13 ms·

Amazon and the “profitless business model” fallacy (2013)

dang 5y ago
Discussed at the time: Amazon and the "profitless business model" fallacy - https://news.ycombinator.com/item?id=6620598 https://news.ycombinator.com/item?id=6620598 - Oct 2013 (137 comments)
Animats 5y ago
Well, they certainly fixed that problem.[1] [1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-profit-margin https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-pr...
SilasX 5y ago
The previous discussion had a good top comment: https://news.ycombinator.com/item?id=6620885 https://news.ycombinator.com/item?id=6620885 >However, things are not that simple. Sometimes some expenses which are about building for the future and investing into new growth are not capitalized. This is the case because for some expenses the benefits are so uncertain and difficult to quantify that the SEC requires that they are reported as ordinary expenses instead of capital spending. These types of expenses tend to involve R&D and may include certain administrative expenses associated with growth initiatives. That shows why GAAP has legitimately different standards of profitability than an investor or HN comment might. When people bring up “haha, Uber/Amazon has never even been [GAAP] profitable! What a joke!”, it’s usually to make the point that, “investors are dumb, this enterprise isn’t even capable of value creation because they can’t sell outputs for more than production costs, what a scam”. But that doesn’t follow at all from GAAP-non-profitability. If a company would have been profitable but for regularly dumping fortunes into speculative projects, that’s still great news for investors. It means they could one day give up on that speculation and go back to taking those easy profits from value creation.
- foobarian 5y ago
  I always wonder if this is why they make us fill out time sheets. I also always gently propose to our management chain to share the money we save on taxes by doing the timesheets as an extra incentive, but so far I was not successful :-)
  - throwoutway 5y ago
    Depends on the projects in your time sheets. My time sheets were various businesses (customer) that I was billing time against
  - sokoloff 5y ago
    Any time that your company is obligated to capitalize results in them paying more current taxes, not less. (Time that is expensed fully this year is already tax-deductible.) The reality is (at least in the US and probably elsewhere), that it's not an option to just decide to expense or capitalize everything and so the timesheets might be better viewed as the mechanism the company has chosen to remain compliant with the law and not something that's optional/subject to incentive pay.
    - foobarian 5y ago
      Right, I didn't think of the compliance angle. In my case the leadership justification is that doing timesheets "saves us money on taxes." Given how much most of us dislike doing the timesheets I thought it would be nice if they told us exactly how much that savings is, and if a large number possibly we would all be more enthusiastic about doing them.
- leobg 5y ago
  “Tesla loses money on every car they sell” was another popular one. People seriously believed it.
  - triactual 5y ago
    This one actually blew my mind at the time. Tesla had a wait list ten miles long and an obviously superior product (safety, speed, comfort, space, the whole electric thing, etc.). Sometimes, a business isn’t as complicated as people make it.
    - leobg 5y ago
      Completely agree. A Tesla is one of those rare products were going back to the previous state of technology feels like moving to a Third World country. Sans the adventure and possibility for self realization, that is.
  - gumby 5y ago
    Of course they did for many years, supported only by government incentives.
    - chii 5y ago
      investors aren't dumb - the economies of scale hasn't happened yet at that time, but would eventually. The gov't incentives and subsidies are just icing, not the core, of the investment thesis in tesla investors.
      - gumby 5y ago
        I'm simply addressing the factual assertion in your post. People believed it as it was true.
    - leobg 5y ago
      Even if that had been true, the claim the Tesla loses money on every car they sell implies that they would do better not producing cars at all. This is the kind of story you cling to when you desperately want to believe something. (The bigger question is: Why did these people want to believe that Tesla is a failure? I think the potential answers to that can teach us a lot about psychology, incentive structures, social media and what Nietzsche called The Use And Abuse Of History.)
- TaylorAlexander 5y ago
  There’s so much news where people read a headline and believe it uncritically. I always thought it was silly that people accused Amazon of being unable to make a profit when they were obviously intentionally investing their would-be profits in to growth. A lot of people don’t really care if what they say is accurate.
  - nerdponx 5y ago
    I wonder if the "they aren't profitable" myth is strategically beneficial to promulgate.
  - pempem 5y ago
    Those accusations and headlines, I would argue, came from competitors who were unable to find the same trust and leniency from the market and needed to show a profit every earnings call.
- tchalla 5y ago
  In short, it is difficult to infer and different growth CapEx and maintenance CapEx from financial data.
anonporridge 5y ago
It kind of seems like traditional finance people and investors who spent well over a decade bashing the growth of companies like Amazon have severely over corrected by spewing as much money as they can into any vaguely similar tech company, potentially creating a new investment bubble that's going to crash when a lot of companies fail to ever flip into profitability.
- hef19898 5y ago
  Worth noting that Amazon had mostly profitable quarters during its entire history. And Amazon was, as far as I remember, always cash positive. Combined with basically growing 20% YoY for decades can justify quite high an evaluation. Amazon is the exception so, not the rule. And not every company prioritizing growth over profits will end up where Amazon is.
- missedthecue 5y ago
  People always say that wall street bashed Amazon for growth over profits but I don't think that's true. Amazon has always been endowed with a massive earnings and sales ratio. If wall street had been bashing Amazon, you'd think their stock would have been muddling along with low multiple over the past 20 years.
  - WalterBright 5y ago
    People also say that Wall Street is obsessed with short term profits. Amazon's stock price indicates otherwise. Ditto for Tesla.
    - hn_throwaway_99 5y ago
      I think that's a mischaracterization. It's not short term profits, it's short term performance. Amazon and Tesla are still evaluated quarter-to-quarter, and if they stumbled in their growth numbers they'd still get killed.
    - oarabbus_ 5y ago
      Hmm, but people also say "the market is forward looking". It's quite clear Wall Street loves growth (over the last decade, at least) and isn't at all obsessed with short-term profits.
xwdv 5y ago
People have a hard on for seeing profit. It’s like they don’t understand the opportunity cost of taking profit means you are not investing in your business to make bigger profit. When I see profit, I see inefficiency. A young business should have zero profit until it can no longer grow.
- adventured 5y ago
  So with zero profit, operating on a razor line at all times, what's your plan for major acquisitions or severe shock events outside of your control (eg national economic recession)? Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash. If you're not building cash, how do you plan to avoid catastrophic, unnecessary damage to your business structure when a recession hits? Banks hate to lend during recession, and lending gets a lot more expensive when times are bad. And banks generally are horrible alternatives when it comes to capital for acquisitions, unless you're a large corporation. Dependent on venture capital? Another horrible, expensive alternative to profit. You're seeing inefficiency in profit because you're not pricing in everything in the operating life of a business correctly.
  - aksss 5y ago
    I think GP is using 'profit' to talk about wealth extraction from the business. Putting surplus cash into an emergency fund, maintaining a cash balance for unforeseen costs, or similar wouldn't be quite the same thing. One way to think about that is that if your company has a financial goal of $X for a cash reserve, the lack of it can be considered a liability, diminishing net profit.
  - WalterBright 5y ago
    > Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash. 1. Banks. Their primary customers are businesses. 2. Issuing stock. 3. Getting investment capital from rich people.
- castratikron 5y ago
  One thing that is not known to everyone and therefore may come as a surprise to some is that corporations (in the US) are taxed on profit, not on income. This is the explanation to the click baity titles like "Amazon paid less tax than you this year!" etc. So any profit a company makes is basically the same as writing a check to the government; more likely, it would be better spent growing the business. Any kind of growth company should have a goal of making close to zero profit.
abbassi 5y ago
For sure a teethless Jackal is a dead Jackal. Capitalism is based on thrive for profit at any cost, even causing crises, wars and genocides.
- NicoJuicy 5y ago
  Like it or hate it. In historic terms, the world has never been more peaceful since capitalism 2.1
- anm89 5y ago
  So why hang out on forums run by a venture capital firm?
  - skinnymuch 5y ago
    Not defending the OP post itself, but this is close to saying why hang around a capitalist country. There aren’t many options. You have to play the game to survive, or thrive, and have a non stressful life worried about a big bill
    - anm89 5y ago
      I get your point but I disagree. It is hugely difficult to gain new citizenships and residencies. It takes huge amounts of money and effort to overcome these obstacles for most people. Whereas there are a million internet forums and mostly anyone can join any one of them for free. Maybe they don't have the same quality of conversation as here (although quite a few others do) but if the thing he hates (captialism, investment firms, etc) produces a culture where the quality of conversation is so high that nothing else can compete, shouldn't that be it's own signal?
      - skinnymuch 5y ago
        There are very very few non capitalist forums. If you’re heavily against capitalism, non political forums will still normally be pro capitalist to some degree. It’s the society almost every one lives under. Not sure where one would go besides hard left forums which are very few and very far between. And then those places are only political. What if you don’t want to just discuss leftist things That’s why after the country thing I included there aren’t many options. You have to play the game.
danielmarkbruce 5y ago
If you look at their filings (https://www.sec.gov/edgar/browse/?CIK=1018724&owner=exclude https://www.sec.gov/edgar/browse/?CIK=1018724&owner=exclude), the non AWS business is still.. not amazing. The idea that "jeff showed them" is simplistic. They started AWS, competitors sat idle for 5-6 years and they ran away in a giant market. Good for them, but had Google & Microsoft woken up earlier the amazon doubters might be the smug ones at this point. This isn't Jeff bashing because he's obviously a hard working and very smart guy. But it's only obvious in retrospect that Amazon knew what they were doing.
- ignoramous 5y ago
  > But it's only obvious in retrospect that Amazon knew what they were doing. That's not the impression I get from this Bezos interview in 2000: https://www.youtube-nocookie.com/embed/6OVdcS4fuuw https://www.youtube-nocookie.com/embed/6OVdcS4fuuw
- c7DJTLrn 5y ago
  They may still have a reason to be smug. Quite a few people are of the opinion that Amazon (excluding Web Services) is on the decline. These days the site is crammed with scammers and shoddy, dangerous products. Customer support is degrading as they do a poor job of automating it away with chatbots. I rarely buy anything besides accessories and hard to get groceries on there anymore.
  - oarabbus_ 5y ago
    > Quite a few people are of the opinion that Amazon (excluding Web Services) is on the decline. Based on what, anecdotal evidence from squeaky wheels on the internet? I've heard the same claims, but the 10K and 10Q filings the original commentor linked to suggest the opposite.
    - gruez 5y ago
      Agreed. Public opinion polling shows something similar, eg: https://twitter.com/AlecStapp/status/1410453573100609538 https://twitter.com/AlecStapp/status/1410453573100609538
blobbers 5y ago
This article fails to mention the obvious reason for not taking profit: taxation. Why would any company take a profit when it can invest in it’s own future success and defer taxation? Anyone paying out a dividend is saying that the shareholder is a better capital allocator by the marginal tax rate. Philosophically should companies be allowed to do this? Analogous to similar loop holes where individuals use their own wealth to raise debt for cash and avoid showing paper gains to minimize tax.
- WoahNoun 5y ago
  The non-taxation side of that argument is that Bezos can invest better than I can and he can leverage those investments more than I can due to the technology that exists within the company,
- jollybean 5y ago
  "Why would any company take a profit when it can invest in it’s own future " 1) Because it's almost never the opportunity. 'Super High Growth' over a couple decades is a rare thing. Imagine if AMZN had not invented AWS? It would be a different story. 2) The term you are looking for is 'Cost of Capitol'. Which varies between various parties for different situations. If ABC Corp. can't yeild returns past a threshold, investors will want it back to do elsewhere. Think another way: If you had $1M to invest, what are the odds that it makes more sense to invest it in your own business vs. any other business? Why would amazing 'Bet Everything' on AMZN instead of any number of other companies? If a company is making decent profits, and a lot of powerful companies do, then it may be difficult for them to find other ways to get the same return.
Wolfenstein98k 5y ago
Maybe the greatest company of the last 30 years, all said. That doesn't mean perfect, but hard to name a greater company.
DantesKite 5y ago
You'd be surprised how many people this article affected: The idea of re-investing your money into your business and not making a profit isn't an obvious one (as evidence by everyone's criticisms of Amazon at the time). But they took it to heart, immediately applied it to their business, and succeeded massively. Last I checked their net worth is at least $40 million (starting from a few thousand dollars). I'm not saying that's all you need to be successful. It's not so simple. Nothing ever is. But 8 years later, and this essay can stand on its own accord, not just as a historical artifact of its time, but as stellar business advice.
- deleted 5y ago
  [deleted]
deleted 5y ago
[deleted]
kumarski 5y ago
I wish every person in silicon valley would read this blog post instead of being in the cult of Bezos worship. https://deep-throat-ipo.blogspot.com/2018/05/amazon-walmartchinese-potting-soiland.html https://deep-throat-ipo.blogspot.com/2018/05/amazon-walmartc...
- tryauuum 5y ago
  maybe you should post it on HN then
- specialist 5y ago
  Nice. Thanks. I'll have to reread, more slowly. Until then, some quick tidbits. One anecdote that popped out was the correlation of Walmart super centers and crappy towns. Market segmentation via geography vs demographics. "The Twinkie Index" was the first time I heard this notion. Starbucks' real estate and marketing groups had came up with a infographic, contrasting cafe locations and per capita Twinkie consumption, for when people asked "When are you going to finally put a Starbuck in [insert town here]?" Back in the 90s, Walmart's profit sharing (employ stock grants) was a role model. Cited as one of their competitive advantages. (How things change.) I read that what made Walmart possible (feasible) was their early, enthusiastic adoption of bar codes. For comparison, what are (were) Amazon's critical success factors? Lowest cost of capital. Uniquely, was able to sell growth over profits story to Wall St. Superior tax avoidance (eg sales tax holiday). Compensating employees with stocks. It's hard to imagine anyone challenging Amazon while this disparity exists. Amazon Prime, for sure. Brand loyalty, reduced cost of customer acquisition, and all that. I have questions: How did Amazon figure out that programmers are a consumable resource? Cattle instead of pets. From the very beginning, my friends and I marveled at how poorly Amazon treated programmers. Surely, that can't last, right? Whelp. I was totally wrong. And I still don't know why. Why hasn't Walmart's Jet acquisition done better? Is Walmart unable to invest in Jet sufficiently to compete? Did Walmart and Amazon accept and settle into their comparative market segments? (eg Maybe Walmart's demo doesn't buy stuff online as much.) Why hasn't Amazon's eBay-ification, the rise of fraud and counterfeits, harmed them more? Is it because of their "customer obsession" and generous return policies? With comingling and other bullshit strategic decisions, they're promoting fraud vs mitigating it. So weird.

dang 5y ago

Discussed at the time: Amazon and the "profitless business model" fallacy - https://news.ycombinator.com/item?id=6620598 https://news.ycombinator.com/item?id=6620598 - Oct 2013 (137 comments)

Animats 5y ago

Well, they certainly fixed that problem.[1] [1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-profit-margin https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-pr...

SilasX 5y ago

The previous discussion had a good top comment: https://news.ycombinator.com/item?id=6620885 https://news.ycombinator.com/item?id=6620885 >However, things are not that simple. Sometimes some expenses which are about building for the future and investing into new growth are not capitalized. This is the case because for some expenses the benefits are so uncertain and difficult to quantify that the SEC requires that they are reported as ordinary expenses instead of capital spending. These types of expenses tend to involve R&D and may include certain administrative expenses associated with growth initiatives. That shows why GAAP has legitimately different standards of profitability than an investor or HN comment might. When people bring up “haha, Uber/Amazon has never even been [GAAP] profitable! What a joke!”, it’s usually to make the point that, “investors are dumb, this enterprise isn’t even capable of value creation because they can’t sell outputs for more than production costs, what a scam”. But that doesn’t follow at all from GAAP-non-profitability. If a company would have been profitable but for regularly dumping fortunes into speculative projects, that’s still great news for investors. It means they could one day give up on that speculation and go back to taking those easy profits from value creation.

foobarian 5y ago
I always wonder if this is why they make us fill out time sheets. I also always gently propose to our management chain to share the money we save on taxes by doing the timesheets as an extra incentive, but so far I was not successful :-)
- throwoutway 5y ago
  Depends on the projects in your time sheets. My time sheets were various businesses (customer) that I was billing time against
- sokoloff 5y ago
  Any time that your company is obligated to capitalize results in them paying more current taxes, not less. (Time that is expensed fully this year is already tax-deductible.) The reality is (at least in the US and probably elsewhere), that it's not an option to just decide to expense or capitalize everything and so the timesheets might be better viewed as the mechanism the company has chosen to remain compliant with the law and not something that's optional/subject to incentive pay.
  - foobarian 5y ago
    Right, I didn't think of the compliance angle. In my case the leadership justification is that doing timesheets "saves us money on taxes." Given how much most of us dislike doing the timesheets I thought it would be nice if they told us exactly how much that savings is, and if a large number possibly we would all be more enthusiastic about doing them.
leobg 5y ago
“Tesla loses money on every car they sell” was another popular one. People seriously believed it.
- triactual 5y ago
  This one actually blew my mind at the time. Tesla had a wait list ten miles long and an obviously superior product (safety, speed, comfort, space, the whole electric thing, etc.). Sometimes, a business isn’t as complicated as people make it.
  - leobg 5y ago
    Completely agree. A Tesla is one of those rare products were going back to the previous state of technology feels like moving to a Third World country. Sans the adventure and possibility for self realization, that is.
- gumby 5y ago
  Of course they did for many years, supported only by government incentives.
  - chii 5y ago
    investors aren't dumb - the economies of scale hasn't happened yet at that time, but would eventually. The gov't incentives and subsidies are just icing, not the core, of the investment thesis in tesla investors.
    - gumby 5y ago
      I'm simply addressing the factual assertion in your post. People believed it as it was true.
  - leobg 5y ago
    Even if that had been true, the claim the Tesla loses money on every car they sell implies that they would do better not producing cars at all. This is the kind of story you cling to when you desperately want to believe something. (The bigger question is: Why did these people want to believe that Tesla is a failure? I think the potential answers to that can teach us a lot about psychology, incentive structures, social media and what Nietzsche called The Use And Abuse Of History.)
TaylorAlexander 5y ago
There’s so much news where people read a headline and believe it uncritically. I always thought it was silly that people accused Amazon of being unable to make a profit when they were obviously intentionally investing their would-be profits in to growth. A lot of people don’t really care if what they say is accurate.
- nerdponx 5y ago
  I wonder if the "they aren't profitable" myth is strategically beneficial to promulgate.
- pempem 5y ago
  Those accusations and headlines, I would argue, came from competitors who were unable to find the same trust and leniency from the market and needed to show a profit every earnings call.
tchalla 5y ago
In short, it is difficult to infer and different growth CapEx and maintenance CapEx from financial data.

anonporridge 5y ago

It kind of seems like traditional finance people and investors who spent well over a decade bashing the growth of companies like Amazon have severely over corrected by spewing as much money as they can into any vaguely similar tech company, potentially creating a new investment bubble that's going to crash when a lot of companies fail to ever flip into profitability.

hef19898 5y ago
Worth noting that Amazon had mostly profitable quarters during its entire history. And Amazon was, as far as I remember, always cash positive. Combined with basically growing 20% YoY for decades can justify quite high an evaluation. Amazon is the exception so, not the rule. And not every company prioritizing growth over profits will end up where Amazon is.
missedthecue 5y ago
People always say that wall street bashed Amazon for growth over profits but I don't think that's true. Amazon has always been endowed with a massive earnings and sales ratio. If wall street had been bashing Amazon, you'd think their stock would have been muddling along with low multiple over the past 20 years.
- WalterBright 5y ago
  People also say that Wall Street is obsessed with short term profits. Amazon's stock price indicates otherwise. Ditto for Tesla.
  - hn_throwaway_99 5y ago
    I think that's a mischaracterization. It's not short term profits, it's short term performance. Amazon and Tesla are still evaluated quarter-to-quarter, and if they stumbled in their growth numbers they'd still get killed.
  - oarabbus_ 5y ago
    Hmm, but people also say "the market is forward looking". It's quite clear Wall Street loves growth (over the last decade, at least) and isn't at all obsessed with short-term profits.

xwdv 5y ago

People have a hard on for seeing profit. It’s like they don’t understand the opportunity cost of taking profit means you are not investing in your business to make bigger profit. When I see profit, I see inefficiency. A young business should have zero profit until it can no longer grow.

adventured 5y ago
So with zero profit, operating on a razor line at all times, what's your plan for major acquisitions or severe shock events outside of your control (eg national economic recession)? Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash. If you're not building cash, how do you plan to avoid catastrophic, unnecessary damage to your business structure when a recession hits? Banks hate to lend during recession, and lending gets a lot more expensive when times are bad. And banks generally are horrible alternatives when it comes to capital for acquisitions, unless you're a large corporation. Dependent on venture capital? Another horrible, expensive alternative to profit. You're seeing inefficiency in profit because you're not pricing in everything in the operating life of a business correctly.
- aksss 5y ago
  I think GP is using 'profit' to talk about wealth extraction from the business. Putting surplus cash into an emergency fund, maintaining a cash balance for unforeseen costs, or similar wouldn't be quite the same thing. One way to think about that is that if your company has a financial goal of $X for a cash reserve, the lack of it can be considered a liability, diminishing net profit.
- WalterBright 5y ago
  > Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash. 1. Banks. Their primary customers are businesses. 2. Issuing stock. 3. Getting investment capital from rich people.
castratikron 5y ago
One thing that is not known to everyone and therefore may come as a surprise to some is that corporations (in the US) are taxed on profit, not on income. This is the explanation to the click baity titles like "Amazon paid less tax than you this year!" etc. So any profit a company makes is basically the same as writing a check to the government; more likely, it would be better spent growing the business. Any kind of growth company should have a goal of making close to zero profit.

abbassi 5y ago

For sure a teethless Jackal is a dead Jackal. Capitalism is based on thrive for profit at any cost, even causing crises, wars and genocides.

NicoJuicy 5y ago
Like it or hate it. In historic terms, the world has never been more peaceful since capitalism 2.1
anm89 5y ago
So why hang out on forums run by a venture capital firm?
- skinnymuch 5y ago
  Not defending the OP post itself, but this is close to saying why hang around a capitalist country. There aren’t many options. You have to play the game to survive, or thrive, and have a non stressful life worried about a big bill
  - anm89 5y ago
    I get your point but I disagree. It is hugely difficult to gain new citizenships and residencies. It takes huge amounts of money and effort to overcome these obstacles for most people. Whereas there are a million internet forums and mostly anyone can join any one of them for free. Maybe they don't have the same quality of conversation as here (although quite a few others do) but if the thing he hates (captialism, investment firms, etc) produces a culture where the quality of conversation is so high that nothing else can compete, shouldn't that be it's own signal?
    - skinnymuch 5y ago
      There are very very few non capitalist forums. If you’re heavily against capitalism, non political forums will still normally be pro capitalist to some degree. It’s the society almost every one lives under. Not sure where one would go besides hard left forums which are very few and very far between. And then those places are only political. What if you don’t want to just discuss leftist things That’s why after the country thing I included there aren’t many options. You have to play the game.

danielmarkbruce 5y ago

If you look at their filings (https://www.sec.gov/edgar/browse/?CIK=1018724&owner=exclude https://www.sec.gov/edgar/browse/?CIK=1018724&owner=exclude), the non AWS business is still.. not amazing. The idea that "jeff showed them" is simplistic. They started AWS, competitors sat idle for 5-6 years and they ran away in a giant market. Good for them, but had Google & Microsoft woken up earlier the amazon doubters might be the smug ones at this point. This isn't Jeff bashing because he's obviously a hard working and very smart guy. But it's only obvious in retrospect that Amazon knew what they were doing.

ignoramous 5y ago
> But it's only obvious in retrospect that Amazon knew what they were doing. That's not the impression I get from this Bezos interview in 2000: https://www.youtube-nocookie.com/embed/6OVdcS4fuuw https://www.youtube-nocookie.com/embed/6OVdcS4fuuw
c7DJTLrn 5y ago
They may still have a reason to be smug. Quite a few people are of the opinion that Amazon (excluding Web Services) is on the decline. These days the site is crammed with scammers and shoddy, dangerous products. Customer support is degrading as they do a poor job of automating it away with chatbots. I rarely buy anything besides accessories and hard to get groceries on there anymore.
- oarabbus_ 5y ago
  > Quite a few people are of the opinion that Amazon (excluding Web Services) is on the decline. Based on what, anecdotal evidence from squeaky wheels on the internet? I've heard the same claims, but the 10K and 10Q filings the original commentor linked to suggest the opposite.
  - gruez 5y ago
    Agreed. Public opinion polling shows something similar, eg: https://twitter.com/AlecStapp/status/1410453573100609538 https://twitter.com/AlecStapp/status/1410453573100609538

blobbers 5y ago

This article fails to mention the obvious reason for not taking profit: taxation. Why would any company take a profit when it can invest in it’s own future success and defer taxation? Anyone paying out a dividend is saying that the shareholder is a better capital allocator by the marginal tax rate. Philosophically should companies be allowed to do this? Analogous to similar loop holes where individuals use their own wealth to raise debt for cash and avoid showing paper gains to minimize tax.

WoahNoun 5y ago
The non-taxation side of that argument is that Bezos can invest better than I can and he can leverage those investments more than I can due to the technology that exists within the company,
jollybean 5y ago
"Why would any company take a profit when it can invest in it’s own future " 1) Because it's almost never the opportunity. 'Super High Growth' over a couple decades is a rare thing. Imagine if AMZN had not invented AWS? It would be a different story. 2) The term you are looking for is 'Cost of Capitol'. Which varies between various parties for different situations. If ABC Corp. can't yeild returns past a threshold, investors will want it back to do elsewhere. Think another way: If you had $1M to invest, what are the odds that it makes more sense to invest it in your own business vs. any other business? Why would amazing 'Bet Everything' on AMZN instead of any number of other companies? If a company is making decent profits, and a lot of powerful companies do, then it may be difficult for them to find other ways to get the same return.

Wolfenstein98k 5y ago

Maybe the greatest company of the last 30 years, all said. That doesn't mean perfect, but hard to name a greater company.

DantesKite 5y ago

You'd be surprised how many people this article affected: The idea of re-investing your money into your business and not making a profit isn't an obvious one (as evidence by everyone's criticisms of Amazon at the time). But they took it to heart, immediately applied it to their business, and succeeded massively. Last I checked their net worth is at least $40 million (starting from a few thousand dollars). I'm not saying that's all you need to be successful. It's not so simple. Nothing ever is. But 8 years later, and this essay can stand on its own accord, not just as a historical artifact of its time, but as stellar business advice.

deleted 5y ago
[deleted]

deleted 5y ago

[deleted]

kumarski 5y ago

I wish every person in silicon valley would read this blog post instead of being in the cult of Bezos worship. https://deep-throat-ipo.blogspot.com/2018/05/amazon-walmartchinese-potting-soiland.html https://deep-throat-ipo.blogspot.com/2018/05/amazon-walmartc...

tryauuum 5y ago
maybe you should post it on HN then
specialist 5y ago
Nice. Thanks. I'll have to reread, more slowly. Until then, some quick tidbits. One anecdote that popped out was the correlation of Walmart super centers and crappy towns. Market segmentation via geography vs demographics. "The Twinkie Index" was the first time I heard this notion. Starbucks' real estate and marketing groups had came up with a infographic, contrasting cafe locations and per capita Twinkie consumption, for when people asked "When are you going to finally put a Starbuck in [insert town here]?" Back in the 90s, Walmart's profit sharing (employ stock grants) was a role model. Cited as one of their competitive advantages. (How things change.) I read that what made Walmart possible (feasible) was their early, enthusiastic adoption of bar codes. For comparison, what are (were) Amazon's critical success factors? Lowest cost of capital. Uniquely, was able to sell growth over profits story to Wall St. Superior tax avoidance (eg sales tax holiday). Compensating employees with stocks. It's hard to imagine anyone challenging Amazon while this disparity exists. Amazon Prime, for sure. Brand loyalty, reduced cost of customer acquisition, and all that. I have questions: How did Amazon figure out that programmers are a consumable resource? Cattle instead of pets. From the very beginning, my friends and I marveled at how poorly Amazon treated programmers. Surely, that can't last, right? Whelp. I was totally wrong. And I still don't know why. Why hasn't Walmart's Jet acquisition done better? Is Walmart unable to invest in Jet sufficiently to compete? Did Walmart and Amazon accept and settle into their comparative market segments? (eg Maybe Walmart's demo doesn't buy stuff online as much.) Why hasn't Amazon's eBay-ification, the rise of fraud and counterfeits, harmed them more? Is it because of their "customer obsession" and generous return policies? With comingling and other bullshit strategic decisions, they're promoting fraud vs mitigating it. So weird.