Of all the big internet giants, I think Amazon will be the hardest to disrupt.<p>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.<p>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.<p>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.<p>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.
Cool article, but I think the magic profitability button analogy ignores the underlying economic thesis of Amazon.<p>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.<p>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.<p>They don't have to flip a switch, they just need to wait. They're playing the long game.
Why would you, as a shareholder, want a company to become profitable if it's not going to pay dividend anyway?<p>If anything, shareholders should push tech companies to reinvest every spare cent, assuming it already figured out how to make money to stay afloat.<p>Raking cash and sitting on it is an awful mode: Google and Microsoft grow suboptimally because of this.
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.<p>They are effectively taking profit in the form of Amazon equity (via increased stock price) and not paying any taxes.
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 <i>Enders</i> is incredible (though its unfortunate how difficult it is to get ahold of Enders material, as its quality deserves a much more massive audience.)
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.<p>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).
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.
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.<p>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.
I'm not sure Amazon will ever make profits.<p>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.<p>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.<p>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.<p>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.
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?
> 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.<p>Doesn't that describe Google as well? Ads fund most of their initiatives...
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"??
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.