Friday, November 21, 2014

Amazon Doesn't Really Make Much Money

About two months ago I read this little article about Amazon, and it is interesting. Basically, Amazon is putting all of it's potential profits into expanding or reducing costs. Yes, it often takes money to save money in a structural way. Great example, I can take 100 kg of weight out of a big machine which will save money on every machine we build, but it's going to take four months of a full person engineering, which costs money.

In some ways I oppose Amazon, because I sometimes fear they are becomming a monopoly yet I still use their website monthly to buy things, like books or running shoes. However, in this case, I have to respect Amazon and Jeff Besos for doing something less conventional than trying to extract all the profit from the business. Often as I research companies to invest in, profit seems to drive so much, it's unusual to hear about a different strategy like fueling growth and cost reduction with all of the excess cash. I have not invested in Amazon, and I don't really have any plans to. I don't understand enough about the logistics business, online sales is a competitive arena (despite what I say about a monopoly), and sometimes Amazon does things that may not be in the best interests of authors (me being an author, it's a little emotional, even though ebook pricing is probably better when it's lower, it would still be nice for authors to set their own prices).

In short, Amazon shows that you can last over two decades and grow into a company with tens of billions of dollars of revenue without extracting billions in profits.

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