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The Real Cost of Amazon Prime

DATE POSTED:May 14, 2021

In his annual shareholder letter a few weeks ago, Amazon founder Jeff Bezos calculated the value the e-commerce giant had created for its customers. He concentrated on how much time Amazon saves shoppers in freeing them from driving to a store to buy goods. His conclusion: The convenience of Amazon Prime is worth $630 a year for each Prime customer.

What Bezos didn’t measure was the true cost of Prime’s service to the general public. He took into account what people pay to subscribe to Prime, sure. But there also is the safety cost,  in rushing goods around the country at a speed that ensures ordering from Amazon is as good as going to a store yourself. To get a sense of that cost, check out this story we published this morning, revealing the deaths and dismemberment caused by giant semi-trailers bearing Amazon’s smiley-face Prime logo plowing into other cars on the highway. 

A prime factor (pardon the pun) in these accidents  is Amazon’s emphasis on on-time delivery, which puts pressure on truckers to drive fast and minimize rest stops, a recipe for disaster. These accidents are in addition to those caused by van drivers making the final deliveries on suburban streets, as reported by publications such as ProPublica and BuzzFeed. In other words, Amazon has stitched together a national delivery network, with a grisly track record at every layer. It’s a high price to pay for society to pay to get paper towels within a day or two of ordering.

Amazon will eventually have to pay a cost for these accidents, which should be considered in assessing the company’s long-term profitability. While the company’s financial statements measure shipping costs, they don’t fully reflect the expenses of deploying an army of lawyers at Amazon to fight the legal cases that result or any legal payouts that result. More intangibly, there is the reputational cost of people seeing those giant trucks smashing into cars on the highway. Longer term, that may be the biggest expense of all.

TV’S AD SCOREBOARD

All the major entertainment companies have now reported for the March quarter, which means we have an updated idea about major industry trends. On the advertising front, the picture is not healthy. Networks have been losing viewers for years, but it’s taken a while for advertisers to shift their spending. But you can really see the impact now.

In the first quarter, ad revenues for Disney, ViacomCBS, NBCUniversal, Fox Corp., Discovery, WarnerMedia and AMC combined rose just 2.1%. In contrast, the major ad-driven tech companies lifted advertising in the quarter by 40%. In other words, advertising is booming as the economy picks up, but TV isn’t getting the benefit.

More striking, TV’s number included ad revenues from new streaming services. Without those, things would be worse. Disney, for instance, reported a 22% drop in ad revenue from its traditional U.S. networks. That’s partly because the Oscars were delayed, costing the ABC network ad money that normally comes in the March quarter. But much of it was from declining viewership, the company said.

INVESTORS PUT IN THEIR DOORDASH ORDERS

Judging by the rush on DoorDash stock today, you’d think investors hadn’t eaten in a week. The restaurant-meal delivery service stock soared 22% on Friday, ending a two-week losing streak that took it down to nearly its IPO price. 

The reason? DoorDash’s strong first-quarter earnings on Thursday suggested it could maintain its growth once the pandemic ends and people can go out to eat. That was the biggest question hanging over the stock for months. So far, so good. Revenue rose nearly 200% in the first quarter, not that far off growth for all of last year. “The impact of reopening really has been more muted than we expected,” DoorDash CEO Tony Xu said on a conference call.

Will that last? Lots of people are still nervous about eating out, particularly indoors. DoorDash executives acknowledged the second-half outlook remains uncertain. For now, though, investors seem reassured.

IN OTHER NEWS...

  • Confluent, a data analytics startup founded by former LinkedIn engineers, has hired Larry Shurtz, a top sales executive from Salesforce as it prepares for an initial public offering, The Information has learned.
  • ViacomCBS won’t pay disgraced former CBS chief Les Moonves the $120 million in severance he sought, the company disclosed, after two years of arbitration proceedings. Moonves resigned from CBS under pressure in 2018 after allegations of sexual harassment. Moonves won’t go hungry: Between 2013 and 2018 he was paid a total of $367.7 million in cash and stock awards, securities filings show.
  • Foxconn, the Taiwanese contract manufacturer that is the world’s largest assembler of iPhones, reported a surge in net profit for the first quarter amid increased demand for consumer electronic devices during the coronavirus pandemic.
  • Chinese regulators from eight departments, including the Transport Ministry and Cyberspace Administration of China, summoned senior executives from Didi Chuxing, Meituan, SoftBank-backed Full Truck Alliance and seven other ride-hailing firms and told them to do a better job protecting the rights of drivers and passengers, according to Xinhua news.

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