Wednesday, December 12, 2007

Amazon Invests in Bill Me Later!

There have been numerous articles and blog posts regarding the investment Amazon recently made in alternative payment service Bill Me Later, so I wasn't sure what I could add to the discussion. I don't see this agreement as a major threat to PayPal, at least in the short term but it does signal how aggressive Amazon is in finding ways to cut costs.

There is this from an article about the investment posted by the Baltimore Sun: Scott W. Devitt, an analyst with Stifel, Nicolaus & Co., said "the deal demonstrates how retailers might shave operating costs.He said that 2 percent of Amazon.com's operating margin goes to credit-card processing fees and that Bill Me Later's costs would be about 0.5 percentage point lower.

Retailers are often frustrated in their efforts to lower processing costs with a credit-card industry that "essentially operates as an oligopoly," Devitt said.

Amazon, realizes that they need to increase their margins and are taking a 2-pronged approach. They are expanding their high margin 3P Seller business while investing in technology to cut operating expenses.

The impact of this deal with Bill Me Later, may not be felt for several quarters but it certainly shows Amazon is moving aggressively to cut costs.

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