The goal is actually to not make a huge profit too early, and
Bezos manages it perfectly. You want to avoid showing your
cards too early as you continue to lay the groundwork for an
ever-larger business. Occasionally, you’ll have to show those
cards and win a hand to prove that you can. But the rest of the
time you call and fold, as you await the monster to take the
Great piece. I’ve harped on Amazon’s seemingly eternal lack of profitability as much as anyone, but when you think about it and study their business, it’s not that they can’t turn a profit. They’re not burning through money like they were in the go-go ’90s. They simply choose not to turn a profit, and instead invest everything in operations and low prices.
The key to Bezos’s genius, though, is in how he’s set the expectations from Amazon’s investors. They’re seemingly all on board with this strategy, and, in return, this permission to run at break-even has made Amazon impossible for need-to-turn-a-profit businesses to compete with. That’s what makes Amazon “the anti-Apple”, as MG writes. Apple is a formidable competitor because it’s so massively profitable; Amazon is a formidable competitor because it has permission — even encouragement — from its investors to run the operation at break-even.
Update: My succinct theory: Bezos’s plan is to forever keep profits just on the horizon, like a will-o’-the-wisp.
★ Tuesday, 6 August 2013