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The Importance of a Strategic Advantage and How Jeff Bezos Built the World’s Premier Sales Platform Exploiting Tax Advantages.

A strategic advantage is the most valuable thing to have in the business world, especially when starting a new business. Jeff Bezos used a strategic advantage, recisely a tax advantage, to get Amazon off the ground. He then pummeled his competition with it and literally beat them down and out of the marketplace.

What Was Bezos’ Strategic Advantage?

When Bezos first started Amazon, the state of California (at the time I believe California was the twelfth largest economy in the world) had a little-known tax law. This law said that if you had a physical store in their state you were equired to pay sales tax. If you only had an internet presence you were not required to pay sales tax. This made sense to the bureaucrats (as higher taxes always do). hen the internet was new, many people believed it was a fad that would is appear. Bezos realized that by not putting a physical store in California, then selling his books into California without paying sales tax, this tax law would be a massive strategic advantage.

Massive Strategic Advantage?

Now it doesn’t seem like it’s that big of a deal. But the sales tax rate in California ranges from 7.25% to 10.25% depending on the local municipality. This high rate allowed Amazon to compete head to head with Barnes & Noble and Borders. Many people don’t understand how much retailers pay in overhead. Even though gross profit is 40% to 60%, many retail establishments have a net revenue of less than 4%. This means that $1,000,000 in gross revenue produces

$40,000 in net revenue. If you have a bad year or make a mistake and only net 2%, your profit is $20,000.