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

Re: Why Amazon Has No Profits and Why It Works

#41

Post by jusben1369 » Fri, Sep 05, 2014, 5:56 PM UTC

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…

In general around 10% of all retail happens online I believe. But it's also pretty clear that the offline/online distinction is becoming more and more meaningless in an omni channel world. I went to 3 different warehouse mattress places on the weekend. Turns out the best mattress was at the first place so I came home and bought it online. If the best mattress had been in the last store I would have bought it 'offline" It's just one of many examples of how the barriers are crumbling.

Re: Why Amazon Has No Profits and Why It Works

#42

Post by chops » Fri, Sep 05, 2014, 5:57 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.

At first, I thought "you meant $100 billion" not "million", until, on a 2nd or 3rd rereading, I realized you were referring to an average single Walmart store does over $100m in revenue.

So I thought I'd throw this comment in here in case others were misreading it as I did.

Re: Why Amazon Has No Profits and Why It Works

#43

Post by JaggedJax » Fri, Sep 05, 2014, 5:58 PM UTC

paulhauggis wrote: post #28

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.

They still treat their sellers like this today. Every seller we've worked with at my company has complaints about some ridiculous Amazon policies or just plain poor treatment and poor support/communication.

It doesn't stop people from selling on Amazon though since it's almost a required channel these days.

Re: Why Amazon Has No Profits and Why It Works

#44

Post by twistedpair » Fri, Sep 05, 2014, 5:58 PM UTC

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…

At some point, when you're handling all the customer money, and the merchant money, and the supplier money, you become the ultimate middle man as everyone owes you money and the actual amount of money you need to move gets small and smaller because you're just netting internal accounts. There must be some massive savings (read profit) to be made there, when the entire economy is really just Amazon.

Re: Why Amazon Has No Profits and Why It Works

#45

Post by hoprocker » Fri, Sep 05, 2014, 5:59 PM UTC

Reading this article reminded me of Steve Yegge's summary of Amazon's overall strategy: build a platform, not a product[0]. My takeaway here is that Amazon keeps reinvesting in making itself the platform through which sales run (warehouses, media, AWS, third-party storefronts). With the octo-copter idea[1] -- especially in combination with its third-party seller services -- it skirted the surface of becoming a physical delivery platform as well.

Anyways, fascinating post, really enjoyed the different cross sections of perspective presented.

[0] https://plus.google.com/112678702228711889851/posts/eVeouesv... [1] http://www.amazon.com/b?ie=UTF8&node=8037720011

Re: Why Amazon Has No Profits and Why It Works

#46

Post by ChuckMcM » Fri, Sep 05, 2014, 5:59 PM UTC

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.

As the article points out, they don't. By running the business this way they are constantly building / growing new businesses but during a downturn they just build more slowly (rather than lose money). It is a very different way of operating but one which has provided some interesting benefits for them. Nominally a business uses profits to either pay dividends or fund unexpected opportunities (like buying some small company or what not) Amazon doesn't pay dividends and they invest every dollar they make "extra" back into the business to increase the total number of dollars in the pipes. They don't need to turn a profit, they just need to manage their investment profile to their revenue forecasts.

Interestingly enough, after reading that, I realized that Google doesn't stand a chance in hell of beating them at commerce.

Re: Why Amazon Has No Profits and Why It Works

#47

Post by clamprecht » Fri, Sep 05, 2014, 6:00 PM UTC

Isn't this similar to Berkshire Hathaway's strategy - never pay dividends, but reinvest everything into growth opportunities? Although Berkshire Hathaway likes to hold a pig pile of cash until the right growth opportunities can be found, while I'm not sure about Amazon's cash reserves.

* Also, this means no capital gains taxes until you sell your shares, because there are no dividend payments.

Re: Why Amazon Has No Profits and Why It Works

#48

Post by AndrewKemendo » Fri, Sep 05, 2014, 6:01 PM UTC

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.

Sorry but that is ridiculous. Look at the stock price for Amazon. Anyone who has invested in Amazon has seen an amazing unprecedented ride upward, institutional benefiting the most.

I also take umbrage with the idea that Bezos is running Amazon for "fun" as though it is frivolous. Bezos seems to have a grand vision and that is not something that matches with the ridiculously short term and arguably irresponsible thinking of the vast majority of investors.

We collectively need to get away from the idea that the only valid fiduciary duty for a for-profit organization is to make profit for their shareholders instead of creating value for humanity.[1]

[1] This is refuting the broader point that Benedict Evans is making, and does not necessarily apply to Amazon perfectly.

Re: Why Amazon Has No Profits and Why It Works

#49

Post by pbreit » Fri, Sep 05, 2014, 6:01 PM UTC

So basically, companies that switch to profit-making are indicating that they no longer know how to generate new acceptable returns on investment.

Re: Why Amazon Has No Profits and Why It Works

#50

Post by redthrowaway » Fri, Sep 05, 2014, 6:03 PM UTC

AndrewKemendo wrote: post #48

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. Sorry but that is ridiculous. Look at the stock price for Amazon. Anyone who has invested in Amazon has seen an a…

At no point was anyone suggesting that the purpose of Amazon is to tickle Bezos' fancy, and it would require a painfully literal reading of the article in order to think that's what the author was doing.