Amazon's 'Monumental Bet'

Jeff BezosJeff Bezos

In the past week, most of the attention focused on Amazon has been on its new tablets.And while the Kindle Fire family is certainly a big deal, Amazon is quietly laying the foundation for something that could be a much bigger deal.

Amazon is building new distribution warehouses around the country in locations that are close to major metropolitan regions, like San Francisco and New York City.

In today’s New York Times, reporter David Streitfield calls these new warehouses a “monumental bet” by Amazon.

It’s a “monumental bet” because Amazon will be able to more quickly deliver stuff people order online.

Previously, Amazon didn’t put distribution centres in states like California or New York because it didn’t want to collect a sales tax on items it sold.

There was a 1992 Supreme Court ruling that said online retailers didn’t have to collect sales tax if they didn’t have a physical presence in a state. So, if a New Yorker bought something from Seattle-based Amazon, she didn’t have to pay a tax. This made the price of Amazon’s goods much lower.

The thinking behind the Court decision was that the internet was new and needed a slight advantage to grow, says Streitfield.

Amazon has grown into a juggernaut and the last thing it needs a leg up on off-line retailers. Plus, local and state governments need all the money they can get. They passed laws forcing Amazon to start paying taxes.

Initially, Amazon fought these laws. It didn’t want to charge a sales tax and lose a pricing advantage.

Eventually it stopped fighting the tax laws because it realised that abiding by the tax law opened a new opportunity. It is now establishing physical presences in more states to make faster delivery possible.

The opportunity down the road for Amazon is same-day delivery. It now has a warehouse just 85 miles outside of San Francisco. This means that people could eventually put in an Amazon order in the morning and get what they want that afternoon.

This is what makes Jeff Bezos and Amazon so dangerous. It can turn something that seems like a disadvantage into a very strong advantage.

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