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Business Analyst Criticizes Amazon’s Business Stratagem

September 19, 2015 - Written By Matthias Tan

Macquarie Research has recently criticized Amazon‘s business strategies in a statement addressed to investors. Macquarie Research is an investment banking and diversified financial service providing group that provides, banking, financial advisory and investment and funds management services to institutional, corporate, retail clients and counterparties around the world. In the statement, Ben Schachter, a Wall Street analyst who specializes in the area of technology writes this, “We (Macquarie Research) are frustrated that Amazon doesn’t give Prime members even more benefits related to hardware (lower prices, early delivery, more exclusive content, etc…), nor does it aggressively drive HW owners to become Prime (Amazon Prime) members (at least not directly),” Schachter also adds that Amazon shows no signs of developing virtual or augmented reality technology. Even though Google, Facebook, and Microsoft are locked in a desperate race to be the first to perfect the technology, Amazon is pretty silent on the subject. Schachter is quite on point with his observations.

Amazon’s stratagem is to sell its hardware such as tablets at very cheap prices while hoping that the users of those devices will buy its products via the devices. A Consumer Intelligence Research Partners study had recently shown that the owner of Amazon’s tablets are more likely to spend double on Amazon products than people who don’t own one of its tablets, around $1,450 each year compared to $725. The business model so far is to mostly promote its content but is concentrating more of its efforts on selling its hardware. Amazon does not aggressively push for its users to sign up for its Amazon Prime subscription. Amazon Prime is a subscription that costs $99 per year that contains benefits such as a two free two-day shipping for selected products and the scope of these selected products are quite vast. It also allows the user to stream unlimited amounts of movies or TV shows via Prime instant video and borrow e-books on Kindle devices.

According to David Limp, senior vice president of devices in Amazon, he mentions during an interview with the Business Insider that Amazon was indeed selling large numbers of their tablets, but the amount of users who subscribe to Amazon Prime is less than expected. Nonetheless, he is still hoping that the users of these tablets would buy more products on Amazon, even though they do not become Prime users. During the interview he says this, “Our thesis is that if they use the tablet, we gain our profitability from that — if they end up not buying more things from Amazon or put their tablet in a drawer, then shame on us”