Karl pulls the “con” out of “economy”
It’s often said that there is an economy of scale to larger operations, and this forms the basis on which people think that mergers often lead to efficiency improvements and thus benefit consumers and the economy in general.
But those who have run a business have seen a far less-pleasant side — one that is never talked about on Tout TV, irrespective of the particular channel you might be on.
It’s simply this: In a nation where the law is routinely ignored by executives and others size simply means you get to rip people off through illegal acts that a smaller competitor wouldn’t dream of attempting.
When I ran MCSNet I saw this sort of crap on occasion with certain suppliers and others with whom I did business. A few times I was able to stick my boot up someone’s ass and neuter the impact that it was going to have on my firm but doing so required my inner ******* to be prominently displayed. But there were other times that the entity doing it simply didn’t give a damn; they had bought off the right people or were simply smug in their seats, knowing that nobody was going to go to jail in their outfit and thus the outcome was a middle finger in my face, laws and regulations be damned.
As consolidation and the Internet have grown this problem has gotten much worse. Advertising has always been a snake-pit; it’s expensive as hell no matter the media and it’s also very hard to measure effectiveness. When I ran MCSNet we had all sorts of media outlets that wanted us as customers, of course — radio, TV, newspapers, billboards and more. The only media that ever worked on a demonstrable basis was a certain set of radio timeslots and channels and, not-surprisingly, when a trade show came into town and we could get booth space at a reasonable price. The in-person press-the-flesh and handing out of various premium items, whether they be pens or coffee mugs had a fantastic ROI — everything else, not so much.
The Internet ad space has made it a lot worse in terms of measurement. They all claim they can “prove” effectiveness, but that’s not true. The facts are that if you ran Internet ads years ago you got a lot of clicks — and conversions. Now you get damn near zero clicks, and while those you do get may convert what you can’t measure is the number of people you provoke a revulsion response in instead of an interest.
That’s a big problem; it only takes once where you produce that response in a potential customer and you’ve lost them forever. As more and more ads hit someone’s screen and more of them become intrusive the risk of this response goes up.
Now take P&G. They’ve massively pulled back from Internet ads and just reported earnings. The net impact on their sales from not spending all that money? Zero. Not minor, not a bit, not a measurable amount, zero.
What does this tell you about the value that an Internet ad had for their company?
There was none; they had a cash bonfire in handing said cash to Zuckerpig!
Of course nobody is talking about that. If they did Facebook wouldn’t have an ad market worth much of anything. How do you think these guys actually manage to get the sort of ARPU they claim? Is the alleged value claimed actually possible, when one considers that for any ad campaign the profitgenerated from the additional sales resulting from the campaign must exceed the campaign’s costor you’re literally setting bonfires in your back yard with $100 bills!
Think about this folks — Facebook claims they made about $20 per user in the United States and Canada. Remember, this is the same company that claims that more than 80% of all persons over the age of 16 in the US and Canada are on their system monthly. I don’t believe that to be true for one second, but the “ad folks” all tell you (especially Facebook execs!) that they don’t have a “click robot” problem. Uh huh. Look folks, I know they have plenty of people with two, three or more “profiles” — that is, there really isn’t 80+% penetration, but exactly how many so-called “active users” are cats, dogs, robots and simply people who maintain more than one account I don’t know.
Note that Facebook’s ARPU hasn’t changed much in the last three quarters in the US but the ad load has gone ballistic. In other words they’re spamming you more and getting less per spam and someoneis paying them for those ads in the US and Canada. Is this a “good” or “growing” business when you’re increasing ad load dramatically but can’t convert it into more money? No; you in fact have a degenerating business.
Now let’s look at Spamazon. I will forever call them that, by the way, because very early in their existence they actually earned an entry in MCSNet’s system spamblock list. We were the first ISP that I’m aware of to offer incoming spam email filtering to all of our customers along with a default list that we maintained that each user could use, decline, or customize as they wished. Not long after Spamazon came on the scene I placed them in the system’s blacklist, which drew an immediate response from them and protest that they “hadn’t” spammed anyone.
There was a problem with their claim: It was a lie, and the reason I knew it was a lie was that in addition to spamming several of the customers on my ISP who reported it to me they actually spammed ME personally as well! At the time I had never bought anything from the company, so they had no business relationship with me of any sort; as such it was as clean a definition of “spam” as one could find. They shut up fast when they realized that I actually had them dead cold with the full emails in my possession, including the headers. They stopped doing it shortly thereafter but the point here was that the company did this because they thought they could get away with it and they lied directly to me about it because they though they could get away with that too.
Has that sort of behavior changed? No.
Remember, Amazon as a retailer makes less profit than a grocery store on a margin basis. This not new either; their retail operations ex-media have never made any material amount of profit. Ever. Wall Street has given Jeff Bezos a pass on this for more than two decades because they have always maintained “we can make a profit any time we want to; we’d just rather grow sales instead.”
Where’s the evidence for that? More than two decades in you’d think there would be some, but there isn’t. When does someone in the media stand up and call Beelzebub by his proper name and point out that zero times anything is still zero!
I’ll tell you where evidence for their “ability” to succeed in turning a profit is not — it’s not in their pricing policies and with AWS turning into a commodity soon the ability for it to subsidize the rest of their money losing operation will disappear too. Then what?
Don’t talk to me about all the “other bets” Amazon supposedly has done so well with. Remember the Fire phone? How about the Fire tablet? Both were going to take over the world, remember? One was going to destroy Samsung and the other Apple’s iPad. Neither amounted to anything; they were both flat-out zeros in terms of sales and operating income. When you can’t find the sales percentage left of the decimal point in the quarterly report it’s a waste of time.
When it comes to pricing Amazon has been caught repeatedly misleading customers on the pricing history of things they sell in an attempt to make you think you’re getting a “deal” when in fact you’re not. They’ve been sued a few times over it too, and when they settled or paid fines they have of course vowed to “sin no more”, while never really admitting fault — that is, they never admit to having sinned in the first place. That’s the corporate way, you see — when you’re big enough.
The truth appears to be something else entirely. Here are two pieces (here and here), both by Consumerwatchdog, on Amazon’s pricing. Notice something interesting — of the so-called “Sale” prices, that is, items Amazon claims are “on sale” (marked down) in all but one case the “Sale” price is not actually a reduced price. That is the claim of a “Sale” is a lie, it’s a lie intended to induce you to purchase and if the report is true that’s ILLEGAL specifically under FTC regulations and state consumer protection laws.
Never mind their other “marked” types of prices — “List” or “Previously” or whatever, which also appear to be fictitious. In fact there is only one set of “strike through” prices on Amazon that actually reflect a previously charged price — those with no labels at all.
People often claim that some business has been “Amazoned“. In fact that’s the rallying cry that has been responsible for the huge run-up in the company’s stock.
Well, yes, perhaps they have been “Amazoned.” But is that because Amazon is a better retailer? On the evidence when it comes to beating competitors on price, in other words benefiting consumers, the answer appears to be no. On the evidence when it comes to profit margins in the retail business the answer is also demonstrably no by their own quarterly reports and in fact from my own going through their quarterly and annual reports Amazon has never made a decent margin on product sales, other than in media (books.) And finally when it comes to AWS their margins are collapsing as well, which means there the answer is also “No.”
But what being “Amazoned” does appear to mean is that like all large companies the middle finger goes up a lot when it comes to Amazon actually obeying the law and there they really do enjoy an advantage.
Folks, if you or I set up shop somewhere and started posting fictitious “Sale” prices our asses would be in a sling in weeks if not days. Yet Jeff Beezlebub has been doing this for years, has been caught multiple times, fined multiple times and yet the practice continues with the company “testing” various ways to mislead people into thinking they’re getting a deal when in fact they’re not.
Because Jeff Beelzebub is confident there will never be an effective corrective action taken by federal or state authorities, that’s why. It’s the same reason he thinks it’s all cool to squeeze suppliers by pitting them against each other to the point that none of them can make any profit at all, especially when the Chinese counterfeits start showing up. Oh, need I remind you that a small firm that imports counterfeit goods and sells them risks having their door padlocked by the government for blatantly trafficking in counterfeit trademarked goods yet Beelzebub has exactly zero fear of that happening to him.
Not even a market crash will bother Beelzebub much at this point. In the last few months alone he’s sold nearly a billion worth of stock to the suckers (that would be you) who now are going to get stuck with it. Thank people like Cramer and all the so-called “analysts” in the so-called “investment houses” for pumping up the bubble and issuing “buys” on stocks with P/Es beyond the limits of the solar system so the favored few can take your money — again.
This same sort of corporate horse**** is also why your local hospital thinks they can charge one person 10x as much as another, buy up all the local clinics and then raise their prices, collude to keep people from setting up a competing MRI center and more. It’s why the entire medical system thinks it can get away with extorting you into buying worthless “health insurance” with a $6,000 deductible and then hammering you for the entire $6,000 when you need five stitches in the ER, with the procedure requiring all of 15 minutes of time and a dollar’s worth of supplies. It’s why drug makers think they can get away with charging $80,000 for a drug in the United States and $2,000 in another country, and they back that belief up with actually getting laws passed to block you from going over to the other nation with an extra suitcase!
None of this is economy of scale folks.
It’s eCONomy of SCAM.