Amazon and the “profitless business model” fallacy

Tom Business 3 Comments

Great article discussing Amazon’s clearly-stated business model, why its profitability is both controlled and a long way off.

If I were an Amazon competitor, Id actually regard Amazon’s current run of quarterly losses as a terrifying signal. It means Amazon is arming itself to take the contest to higher ground. The retail game is about to become more, not less, punishing.

Amazon and the

via Amazon and the “profitless business model” fallacy — Remains of the Day.


Comments 3

  1. Katherine J. Kaye
  2. Linzi Blakey
  3. Very interesting article. He does have a point – a business of Amazon’s size that has nearly doubled revenues in two years (2010-2012) will burn cash for fun scaling up its infrastructure.

    However – just over 40 years ago Walmart’s revenues were $50m. Now they are $470bn. But – through this growth Walmart was highly profitable. Hence the skepticism. Amazon wants to both repeat Walmart’s success and compete with it so you can understand why people make the comparison and find grounds to question Amazon’s strategy.

    The skepticism is still merited IMHO. Amazon excels at selling comparable products in which the retail experience is secondary. Its strengths are operational excellence, which it translates into cheap prices and fast delivery.

    But – it has had to bet hard to do that. Amazon Prime was a big bet. It is in very few international markets and, as the supermarkets have sometimes found, scale in one market is no guarantee of success in another. This is another risk. Essentially the skepticism comes down to – does Amazon’s investment in scale, at the speed at which it is doing it, make sense – bearing in mind that on the customer side some of that loss of profitability comes from that old saw of any internet business – the high cost of customer acquisition and retention.

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