Why Amazon Has No Profits and Why It Works • Hacker News Board

Re: Why Amazon Has No Profits and Why It Works

#21

Post by notatoad » Fri, Sep 05, 2014, 5:21 PM UTC

johnrob wrote: post #6

From: http://paulgraham.com/good.html : In Patrick O'Brian's novels, his captains always try to get upwind of their opponents. If you're upwind, you decide when and if to engage the other ship... In this case, Amazon is upwind of becoming a giant, profitable company. They could have taken profits earlier but it would have shrunk their overall pie.

Where "becoming a giant, profitable company" is another way of saying "paying their shareholders". Amazon is making money, for all intents and purposes they are profitable. They've just found something more interesting to do with that money than pay dividends. The opponent in this scenario is the shareholders, they're the ones who want to take the money away from Amazon.

It's a very interesting dynamic, certainly not the way i've normally thought of a shareholder-company relationship but one that must apply to many companies.

Re: Why Amazon Has No Profits and Why It Works

#22

Post by moggflunkies » Fri, Sep 05, 2014, 5:23 PM UTC

cm2012 wrote: post #9

jacquesm wrote: post #5

Earlier quoted context omitted.

$20m / year is a mom & pop business?

They are family owned and operated, yes! In almost all the cases I know of. I may be using the term wrong though.

Laughing at that.

$20M annual revenue extremely impressive. Especially for "mom and pop" owned business. Mom and dad are either taking home $1M/annually or they are operating a very successful high dollar, low margin business. Both are highly unlikely.

Re: Why Amazon Has No Profits and Why It Works

#23

Post by moggflunkies » Fri, Sep 05, 2014, 5:27 PM UTC

exelius wrote: post #18

jacquesm wrote: post #5

Earlier quoted context omitted.

$20m / year is a mom & pop business?

In retail, yes. Retail margins are usually less than 3%; so $20m/yr in revenue would give you less than $600k/yr in profit. Not bad money by any means; but certainly not enough to need a bunch of shareholders. Contrast this with the fact that an average Walmart does over $100 million a year in revenue (though Walmart's margins are closer to 1%), and it's actually not that huge.

Mom and dad are retailing $55,000+/day, 7 days a week, open most holidays....

You guys are stretching the phrase "mom and pop" to lengths it has never been before.

Re: Why Amazon Has No Profits and Why It Works

#24

Post by exelius » Fri, Sep 05, 2014, 5:29 PM UTC

I listened to a talk by Amazon's CTO, Werner Vogels, where he was explaining that Amazon's entire strategy is to build an infrastructure for itself, then rent that infrastructure out to its competitors. That way, increased competition can actually fuel your growth. The talk was about APIs, but Amazon views APIs as a general term: "Fulfilled by Amazon" is an example of a non-technical API.

Likewise, I think Amazon's self-funded retail operations are largely a break-even enterprise. Other businesses have been successful with this -- Costco comes to mind -- but the scope of capabilities Amazon is looking to develop is staggering.

If they can build a completely vertically integrated retail platform from procurement to payment to delivery, basically they're operating a retail enterprise without taking any inventory risk on themselves. Which is what this article means by "capture a significant portion of US retail": if they can provide merchant services to investors, it turns Amazon into basically an investment bank. Amazon takes a retailers money, turns it into inventory, sells it, takes a cut, then returns money. The only inputs and outputs into the Amazon machine are money, and it turns retail operations into an investment product.

Re: Why Amazon Has No Profits and Why It Works

#25

Post by [deleted] » Fri, Sep 05, 2014, 5:29 PM UTC

[deleted]

Re: Why Amazon Has No Profits and Why It Works

#26

Post by throwaway283719 » Fri, Sep 05, 2014, 5:32 PM UTC

jacquesm wrote: post #5

cm2012 wrote: post #2

Interesting note: Over 50% of the volume and driving force of Amazon's huge merchandise growth mentioned in the article is from small ($100k - $20m a year) mom and pop businesses around the country selling on Amazon. I wrote a blog post about it a while ago - http://www.kevinlordbarry.com/amazons-little-known-world-cha... . a16z touches on this, but it has wider reaching implications than just Amazon's revenue.

$20m / year is a mom & pop business?

Yes, if that's revenue rather than profits.

Re: Why Amazon Has No Profits and Why It Works

#27

Post by arbuge » Fri, Sep 05, 2014, 5:34 PM UTC

exelius wrote: post #18

jacquesm wrote: post #5

Earlier quoted context omitted.

$20m / year is a mom & pop business?

In retail, yes. Retail margins are usually less than 3%; so $20m/yr in revenue would give you less than $600k/yr in profit. Not bad money by any means; but certainly not enough to need a bunch of shareholders. Contrast this with the fact that an average Walmart does over $100 million a year in revenue (though Walmart's margins are closer to 1%), and it's actually not that huge.

I am not sure what kind of retail you are referring to (offline grocery perhaps?) but most ecommerce retail operations are running margins significantly higher than 3%. 10-30% is more typical in my experience, and 40-60% for operations selling unique products they make themselves.

Re: Why Amazon Has No Profits and Why It Works

#28

Post by paulhauggis » Fri, Sep 05, 2014, 5:36 PM UTC

cm2012 wrote: post #2

Interesting note: Over 50% of the volume and driving force of Amazon's huge merchandise growth mentioned in the article is from small ($100k - $20m a year) mom and pop businesses around the country selling on Amazon. I wrote a blog post about it a while ago - http://www.kevinlordbarry.com/amazons-little-known-world-cha... . a16z touches on this, but it has wider reaching implications than just Amazon's revenue.

This surprises me.

I was a seller 5 years ago on Amazon and seller support was terrible. They use automated bots to ban your seller account and then offer no recourse or support beyond scripted emails.

I would think that if sellers like me were bringing in that much revenue for Amazon..that they would treat me a little better.

I guess this is the textbook example of why any sort of monopoly is bad.

Re: Why Amazon Has No Profits and Why It Works

#29

Post by shill » Fri, Sep 05, 2014, 5:37 PM UTC

philip1209 wrote: post #3

Excellent analysis. > Amazon has perhaps 1% of the US retail market by value > With Amazon, Bezos is deferring that profit-producing, investor-rewarding day almost indefinitely into the future. This prompts the suggestion that Amazon is the world’s biggest ‘lifestyle business’ – Bezos is running it for fun, not to deliver economic returns to shareholders, at least not any time soon.

My AMZN shares are in a Roth IRA. I can wait.

Re: Why Amazon Has No Profits and Why It Works

#30

Post by jljljl » Fri, Sep 05, 2014, 5:39 PM UTC

arbuge wrote: post #27

exelius wrote: post #18

Earlier quoted context omitted.

In retail, yes. Retail margins are usually less than 3%; so $20m/yr in revenue would give you less than $600k/yr in profit. Not bad money by any means; but certainly not enough to need a bunch of shareholders. Contrast this with the fact that an average Walmart does over $100 million a year in revenue (though Walmart's margins are closer to 1%), and it's actually not that huge.

I am not sure what kind of retail you are referring to (offline grocery perhaps?) but most ecommerce retail operations are running margins significantly higher than 3%. 10-30% is more typical in my experience, and 40-60% for operations selling unique products they make themselves.

Gross or net margins?