Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Amazon Has No Profits and Why It Works

a16z.com

Post reply on HN
Print view View original

31–40 of 272 posts

Re: Why Amazon Has No Profits and Why It Works

#31

Post by bowlofpetunias »

ctdonath wrote: post #14

TL;DR - No matter how you squint at it, Amazon drives all profits back into growing capacity and market coverage. Amazon alone accounts for around 1% of US retail revenue.

That 1% means nothing without knowing how much of that retail revenue currently goes through e-commerce. But I have sneaking suspicion that there's still a lot of room for growth.

Also, outside of the US Amazon has just barely started to expand beyond books. In most countries online retailers are bracing themselves for the moment Amazon starts eating their lunch.

Unless Bezos suddenly has a change of heart, this growth strategy could go on for many, many years.

Re: Why Amazon Has No Profits and Why It Works

#33

Post by at-fates-hands »

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.

>> Amazon has perhaps 1% of the US retail market by value.

This isn't surprising considering there isn't much competition (in terms of brick/mortar) in most of the US.

Electronics? Best Buy

Books? Barnes and Noble

DVD's? Best Buy

Video Games? Game Stop, Best Buy

Without much competition in most categories, it's not surprising most people opt for online shopping instead of going to the same place, paying much more and having a crappy in store experience.

This isn't to say other categories probably have much better local options. For myself, I've rarely purchased bike parts on the internet unless I'm completely sure its a good deal. My local bike shops tend to have what I want, or they can special order it for me and its still pretty close to cost.

Re: Why Amazon Has No Profits and Why It Works

#34

Post by macspoofing »

exelius wrote: post #24

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 s…

That's all great but at some point they still need to turn a profit.

Re: Why Amazon Has No Profits and Why It Works

#35

Post by pdpi »

exelius wrote: post #24

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 s…

> The talk was about APIs, but Amazon views APIs as a general term: "Fulfilled by Amazon" is an example of a non-technical API.

It's not a "non-technical API". We have name for those things: they're services. Amazon provides services, and that extends to both digital services (with which you interact via APIs — that P stands for Programming, damn it!), and meatspace services.

Re: Why Amazon Has No Profits and Why It Works

#36

Post by bequanna »

macspoofing wrote: post #34
exelius wrote: post #24

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 s…

That's all great but at some point they still need to turn a profit.

Yes. But only when there are no longer attractive opportunities for them to invest in expansion.

Re: Why Amazon Has No Profits and Why It Works

#37

Post by pinkyand »

bowlofpetunias wrote: post #31
ctdonath wrote: post #14

TL;DR - No matter how you squint at it, Amazon drives all profits back into growing capacity and market coverage. Amazon alone accounts for around 1% of US retail revenue.

That 1% means nothing without knowing how much of that retail revenue currently goes through e-commerce. But I have sneaking suspicion that there's still a lot of room for growth. Also, outside of the US Amazon has just barely started to expand beyond books. In most countries online retailers are bracing themselves for the moment Amazon starts eating their lunch. Unless Bezos suddenly has a change of heart, this grow…

> outside of the US Amazon has just barely started to expand beyond books.

Not sure it's correct. For example amazon has a 2-day service across Europe from any amazon warehouse in the continent. But maybe what they do is not enough for Europe?

Re: Why Amazon Has No Profits and Why It Works

#38

Post by andrewtbham »

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.

Wal-Mart's margins are 3.3% (Trailing 12 months)

http://finance.yahoo.com/q/ks?s=WMT+Key+Statistics

Re: Why Amazon Has No Profits and Why It Works

#39

Post by jusben1369 »

I found this fascinating to read but made very difficult in part due to the overuse of commas. Maybe the folks at a16 could have this proof read.

Investors in Amazon typically look to selling their stock for higher than they bought it as the way they "get their money out of their investment" So not sure why the fascination on profits. Profits are important if they become the means to achieving a higher stock price. But lack of profits hasn't hurt AMZN's price over the years or made it an unattractive stock.

Post reply on HN