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Old 09-17-2014, 04:12 PM   #1
fjtorres
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What Amazon is...

...and why it makes no (traditional) profits...

https://a16z.com/2014/09/05/why-amaz...-why-it-works/

Quote:

Amazon discloses revenue in three segments – Media, Electronics & General Merchandise (‘EGM’) and ‘Other’, which is mostly AWS. As this chart shows, these look very different (this and most of the following ones use ’TTM’ – trailing 12 months, which smooths out the seasonal fluctuations and makes it easier to see the underlying trends). The media business is still growing, but it’s the general merchandise that has powered the explosion in revenue in the past few years. Meanwhile, the ‘Other’ line is growing but is still much smaller.

It seems pretty likely that these businesses, selling very different products bought with different bargaining positions to different people with different shipping costs, have different margin potential.

This still doesn’t really give an accurate picture, though. Amazon is in fact organized not just in these segments, but in dozens and dozens of separate teams, each with their own internal P&L and a high degree of autonomy. So, say, shoes in Germany, electronics in France or makeup in the USA are all different teams. Each of these businesses, incidentally, sets its own prices. Meanwhile, all of these businesses are at different stages of maturity. Some are relatively old and well established. And while these mature businesses are growing slower, they are profitable. Others are new startups building their business and losing money as they do so, like any other new business. Some are very profitable, and some sell at cost or as loss-leaders to drive traffic and loyalty to the site. Books are a good example. There’s a widespread perception that Amazon sells books at a loss, but the average sales price actually seems to be very close to physical retailers – it discounts some books, but not all, and despite all the argument in the Agency lawsuits, quite how many and how much is (deliberately) as clear as mud.

Amazon is a bundle.

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All of this brings us back to the beginning – Amazon’s business is delivering very rapid revenue growth but not accumulating any surplus cash or profits, because every penny of cash is being ploughed back into expanding the business further. But, this is not because any given business runs permanently at a loss – it is because the profits from what is already there are spent on making new businesses. In the past, that was mostly in operations, but in recent years the investment firehose has again been pointed at capex.

How long will this investment go on for? Well, do we believe that the conversion of products and businesses to online commerce is finished? Let’s rebase that revenue chart, and look at it as share of US retail revenue. Excluding gasoline, food and things like timber and plants,all hard to ship, at least for now, Amazon has about 1%.

https://a16z.files.wordpress.com/2014/09/16.png

Overall, US commerce is growing very consistently:

https://a16z.files.wordpress.com/2014/09/17.png

And Amazon is taking an accelerating share of it.

https://a16z.files.wordpress.com/2014/09/18.png

Amazon has perhaps 1% of the US retail market by value. Should it stop entering new categories and markets and instead take profit, and by extension leave those segments and markets for other companies? Or should it keep investing to sweep them into the platform? Jeff Bezos’s view is pretty clear: keep investing, because to take profit out of the business would be to waste the opportunity. He seems very happy to keep seizing new opportunities, creating new businesses, and using every last penny to do it.

Amazon makes no reportable profits because Bezos, his shareholders, and board of directors all agree it would be a huge lost opportunity.
As commerce keeps on moving online, many of the old entrenched players from the B&M world will be left behind and their share of the economy will be up for grabs by whoever is best positioned to grab it.

Amazon has 1% of the total market.
They have an opportunity to grab some more and Bezos intends to get as much as possible.

His immediate target?

The $8T industrial Business-to-Business market. Which is twice the size of the consumer retail business.
What he's done for consumer products, like books, he is going to do for industry and professional businesses like doctors and dentists.

http://www.forbes.com/sites/clareoco...llion-b2b-bet/

All those new warehouses he's building?
The drones?
Same day delivery?

Not for books or toasters but for valves and pumps, rubber gloves and janitorial supplies.

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Old 09-18-2014, 09:20 AM   #2
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Why should Amazon have their fingers in every single pie they can get hold of? I ow the response I'll get; Amazon = customer service blah blah blah. I know all that, but they seem intent on demolishing all the competition they can, which does not strike me as a good thing. What will happen to all the people who work in the industrial b-t-b market? I don't mean the office workers and execs, but what about those who manufacture, package and deliver these products? Will they lose their jobs as a result? That doesn't strike me as a good thing either. And please, to anyone who's response will be to the effect that these workers will just have to find new jobs, or they should go into education to become more skilled, or it's "just the way the market goes". These are people's lives, and a lot of them will rely on these jobs. Also, what knowledge of this business area does Bezos the Bozo have? Sure he can hire in people to research, but what's the point when there is an entire infrastructure already in place? I like Amazon for their range of products, and their prices, but I'm not that much of a fan that I'll defend everything they do and jump up and down with glee when they unveil new plans and ideas.
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Old 09-18-2014, 09:26 AM   #3
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Originally Posted by Waylander View Post
Why should Amazon have their fingers in every single pie they can get hold of?

.
Because they can.
Because in a free capitalist society anybody can enter any business they care to.
Because we don't (yet) live in the world of John Galt.

Fret not, though...
We're getting there.

You'll get your chance to vote for your "anti-dog eat dog law".

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Old 09-18-2014, 02:35 PM   #4
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Very interesting!
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Old 09-18-2014, 04:45 PM   #5
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Quote:
Originally Posted by Waylander View Post
Why should Amazon have their fingers in every single pie they can get hold of? I ow the response I'll get; Amazon = customer service blah blah blah. I know all that, but they seem intent on demolishing all the competition they can, which does not strike me as a good thing. What will happen to all the people who work in the industrial b-t-b market? I don't mean the office workers and execs, but what about those who manufacture, package and deliver these products? Will they lose their jobs as a result? That doesn't strike me as a good thing either. And please, to anyone who's response will be to the effect that these workers will just have to find new jobs, or they should go into education to become more skilled, or it's "just the way the market goes". These are people's lives, and a lot of them will rely on these jobs.
No one is owed a job, as many can attest to since even before Amazon. Unless you are suggesting communism, people have the right to try whatever business opportunities they like. You in turn are free to boycott them if you feel it is immoral.

Good luck convincing enough people of your way of thinking for Amazon to actually notice your existence. And that too is your right in a free country.

Quote:
Also, what knowledge of this business area does Bezos the Bozo have? Sure he can hire in people to research, but what's the point when there is an entire infrastructure already in place? I like Amazon for their range of products, and their prices, but I'm not that much of a fan that I'll defend everything they do and jump up and down with glee when they unveil new plans and ideas.
In that case, Amazon will lose a lot of money and totally fail and turn tail whimpering like babies, so you have nothing to worry about.

Either that, or Bezos isn't the Bozo you think he is...

Make up your mind.
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Old 09-19-2014, 09:34 AM   #6
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I guess I'll just crawl back under my rock. I'm definitely not advocating communism, and consider myself conservative, but conservatism in the UK is slightly different in the UK as opposed to the US. Also, when I discussed the impact on the b-t-b job market, I wasn't just thinking of Amazon, but of business practices in general. L.E. Modesitt, who is also of the conservative Republican persuasion, has a good article on the impact of job losses:

http://www.lemodesittjr.com/2014/09/...onal/#comments.

Again, I am not advocating the idea that everyone is earned a living, just that people need to consider the impacts of various decisions and actions taken in the world of business that can affect employees. What I object to is not making people redundant, but doing so in a way that makes them "widgets", and therefore less than human. Again, read the article for a more elegant and succinct argument. I will say that Amazon has definitely encouraged innovation, by ploughing profits back into R&D, thereby standing out as one of the few companies not ruled by shareholders looking for ever greater quarterly profits. This has obviously benefitted the customers, but at what cost? On a closing note, being concerned for other people's welfare doesn't strike me as communist behaviour, but as basic human decency. I am not advocating communism but responsible capitalism. Here are some other articles to consider:

http://www.lemodesittjr.com/2014/07/...next-casualty/

http://www.lemodesittjr.com/2014/05/16/business/

http://www.lemodesittjr.com/2014/03/25/profit/
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Old 09-19-2014, 11:52 AM   #7
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What is interesting is their impact on my retail world feels like more than 1%. Perhaps that is because I spend more than 1% of my retail money through Amazon. I haven't got an exact tally but it feels like more than 5% of my retail purchases (clothes, electronics, and other assorted goods).
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Old 09-19-2014, 12:03 PM   #8
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Quote:
Originally Posted by Waylander View Post
I guess I'll just crawl back under my rock. I'm definitely not advocating communism, and consider myself conservative, but conservatism in the UK is slightly different in the UK as opposed to the US. Also, when I discussed the impact on the b-t-b job market, I wasn't just thinking of Amazon, but of business practices in general. L.E. Modesitt, who is also of the conservative Republican persuasion, has a good article on the impact of job losses:

http://www.lemodesittjr.com/2014/09/...onal/#comments.

Again, I am not advocating the idea that everyone is earned a living, just that people need to consider the impacts of various decisions and actions taken in the world of business that can affect employees. What I object to is not making people redundant, but doing so in a way that makes them "widgets", and therefore less than human. Again, read the article for a more elegant and succinct argument. I will say that Amazon has definitely encouraged innovation, by ploughing profits back into R&D, thereby standing out as one of the few companies not ruled by shareholders looking for ever greater quarterly profits. This has obviously benefitted the customers, but at what cost? On a closing note, being concerned for other people's welfare doesn't strike me as communist behaviour, but as basic human decency. I am not advocating communism but responsible capitalism. Here are some other articles to consider:

http://www.lemodesittjr.com/2014/07/...next-casualty/

http://www.lemodesittjr.com/2014/05/16/business/

http://www.lemodesittjr.com/2014/03/25/profit/
Regarding the morality of Amazon's existence, I fail to see how they are any different from any other company that had the fortune to adapt better than others, to the changing marketplace conditions.

The appropriate response to people who cannnot adapt is not a freezing of the economic paradigm, it is to do what kind moral people have always done: give charity.
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Old 09-20-2014, 12:39 AM   #9
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Originally Posted by Penforhire View Post
What is interesting is their impact on my retail world feels like more than 1%. Perhaps that is because I spend more than 1% of my retail money through Amazon. I haven't got an exact tally but it feels like more than 5% of my retail purchases (clothes, electronics, and other assorted goods).
Well, the US economy is enormous to start with. Then, a good portion of it is in capital goods and products that don't lend themselves to online commerce. And, finally, there are a lot of people who don't care for Amazon and do the sensible thing: spend their money elsewhere, without wasting time on toothless crusades of the "sound and fury" Shakespearean type.
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Old 09-23-2014, 09:41 AM   #10
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Originally Posted by sania250 View Post
[Banned as a spammer - MODERATOR]
Among other things: Yes it is.
So is XBOX Live and Playststion Network.

For a while, so was B&N.com, but not in a good way.
Long story, that.

(http://bookclubs.barnesandnoble.com/.../qaq-p/1366420)

Amazon discussion threads and boards do it on purpose, though.

Last edited by Dr. Drib; 09-23-2014 at 09:54 AM.
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