Why Amazon Is Profitless Only By Choice

An anonymous reader writes "Eugene Wei, a former employee at Amazon and Hulu, explains why Amazon continues to post quarterly earnings statements with lots of revenue but no actual profit. Many of Amazon's retail businesses and platforms are quite profitable by themselves, Wei says, a fact that is hidden by large expenditures on investment for the future. He writes, 'If Amazon has so many businesses that do make a profit, then why is it still showing quarterly losses, and why has even free cash flow decreased in recent years? Because Amazon has boundless ambition. It wants to eat global retail. This is one area where the press and pundits accept Amazon's statements at face value. Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford. ... I'm convinced Amazon could easily turn a quarterly profit now. Many times in its history, it could have been content to stop investing in new product lines, new fulfillment centers, new countries. The fixed cost base would flatten out, its sales would continue growing for some period of time and then flatten out, and it would harvest some annuity of profits. Even the first year I joined Amazon in 1997, when it was just a domestic book business, it could have been content to rest on its laurels. But Jeff is not wired that way. There are very few people in technology and business who are what I'd call apex predators. Jeff is one of them, the most patient and intelligent one I've met in my life.'"

Comments

"apex predators"

[Anonymous Coward]

In the moral confusion promoted by global capitalism, "apex predator" became a term of approval - even among the prey.

Re:"apex predators"

[Anonymous Coward]

I always read it as "total psychopath".

Re:"apex predators"

[Swampash]

Apex predators are an essential part of any ecosystem. When apex predators start failing that means the ecosystem is failing.

So it's basically just another metaphor that doesn't work for business. When a Great White Shark dies, that's bad for the ocean. When a Sumatran Tiger dies, that's bad for the jungle. When a sociopathic CEO fails, I don't give a shit.

Re:"apex predators"

[bsolar]

Apex predators are "essential" in the sense that spontaneusly emerge in ecosystems. When apex predators starts failing it's bad only for the current equilibrium of the ecosystem, which will be replaced by a new equilibrium (not necessarly worse than the previous) in which there will be most likely another apex predator. Actually exactly the same applies in business.

Re:"apex predators"

[__aaltlg1547]

Apex predators are an essential part of any ecosystem. When apex predators start failing that means the ecosystem is failing.

So it's basically just another metaphor that doesn't work for business. When a Great White Shark dies, that's bad for the ocean. When a Sumatran Tiger dies, that's bad for the jungle. When a sociopathic CEO fails, I don't give a shit.

Another way it doesn't apply is that the thing that is essential to the predator's survival is an animal that is totally destroyed when so used. Jeff Bezos is a businessman. The thing his business survives on is the fact that customers come to him with their business. He makes a margin on that business. the customer survives the transaction.

It is very un-predatory behavior.

Viewed at another level, you might say that his company is trying to take revenue away from competitors, and has an ambition to take all their business and thereby destroy them. Well fine, but that's not like what a predator does either. A predator tries to get its prey, but then it fills its belly and is satisfied and doesn't hunt for a while. It doesn't constantly invest energy in trying to expand its food supply. In fact, it invests no energy in that, beyond chasing competitors out of its territory. It never tries to increase its territory beyond what it needs to keep its belly full and its belly is not infinitely expansible.

So let's dispense with the bad metaphor. The behavior isn't predatory.

It's a distinctly human behavior: empire building.

Re:"apex predators"

[dcollins]

"It's a distinctly human behavior: empire building."

This metaphor is no better. An empire is a bunch of kingdoms or geographic entities forged together into one institution. If Amazon were buying up/taking over existing brick-and-mortar stores, then empire-building would be a pretty good metaphor. But it's not -- it's consuming their custom and destroying those businesses entirely. So in that regard the predation metaphor is really better.

Re:"apex predators"

[Anonymous Coward]

Another way it doesn't apply is that the thing that is essential to the predator's survival is an animal that is totally destroyed when so used. Jeff Bezos is a businessman. The thing his business survives on is the fact that customers come to him with their business. He makes a margin on that business. the customer survives the transaction.

The predatory metaphor is not in relation to the customers. It is in relation to other businesses. The atoms in the prey animals survive just fine too, but we still call predators predators. Not that I necessarily think it's a very useful metaphor, but if it's a bad one, that's not because of the reason that you point out.

Re: "apex predators"

[Anonymous Coward]

You are of course correct. However, evolution is a poor model to emulate in our corporate management. A recent example is the banking industry, pure evolution and Darwinism for companies is fine if you're prepared for global economic collapse their 'drives" might create. I prefer to liken capitalism to fire, something useful when carefully regulated and carefully tended and watched. As a species we should use our intelligence to avoid the Darwinistic penalty for mistakes.

Re:"apex predators"

[Impy the Impiuos Imp]

In the moral confusion promoted by global capitalism, "apex predator" became a term of approval - even among the prey.

It should be -- he's a visionary seeing where things are going and is making it happen. In this sense, capitalism is doing its proper, beneficial job: providing better, cheaper, more convenient services and products.

People will find other things to do -- they always have. 150 years ago, if you had said only 2% of the population would be working farms instead of over 90, politicians would scream, "what the hell, what are they all gonna do, starve?". Yet populations skyrocketted as did health and food continued getting cheaper.

These same assholes now provide government price supports to keep it from getting too cheap -- apparently the remaining 2% is just right, and 1.5% or 1% is wrong.

These idiotic meme-virus ideas of propriety should be laughed at instead of giving controlling influence.

Re:"apex predators"

[Anonymous Coward]

But it's not -- it's consuming their custom and destroying those businesses entirely.

Except Amazon can't consume anyone's business. A customer decides where to spend money.

By that virtue, I propose the metaphor of: Brick and mortar stores are too busy making out with their Monroebots to adjust to an ever-changing marketplace.

DON'T. DATE. ROBOTS.

Re:"apex predators"

[StripedCow]

So let's dispense with the bad metaphor. The behavior isn't predatory.

Let me formulate it in this way then (sticking to biology):
Capitalism is analogous to evolution (survival of the fittest).
In this respect, the monopolist is analogous to humans (the species that conquers them all).

So, according to this reasoning, what Amazon is doing is completely "natural". (Not that I'm in favor of it).

Re:"apex predators"

[AK Marc]

Power is unstable. When everyone is equal (Animal Farm the day after the uprising, or 100 equal businesses), there is a power vacuum at the top. When one gets ahead, as one always will, for a variety of reasons, and the moment you have someone with any more power than the others, they will work to increase that gap. That's the "natural" way. People don't try to equal their peers, they try to dominate them. "All animals are equal, but some animals are more equal than others" Or the monopolistic practices all near-monopolies engage in.

Monopolistic abuse is the natural state, and why we have laws against it, to help balance against monopolistic abuses.

Re:"apex predators"

[93 Escort Wagon]

The guy picked the term "apex predator" not because it fit, but because it sounded cool.

Hopefully Bezos took a shower before this guy decided to so thoroughly kiss his ass.

Re:"apex predators"

[Sardaukar86]

The great whites get the shit out of there when Orcas are around. Doesn't qualify as apex.

That has nothing to do with predation; the great white and the orca are both apex predators and will naturally compete (sometimes directly, as you point out) for prey.

A large part of the definition for the term 'Apex Predator' is about no other creature considering an apex predator its prey.

Re:"apex predators"

[_UnderTow_]

150 years ago, ....

...These same assholes ...

Well to be fair, I doubt they're the exact same assholes.

Re:"apex predators"

[PlusFiveTroll]

>Except Amazon can't consume anyone's business. A customer decides where to spend money.

Yea. You don't understand how 'huge' business works.

Once you're big enough you can afford lobbying solely in your favor. With size you can use the 'walmart effect' by buying so much production the manufactures are more dependent on your then the smaller shops. When it comes down to it, the most powerful influence of consumers is price. If you have a huge enough amount of capitol you can find ways to sell your product cheaper then cost while remaining legal.

Re:"apex predators"

[PlusFiveTroll]

I like how you conveniently forgot about the great depression and the reason why we have price supports, oh and the reasons we supply social welfare. They almost did starve. There were riots and deaths on the capitol steps. Lets not do that again.

Re:"apex predators"

[game kid]

...and that is why you don't call business an "ecosystem".

Another one that has turned evil

[gweihir]

For anybody that disagrees: The holy grail of capitalism, the "market" only works if there is competition. Amazon is aiming squarely at a monopoly and that is the most evil construct capitalism knows as it negates all positive effects that capitalism can have.

Re:Another one that has turned evil

[EmagGeek]

Last I checked I could buy things online from thousands and thousands of different online retailers.

That sounds an awful lot like competition to me (and there are browser addons that automatically search competitive online retailers for items you're looking at).

Re:Another one that has turned evil

[wisnoskij]

It is hard to hate someone who provides such a great service.

And I do not see any Monopoly like actions, like MS has done in the past. just peerless competition.

I have not seen them stifling other competing services, just competing and winning against retail. It is not their fault that retail does not seem willing to change to compete, and that no one is decent launching Amazon-like services.

It is like Steam, sure they have a monopoly, but it is not their fault.

Re:Another one that has turned evil

[pikine]

Trying to be the monopoly of the everything store is very difficult. Jeff Bezos likes to play the predatory strategy where price is lowered to a loss in order to drive competitor out of market. But you can't do that to every market simultaneously all the times, and given enough incentive, someone will always figure out how to enter the market by adding more value. Amazon will eventually crumble under its own weight if it continues down that strategy.

A good strategy is to deliver exceptional value in a market, but you can only do that if you focus on only a few things.

Re:Another one that has turned evil

[Anonymous Coward]

It is hard to hate someone who provides such a great service.

This. Amazon has changed business for the better. When I was a kid anything bought via phone or mail was "allow 4 to 6 weeks for delivery". Only with Amazon did this finally change to 2 or 3 days. Now Amazon is investing heavily to provide same day delivery. What a gigantic difference. Others now provide delivery this quickly but only because they can't compete with Amazon otherwise.

So far Amazon has been a great example of Capitalism's good points (except for maybe refusing to collect state sales tax until recently). I'm surprised to see all this hate.

Re:Another one that has turned evil

[houghi]

The problem is that nobody can become competition, unless you have enough money already.
Competition is always explained with a 19th century business model in mind where you talk about many bakeries in a city that will keep prices down.

This is true if there are several parameters true.
1) There is competition to start with and/or it is easy to start a new competitor. e.g. I can start making bread myself and start selling it.
Reinheitsgebot in Germany was a law to prevent competition, not just high quality beer.
2) You talk about only a minority of items. So not the whole chain from beginning till end and no crossover products.
4) You need to have a big enough sample of competitions to prevent price fixing between competitors. When you have only a few competitors, they will devide the market into shares without any real incentive to rock the boat, thus no need of lowering the prices anymore.

When your customer base a a few hundred or a few thousand people in a city, you can easily say that having say 10 or 100 bakeries for bread is enough to keep the competition going.

When your customer base is 1.000.000.000+ people, having 10 companies means in reality not having real competition.

I agree that it is not their fault (other than trying to be a monopoly is almost naturally for a company.) that does not make it right nor should it stop people from preventing this from happening.

That however needs government rules and the people who pay the government are not willing to let that happen.

One of the advantages of being a monopoly is that during the race towards the moment that they are a monopoly, you pay less. The moment it becomes a monopoly, not only will they be able to dictate the price (and that still might be low) they also dictate the product. So perhaps YOU are interested in price, I might be interested in other things.

Look at the ISPs that are unwilling to invest in faster Internet for over a long period of time. Google will take over, because what they are interested in is selling your data and the more data you give them, the more they can sell.

Having not enough competition will slow down innovation. And when I think of competition on a global scale, I imagine hundreds if not thousands of companies that I should be able to choose from.

If that comes at a slightly higher price overall, I am gladly willing to pay for that.

Re:Another one that has turned evil

[XcepticZP]

If that comes at a slightly higher price overall, I am gladly willing to pay for that.

You might be, and you even might be in a position to do so. However, the vast majority of people out there are not willing to pay a higher price for their morals. The truth of the matter is that Amazon is doing exactly what people want it to do. Because most people aim squarely for a smaller price on the items they buy. I'd take a guess and say that that is predominately due to the consumer mindset that we as a society have been forced into breeding. Just listen to some of the leading Fed economists and how they talk about "boosting" "consumer spending" all the time. This is not a free market, it is not a natural market, and you can't blame a profit-seeking entity for trying to exploit it in whatever way they can. Instead, look at cause of such behavior.

Re:Another one that has turned evil

[MightyYar]

Do you pay taxes that you don't have to?

Re:Another one that has turned evil

[srichard25]

You don't see any Monopoly like actions yet from Amazon because they are not truly a Monopoly yet. When MS was battling neck-and-neck with Apple, they were generally seen in a pretty positive light. It wasn't until they had destroyed all competition that they started abusing their monopoly status. I predict the same thing with Amazon. After Amazon has destroyed most of the local stores and there is no other alternative but to shop with them, will they still provide the same great service for the same low prices? History says that this is not likely.

Re:Another one that has turned evil

[gtall]

Microsoft.

Re:Another one that has turned evil

[gweihir]

The current state is not a problem and in fact is good. But if the article describes their end-game accurately, this "good period" will be limited and followed by utter evil.

Re:Another one that has turned evil

[dryeo]

Most people do because it costs more to avoid paying those taxes. I could run purple gas in my lawn mower saving a couple of bucks a year but the hassle and cost to go get the purple gas makes it not worth it.
If I was running a turf farm and used hundreds of gallons of gas a year then it would be worth using purple gas.
I could also create a bunch of corporations in various countries and save a few dollars in taxes but once again the hassle and cost out weigh simply paying the tax. If I was much richer then the tax savings of multiple corporations would be cost effective.

Re:Another one that has turned evil

[Anonymous Coward]

When I was a kid anything bought via phone or mail was "allow 4 to 6 weeks for delivery". Only with Amazon did this finally change to 2 or 3 days.

How much of this is Amazon and how much of this is UPS and FedEx modernizing their services with the advent of newer technology? Amazon doesn't actually deliver anything, though they've made great strides in minimizing the time spent preparing the order. They certainly have a symbiotic relationship with shippers and the two have worked together to streamline the process, but a good bit of that 4-6 weeks was spent in transit, and eliminating much of that time is none of Amazon's doing.

Re:Another one that has turned evil

[AlphaWolf_HK]

It's fine and all to bash amazon for not collecting sales tax until you actually look at the stupidly high sales taxes some states have. Where I live it is 9.1%. It's annoying as hell when, for example, you buy a new laptop and have to pay an extra $100 above the asking price. We still pay income taxes and real estate taxes, in addition to taxes on vehicle registration. We also pay the highest taxes of any state for having cell phone service.

Re:Another one that has turned evil

[Tom]

You have capitalism and free market theory confused. They have things in common, but they aren't the same.

Capitalism will always tend towards monopoly, because capitalism is about profit and monopoly rent is where the real profits are.

For the free market, a monopoly is a death spell.

But you can have a free market without capitalism, and capitalism withou a free market. It just happens that the synergies between them are such that you generally meet them together. But they don't have to, and that's why capitalists trying to abolish the free market in favour of private monopoly profits isn't a contradiction.

Re:Another one that has turned evil

[93 Escort Wagon]

Amazon has changed business for the better. When I was a kid anything bought via phone or mail was "allow 4 to 6 weeks for delivery". Only with Amazon did this finally change to 2 or 3 days.

This is incorrect. FedEx and UPS offered overnight service in the 1970s and 1980s. LL Bean (to pick just one example) used to offer free two day shipping on their catalog orders.

Let's not rewrite history. If anything, credit for this should go to the shipping companies that saw a huge hole and filled it.

Re:Another one that has turned evil

[turbidostato]

" The truth of the matter is that Amazon is doing exactly what people want it to do. Because most people aim squarely for a smaller price on the items they buy."

Absolutly wrong.

At least for the moment, what Amazon really brings is catalogue. While a reasonable price, that's not the main of it, but the fact that I gain access to products all over the world I otherwise wouldn't even know they exist.

And Amazon is not going for low prices if at all possible. An anecdotal example: I just bought a (quite expensive) fry pan. First, I couldn't find it in any local retailer, so that's what I most valued from Amazon, not the price. Second, I, just out of curiosity, looked for the same item at Amazon Italy instead on Spain, where I live in. Surprise! in Italy was like 40% cheaper. A second item was much cheaper in USA, even taking taxes into account: surprise! that item "couldn't" be sent to my country -but I was able to buy it at Amazon Spain at a much higher price.

Oh! and the fact that there are already web sites tracking prices on different subsidiaries of Amazon, as I discovered later, probes my anecdote is not just an anecdote but ongoing business.

Amazon is mangling prices as much as anyone else.

Two words

[Anonymous Coward]

Tax avoidance

Re:Two words

[CastrTroy]

Exactly. It makes very little sense for a business to post profits. Personally, I'd rather have a business hire more workers than pay money to the government (workers pay taxes anyway). Even if they aren't hiring people directly, they're usually using the money to create some kind of economic activity which will mean more jobs in some other company. If they post profits, it just means money is sitting in the bank doing nothing, while some of it is going to the government. If the government was smart, they'd tax revenues, and companies would have to figure out how to work the amount of taxes paid into their cost structure. Too bad human citizens can't just pay taxes on profits. I'd love to only pay taxes on money left in my account at the end of the year, regardless of what I chose to spend it on.

"Apex Predators" need to be put down

[gweihir]

They are a massive danger to society, as the basically consume everything, build monopolies, restrict choice, destroy the market. They are also fundamentally stupid, as they are unable to even perceive the massive damage they are doing.

Basically, the only thing these people can do is build empires. One of the best known fact about empires is that they all collapse sooner or later. The larger they are, the worse the damage when they collapse as they will have killed anything that could take over when they are gone. Any admiration for these people is completely misplaced. They are not part of anything good, they are part of the problem.

Re:"Apex Predators" need to be put down

[drinkypoo]

The good news is that Amazon is highly distributed, and what they operate (fulfillment centers) are in significant demand. If Amazon goes away, its assets can be sold to a variety of buyers and still be highly useful.

Simplified version.

[will_die]

The author is upset because Amazon has expanded beyond selling just books and invested earnings into expansion instead of giving back to the investors.

Re:Simplified version.

[RawsonDR]

The author is upset because Amazon has expanded beyond selling just books and invested earnings into expansion instead of giving back to the investors.

Somehow you distilled the article down into something that it's not. Where does he come across as upset? He isn't even critical of Amazon.

The author gives a seemingly simple explanation as to how Amazon conducts its business differently than everyone else. This apparently is unique enough that it garners lots of wild speculation by other observers and financial analysts, many of the same reactions I'm seeing in the comments here. (My) Simplified version:

• Amazon happily accepts a lower average margin of profit than other companies would. A small subset of its products showcase this to an extreme, but they are the exception.
• The profit it does see, it uncompromisingly reinvests back into itself.

The above concepts are not unfamiliar in the least - any business that wanted to get ahead by being more efficient than the competition started by doing this first. You forgo the low hanging fruit to lift your business into a bigger marketshare, and reap the rewards at that level. The small but significant difference, in my opinion, is that Jeff Bezos does this on autopilot.. it's a mentality instead of a tactic, almost a philosophy. It is a tiny difference in human psychology, which amounts to a profoundly different company than would exist otherwise.

But the rest of us need an appropriate speculative explanation. It's this speculation to which the author is responding.

Apex predators.

[serviscope_minor]

People love to seem themelves as some sort of lion (apex predators, but sometimes killed by buffalo) or hawk or something. Excluding humans as predators, since humans will literally eat anything that moves, apparently no matter how toxic or dangerous, apex predators include a lot of things.

For example whale sharks which are huge, slow moving an harmless to anything larger than plankton.

Electric eels which while cool are small and live in muddy water has gills that don't work in water and eats small invertebrates.

The black backed gull which basically is a honking great seagull and about as annoying.

In Austrailia, cane toads are apex predators too. Too toxic to eat.

The small and exceptionally pretty poison frogs are apex predators too. Again, far too toxic to eat.

Murray Cod. Requires no further explanation.

And so on. Apex predators include more than just fast moving birds and large felines.

Re:Apex predators.

[ductonius]

Murray Cod. Requires no further explanation.

Bill Murray Cod. Requires further explanation, but it's hilarious.

The problem being...

[Anonymous Coward]

Amazon opting to be flat, effectively at 0% margin, is a game other businesses don't have the will to do, and Amazon doesn't have the will to do so indefinitely. The idea is to endure long enough to starve out competitors until monopoly acheived. At that point, rather obscene profit can be reaped. This is critical because much of Amazon's businesses is very intensive in up front investment to get logistics or infrastructure going. Competitors currently can compete because the logistics and infrastructure they built is already there. If competitors are forced out over time, it's really hard for a *new* competitor to emerge.

I've seen it discussed in hosting versus EC2. While companies can operate cheaper or as cheap as EC2, they don't see money at that scale. I've seen at least one company talk very seriously about starting to close down hosting and reclaim investment in datacenter footprint since EC2 has made it impossible to profit. Once that move has been made, this company is unlikely to ever get back into the game again because it would mean having to build up a lot of expensive infrastructure with low likelihood of long term payoff.

Re:The problem being...

[Anonymous Coward]

A company does not need to pay out dividends to be a good investment.

For institutional investors that can direct policy at a company because they have enough shares to have enough votes and/or seats on the board, I would agree with you.

For individual investors looking to buy 10, 100, or even 1000 shares: that's delusional. Small-scale investors pretty much require dividend payments for a stock to be a good investment, otherwise you are simply speculating (read: gambling) that the institutional investors are going to increase the value of your tiny ownership stake. I highly recommend reading Benjamin Graham before you toss your principal into the winds of non-dividend-paying equities.

Re:The problem being...

[WaywardGeek]

I think it's dumb every time I hear we need to lower big business taxes to foster innovation and create jobs. Tech companies produce tons of high paying jobs, make investors rich, and often don't pay a dime in taxes, instead investing in growth, creating even more jobs.

As a public company, producing profits sucks to some extent. You have to pay taxes, investors ask for dividends or stock buy-backs, and you lose control over investing in growth as investors become addicted to taking your profits instead of letting you grow. Just look at Dell, for example. There are good reasons to take a company private. Among them is to gain the ability to spend your profits on improving the company rather than having investors leech off you.

Re:The problem being...

[bitt3n]

Amazon opting to be flat, effectively at 0% margin, is a game other businesses don't have the will to do

This is baffling to me. Why doesn't Walmart compete with Amazon? Walmart has the cash to fight it out with them, and they certainly have the incentive, but it seems like they're getting beaten badly. Their site sucks relative to Amazon's. If it were just a question of a relentless desire to expand and dominate, it seems like there would be more competition between them. Is it really just a question of taxation? Does Walmart compete effectually in states where Amazon gets taxed?

Re:The problem being...

[Jah-Wren Ryel]

Funny you should mention that:

To Catch Up, Walmart Moves to Amazon Turf

October 19, 2013
" The country's largest retailer, which for years didn't blink at would-be competitors, is now under such a threat from Amazon that it is frantically playing catch-up by learning the technology business, including starting @WalmartLabs at Walmart Global E-Commerce, its dot-com division.

The two retail behemoths, one the king of the physical store and the other the conqueror of the online world, are battling over e-commerce -- competing for the most talented engineers, trying to gain the upper hand in the new frontier of same-day delivery and warring over online pricing. "

Probably paywalled, but the NY Times paywall is like swiss cheese.

Re:The problem being...

[swillden]

Amazon opting to be flat, effectively at 0% margin

No, Amazon is not operating at 0% margin. Amazon is generating healthy profits from its business. But it is choosing to reinvest those profits rather than either pay them out as dividends or pile them up in the bank.

The idea is to endure long enough to starve out competitors until monopoly acheived. At that point, rather obscene profit can be reaped.

Since the basis of your argument is factually incorrect, there's really no reason to go into this, but I want to. Your conclusion "At that point, rather obscene profit can be reaped" is a common assertion of predatory pricing theories... but one that doesn't really seem to actually exist. In the last few decades courts have added a test for predation that requires that there be a realistic prospect of recouping the losses due to predatory pricing in the ensuing period of monopoly rents. After courts adopted that test, no antitrust litigation based on a predation theory has succeeded, because it's extremely hard for anyone to rationally believe that losses will be recouped.

Why? Two reasons.

First, predatory pricing is ruinously expensive. Far more so for the would-be monopolist than its targets. This is because in order for a company to be in position to execute such a play it must already own most of the market, which means that the net effect of the below-cost prices it sets get multiplied by the volume it already does, plus the new share that it acquires from its targets.

Second, assuming the monopolist does manage to drive out all competition, and begins charging obscene prices, it becomes not only possible but very profitable for competitors to enter (or re-enter) the market. Actually, because of this, if the competitors have access to good capital markets it's unlikely that they'll be driven out of business at all, because everyone will recognize the higher prices which are to come and so capital will be available to enable the competitors to survive the price war.

So-called "post-Chicago" theorists have been able to construct some narrow scenarios in which predatory pricing is rational, but they're very narrow and ultimately boil down to circumstances in which the competitors can be successfully bluffed by the would-be monopolist.

Note that all of this is distinct from a different scenario, in which the big player isn't being anti-competitive at all, but is instead is just much more efficient, and therefore has much lower costs. That sort of "monopolist" can maintain healthy profit margins while pricing goods below what the competition can afford. This, however, is not harmful to consumers, in fact it's good for consumers. Of course there's the possibility that once the competition is driven out the monopolist will raise prices while retaining its low costs. Should that ever happen, then that would be an appropriate time for regulators to step in. I'm not aware of any real-world examples, though.

Re:The problem being...

[Shadow of Eternity]

Where's the competition in the ISP or Cellphone market then? Oh, right, it doesn't exist because of BARRIERS TO ENTRY.

What explains Lasership?

[erroneus]

As far as I can tell, Amazon is the only company which keeps Lasership going. There is a long history of Lasership problems and complaints. They use "private contractors" to deliver the last mile in the pizza delivery model. They are untrained and unqualified and when they steal things Amazon just ships another or refunds money without any issue. It's not just my experience but the experience of thousands of others. (Just google Amazon Lasership Complaints) I suspect its Lasership's minority owned status which keeps them afloat. But even then, the problem of Lasership seems excessive. After I moved and discovered that I am once again in a Lasership delivery area I have stopped ordering from Amazon and I would encourage everyone who wants to ensure a hassle-free online shopping experience to read up on Lasership, its connection with Amazon and to make the decision which is best for you based on what you learn. If you are not in a Lasership last mile delivery area, then shop with Amazon 'til you drop. But if you are, I would hope understanding what goes on there will discourage you from shopping Amazon.

Re:What explains Lasership?

[kumanopuusan]

I had never heard of Lasership, either, so I looked them up and found this video:
http://www.youtube.com/watch?v=oB38L2Znl34
The deliveryman doesn't even get out of his vehicle. He simply drops the package out of his window and onto the customer's driveway before driving off.

How long are shareholders willing to wait?

[JazzHarper]

The article does not really address the end-game. Will Bezos ever allow the company to return value to the shareholders or is he truly "not wired that way"? There is no value in holding shares in a company that NEVER shows a profit. Shareholders can have lots of fun trading them, as long as the promise--or at least the hope--of future earnings is out there, but that's just a "greater-fool" game that usually ends badly.

Re:How long are shareholders willing to wait?

[Anonymous Coward]

Sometimes, you need to be a dick to wall street and tell guys like Carl Icahn to go fuck themselves. There is a difference between returning profits to shareholders and gutting your entire company to give money to shareholders. Sometimes you need to think about longer term and not just about the next quarter, or even the next 3 years for that matter.

Re:How long are shareholders willing to wait?

[Anonymous Coward]

I'm confused by your post - a company does not need to turn a profit to "retuen value" to shareholders.
Indeed, since profits are taxed, it's actually quite smart not to declare any.
Instead, investors find avlue through share price growth, and dividends, (if any).
In many fical regimes, the first is by far the most favourably treated, and for good reason.

Re:How long are shareholders willing to wait?

[Bananenrepublik]

That's wrong. If a company buys assets, then it's profits decrease, but it definitely doesn't make your stake in the company any less valuable. Since stock prices reflect both the current assets of the company (after all stocks express owenrship on these assets) and the expectation of future gains (that's the speculative part), it is quite sensible for the stock price to go up for a company that invests instead of making profits.

Re:How long are shareholders willing to wait?

[Z00L00K]

The Amazon brand is just the oil in the machinery that makes a lot of other businesses profitable. The day someone comes up with a machinery that don't need oil then oil as lubrication is dead meat.

Another way of looking at it - by having low levels of profit you don't attract a lot of sharks trying to suck the money out of that business - and you avoid most of the competition too because they don't think it's a profitable business.

Yet another way to compare it - the Amazon brand is the railroad tracks for goods - the goods on the tracks and the businesses that get the goods carried on the tracks are the profitable parts. If you get competition then you will have a different network of tracks laid out and the value for the customers will be lower.

So I sense a business strategy with a greater picture in mind. Too many operators today are short-sighted and just see other shops around as competition instead of collateral business opportunities. "I sell fruit, damn that pastry shop down the road that takes all customers" instead of thinking that "OK someone buys pastries, but they may want a fruit as dessert".

sweatshop

[Anonymous Coward]

The Amazon warehouses are run like sweatshops. There are some other more detailed articles out there, if you can find them. The working conditions are horrendous and the pay abysmal, and nearly all of it temp work. So, while on the surface the service might be great, it comes at a cost. There is a reason they're able to undercut and drive out the local businesses which actually pay their employees and provide benefits.

Re:sweatshop

[Anonymous Coward]

The Amazon warehouses are run like sweatshops. There are some other more detailed articles out there, if you can find them. The working conditions are horrendous and the pay abysmal, and nearly all of it temp work. So, while on the surface the service might be great, it comes at a cost. There is a reason they're able to undercut and drive out the local businesses which actually pay their employees and provide benefits.

So those employees should file lawsuits regarding the OSHA violations that make their working conditions illegal.

Oh, they're not doing anything illegal? It's just a low-paying job for what they get accomplished? All those employees should quit working for Amazon then, and get another job.

There are no better jobs for people with their education level, you say? So if Amazon didn't exist they would be unemployed and even worse off, because they sure as hell wouldn't be able to find a job at those bookstores as the knowledgeable salespeople? Holy crap, Amazon should burn!

Right now we have a very large amount of unskilled workers in the US. While there are a lot of people who are actually competing for those crappy temp jobs because they're not qualified for anything, the environment and pay is going to suck. The solution isn't to bitch at Amazon, those people wouldn't be any better off if Amazon didn't exist, they'd definitely be worse off. The solution is to do a better job at education. Once there are less people who are willing to take those jobs, Amazon, Wal-Mart, and others will be forced to raise salaries and improve working conditions in order to get workers. Things will get more expensive for the consumer, and most people are going to bitch about it, but we're going to be better off for it in the long run.

Re:sweatshop

[nonnald8336]

The Amazon warehouses are run like sweatshops. There are some other more detailed articles out there, if you can find them. The working conditions are horrendous and the pay abysmal, and nearly all of it temp work. So, while on the surface the service might be great, it comes at a cost. There is a reason they're able to undercut and drive out the local businesses which actually pay their employees and provide benefits.

So those employees should file lawsuits regarding the OSHA violations that make their working conditions illegal.

Oh, they're not doing anything illegal? It's just a low-paying job for what they get accomplished? All those employees should quit working for Amazon then, and get another job.

There are no better jobs for people with their education level, you say? So if Amazon didn't exist they would be unemployed and even worse off, because they sure as hell wouldn't be able to find a job at those bookstores as the knowledgeable salespeople? Holy crap, Amazon should burn!

Right now we have a very large amount of unskilled workers in the US. While there are a lot of people who are actually competing for those crappy temp jobs because they're not qualified for anything, the environment and pay is going to suck. The solution isn't to bitch at Amazon, those people wouldn't be any better off if Amazon didn't exist, they'd definitely be worse off. The solution is to do a better job at education. Once there are less people who are willing to take those jobs, Amazon, Wal-Mart, and others will be forced to raise salaries and improve working conditions in order to get workers. Things will get more expensive for the consumer, and most people are going to bitch about it, but we're going to be better off for it in the long run.

So, let Amazon, Walmart etc. do whatever they want, since it's just a bunch of uneducated, unskilled workers we're talking about? You're right about one thing, the solution is for these people to get education/skills in order to rise above these types of jobs. Luckily for the big companies, there will always be a supply of unskilled, uneducated workers, and since we're not going to bitch at Amazon for treating employees like subhumans, they will continue to do so. The same way a big chunk of Walmart employees are on public assistance, because the pay/hours are not enough on their own. So, we - the taxpayers, are footing the bill for welfare/foodstamps etc. so that Walmart can make more profit. In essence, we're subsidizing Walmart family's fortune. There will never be a point where the big companies are forced to raise salaries, because there will always be a supply of people who are unable to get a better job.

Re:sweatshop

[Anonymous Coward]

Right now we have a very large amount of unskilled workers in the US. While there are a lot of people who are actually competing for those crappy temp jobs because they're not qualified for anything, the environment and pay is going to suck.

It's worse than that. We also have a very large number of skilled workers who can't find employment in their fields, so they are also competing for those crappy temp jobs!

Re:sweatshop

[d'baba]

"So, for people who've been with us as little as three years, we're offering to pre-pay 95% of"
"All Amazon full-time hourly associates in the U.S. who have been employed for three consecutive years "

And there's the catch.

When I worked in the Fernley warehouse there was a policy of salary increases for the first 3 years you were with them. After that there were no scheduled increases. If one did not make it out of the front line job into, most typically management, another non-associate job you have no incentive to stay. They find many ways to release those with years of on-the-job experience and replace them with other unskilled laborers from the currently vast pool.

Add to that the fact that the vast majority of workers there are hired and work for temporary agencies. When I was there it could take over 6 months to cross over to permanent form temp and again the vast majority did not make the cut.

So right now on any of their warehouse floors in Christmas-ized countries, a very small percentage of employees will be eligible for this marvelous program at their next review. Makes for great advertising if you don't read the fine print.

Re:sweatshop

[Gavagai80]

What you do is you change the law so that what they're doing is illegal. Nothing else will make a difference anyway.

Re:sweatshop

[turbidostato]

"There are no better jobs for people with their education level, you say? So if Amazon didn't exist they would be unemployed and even worse off, because they sure as hell wouldn't be able to find a job at those bookstores as the knowledgeable salespeople?"

No, they would be having a decent pay doing basically the same for a local retailer, one of the very many there would be instead of Amazon as the one single behemoth.

"While there are a lot of people who are actually competing for those crappy temp jobs because they're not qualified for anything, the environment and pay is going to suck"

There was a time when companies did train their own people and then, these people would get qualified for something. Now, they prefer for others to cover for the costs of a perfect fit, or to scream, "we need more H1B visas!" or in other, lower markets, to hire illegal aliens while at the same time crying "illegal aliens are killing America!"

Re:Another megalomaniac idiot

[JazzHarper]

Amazon went public 16 years ago. Any capital still invested in them at this point can no longer be considered "venture capital".

Beware of speculation

[TheloniousToady]

Although Amazon is a great business, it's a terrible stock. The reason is that its stock price is sky high. Compare Amazon's key statistics with those of Wal-Mart. Compare the "Valuation Measures" of the two, and you'll see two quite different stories.

Although the two businesses may seem quite different - notably by Wal-Mart being primarily a brick-and-mortar and Amazon being online - I believe there are more similarities than differences: both are retailers that operate on a massive scale, with highly efficient distribution, and sell to customers at the lowest possible price. And of course, Wal-Mart even sells online, with delivery to home or pickup at the nearest store.

Investors are taking on faith that Amazon's growth in revenue will eventually turn into growth in profits. The author of the linked article seems to believe it, and suggests that those of us who are skeptical just don't get it. However, he admits in the article:

Part of this problem comes from the limited visibility into the dynamics of its business finances. Why doesn't Amazon break out more detail in its financial reporting to help the external world understand all these intricacies? How many subscribers to Amazon Prime, how many Kindles have sold, what's the net income from different lines of business, how much of its asset base investment is for fulfillment centers versus technology infrastructure for AWS?

There may be solid business reasons why Amazon doesn't provide that, but from an investment point of view, a stock with a high valuation whose financials can't be fully understood is the very model of "speculation", as defined by Benjamin Graham, the dean of value investors. Those who invest in Amazon may eventually be rewarded, but the stock market has legions of less-speculative investment opportunities that offer a far better risk/reward ratio. There's no reason for any "intelligent investor" to be involved.

[Disclosure: I have no position in either Amazon or Wal-Mart]