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Even if their retail business only broke even on a unit basis, they can still make a killing on advertising. $9 billion this quarter!

gordon_freeman 5y ago
Also retail helps them sell more and more Prime subscriptions which would definitely continue to add to recurring rev/profits in the long term.
- legitster 5y ago
  Prime memberships are not included in their AWS figures. So any revenue generated there within is only helping offset some of the retail losses.
time_to_smile 5y ago
I'm endlessly surprised that no one seems to question the insanity that advertising can be the major source of revenue for so many company. Advertising, by its nature, derives it's value from the sale of other goods. It should be concerning that more and more companies, major household names, make their money off of advertising. It fundamentally doesn't make sense. How much of advertising revenue comes from companies that themselves ultimately don't make a profit? So much of our current economy is an illusion created by shuffling around huge amounts of investor capital to make it look like there is money flowing everywhere.
- tmule 5y ago
  This is a good point. But I wonder if what’s being eaten into are non-digital sales budgets. Much of the action is just moving online.
- nwiswell 5y ago
  Certain industries have always had bigger profit margins than others. Turns out that advertising is inherently more scarce than consumer goods; while you can manufacture as many consumer goods as the market will absorb, you cannot just manufacture more human attention. Instead you must compete for the limited pool of attention that already exists, and established players like Google and Facebook control vast amounts of attention without much effort. This supports a huge differential between the "cost" of serving an ad and its market value, whereas if you're charging $500 for a toaster somebody else will be selling them for $400 by the end of the month. As for the huge sums of money: it's just a cost of doing business. As long as the manufacturers have still have nonzero profit margins, and as long as advertising delivers as much value as it costs, it's a stable equilibrium. Damodaran keeps a table of industries by net margin: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...
- xwdv 5y ago
  Whether ads work or not is irrelevant. The ads must flow.
  - missedthecue 5y ago
    oh they work. Tell you what, let's each launch mobile apps. I'll spend $10,000 a month on advertising and you spend $0. At the end of the year we'll see who has more users.
- WalterBright 5y ago
  > Advertising, by its nature, derives it's value from the sale of other goods. You could say the same thing with about every other expense of running a business.
- TeeWEE 5y ago
  More and more companies go online, try to get customers. So they all spend money on getting customers buying their product. Even if the ads costs 50% of their profits.. That's ok. So, big advertisers like Google and FB make money off almost ANY company that becomes successful trough ads. The funny thing is: If there are competitors then google or FB is making even more money, because they are all bidding for the add-spot. And google is walking away with the money. And, yeah, some companies lose money to try to push the competitors out of market. Through ads.
- yazaddaruvala 5y ago
  Advertising is all about eyeballs and ears. The biggest advertisers have always been household names. e.g. Any television channel (e.g. BBC, CNN, ESPN, MSNBC, SiFi), any newspaper/magazine (NYT, Life, etc), all of radio, every storefront and its flyers (e.g. Safeway, Wallgreens, Costco). These are all directly or indirectly advertising companies that have been household names for the last 100+ years. The only difference now is (unlike for billboards), digital real-estate is very cheap and can be owned by a single conglomerate, rather than a decentralized group of capital holders.

gordon_freeman 5y ago

Also retail helps them sell more and more Prime subscriptions which would definitely continue to add to recurring rev/profits in the long term.

legitster 5y ago
Prime memberships are not included in their AWS figures. So any revenue generated there within is only helping offset some of the retail losses.

time_to_smile 5y ago

I'm endlessly surprised that no one seems to question the insanity that advertising can be the major source of revenue for so many company. Advertising, by its nature, derives it's value from the sale of other goods. It should be concerning that more and more companies, major household names, make their money off of advertising. It fundamentally doesn't make sense. How much of advertising revenue comes from companies that themselves ultimately don't make a profit? So much of our current economy is an illusion created by shuffling around huge amounts of investor capital to make it look like there is money flowing everywhere.

tmule 5y ago
This is a good point. But I wonder if what’s being eaten into are non-digital sales budgets. Much of the action is just moving online.
nwiswell 5y ago
Certain industries have always had bigger profit margins than others. Turns out that advertising is inherently more scarce than consumer goods; while you can manufacture as many consumer goods as the market will absorb, you cannot just manufacture more human attention. Instead you must compete for the limited pool of attention that already exists, and established players like Google and Facebook control vast amounts of attention without much effort. This supports a huge differential between the "cost" of serving an ad and its market value, whereas if you're charging $500 for a toaster somebody else will be selling them for $400 by the end of the month. As for the huge sums of money: it's just a cost of doing business. As long as the manufacturers have still have nonzero profit margins, and as long as advertising delivers as much value as it costs, it's a stable equilibrium. Damodaran keeps a table of industries by net margin: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...
xwdv 5y ago
Whether ads work or not is irrelevant. The ads must flow.
- missedthecue 5y ago
  oh they work. Tell you what, let's each launch mobile apps. I'll spend $10,000 a month on advertising and you spend $0. At the end of the year we'll see who has more users.
WalterBright 5y ago
> Advertising, by its nature, derives it's value from the sale of other goods. You could say the same thing with about every other expense of running a business.
TeeWEE 5y ago
More and more companies go online, try to get customers. So they all spend money on getting customers buying their product. Even if the ads costs 50% of their profits.. That's ok. So, big advertisers like Google and FB make money off almost ANY company that becomes successful trough ads. The funny thing is: If there are competitors then google or FB is making even more money, because they are all bidding for the add-spot. And google is walking away with the money. And, yeah, some companies lose money to try to push the competitors out of market. Through ads.
yazaddaruvala 5y ago
Advertising is all about eyeballs and ears. The biggest advertisers have always been household names. e.g. Any television channel (e.g. BBC, CNN, ESPN, MSNBC, SiFi), any newspaper/magazine (NYT, Life, etc), all of radio, every storefront and its flyers (e.g. Safeway, Wallgreens, Costco). These are all directly or indirectly advertising companies that have been household names for the last 100+ years. The only difference now is (unlike for billboards), digital real-estate is very cheap and can be owned by a single conglomerate, rather than a decentralized group of capital holders.