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Amazon's profits

159 points by barista 13y ago

jmduke 13y ago
Benedict's analysis is consistently interesting, as he tends to apply a level of financial rigor often absent from tech journalism/analysis. His stuff for Enders is incredible (though its unfortunate how difficult it is to get ahold of Enders material, as its quality deserves a much more massive audience.)
guard-of-terra 13y ago
Why would you, as a shareholder, want a company to become profitable if it's not going to pay dividend anyway? If anything, shareholders should push tech companies to reinvest every spare cent, assuming it already figured out how to make money to stay afloat. Raking cash and sitting on it is an awful mode: Google and Microsoft grow suboptimally because of this.
- prostoalex 13y ago
  Because cash, even when held in an account without payout, is easier to value than any other asset or investment. It's also a cushion for a down cycle in the global economy.
  - guard-of-terra 13y ago
    Tech companies do not care about up cycles and down cycles. They grow in both. I fail to remember when cash helped struggling tech company. Sun? Yahoo? Who could make better use of cash in the time of struggle than they could in the time of growth and ability? Tech companies do not need to hoard cash. They never die because of lack of cash. They always get murdered by more able competitor or innovation in their field. Thus, preferring to keep cash instead of investing is basically a crime for one. If you cate about assets and cushions, maybe you should invest in your pillow instead?
    - uptown 13y ago
      "They never die because of lack of cash. They always get murdered by more able competitor or innovation in their field." Yet cash allows them to respond to those competitors as necessary. I see Facebook's acquisition of Instagram as both a strategic and defensive move. Strategic because they see photos as the primary focus of what gets shared on their social network. Defensive to prevent Google or Apple or someone else from jump-starting their own social platform. Cash affords a company the ability to be agile when necessary.
      - guard-of-terra 13y ago
        If you respond you're losing already. What you should be doing is innovating, running circles around other companies and make them respond to you by bleeding cash. Having cash is nice, but if you can invest in raw growth makes zero sense not to.
        true_religion 13y ago
        I don't think it is possible to be a "winning" company all the time. If that were so, then only a single winner would be dominating the entire industry.
        prostoalex 13y ago
        By that logic any company with more than one acquisition is a failure. Build vs buy analysis still applies, and "running circles around" could get expensive, as at early stage it's difficult to tell which innovations will pan out and which will fail.
    - prostoalex 13y ago
      Microsoft's online business, for example, struggles, but cash helps to assuage the fears. Same with Yahoo, unimpressive performance and growth overall, sweet cash from Alibaba transaction kept investors excited and allowed them to grow via acquisitions. Apple, for one, negotiates better manufacturing deals due to the wide knowledge of them having a fat checking account http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of-Apples-110-2+-billion-in-cash/answers/612608 http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of... A lot of dealings in the offline world (datacenter leases, procuring manufacturing capacity, loans of credit, bond issuance, contracting suppliers) is easier if you have a fat account to show.
- prewett 13y ago
  As a shareholder, you don't want a dividend IF the company can invest that money at a higher rate of return than you can. Berkshire Hathaway is the textbook example of this: they have not paid a dividend in 40 years, but the book value has grown by about 20% every year (averaged out). I would not say that Google and Microsoft necessarily grow suboptimally because they have a lot of cash sitting around. The current opportunities may not be worth investing in. Berkshire has tons of cash, waiting for a good opportunity. And when it comes, cash gets poured into it.
  - laxatives 13y ago
    I think thats only true if you have a lot of faith in the company. If you were guaranteed greater return on reinvest, of course that would be better. But all you're getting is less (or no) money now and the promise for more money later. If this isn't something your emotionally attached to, it sounds like you're just getting screwed.
josh2600 13y ago
Cool article, but I think the magic profitability button analogy ignores the underlying economic thesis of Amazon. Right now, the only obstacle to Amazon's profitability is Walmart. If Walmart didn't exist, Amazon's pricing control supremacy would ensure they could operate at the lowest possible market price on every item, and as the market maker for product, they would control the cost floor as well. In a sense, the end game for Amazon is this: it's fucking ludicrous to run a company without profit for years. At some point someone else is going to try to take more profits because of the volume pressure of Amazon. The end game for Amazon is choking all of the other retailers out of existence, IMHO. They don't have to flip a switch, they just need to wait. They're playing the long game.
- melvinmt 13y ago
  > They don't have to flip a switch, they just need to wait. They're playing the long game. So.. why is that "fucking ludicrous"? Seems to me they're playing the Long Run Equilibrium game just fine: "In the long run, every competitive firm will earn normal profit, that is, zero profit."
- hcarvalhoalves 13y ago
  I believe you're the one reading the strategy right. The fact they diversify a lot and squeeze revenue out of any by-product (AWS is an example, payments are another) might indicate that.
- tnuc 13y ago
  Amazon is nowhere near the size of Walmart. Bezos doesn't have an end game, he'll just keep driving growth until he gets sick of it. Then they'll get Steve Balmer to make the growth stop :)
  - josh2600 13y ago
    In what market? In cloud infrastructure I think it's safe to say Walmart is actually the smaller contender. Over time cloud infrastructure could subsume all of retail, at least in theory. If that's the case wouldn't you rather own Amazon than Walmart? I'm not implying this is reality, I'm just saying predicting future potential is not as simple as current Market Capitalization might imply otherwise IBM would own the NASDAQ today.
johnrob 13y ago
I think Amazon is simply reinvesting in growth while avoiding corporate income taxes. Since they tend to move into proven industries, they are not likely to lose any of the re-invested money. They are effectively taking profit in the form of Amazon equity (via increased stock price) and not paying any taxes.
- tracker1 13y ago
  I don't have a problem with that... imho corporations should be working to either grow (reinvest or diversify) or payout dividends... I'm pretty opposed to a corporation holding on to vast unused/underused properties and cash reserves. It does nothing for the communities they take hold in, or for the economy at large.
dnautics 13y ago
could someone explain the marxism thing to me? I'm really scratching my head on this. Certainly it's not his labor theory of value. Is it supposed to be an analogy to "From those who can provide to those who need it"??
- leod 13y ago
  It certainly struck me as an odd analogy. There are plenty of theories that are hard to disprove, why choose one as politically loaded as "Marxism"?
  - jfb 13y ago
    Nevermind this, I misread the parent. Yeah, it's a bit odd. Certainly, Popper's black/white swan analogy would've been sufficient.
  - ser0 13y ago
    I think the author was just trying to avoid the other, perhaps more controversial, unfalsifiable analogy, which relates to faith based theories (I don't want to offend anyone either). I agree that the Marxist part at the end disrupts the flow of the article. The article would have been better served if it kept within a financial analysis context.
- deleted 13y ago
  [deleted]
- jlgreco 13y ago
  Karl Popper is most famous for his work in the theory of science; primarily the importance of falsifiability. Apparently he had an issue with Marxism because he felt it wasn't falsifiable. The idea is that it should be possible in theory to prove any good theory wrong. For example, the theory of evolution is a good theory because there are things that we could discover that could prove it wrong (Precambrian rabbits). Marxism is not really what I would pick to talk about Karl Popper and falsifiability... his writings on politics are pretty much a side-act. I am guessing the author was recently reading some of Karl Popper's more political writings. I would have picked psychoanalysis.
codex 13y ago
Amazon doesn't make a profit because the stock market doesn't demand it. As long as a company is growing, it's stock will appreciate. It's only when growth stalls that shareholders will demand that the intrinsic value of the company be realized. This works well for Bezos, who is so obsessed with empire building and the future. So far growth has allowed him to continue this obsession. Even if growth stalls, Bezos is so intent on pursuit of the new that Amazon may not show real profits until he retires, or dies.
jmathai 13y ago
> To put this another way, Amazon is LOTS of different startup ecommerce businesses on one platform. All the profits from the ones that work are spent on new, loss-making ones. Doesn't that describe Google as well? Ads fund most of their initiatives...
- mabbo 13y ago
  While I interned at Google, my manager said to me once "See, at Google, we found a hose that money pours out of. It's name is 'Online Advertising'. We now do two things- improving the flow of the hose, and searching for another hose."
  - dictum 13y ago
    I'd say they've already found another hose: self-driving cars. How they'll get them to market is the question.
    - jfoster 13y ago
      It will be interesting. They could launch several fully-automated business based on autonomous vehicles: taxi, parcel delivery, (B2B) distribution, and probably many more. Other options are for them to license out the technology, or get into vehicle manufacturing, but I think those are far less interesting.
    - apalmer 13y ago
      The 'hose' has to actually produce money. Until such point it isnt a hose.
    - kin3tic 13y ago
      Or you know, a massive index of predictive technology that knows where I'm going and when before I do? Those services and data are more important than any physical product Google will ever release. Because it will power your interactions with their devices. Glass, Watch, Car, all will be powered and interacted with primarily through Google Now. Your Keep notes will becomes TODOs that your car offers to drive you to on your way home. People thinking in hardware products can go hang out with Apple and see how that keeps working out for them.
nnlr 13y ago
simply zero. drawing boring fact but knowing you I have to leave my name on the boar
mintplant 13y ago
I'm a bit uninformed on this, so bear with me here. If Amazon is making no "profit", that still means that its employees are getting paid, right? If the people working there are making money off of the business, what problem exists, exactly? Does it have to do with investor returns?
- valgaze 13y ago
  Check these two ideas out: 1) Bezos said: "Percentage margins are not one of the things we are seeking to optimize. It's the absolute dollar-free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that's something that investors can spend. Investors can't spend percentage margins" (http://blogs.hbr.org/ideacast/2013/01/jeff-bezos-on-leading-for-the.html http://blogs.hbr.org/ideacast/2013/01/jeff-bezos-on-leading-...) 2) Listen to Ruby on Rails' DHH break it all down here @ 44min30sec (he also knocks salesforce) quoting Bezos' line "your margin is my opportunity": http://www.youtube.com/watch?v=jzERXJgi5vQ&t=44m30s http://www.youtube.com/watch?v=jzERXJgi5vQ&t=44m30s
  - barista 13y ago
    Those are some good links. Thanks. He's very savvy guy. Interesting how he chose to conclude the interview which was very clearly targeted towards the "investors" of Amazon as this: "And the reason that I'm doing this interview with you is I want customers to understand what makes us tick, how we operate, what our principles are. I think customers want to know who they're doing business with." smart!
- notatoad 13y ago
  Yes, employees are getting paid. It isn't even investor returns, because amazon's stock price has stayed pretty independent of profits. The only consequence of not turning a profit is that their cash reserves do not grow. Profit is really a pretty meaningless number.
adventured 13y ago
Amazon is clearly capable of generating Walmart or Target range profit margins. In 2010 they earned $1.15b on $34b in sales. That's right on par with Walmart's sales to net income ratio, and I believe Amazon accomplished that without much focus on profitability. The only concern I see about Amazon as a company, is the future stock market returns for the next decade are already baked into the stock. They're currently trading at three times the value of Target (with none of the profit, no dividend, and soon to be comparable sales).
nostromo 13y ago
Of all the big internet giants, I think Amazon will be the hardest to disrupt. Androind could eat away at Apple. Google's search could in theory be disrupted. Facebook seems more vulnerable by the day. Microsoft is a dead man walking. But Amazon has this entire subsystem of distribution centers filled with inventory risk. People focus on the website, but I think the real magic is everything that happens behind the scenes. The barriers to entry are enormous. I once created a comparison shopping service. When we talked with users, we heard over and over, "I just go to Amazon. I trust them. I don't shop around online." Or, "I have Prime, so I'll save money on shipping anyway." It made the entire space seem pointless. An internal Amazon company motto is, "it's still day 1." That's their view -- that it's still the early days of the internet. That's why they reinvest so heavily, because it's still early days.
- godbolev 13y ago
  > Facebook seems more vulnerable by the day. Why would you say that? I'm just curious.
- kin3tic 13y ago
  Android could eat away at Apple? Sometimes I wonder if I live in the same reality as everyone else.
- mgkimsal 13y ago
  An internal Amazon company motto is, "it's still day 1." That's their view -- that it's still the early days of the internet. That's why they reinvest so heavily, because it's still early days. MS people I spoke with as late as the late 90s still considered themselves to be a 'startup' (though not using that term), but were quick to point out that they could get disrupted in any market - they were playing in many fields, but weren't dominant ("yet", in their minds). I think this was perpetuated by the sr mgt in anticipation of the anti-trust trials - 'look, we're not some big monopoly - we're a scrappy startup that could fail/lose big at any time!'. I'm not sure anyone believed it, but also not sure that anyone in the mid 90s might have foreseen a time when MS wasn't a dominant player, but here we are. They're still big, and they matter, in some markets, but very few people are afraid of them any more, or even care what their plans for the future are. People fear Google, Apple, Amazon, etc. MS is, if not totally dead man walking, in grave danger of becoming that without anyone (including their mgt) even noticing.
dev_jim 13y ago
The problem with this whole profit "debate" about Amazon is that most people don't understand that public corporations are not like households or small businesses. Generating a profit is not the same as a person's savings. If a company can reinvest their excess income in new ventures that will drive growth that will increase revenues and thus the stock price. That is a much better use of capital then generating a profit, which is then taxed at 35%, and having either having that cash sit in the bank, buying back stock, or paying it out as a dividend (which then taxes the person receiving the dividend). I'd much prefer a company that has recognized opportunities to invest in then one that inefficiently uses my capital.
- dragonwriter 13y ago
  > If a company can reinvest their excess income in new ventures that will drive growth that will increase revenues and thus the stock price. That is a much better use of capital then generating a profit If a company has excess income to reinvest, that is profit. You can't reinvest profits if you don't have profits to reinvest. > That is a much better use of capital then generating a profit No, actually, its a use of profit (perhaps one that converts it into capital.) And, obviously, you have to generate profit before you can use it for anything.
  - dev_jim 13y ago
    You don't understand how corporate accounting works.
    - reedlaw 13y ago
      I don't understand either. How can reinvesting corporate revenue avoid taxation? Isn't corporate income taxed regardless of whether it's put into the bank or reinvested into new ventures?
      - slykat 13y ago
        If you reinvest your profits into your own business that money usually gets charged as a expense on the income statement so your reported gross profit reduces by that amount and thus, you don't pay taxes on that amount. For example, lets say Company XYZ anticipates making $100M in gross profits but decides to invest $100M in R&D for a new product. Their reported gross profit would be $0M for the year due to the $100M charge.
nazgulnarsil 13y ago
The thesis of this article seems to be that Amazon is capitalism personified in one company.
riggins 13y ago
I'm not sure Amazon will ever make profits. The general thesis is 'they're the low cost provider, they're going to make a ton a profit'. This thesis is one that often leads Wall Street and investors to tears. Because there's another factor that needs to be taken into account: is there going to be a glut of capacity. Here's the classic example. One of the managers of Buffett's textile mills came to Buffett and told him they could invest in a new power loom that would double production for the same cost to run. Buffett's response: that's terrible, none of that will stick to our ribs. Buffett could see that everyone in the industry would increase capacity, there'd be a glut of product, and the industry wouldn't capture the profits. Another classic example: fiber optic. Read a research report from the late 90's on the fiber industry if you can get your hands on one. Lot's of comments on what a great investment Global Crossing would be because 'low cost provider wins'. Of course 'low cost provider' went bankrupt because there was a glut of capacity. So bringing it back to Amazon, is there a glut of capacity? I'd say probably. What's Amazon's fundamental purpose? Matching buyers and sellers (which they do much much better than a mall). A computer basically has infinite capacity to match buyers and sellers. The warehouses are nice but when I look at the forest I question whether the profits are ever going to materialize. I see a glut of capacity and no reason why that would lessen. It's getting easier to start an internet company, not harder. The competition isn't going to cede the field either. They'll continue to put a ceiling on prices until the bitter end.
- saosebastiao 13y ago
  I wouldn't be surprised if Amazon spent more on new fulfillment centers this year than they did on their entire web facing development team for the past three years. Amazon is an internet company in the same way that WalMart is a parking lot company.
  - riggins 13y ago
    if you think its all about fulfillment centers, Walmart has a pretty incredible logistics operation. The big brick and mortar companies have warehouse operations as well. Plus, with Sears and Walmart already using their stores as fulfillment centers its not hard to see that some of that brick and mortar space will get converted to 'fulfillment' centers (I just call them warehouses). So then ask yourself, is warehouse capacity going to be constrained? Or will there be lots of warehouse space and lots of people who can create a web frontend to pair with that warehouse space? Look, I love Amazon, I'm just telling you the 'low cost provider' wins thesis is one that people repeatedly get wrong because the low cost is often due to a technological advance that results in overcapacity in the industry.
vbl 13y ago
They reinvest heavily. It's sad that my interview didn't result in an offer. I really love Amazon.
- bethling 13y ago
  Try again later. Really - each interview loop has different people who look at different things. Just because one set passed on you doesn't mean that another will. If Amazon seems like a place you'd like to work, there's no reason not to try again with a different team.
Tichy 13y ago
The ponzi scheme theory: since apparently Amazon is making a profit it reinvests, it seems to me it could make a "real" profit any day simply by not reinvesting any longer.

159 points by barista 13y ago

Benedict's analysis is consistently interesting, as he tends to apply a level of financial rigor often absent from tech journalism/analysis. His stuff for Enders is incredible (though its unfortunate how difficult it is to get ahold of Enders material, as its quality deserves a much more massive audience.)

guard-of-terra 13y ago

Why would you, as a shareholder, want a company to become profitable if it's not going to pay dividend anyway? If anything, shareholders should push tech companies to reinvest every spare cent, assuming it already figured out how to make money to stay afloat. Raking cash and sitting on it is an awful mode: Google and Microsoft grow suboptimally because of this.

prostoalex 13y ago
Because cash, even when held in an account without payout, is easier to value than any other asset or investment. It's also a cushion for a down cycle in the global economy.
- guard-of-terra 13y ago
  Tech companies do not care about up cycles and down cycles. They grow in both. I fail to remember when cash helped struggling tech company. Sun? Yahoo? Who could make better use of cash in the time of struggle than they could in the time of growth and ability? Tech companies do not need to hoard cash. They never die because of lack of cash. They always get murdered by more able competitor or innovation in their field. Thus, preferring to keep cash instead of investing is basically a crime for one. If you cate about assets and cushions, maybe you should invest in your pillow instead?
  - uptown 13y ago
    "They never die because of lack of cash. They always get murdered by more able competitor or innovation in their field." Yet cash allows them to respond to those competitors as necessary. I see Facebook's acquisition of Instagram as both a strategic and defensive move. Strategic because they see photos as the primary focus of what gets shared on their social network. Defensive to prevent Google or Apple or someone else from jump-starting their own social platform. Cash affords a company the ability to be agile when necessary.
    - guard-of-terra 13y ago
      If you respond you're losing already. What you should be doing is innovating, running circles around other companies and make them respond to you by bleeding cash. Having cash is nice, but if you can invest in raw growth makes zero sense not to.
      - true_religion 13y ago
        I don't think it is possible to be a "winning" company all the time. If that were so, then only a single winner would be dominating the entire industry.
      - prostoalex 13y ago
        By that logic any company with more than one acquisition is a failure. Build vs buy analysis still applies, and "running circles around" could get expensive, as at early stage it's difficult to tell which innovations will pan out and which will fail.
  - prostoalex 13y ago
    Microsoft's online business, for example, struggles, but cash helps to assuage the fears. Same with Yahoo, unimpressive performance and growth overall, sweet cash from Alibaba transaction kept investors excited and allowed them to grow via acquisitions. Apple, for one, negotiates better manufacturing deals due to the wide knowledge of them having a fat checking account http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of-Apples-110-2+-billion-in-cash/answers/612608 http://www.quora.com/Apple-Inc-2/What-would-be-a-good-use-of... A lot of dealings in the offline world (datacenter leases, procuring manufacturing capacity, loans of credit, bond issuance, contracting suppliers) is easier if you have a fat account to show.
prewett 13y ago
As a shareholder, you don't want a dividend IF the company can invest that money at a higher rate of return than you can. Berkshire Hathaway is the textbook example of this: they have not paid a dividend in 40 years, but the book value has grown by about 20% every year (averaged out). I would not say that Google and Microsoft necessarily grow suboptimally because they have a lot of cash sitting around. The current opportunities may not be worth investing in. Berkshire has tons of cash, waiting for a good opportunity. And when it comes, cash gets poured into it.
- laxatives 13y ago
  I think thats only true if you have a lot of faith in the company. If you were guaranteed greater return on reinvest, of course that would be better. But all you're getting is less (or no) money now and the promise for more money later. If this isn't something your emotionally attached to, it sounds like you're just getting screwed.

josh2600 13y ago

Cool article, but I think the magic profitability button analogy ignores the underlying economic thesis of Amazon. Right now, the only obstacle to Amazon's profitability is Walmart. If Walmart didn't exist, Amazon's pricing control supremacy would ensure they could operate at the lowest possible market price on every item, and as the market maker for product, they would control the cost floor as well. In a sense, the end game for Amazon is this: it's fucking ludicrous to run a company without profit for years. At some point someone else is going to try to take more profits because of the volume pressure of Amazon. The end game for Amazon is choking all of the other retailers out of existence, IMHO. They don't have to flip a switch, they just need to wait. They're playing the long game.

melvinmt 13y ago
> They don't have to flip a switch, they just need to wait. They're playing the long game. So.. why is that "fucking ludicrous"? Seems to me they're playing the Long Run Equilibrium game just fine: "In the long run, every competitive firm will earn normal profit, that is, zero profit."
hcarvalhoalves 13y ago
I believe you're the one reading the strategy right. The fact they diversify a lot and squeeze revenue out of any by-product (AWS is an example, payments are another) might indicate that.
tnuc 13y ago
Amazon is nowhere near the size of Walmart. Bezos doesn't have an end game, he'll just keep driving growth until he gets sick of it. Then they'll get Steve Balmer to make the growth stop :)
- josh2600 13y ago
  In what market? In cloud infrastructure I think it's safe to say Walmart is actually the smaller contender. Over time cloud infrastructure could subsume all of retail, at least in theory. If that's the case wouldn't you rather own Amazon than Walmart? I'm not implying this is reality, I'm just saying predicting future potential is not as simple as current Market Capitalization might imply otherwise IBM would own the NASDAQ today.

johnrob 13y ago

I think Amazon is simply reinvesting in growth while avoiding corporate income taxes. Since they tend to move into proven industries, they are not likely to lose any of the re-invested money. They are effectively taking profit in the form of Amazon equity (via increased stock price) and not paying any taxes.

tracker1 13y ago
I don't have a problem with that... imho corporations should be working to either grow (reinvest or diversify) or payout dividends... I'm pretty opposed to a corporation holding on to vast unused/underused properties and cash reserves. It does nothing for the communities they take hold in, or for the economy at large.

dnautics 13y ago

could someone explain the marxism thing to me? I'm really scratching my head on this. Certainly it's not his labor theory of value. Is it supposed to be an analogy to "From those who can provide to those who need it"??

leod 13y ago
It certainly struck me as an odd analogy. There are plenty of theories that are hard to disprove, why choose one as politically loaded as "Marxism"?
- jfb 13y ago
  Nevermind this, I misread the parent. Yeah, it's a bit odd. Certainly, Popper's black/white swan analogy would've been sufficient.
- ser0 13y ago
  I think the author was just trying to avoid the other, perhaps more controversial, unfalsifiable analogy, which relates to faith based theories (I don't want to offend anyone either). I agree that the Marxist part at the end disrupts the flow of the article. The article would have been better served if it kept within a financial analysis context.
deleted 13y ago
[deleted]
jlgreco 13y ago
Karl Popper is most famous for his work in the theory of science; primarily the importance of falsifiability. Apparently he had an issue with Marxism because he felt it wasn't falsifiable. The idea is that it should be possible in theory to prove any good theory wrong. For example, the theory of evolution is a good theory because there are things that we could discover that could prove it wrong (Precambrian rabbits). Marxism is not really what I would pick to talk about Karl Popper and falsifiability... his writings on politics are pretty much a side-act. I am guessing the author was recently reading some of Karl Popper's more political writings. I would have picked psychoanalysis.

codex 13y ago

Amazon doesn't make a profit because the stock market doesn't demand it. As long as a company is growing, it's stock will appreciate. It's only when growth stalls that shareholders will demand that the intrinsic value of the company be realized. This works well for Bezos, who is so obsessed with empire building and the future. So far growth has allowed him to continue this obsession. Even if growth stalls, Bezos is so intent on pursuit of the new that Amazon may not show real profits until he retires, or dies.

jmathai 13y ago

> To put this another way, Amazon is LOTS of different startup ecommerce businesses on one platform. All the profits from the ones that work are spent on new, loss-making ones. Doesn't that describe Google as well? Ads fund most of their initiatives...

mabbo 13y ago
While I interned at Google, my manager said to me once "See, at Google, we found a hose that money pours out of. It's name is 'Online Advertising'. We now do two things- improving the flow of the hose, and searching for another hose."
- dictum 13y ago
  I'd say they've already found another hose: self-driving cars. How they'll get them to market is the question.
  - jfoster 13y ago
    It will be interesting. They could launch several fully-automated business based on autonomous vehicles: taxi, parcel delivery, (B2B) distribution, and probably many more. Other options are for them to license out the technology, or get into vehicle manufacturing, but I think those are far less interesting.
  - apalmer 13y ago
    The 'hose' has to actually produce money. Until such point it isnt a hose.
  - kin3tic 13y ago
    Or you know, a massive index of predictive technology that knows where I'm going and when before I do? Those services and data are more important than any physical product Google will ever release. Because it will power your interactions with their devices. Glass, Watch, Car, all will be powered and interacted with primarily through Google Now. Your Keep notes will becomes TODOs that your car offers to drive you to on your way home. People thinking in hardware products can go hang out with Apple and see how that keeps working out for them.

nnlr 13y ago

simply zero. drawing boring fact but knowing you I have to leave my name on the boar

mintplant 13y ago

I'm a bit uninformed on this, so bear with me here. If Amazon is making no "profit", that still means that its employees are getting paid, right? If the people working there are making money off of the business, what problem exists, exactly? Does it have to do with investor returns?

valgaze 13y ago
Check these two ideas out: 1) Bezos said: "Percentage margins are not one of the things we are seeking to optimize. It's the absolute dollar-free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that's something that investors can spend. Investors can't spend percentage margins" (http://blogs.hbr.org/ideacast/2013/01/jeff-bezos-on-leading-for-the.html http://blogs.hbr.org/ideacast/2013/01/jeff-bezos-on-leading-...) 2) Listen to Ruby on Rails' DHH break it all down here @ 44min30sec (he also knocks salesforce) quoting Bezos' line "your margin is my opportunity": http://www.youtube.com/watch?v=jzERXJgi5vQ&t=44m30s http://www.youtube.com/watch?v=jzERXJgi5vQ&t=44m30s
- barista 13y ago
  Those are some good links. Thanks. He's very savvy guy. Interesting how he chose to conclude the interview which was very clearly targeted towards the "investors" of Amazon as this: "And the reason that I'm doing this interview with you is I want customers to understand what makes us tick, how we operate, what our principles are. I think customers want to know who they're doing business with." smart!
notatoad 13y ago
Yes, employees are getting paid. It isn't even investor returns, because amazon's stock price has stayed pretty independent of profits. The only consequence of not turning a profit is that their cash reserves do not grow. Profit is really a pretty meaningless number.

adventured 13y ago

Amazon is clearly capable of generating Walmart or Target range profit margins. In 2010 they earned $1.15b on $34b in sales. That's right on par with Walmart's sales to net income ratio, and I believe Amazon accomplished that without much focus on profitability. The only concern I see about Amazon as a company, is the future stock market returns for the next decade are already baked into the stock. They're currently trading at three times the value of Target (with none of the profit, no dividend, and soon to be comparable sales).

nostromo 13y ago

Of all the big internet giants, I think Amazon will be the hardest to disrupt. Androind could eat away at Apple. Google's search could in theory be disrupted. Facebook seems more vulnerable by the day. Microsoft is a dead man walking. But Amazon has this entire subsystem of distribution centers filled with inventory risk. People focus on the website, but I think the real magic is everything that happens behind the scenes. The barriers to entry are enormous. I once created a comparison shopping service. When we talked with users, we heard over and over, "I just go to Amazon. I trust them. I don't shop around online." Or, "I have Prime, so I'll save money on shipping anyway." It made the entire space seem pointless. An internal Amazon company motto is, "it's still day 1." That's their view -- that it's still the early days of the internet. That's why they reinvest so heavily, because it's still early days.

godbolev 13y ago
> Facebook seems more vulnerable by the day. Why would you say that? I'm just curious.
kin3tic 13y ago
Android could eat away at Apple? Sometimes I wonder if I live in the same reality as everyone else.
mgkimsal 13y ago
An internal Amazon company motto is, "it's still day 1." That's their view -- that it's still the early days of the internet. That's why they reinvest so heavily, because it's still early days. MS people I spoke with as late as the late 90s still considered themselves to be a 'startup' (though not using that term), but were quick to point out that they could get disrupted in any market - they were playing in many fields, but weren't dominant ("yet", in their minds). I think this was perpetuated by the sr mgt in anticipation of the anti-trust trials - 'look, we're not some big monopoly - we're a scrappy startup that could fail/lose big at any time!'. I'm not sure anyone believed it, but also not sure that anyone in the mid 90s might have foreseen a time when MS wasn't a dominant player, but here we are. They're still big, and they matter, in some markets, but very few people are afraid of them any more, or even care what their plans for the future are. People fear Google, Apple, Amazon, etc. MS is, if not totally dead man walking, in grave danger of becoming that without anyone (including their mgt) even noticing.

dev_jim 13y ago

The problem with this whole profit "debate" about Amazon is that most people don't understand that public corporations are not like households or small businesses. Generating a profit is not the same as a person's savings. If a company can reinvest their excess income in new ventures that will drive growth that will increase revenues and thus the stock price. That is a much better use of capital then generating a profit, which is then taxed at 35%, and having either having that cash sit in the bank, buying back stock, or paying it out as a dividend (which then taxes the person receiving the dividend). I'd much prefer a company that has recognized opportunities to invest in then one that inefficiently uses my capital.

dragonwriter 13y ago
> If a company can reinvest their excess income in new ventures that will drive growth that will increase revenues and thus the stock price. That is a much better use of capital then generating a profit If a company has excess income to reinvest, that is profit. You can't reinvest profits if you don't have profits to reinvest. > That is a much better use of capital then generating a profit No, actually, its a use of profit (perhaps one that converts it into capital.) And, obviously, you have to generate profit before you can use it for anything.
- dev_jim 13y ago
  You don't understand how corporate accounting works.
  - reedlaw 13y ago
    I don't understand either. How can reinvesting corporate revenue avoid taxation? Isn't corporate income taxed regardless of whether it's put into the bank or reinvested into new ventures?
    - slykat 13y ago
      If you reinvest your profits into your own business that money usually gets charged as a expense on the income statement so your reported gross profit reduces by that amount and thus, you don't pay taxes on that amount. For example, lets say Company XYZ anticipates making $100M in gross profits but decides to invest $100M in R&D for a new product. Their reported gross profit would be $0M for the year due to the $100M charge.

nazgulnarsil 13y ago

The thesis of this article seems to be that Amazon is capitalism personified in one company.

riggins 13y ago

I'm not sure Amazon will ever make profits. The general thesis is 'they're the low cost provider, they're going to make a ton a profit'. This thesis is one that often leads Wall Street and investors to tears. Because there's another factor that needs to be taken into account: is there going to be a glut of capacity. Here's the classic example. One of the managers of Buffett's textile mills came to Buffett and told him they could invest in a new power loom that would double production for the same cost to run. Buffett's response: that's terrible, none of that will stick to our ribs. Buffett could see that everyone in the industry would increase capacity, there'd be a glut of product, and the industry wouldn't capture the profits. Another classic example: fiber optic. Read a research report from the late 90's on the fiber industry if you can get your hands on one. Lot's of comments on what a great investment Global Crossing would be because 'low cost provider wins'. Of course 'low cost provider' went bankrupt because there was a glut of capacity. So bringing it back to Amazon, is there a glut of capacity? I'd say probably. What's Amazon's fundamental purpose? Matching buyers and sellers (which they do much much better than a mall). A computer basically has infinite capacity to match buyers and sellers. The warehouses are nice but when I look at the forest I question whether the profits are ever going to materialize. I see a glut of capacity and no reason why that would lessen. It's getting easier to start an internet company, not harder. The competition isn't going to cede the field either. They'll continue to put a ceiling on prices until the bitter end.

saosebastiao 13y ago
I wouldn't be surprised if Amazon spent more on new fulfillment centers this year than they did on their entire web facing development team for the past three years. Amazon is an internet company in the same way that WalMart is a parking lot company.
- riggins 13y ago
  if you think its all about fulfillment centers, Walmart has a pretty incredible logistics operation. The big brick and mortar companies have warehouse operations as well. Plus, with Sears and Walmart already using their stores as fulfillment centers its not hard to see that some of that brick and mortar space will get converted to 'fulfillment' centers (I just call them warehouses). So then ask yourself, is warehouse capacity going to be constrained? Or will there be lots of warehouse space and lots of people who can create a web frontend to pair with that warehouse space? Look, I love Amazon, I'm just telling you the 'low cost provider' wins thesis is one that people repeatedly get wrong because the low cost is often due to a technological advance that results in overcapacity in the industry.

vbl 13y ago

They reinvest heavily. It's sad that my interview didn't result in an offer. I really love Amazon.

bethling 13y ago
Try again later. Really - each interview loop has different people who look at different things. Just because one set passed on you doesn't mean that another will. If Amazon seems like a place you'd like to work, there's no reason not to try again with a different team.

Tichy 13y ago

The ponzi scheme theory: since apparently Amazon is making a profit it reinvests, it seems to me it could make a "real" profit any day simply by not reinvesting any longer.