Jeff Bezos and the Power of the Amazon Model

Here’s an interview with Warren Buffett – published February 27, 2017 on CNBC – where Buffett talks to Becky Quick about retail, Jeff Bezos, and the power of Amazon’s business model.

Becky Quick: A major investor I spoke with recently asked me this question, I’m not sure if it was supposed to be on the record or not, so I won’t use the name. But this investor said that here she had heard you recently making some comments about Amazon where you where very complimentary of Amazon, it’s founder Jeff Bezos, said he’s probably the best manager you’ve ever seen.

Warren Buffett: I think maybe he is, yeah. You know, I’ve said that. I mean, it’s remarkable I mean, here a guy, you know, gets in a car with his wife to travel. Leaves you on and starts travel across thinks “How am I going to take over the world?” Maybe I’ll sell books online. He is one terrific business person.

Becky Quick: That investor then asked me “Why don’t you own shares of Amazon?”

Warren Buffett: Well, that’s a good question, but I don’t have a good answer. Obviously I should have bough it a long ago, because I admired him long ago. But I didn’t understand the power of the model as I went along, and the price always seemed to more than reflect the power of the model at that time. So it’s one I missed big time.

Becky Quick: Is it to late? Or you just don’t know?

Warren Buffett: I just don’t know, yeah. Retailing is tough for me to figure out. I mean, if you go back to when I was a kid, in every town the guy that owned the big department store was king. I mean, whether it was Marshall Field, you know, or Dayton, or Hudson in Detroit, or Fredrick & Nelson in Seattle. You name it. J. L. Brandeis in Omaha. The department store was king. And people said “What can happen to them?” You know, it’s down there with the street car lines crossed, and the women took the street car to shop there and they could see five hundred spools of thread, and five hundred wedding dresses. And they couldn’t see anything like that. It offered this incredible array of goods. And somebody came along with a shopping center. And instead of making it vertical with all this display by one person, they spread it out one by many. And now comes the Internet. And that’s it, all of it, variety of things that you can get to very easily. People love variety, they love low prices and all bunch of things. So it just keeps evolving and the great department stores, many of them have disappeared and the rest are under pressure.

Source: CNBC’s Warren Buffett Watch

There’s an article published by Morningstar today that discusses Amazon’s $13.7 billion acquisition of Whole Foods. According to Morningstar, Amazon gets a wide economic moat rating. The article brings up and discusses some of the different parts making up Amazon’s wide moat, that is, its sustainable competitive advantages. To read the article, click here.

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