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The Amazonian Business Model

MG Siegler argues that Amazon’s no-profit strategy is actually genius:

But Amazon has no such problems on Wall Street. Again, they’re Bizarro Apple. They’re not showing their cards. While their businesses keep growing from a revenue perspective, profit has gone from negligible to non-existent to an actual loss this past quarter. And Wall Street loves them for it!

Why? Two reasons.

First, they know that Bezos is devouring Amazon’s profits by pouring them into infrastructure build-outs. Data centers, shipping centers, etc. These are one-time costs that should pay off in the long run.

Second, they believe that at some point in the future, Amazon will flip a switch and, voila, profit. In fact, Amazon has the ability to do it at almost anytime, as Bezos has made clear in the past, but people seem to forget.

Horace Dediu, in response:

The premise that Amazon can, on a whim, change its business model from selling other people’s products at a razor thin margin while investing in capital-intensive distribution to selling other people’s products at a large margin while not investing in capital-intesive distribution is not credible.

I would argue that Amazon’s existing business model is a direct consequence of the market it’s in: that it could not be anything else given the circumstances it finds itself in. Enlightenment may be an illusion.

Two very different interpretations of the state of Amazon. If Siegler’s right, it would surely be a remarkable achievement for Amazon. But after 15 years, you’d think the time to “flip the switch” and start making profits would have come. Dediu takes a more straightforward view: that Amazon can’t flip the switch.

Maybe they’re both right. Maybe Siegler’s right that this was Bezos’s plan all along, but maybe it hasn’t quite gone as well as he’d liked. Maybe profiteering wasn’t as easy as he prophesied.