A quick post on the Viget UX blog about a discussion Barn and I were having at the office today. It spawned from a nugget in Jeremy Keith’s notes from Jared Spool’s AEA talk today:

You can buy an iPod nano on Apple, Best Buy, etc. for about $149. Amazon sells it for $134. That’s probably cost price. It turns out that Amazon can sell almost everything at cost price and still make a product because of volume. It’s all down to the Negative Operating Cycle. Amazon turns over its inventory every 20 days whereas Best Buy takes 74 days. Standard retail term payments take 45 days. So Best Buy is in debt between day 45 and day 74. Amazon, on the other hand, are sitting on cash between day 20 and day 45. In that time, they can invest that money. That’s where their profit comes from.

Right now there’s still a need for storefronts like Best Buy, but the rest of the post gets into speculating about how Amazon could make a play. Not that they would…