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“It’s like heroin: you do a little and you want a little more.”
– Jim Sinegal In danger of raising prices
Monday after meeting Jim Sinegal for a coffee in 2001, Jeff Bezos informed his main leaders that, in the future, Amazon would model himself on the retailer obsessed with the prices that Sinegal had built: Costco.
Like Costco, Amazon had always promised low prices, but unlike Costco, he had not always delivered. There were a lot of offers to have on Amazon.com, but they did not know always The best offers.
After meeting Sinegal, Bezos has been responsible for changing this.
“There are two types of businesses,” he told his management team, “those working to try to charge more and those who work to charge less. We will be the second.”
Bezos found a sinegal inspiration because the maintenance of the prices in Costco had become, in the words of Charlie Munger, “almost a religious duty”.
“When other companies find means to save money, they transform their profit,” said Munger. But when Costco finds means to save money, they transmit it to customers.
Another leading Costco investor, Nick Sleep described this as “shared yields”.
“The savings made thanks to the purchase or a scale are returned to the customer in the form of lower price, which in turn encourages growth and extends the advantages of the scale.”
Or, as Sam Walton said, “keep the costs low and transmit savings to customers”.
It is not a charity, of course. “You can generate much more (profit) at a cheaper retail price than you would have while trying to sell the item at a higher price,” said Walton.
This philosophy of passage all Customer savings have become Costco and Walmart in that Nick Sleep called “the retail version of a perpetual movement machine”.
It takes a quasi-obsession with low prices to become that.
Sinegal was so determined to maintain low prices that when a new CEO suggested increasing the price by $ 1.50 from the combo of hot dogs and Costco soda (which was sold at a loss), Sinegal resumed: “If you raise the Hot-Dog Effing, I will kill you.
They understood it-by building a factory to make the hot dogs themselves.
Consequently, the price of a hot dog and a soda in Costco has not changed since 1984.
Bezos was also obsessed with prices.
Shortly after meeting with Sinegal, Amazon began to scratch the websites of competitors looking for any product offered anywhere for less than on Amazon.com.
When it found one, the Amazon website automatically equaled it.
If it meant selling something unless it cost them to get it, too bad.
Amazon has not only adopted efficiency gains and cost savings to customers, but it has sold products at a loss to force itself to become more effective and find more cost savings.
This is not the only way to manage a business, of course.
Luxury products manufacturers like Hermès maintain artificially high prices to create a feeling of exclusivity, for example, and Nvidia gives priority to exceptional beneficiary margins so that it can find R&D profits.
It’s not always a good way to manage a business either.
Companies like Webvan and Moviepass have prioritized low prices, but failed because they could not find enough efficiency or savings to make prices lasting.
(Moviepass is now trying with higher prices.)
Even McDonald’s, famous for its meal offers, recently had trouble maintaining prices low enough to maintain its reputation for value.
A way to frame this dynamic is that some companies choose have low margins (within the framework of a commercial strategy), while others are strength Have low margins (because they are in a bad deal).
As a rule, you want to invest in companies that have low margins by choice and not by necessity.
It could also be a good way to think about the blockchains of the diaper.
If you raise the MEV efficient …
It is not particularly expensive to create blockspace, so there is no obvious reason why blockchains should have a pricing power.
Kyle Samani, for example, thinks that blockchain costs will ultimately be close to zero that the maximum extractable value (MEV) will become the only reason why layer 1 blockchain chips have value.
Mev is the benefit made by validators who have the right to order transactions in a given block, and on Solana, almost all MEVs are captured with software created by Jito Labs.
The validators execute Jito software to optimize MEV extraction and to share these profits with the soil holders who have marked their chips with them.
Now, however, a new Jito treatment system – the block assembly market (or BAM) – will move a Solana Blockchain MEV capture to applications that work it.
For me, it looks a lot like Costco who has chosen to give up benefits in order to adopt customer efficiency gains.
“BAM could lead to a reduction in topline income for Jito Dao and Sol tokens holders,” said Carlos Gonzalez Campo in a recent report for Research blockworks.
Even in a class of assets that does not worry much about income, this should probably give tokens holders a break: “the transition to specific sequencing to the application”, continues the report, “raises questions on the network economy”.
But Campo thinks that it is ultimately for better: “by allowing applications to internalize the sequencing of transactions, Jito acts as a good steward for the network (Solana), despite the renunciation of significant additional income in the medium term.”
He always expects Solana’s revenues to increase in the next year, because “the increase in overall demand” should compensate for the costs of drop by transaction.
But that seems to be a defensive measure: “a significant motivation factor behind Bam is that Solana loses the Perps race with hyperliquid.”
Sinegal may not be impressed. The adoption of the Costco model would mean continuing tirelessness efficiency, then achieving savings to customers during the course, not only in response to a new competitive threat.
Sam Walton preached the “price of low every day”, whatever the competition.
But if the reduction in costs at the expense of short -term profits is part of Solana’s cultivation, this could work for chip holders. An investment portfolio by Just Walmart, Costco and Amazon would have outperformed almost in the past 30 years.
However, their “shared efficiency” commercial model is not for everyone, because selling Hot-Dogs combos for $ 1.50 is a difficult business.
And what made Costco Génial is not only that he managed it – is that he chose.
If Solana is also a business, is it the genre that can choose to sacrifice profitability?
Or is it the genre that owes?
We could soon discover it.
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