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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.'"
In the moral confusion promoted by global capitalism, "apex predator" became a term of approval - even among the prey.
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.
Most ACs are not even worth the keystrokes to insult them. Be generically insulted by this and ignored otherwise.
The author is upset because Amazon has expanded beyond selling just books and invested earnings into expansion instead of giving back to the investors.
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.
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.
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.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
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.
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.
Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.