Farhad Manjoo, one of my favorite tech writers, has a stimulating piece today about Amazon. He says he can't figure out what they're doing, how they intend to make money. What's the razor and what's the blade? He wonders if they know.
In the old days companies offered the same deal to everyone. They had to because they didn't have all this information about us and computers and actuarial tables, and years of experimentation to guide them. That's not true anymore, and especially not true of Amazon. That's the first thing you have to realize. They're blazing a new trail in selling things. No one has been down this path before. Yet there are others that are on the path.
They made me the same offer they made him. Because I pay $79 a year for Prime, I can have one book a month for free. They pay the publisher on my behalf. And it's not all books.
They might make me an offer on one book and another to Farhad. You just don't know. One thing's for sure, their algorithm has a hunch that if it does this, I might do that. And if I do that, maybe I'll do something else. Somewhere on that path I will trip over the wire and Amazon will make $100. That's how they make money. They can't explain it, any more than a hedge fund guy can tell you why his algorithm just decided to buy 214,203 shares of Podunk Mining Co and turn around and sell it five minutes later. He might, if he did a lot of data dumps, be able to trace back and see how it made the choice, but by then it'll have done 813,329 more transactions.
More and more you and I are hamsters. They're making money off the pellets. That's the best we know.
BTW, I asked my friend NakedJen, who is a serious dog person, what she thinks her dogs think she's doing when she picks up the prizes they leave in the park. She carefully puts them in plastic bags. Later it appears she is depositing them in a bank. What must the dog think about her relationship with Jen?