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Great Moments in Business Journalism XVII

Posted on: 02/03/2011

In the Wall Street Journal’s popular “Heard on the Street” section today, on the topic of Amazon’s “Prime” free-shipping program (which we use regularly here at RAIN and AccuRadio), business journalist Martin Peers points out that Amazon’s gross margins have eroded from 24% in 2005 to 22.3% last year. He then writes:

“[Amazon CEO Jeff] Bezos told analysts a few months after Prime’s introduction that he expected it would generate long-term returns for shareholders. Perhaps it is time for some clarification of what that means.“ Whoa! Snarky!

On the other hand, three paragraphs earlier, Peers had written, “Admittedly, Amazon’s net sales have quadrupled since 2005, no doubt partly due to Prime… Prime clearly makes it easy for people to order more goods.”

So let’s get this straight: Amazon sales have maybe increased from $8 billion a year to around $32 billion a year — an increase of about $24 billion. To help make this happen, Prime might have increased their shipping costs by about $500 million.

And he’s intimating that’s BAD? That Bezos isn’t “generating long-term returns for shareholders”? (Incidentally, during the period, Amazon’s stock price has gone from around $40 to around $170.) Ai-yi-yi!

Here’s my point: Most journalists are not business execs, and a surprisingly large number are not good at math or math-based analyses. (That’s why articles about the SoundExchange royalty battles over the years have often misstated the rates by a couple of decimal points — the same caliber of mistake as writing about “a dozen eggs” when you meant “1,200 eggs” or vice versa.)

Sorry, here’s my real point: If you want to know what’s going on in a field (e.g., online radio), don’t trust a cursory read of what the average business journalist is writing. You may not always be getting the level of expertise you expect.

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