Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

We have a history with Amazon and understand the business as much as we can from outside. Just to give you a bit of a context, we always have this debate around, what is the profitability? What is Amazon doing with all the money? If it's such a good business, why aren't they making money? Of course, when I talk about Amazon, I really mean the ecommerce business. We are familiar with the AWS part and feel like we understand it well enough. That's the background, and we know a little bit about you from In Practise, but maybe could you give us a short intro about your background?

I worked at Amazon for about 10 and a half years, from mid 2008, to the end of 2018. Prior to Amazon, I worked in the department store for a number of years in a very traditional brick and mortar career, in that I was an assistant buyer, a buyer in a few different categories and a Divisional Merchandise Manager, which is a boss of buyers. Then I moved over to Amazon in 2008. As part of that tenure, I launched things like kids’ apparel, luggage and costumes.

The reason why I bring that up is that it gives insight as to how Amazon thinks about the entrepreneurial nature of its business and that whoever launched the businesses, kept the business, whether it made sense or not. In other words, luggage may have made more sense to sit in "home", but I launched it so I got to keep it. Kids’ costumes already existed in in "toys" of all things, but they never had launched costumes for adults, for obvious reasons. I launched it and it lived within apparel. Whether that makes sense or not is a different issue but because we launched it, the viewpoint is, you're more likely to want to take care of it and understand the customer and things like that. I moved over to footwear in 2012 and ran the footwear business from 2012 to 2016.

Part of that included merging or shutting down a website called, which we had opened to compete with Zappos. We eventually ended up buying Zappos, so I was responsible for shutting down I integrated the inventory sharing with Zappos, the image sharing with Zappos, and then eventually launched Zappos as a third-party seller on Amazon.

Thanks a lot for the background; very helpful. We know you're the right guy to ask these questions to. How much do the economics for Amazon differ between different merchandise categories?

Actually, quite a bit. Strangely, I ran the businesses that arguably are the most profitable. Fashion categories tend to have the highest simple gross margins per unit and when I say the simple gross margins, I'm talking more along the lines of traditional retail, first party where the retailer takes inventory ownership and actually purchases the product from the vendor. I know this ties into some of your other questions about first party versus third party. But just speaking about first party, the simple gross margins in apparel and footwear typically can be as high as 50% or higher. Whereas in some of the home products, like towels or sheets, they can be in the 40s as well. Health and beauty can be in the 40s or high 30s. When you start getting into electronics, laptops can be in the mid 20s. Interestingly, jewelry and watches can vary between 25 to 50 and almost anything in between.

In electronics, accessory items like an iPhone case can be as high as in the 50s. Charging units, if they are tied to the brand, so an Apple – not that I've worked at Apple, and no, I don't know their specifics – but I can make some guesses that an Apple iPhone charging unit that Apple made, it is likely one of the most profitable per unit items for Apple on a rate basis. But an Apple laptop or iPad is likely on the lower end. In other words, the accessory items make more as a rate than the actual hardware type items.

For Amazon, going down the list of books and media types of items typically are in the 20s. Consumables can actually get even lower. While they may have a much faster inventory turnover, consumable items, office product type items that are on replenishment and whatnot, a lot of those can be in the low 20s, sometimes even in the high teens. Picture anything that a grocery store sells or a drugstore sells, likely it is in the lower margin rate. Likely anything that Costco sells is typically no higher than 20 points as a simple gross margin. The idea is that you're turning over your inventory much faster and generating cash flow that way, whereas the inventory turnover of a consumable item might be as high as 12 to 18 per year. In clothing and footwear, you're lucky if you get three to four. The margins almost are somewhat inversely related to what your expected inventory turnover is.

If you blend these two observations together on return on invested capital, if you wish, perspective, do the categories still differ as much?

Yes, and no, because when you factor in shipping and you factor in the average unit retail of these items, consumable items typically have the lower average unit retails, even when you bundle. Take a five pack of toothpaste that still may be, in the US, $12 to $15 for a brand name. That item could cost $3 to $4 to ship it, such that it's shipping in one or two business days. When I say shipping in, I mean received by the customer in one or two days. Keep that in mind from an Amazon perspective. They don't necessarily view it as, what is the cheapest shipping option, because they are going to likely have to make it fit within a Prime promise, and a Prime promise is going to be one or two business days throughout the US or even one or less days in other countries, depending on the country.

Clearly that increases the shipping cost per unit and if you're buying just one five pack of toothpaste and that one five pack of toothpaste is $3 to $4 of shipping and the cost of that item was already, say $7, $8 $9, you're looking at cash flow neutral. Whereas in apparel, yes, a $12 item may still have $3 to $4 shipping, but it's likely it only costs you $6 to purchase, in which case, you're probably still making $2 – $1 on the low end – on that $12 item. A three pack of underwear might cost $12 and it might cost $3 to $4 to ship. Let's say it's going to North Dakota. It might cost $4 to ship in which case, Amazon on a simple gross margin dollar, simple CPPU contribution profit per unit on a simple cash flow made $2. Whereas on that consumable item, it likely broke even.

If I were to summarize, what you’ve been saying is that the categories have different gross margin profile and they tend to have inversely proportional inventory turnover. But it's unlikely that you're going to make a higher ROIC in a category that has a high inventory turnover, but lower gross margins, because with delivery costs, gross margin tends to be the more important thing because that's fixed. If you have a small gross margin, then you really need to multiply that so many times so that it's likely to be able to turn it that way?

This also speaks to some of the differences between first and third party as well, where in some categories – in fact, maybe across the majority of Amazon's categories, or the majority of Amazon's GMV – Amazon may make more money on third party than it does first party. But that's not necessarily the case in all categories. In mine, quite frankly, I make more in first party, but in consumables or many electronics categories, some of the big and bulky categories, Amazon may make more money on third party.

It makes sense because you're basically leaving this very, very low return business to the third-party merchant, which is financing the inventory, and hopefully, they make some money.

On the third-party side, there's two benefits. One is that if it's a low margin business to begin with, you have a guaranteed margin. If you're not doing the shipping, then you're not paying for the shipping anyway. If the seller is taking care of the shipping, then you're not even involved in it. All you're doing is charging 15% as a rent to be on the site. If you are doing the shipping, then you're charging an FBA fee that will cover the cost of that shipping and maybe a slight profit. You still want to encourage people to use FBA, because Amazon would prefer everything to be Prime eligible, but you're going to charge the seller for that service.

That $3 to $4 that it costs to ship that item out, you're likely charging $3.50 to the seller of record. You're going to charge a 15% to 20% premium, so that it's still somewhat profitable, or at least cash neutral, to the point that at least the 15% rent that you're charging for every sale, that's just cash. In a low margin category, 3P is clearly more profitable as a rate. In a high margin category, like apparel, where the simple gross margins are 40 or even higher, and the average unit retail is likely not $12, I know it's not. When you're talking about the average unit retail being $25 to $30 for apparel, or even $50 to $60 for footwear, you can start seeing that this is a highly profitable business.

If we take a little bit of a step back, and we look at the financials, and of course, they don't report profit, and 3P and 1P, but we can make an educated guess. To us, it looks like 3P is significantly more profitable than 1P on a GMV basis. If we take either gross margin over GMV, or operating profit over GMV, would you directionally agree with that?

Yes, I would directionally agree. It does depend on category, certainly. But as a general rule, yes. It is more profitable for most of the categories, and in fact it created strategic problems internally when, at a higher level, how folks want to view how you roll out 3P? How do you think through 3P? For 3P issues related to 1P, as a category where I make significantly more on 1P, I may have a different opinion than some of my counterparts in the other category. We all understand each other. As a total leadership group, how do you look at this more holistically? At the highest levels, the way that the company looked at it was, wait a second; let's take a step back from profitability and how does this impact the consumer? What is the consumer impact of whatever decision that we happen to make? I would argue that at the highest levels, that is always how Amazon looks at things.

Is it as cut and dry, and as simple as that? Maybe not quite that simple. But arguably, I would say that as a general rule, that is how Amazon thought about things. It actually helped guide me for my own categories because if I had management that said, you have to make as much profit period, that's a different response from saying, if you have a given product that is offered on your site, and you offer it via FBA, that means this seller has offered it on your site, and they already have it in an Amazon building to ship out. It's offered via Prime, and that same item either isn't offered anywhere else or if it is offered somewhere else, Walmart or Macy's or some other and it's offered at the same price or higher.

In other words, the customer doesn't care, as long as they can get it via Prime, and the price is fair. In other words, it's the lowest competitive price. If those things are all in place, then why do I care whether it's 1P or 3P? You start guiding your decision-making based on how this impacts the customer. If there's no change to the customer, then that shouldn't drive your strategy.

That's extremely helpful, because it brings me to my next point, which is our suspicion that it's exactly this reasoning why 1P, overall, is probably significantly less profitable than 3P because I assume there are certain categories that you would not be able to offer if you just relied on third-party merchants. The reason why you wouldn't be able to offer them is probably because it's not economic for just third-party merchants to offer it. You're not in that situation where it's either exclusive to Amazon, or Amazon has it and Walmart has it and Amazon's lowest price. You wouldn't have it, so to have that item you need for it to be 1P and that 1P might be operated even at the loss but it does enhance the consumer experience.

That's right. There are examples of where Amazon, due to pricing pressures or worries that the price of a given item moves all the time, and that it's discounted all the time at other retailers and meaning it goes up and down in price, if Amazon doesn't have the ability to price match, then Amazon might be viewed by a consumer as though they're not always at the lowest price. Clearly, Amazon doesn't like that. I don't, necessarily, want to be viewed as the lowest price; I want to be viewed as, I have the most competitive price. It's a subtle distinction and it just means that I want to have the ability to price match if that matters.

If it doesn't matter, because either I have exclusive rights to this particular item or, for whatever reason, the vendor sells to a lot of other people, it is offered at a lot of places, but it's always at the same price, that's a different issue. But let's just say it's always at the same price everywhere else; I still may not care. In that instance, even if I earn less money, I really don't care. I just care that my consumer is getting the best possible experience, or at least the most competitive experience on my site. If it's at the same price on Walmart, I know I can ship faster than Walmart. I know I have better customer service than Walmart. All things being equal on price, as Amazon, I still view it as I'm the better option.

If we were to think about concrete examples of these categories, would these tend to be items like your five pack of toothpaste for $12?

Yes, you may find that there's a lot of third-party options in the low margin categories, because Amazon doesn't care to necessarily push for those to be on the first party side. Where they're still going to push – and then they may even push to being on first party, even if it's going to be a loss to them – is if the price of that item changes all the time, if it's heavily discounted or it's a commodity type of item that exists at a lot of retailers. Certainly, it's going to care if a vendor is willing to have it on Amazon as a third party, but they want to do the shipping and control the customer experience from soup to nuts. But they don't ship as well as Amazon, so Amazon's still going to care, because it's not as good a customer experiences as what Prime is with them shipping it. There are going to be examples of where Amazon chooses to lose money.

Diapers is an example of where Amazon chooses to lose cash. In some instances, for every diaper it sells, it may lose cash and it's okay with that. Some of the reasons might be competitive pressure, and they want to make sure that they're at the most competitive price. But some of the issue maybe that they know that they generate a long-term value on a customer that may not have been on Amazon before but because they now have a baby, and they have a subscription service with diapers, that same customer may buy everything from Amazon. They are thinking about the lifetime value of that customer. In fact, baby is one of the highest lifetime value "New to Amazon" categories. Amazon may be willing to lose money on given items because they know the lifetime value of that particular item, when you factor in all the other things that Amazon sells, may actually be very positive. People know if you can get a subscription service on diapers, you have mom – I don't want to say for life – but you have her for quite a while.

If you have commoditized your standard SKU – let's say some branded jeans – Amazon can sell it on 1P and make a certain profit on it or it can sell on a 3P basis. I'm trying to understand, why would 3P end up being more profitable given have Amazon should be one of the most efficient retailers? Where's that extra profit coming from? Is it the third-party vendors sacrificing their own profitability somehow?

Yes; let’s take the Levi 501 as an example. I can guarantee you Amazon buys every single color and size of the Levi 501. I know that, I launched it, so I know they do. I know their relationship with Levi's and the way Amazon would work on the 501. Internally, Amazon will view it as – I forget what it sells for on the site, but let's just say it's $40 – we likely pay Levi's $26. It's not quite the same normal apparel margins; Levi's has a little bit more leverage, let's just say, especially on its iconic jeans, like the 501 or the 550 or 505. Amazon may make only 35 to 40 points on that particular item. That being said, it's a highly replenishable, highly predictable item. That means the amount of excess that Amazon has in that item is not high. Once you start having thousands upon thousands of units sold, my statistical sample size of my demand forecast, especially if I launched it back in late 2008, means we have years and years of knowing how it sells, even in a recession. How it sells in boom times; how it sells seasonally.

They may not know how it would have sold during a pandemic, I get that. But from a demand forecasting standpoint, it's pretty dialed in. Therefore, it's actually one of the fastest turning items within apparel, because they know how many they're going to sell of the core sizes, of the core washes, medium stone, dark stone, black, or what they call midnight. Amazon is going to know all that and, therefore, they don't have to carry a lot of inventory to cover demand. The turnover of that item likely can be as high as six to eight times per year, which is very high for an apparel item. If you're earning 35 to 40 points on an item that turns six to eight times per year, you pay $26, you sell it for $40, and the shipping of that item is likely no more than $4, even with Prime $5 on the upper end. That's a lot of cash for thousands of units you're selling.

You're the most efficient you can be in that moment.

In that instance, on the 3P side, quite frankly, especially since Amazon will price match anyone almost instantaneously on the 3P side. You might ask, why would sellers even offer something that Amazon offers and I would argue there's some truth to that. Why compete directly with Amazon on price? To a certain extent, I wouldn't. But are there going to be times where Amazon might run out of inventory? Are they going to run out of inventory on the 34-32 medium stone Levi 501? I would hope to God no. I'd probably have to answer to it in a weekly business review if I ever did. But is it possible that they might run out of a less common size? They might, in which case a seller who happens to have that size are more likely to sell the extreme sizes or the extreme washes. That means the more fashion washes that Amazon may not know the demand forecast for, are under bias as a result.

I'm also somewhat answering where 3P really should focus its attention. No, don't sell things that Amazon clearly knows the demand and it's a high replenishment item; that's not what I would sell on Amazon. I would sell on Amazon things Amazon doesn't carry via 1P. There are brands in apparel and footwear that don't sell direct to Amazon, namely Nike and Polo Ralph Lauren. If you can get hold of those items, you actually have a pretty good business on Amazon. Strangely, even though Nike doesn't sell directly to Amazon, Nike is still the largest third-party brand in footwear on Amazon, even though Nike does not sell direct, and even though Nike doesn't authorize any of its sellers to sell on Amazon. That tells you how much reselling goes on.

You agreed with the contention that 3P is much more profitable than 1P. Is that all to do with product mix? It sounds like on an SKU that Amazon sells and knows the demand for, they'll realize greater profits in a 1P modality than 3P?

That's right, they do. Anything where they are not necessarily going to make a large amount of profit, they'll willingly let 3P have the business. The times where they won't willingly do it, isn't just tied to profitability; it's more tied to customer perception. If this item is offered at Walmart, via 1P and Walmart discounts this item all the time, or if this item is offered at Macy's and Macy's discounts this item all the time, and we have it on our 3P, but we can't control price, then we are going to be perceived by our customer as not being the best option.

As an example, if I'm a Nike-only running shoe customer, do I think to go to Amazon first? Possibly not, even though Amazon is the largest seller of footwear in the country and they do sell a lot of Nike product. They don't necessarily have the best in stock of Nike product because they don't have any 1P business and it's all unauthorized business that's on their site to begin with. In other words, it's mostly resold, or authorized retailers of Nike that have chosen to try to play a game of changing their name and putting themselves on Amazon and seeing if Nike will ever catch them. And yes, this goes on all the time. But does Amazon care? Absolutely not. They just care that they're offering something that the customer wants. Just to be clear, it does still have to be a real Nike item. They absolutely care that if somebody said it's Nike, and it's not Nike; that's a big problem.

That's the way to get banned from Amazon.

That's exactly right. I'm not saying that doesn't go on, but Amazon will kick you off as soon as they figure that out. Nike complained to me all the time. I didn't do anything about it. I said, anytime you prove to me that an item is not yours, fine. Telling me that that seller is not authorized to sell you, but it's still a Nike item, that's your problem. You've got to figure out your distribution.

Taking it a bit more high level, again. Amazon is a bit smaller than Walmart in GMV in the US and bigger than Costco, but the operating profit over GMV has been on average, much, much lower than those retailers. What's the reasons behind this?

I'd say the pretty typical reason is they have brick and mortar and Amazon does not. If you isolated Walmart to just its online retail, I would make a pretty large bet that the operating margins at Amazon would actually be higher and that the difference is a couple of things. One, the other companies make far more money per unit that they sell in their stores, in the brick-and-mortar environment. Tw, it's the shipping; it's the processing of shipping and the shipping itself to the end use consumer, especially if you had to do it in one or two business days. When I talk about online retail, I don't mean anything to do with omnichannel where you order online and pick up in store. I'm just talking about where you order online and it's shipped to your home address.

Retailers can't realize a profit or very much of a profit. In fact, it was one of my criticisms of retailers, until Covid improved much of their omnichannel, due to force because Covid shut people down. But the way that other retailers – traditional brick and mortar retailers – think about marketing and customer experience is very backwards. They think in terms of, where do they make the most amount of money? We make more money selling it in store than we do online, so we need to drive customers into the store. I'd argue that's a very backwards way of thinking about it.

What you need to be thinking about is, what does the customer want? Drive your business to satisfying what do customers want, and figuring out how to be profitable for what they want, rather than trying to change behavior. In other words, over time customers are clearly telling you, we'd rather just buy it online, especially if it's something we already know what it is. I don't need to try on a Levi 501; I already own a pair. I'm just replacing the pair. I already know my underwear, I already know my batteries. Anything that the customer already knows and they just are replacing it, and you're trying to drive me into your store physically, I would argue is kind of dumb.

Amazon doesn't think that way. Amazon doesn't think in terms of, where do we make the most profit, so go grow that business. I'm not saying they're trying to downtrend. With the apparel business, of course, they'd rather grow it than not, but they're not going to try to build their site that only sells apparel, simply because it's the highest rate. What they're going to do is try to make a site that is intuitive, friendly, user friendly, across as many products as possible, and not tell you, you're not allowed to buy the diaper because we lose money every time we do. That's just not how Amazon thinks.

This is where I would argue all the other retailers need to get over that way of thinking, and I think Covid forced them, in a lot of ways, to start paying attention, even though people like me have been saying it for years. They need to think in terms of, what if a customer won't come into your store? Covid is going to change people's behaviors. Even though we're reopening and reopened, you're going to have customers where Covid permanently changed their consumer behavior; they're never going to go into a store again. If you don't adapt to that, then you're just stupid. And actually, the customer was already telling you that. How do you adapt yourself to build a model to adjust for that?

If you just look at apples to apples, I would argue Amazon is actually a higher operating margin than Walmart or Target. It's that they get to build in a brick-and-mortar environment that is actually at a higher operating margin overall, because they're not factoring in shipping. I worked at Macy's and, granted, it was really in the early stages of online, but I remember even back then, they tried to talk their customer into coming into the store. It's just not working backward from the customer.

But then there is also the point of, it's all great and amazing to offer the customers what they want, but it has to be done in a sustainable way so that the business makes margin in one way or the other. This brings me to my next question, which is, in mature countries like the UK or the US – and I think Japan is quite mature too – is that profitability there? If you strip all of the money that Amazon spends on satellite internet and robots and whatever and if you just look at the retail P&L, is that money there? Is the business profitable?

Arguably, barely. In the other countries, especially, it is barely there. This is why online is a race to being the biggest. There's two ways of being profitable. You find a niche business where you do something very specific and you build a business a certain size, and it's a certain type of business that's hard to compete in. You can make money online, and you could remain at that size. I've seen companies do that, and then they go public and they have to keep growing. Then they expand into other things where they are not necessarily in their core competency and then they have more problems. Arguably, now I'm talking about companies Stitch Fix, Shopify, Wix, where I would be concerned about their long-term. How do they keep growing at a similar rate, and still looking like they're going to be profitable, if ever?

I've built out several models for other countries, where if you wanted to compete with Amazon, or you wanted to be Amazon before it got there, of how large you need to be. Typically, most countries don't need more than one or two pure play online retailers. When I say need, I should phrase that differently. There won't be three, four or five that are large, because the third, fourth and fifth ones can never reach profitability. I would argue that same is true for Amazon. And this is why they are profitable in Japan, UK and DE, but not by the same profitability as they are in the US. It also might explain why they are not necessarily running the same model in Mexico or Australia. It's much more of a 3P model there.

If we just think about the US and if we look at EBIT, so operating profit over GMV, would we see these Walmart-like 5% operating margins, if we strip out the investments into Alexa and Fire, and all these other extracurricular activities that Amazon does?

Yes, and no. I hate using the word 'hiding', but they so invest in the future, that there's a lot of fixed and semi fixed cost that they can build into what arguably should be a completely variable number. A lot of times what they report publicly, I might argue it's more positive than how they portray it. I'm a little surprised at what they announced after Q1, saying that they may have over-expanded and may not need as much capacity as they have. Quite frankly, within two months, you see Dave Clark no longer at the company. I would argue that at Amazon, their margins are maybe slightly better than that because they do tend to hide certain capex numbers within what truly should be a variable number.

But on the same token, is it as good as what Walmart makes on its brick and mortar only business? No, it's not, and I don't think it ever will be. At least in the next five years. I don't see that changing so dramatically from a shipping perspective. Is there some innovation or technology that's going to revolutionize how you get a product from one place to another without involving humans and things like that? Yes, there's robotics and whatnot, but it's still a fairly high variable expense business. I don't see that changing.

Can we think of a few analogies? eBay has a 10% take rate and they would drop something like 30% of that to the bottom line, so would make 3% EBIT over GMV. Alibaba in China, very different part of the world but high single digit take rates and would drop as much as 50% of the top bottom line. Now you look at something like Etsy, which has been able to make 2% to 4% of EBIT over GMV. Again, with much lower take rate of 15% or so. Now with Amazon at 15%, you have repeat take rate before fulfillments, and then you have advertising on top of it. I'm really struggling to see why that would not be extremely profitable at the top.

I think that they have interesting accounting methods, I might agree, but I would also argue, the companies you just mentioned are 100% 3P. You have companies like Etsy that barely do any shipping, that they control. They're just now getting into that. I might argue, Etsy is another one where I'd say be careful what you wish for when you go public because they're going to try to start branching out into other product segments, and they started out in a particular product segment that Amazon was not necessarily very strong in.

Every time I see a company that goes beyond its core competency, and competing with Amazon directly in other product groups, they fail. But they're going to need to, because they can't just remain an arts and crafts store, and still grow at 20% to 30% per year. They'd have to expand into other segments. And/or they have to start offering services that the customer expects, even within arts and crafts, meaning they offer something that's really cool, and I can't get it anywhere else, because that seller hates selling on Amazon and they only make it for Etsy but it takes three weeks to get to me, or two weeks to get to me.

Etsy is trying to solve that problem by adding a shipping option and whatnot. But that's not their core competency. But what I'm saying is, in order for them to keep growing at the same rate, they're going to have to offer these sorts of things. Whereas Amazon already does offer those sorts of things, and they offer those sorts of things because they built out a model where they already have the fulfilment centers. They already have the infrastructure of robotics. These other companies do not. Whether Amazon is accounting for it as to whether it is a variable, semi variable or fixed, that's a different debate. I would argue that I viewed it as Amazon could turn on a spigot of profitability at most anytime.

I just want to run another mental model by you. If 3P can be highly profitable and let's say they always run the 1P business at breakeven, because they just want to sell the toothpaste and make no money on it, because the customer likes that. Then fulfilment on 3P, you can't do it at cost. Let's say you don't make particularly big money on it but you just provide the cost to the 3P vendors. Is that a reasonable mental model of how the future may look five to 10 years from now?

Yes, except that I think that you will see other things happen as well. I know that this is getting off somewhat of the retail, 3P marketplace type of discussion, but I do see that Amazon will get into other businesses that technically today they're not in. This is semi-public, in that they haven't announced it, but it's been done with vendors and outside companies. They've already done end-use consumer to end-use consumer shipping. That means, if I wanted to ship a gift to my aunt in Iowa, Amazon has tested that and it worked. Amazon has tested a brand shipping a container, a truckload to another retailer.

In other words, having nothing to do with an Amazon consumer, Amazon handled the shipping from end to end, for business to business and for consumer to consumer. It's also done from business to consumer and hence you've seen Amazon rollout for some of its better sellers, the ability for you to do buy with Prime on their own website. Amazon's rolling other things out where, historically, there's always been this philosophy, internally at Amazon, and I've even had this debate with Nikes, an example, where companies wanted us to run their .com and we never would. The rationale was, never drive traffic off Amazon. Always drive traffic to Amazon.

I would say, maybe strangely for a very visionary company, that was closed-in thinking. Maybe that's starting to come out of, now that we handle 85% or so of our last mile delivery, and we're doing fine, why don't we just handle delivery? Why don't we just become UPS? Why don't we just become a website maintenance provider? Why couldn't we just do that? I think that you're going to see an evolution of Amazon, potentially, being a shipping company. That wouldn't surprise me in the slightest. They need the retail business to continue to be big and strong or whatever you want to call it, multiple products, big and bulky, different compliance, because that allows them to be a shipping company, then they know how to ship and they know how to package.

In terms of complaints about what they do to the environment, if they are truly a shipping company, then maybe they should be a packaging company too and be more of an end-to-end owner of all of those things. How they account for that – whether it's an R&D expense or not – I'm not I'm not a tax person, but I will say yes, I would I agree with you that they should be higher as an operating margin, even when you do an apples-to-apples comparison. And they likely are.

Some other things to be thinking about as other related types of questions to dive further into is the unit economics in other countries, emerging technologies, emerging markets. How Amazon strategizes for countries that they're not in, but they utilize. So China, as an example; they have a huge presence in China, but they obviously shut down their site. I have a lot of thoughts on why that is and why that actually is a success story, even though a lot of people view it as a failure. So there's other topics I can certainly go into if you wanted to.