correct?
Friedman married into one of America’s 100 wealthiest families. At one point, he and his wife were very close to being billionaires, but through mis-management of their portfolio, they’re now down to an estimated $25 million.
Bright guy.
I’m guessing that high-powered antibiotic has done a number on your intestinal flora. I recommend Activia yogurt twice a day for two weeks (once your antibiotic regimen is complete, that is).
This post made it over to the Ace of Spades HQ, one of my guilty pleasures hangouts
http://ace.mu.nu/