How Amazon’s Bottomless Appetite Became Corporate America’s Nightmare | Hacker News Reader

How Amazon’s Bottomless Appetite Became Corporate America’s Nightmare

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365 pointsthisisit251 comments

Amazon makes no sense. It’s the most befuddling, illogically sprawling, and—to a growing sea of competitors—flat-out terrifying company in the world.

No. It makes perfect sense. All economic activity is going to be intermediated digitally. Riches to those who get there first. Jeff Bezos saw this, and knew books were a good way to get his toe in the door. However, his aim was the railroad baron money all along.

When Amazon went from selling books to selling everything, people said it didn't make sense. Even I said that. However, in retrospect, it makes perfect sense.

(In the industrial revolution, people with far sight could predict that all economic activity would be intermediated through mechanized means of transportation. The analogy is perfect.)

"selling books to selling everything" seemed a reasonable change to me, and I think it was articulated as a strategy by bezos early on. As you say, books were a starting point.

Selling books to selling computing on demand... That was a big leap, and the most profit generating "pivot" I can think of.

Alexa, video streaming, kindle and ono...these are really Amazon becoming like Google. They're now defined as a business by the skills/abilities they have, not the services they provide. Technology company, not search company.

..this justifies investing more on self driving cars or nuclear power and less on search engines. For most companies this would just be pr/hr-speak, and impossible in practice. Usually companies have to spend most of their money on core products, because it takes money to deliver those products. Tesla or Walmart could define themselves however they want, but they'll never be able to spare more than a penny or two of car dollars on stuff that isn't related to making cars. The margin isn't there.

To be a Google, you need a legitimate cash cow. Amazon now have one, aws.

"Selling books to selling computing on demand... That was a big leap, and the most profit generating "pivot" I can think of."

is it a pivot if that was the intention from the start?

AWS was never an intention from the start. Some Amazonian in the mid 2000s saw the opportunity, wrote a three-pager about it, Jeff Bezos agreed, and now we have AWS.

I’d be interested in reading more about this. That employee changed Amazon’s future (and indeed the future of computing in general) immensely. I hope he/she was fairly compensated and relaxing on a beach far from Seattle now.

I wonder what the actual likelihood of that is. The stock has increased at least 20x since 2008, so, assuming the employee had options beginning in 2004, they could have made a decent amount of money off that.

Try this blog post - http://blog.b3k.us/2009/01/25/ec2-origins.html

Here you can find an interview of the Amazon CTO back in 2006.

http://www.se-radio.net/2006/12/episode-40-interview-werner-...

I would say so, but that's mostly semantics. Define "pivot" however you like :)

But, I don't think amazon of the 90s "planned" on aws in any meaningful way.

Doubtful. Too far down the pike. What Amazon is great at is turning its own infrastructure needs into revenue instead of a cost-

Marketplaces (White labeling it's shopping market) AWS (Digital Infrastucture) Shipping/Transport (FBA (Fulfillment) first, now SWA (Shipping))

It also leverages revenue streams, to open new markets:

Prime Shipping -> Prime Video/Music, Pantry

That doesn't even include Fire/FireTv/Alexa ecosystem plays.

They have been playing for keeps while others inch along with incrementalism.

> What Amazon is great at is turning its own infrastructure needs into revenue instead of a cost

Let's hope that it decides to offset the cost of all those planes hauling its boxes around the country by selling tickets to paying passengers.

It could be Spirit Airlines, but without the terrible customer service, terrible conditions, and nickel-and-diming of its customers. All we want is a safe, reliable, solid, FAIRLY PRICED airline ticket.

Do you hear me, Jeff? Hello? Is this thing on?

Anecdotally, I have never had an issue flying spirit and have done so on many occasions. They have a couple cheap direct flights from KC - Detroit/Chicago (family is right in between) and seasonally Portland - Detroit that are mega cheap

I had a Spirit flight to Charlotte that never took off. I ended up having to cancel my trip entirely. And the interwebs are full of Spirit horror stories.

Also, conventional wisdom is to not fly Spirit if you're of average height or above.

I'm 6'1" and I've been uncomfortable on every flight I've ever been on as an adult that was coach...not really special to Spirit.

I'm 6'2" and have never had a problem flying coach. It's mostly a question of leg length which can very quite a bit.

Have you flown Spirit? I know tall people that literally do not fit. Their knees are either in the aisle or in their seat neighbor's space.

Their seat pitch is truly awful.

6'3" here and trust me Spirit is different than others. Knee to lower back/butt length didn't allow me to fully sit into the seat without wedging myself into it. It was not a pleasant experience but I was just a couple years out of college and heading to Miami for a football game so for $75 I dealt with it, but I've never flown on them again and were very happy that we had gotten a rental car to share driving back to Atlanta.

That said, they provide a great value and I have an aunt that used them extensively to be with me grandparents while their health was failing, so apart from being a terrible experience for tall people I’ve very glad they exist.

This made me look up flight maps. I have always hoped Spirit would start flying out of Charlotte. They have never operated here and still do not. Your experience may have been with Allegiant or Frontier (or flying to another city).

Let's hope that it decides to offset the cost of all those planes hauling its boxes around the country by selling tickets to paying passengers.

I don't know how accurate this is, but a private jet pilot I was sitting next to on a flight told me that excess passenger airline baggage space was already being used to ship packages. If that's true, then baggage fees make a lot of sense. Passengers would be competing with Amazon and other companies for that space.

You are correct. It was government contracts to haul mail that turned flying airplanes into an industry back in the early days. Passenger service was added later.

Cargo remains more profitable than people even today. That's why you can still ship packages via passenger bus. Or at least you could the past time I did it in the early 2000's via Greyhound Package Express.

I'm not saying it Amazon Airlines should look like United, with a couple of hundred people up top and all the cargo down below. But maybe add 50 or 60 seats in a space in front.

One of the problems with cargo is that it's so ephemeral. A plane on a particular route can be full of packages at Christmas, and then half empty the rest of the year. This is exactly the sort of problem that Amazon seems good at solving.

Maybe make the passenger compartment modular. Add more seat modules when cargo loads are low. Add more cargo pods when demand is high.

If anyone can make it work, it's Amazon.

But why? Passenger transport is already well catered for and extremely low margin. Also, passengers are annoying and generally not cardboard wrapped. They require seats and toilets and cabin attendants and pretzels and infant flotation devices. Cardboard boxes also don't videotape you when you offload them last minute to make room for something more valuable.

And that's before accounting for scheduling. Freight flights are often late nights, because cardboard boxes don't have eyes that can go red.

I'm not saying Amazon will switch to passenger transport, but you can imagine that their strategy would be to dominate the market by subsidizing ticket prices, then once they have the proper penetration, to raise ticket prices and be the first airline to increase margins in some time.

> extremely low margin

The airlines cry that it's low margin, then report billions in profits. Someone should call them out on it.

AA, for example, reported $10 BILLION in profit in 2015 and 2016 combined.

Yet legroom gets smaller because it can't make any money.

AA filed chapter 11 in 2011. They are doing well now, but they are very vulnerable to things they can't control well, like fuel prices, unions, etc.

In fact, the bankruptcy is part of why they are doing well now. It allowed them a free pass to invalidate all union contracts and start over with lots of leverage.

https://static.seekingalpha.com/uploads/2017/10/1/saupload_g...

That $10B is a high number, certainly, but it's historically high. It's worth keeping context in mind here: this profit is earned on 446B passenger miles. Every time you fly a mile on AA, they profit a whopping 2.2 cents, and that's in historically good years. Even on a 7000 mile long-haul, that's just over $150 average per passenger. Devil's advocate says that smaller legroom is the reason they can turn a profit at all.

I think that qualifies as low margin.

Low margin would be if they made $5. A $150 profit is pretty good since there are 200+ people in the plane. That's $30,000 a flight.

And remember, we're talking profit here, not income. I can't think of a scenario where a business with millions of paying customers would sneer at merely making a profit of $150 off of each one.

I'm sure the passengers will be happy flying on top of a hold full of fake lithium batteries.

Postal service also made passenger rail profitable, and its end (in the 1960s) finally killed the service (along with jet airliners).

The RMS in RMS Titanic stands for Royal Mail Ship. A similar designation.

The hilarious thing was that when I worked at Amazon, the majority of Amazonians I met thought Amazon was a Retail company...

It’s not hilarious if your teams focus is retail related.

And the company focus is retail oriented.

Not in AWS

Retail is an AWS customer, isn't that obvious?

Ideally if Google management wants to run these types of companies, they should pay dividend on the shares, taking money out and then invest in these businesses. The only reason I can think of for allowing Google management to throw other peolpe's money at their pet projects is taxes

Not following. Paying a dividend and the money is gone versus reinvesting. So the opposite of what you are suggesting so maybe not following?

The profits generated from Google's business belongs to the shareholders ( owners ) of the company. If the money can be used to defend the business ( Android, Chrome etc ) it can be - and should be - reinvested. Is self-driving cars related to search ? You could argue that it defends the brand. But otherwise, the money should be paid out as a divident and the cash thus obtained by Google's management ( Larry and Sergey still hold a lot of Google stock ) can be used to fund these type of projects. Other shareholders who do not believe in such projects can invest their dividents in businesses they believe in

AWS was surprising.

A lot of what Google does, or fails at, makes a lot more sense when you actually think about what its core competencies are: big data, anything that works best with an exabyte of data, a billion CPU-years, and some crazy machine learning / good ol' fashion statistical elbow-grease.

It's obvious how this relates to their original business, Search, and how it relates to their more successful spin-offs and their failures. Spam filtering and self-driving cars are more big data problems (though spam filtering is less impressive nowadays), and the Cloud and YouTube make a lot more sense when you realize that Google already runs a really efficient data-center. Meanwhile, eg, Google Reader was something that didn't really need a Google to run, and suffered for it.

It's not as obvious to me how AWS grew out of Amazon; it doesn't seem obvious to me that you need that much data center to run Amazon (or at least, Amazon-at-that-time).

I wish I'd said it like that. Surprising, for just that reason.

Your Google point (besides being a contrast to amazon's surprising athena) is an interesting way of describing things.

Youtube, Android and even adwords & web analytics were bought fairly formed, and clearly were quite good already. That's a skill in itself. When you think of examples of ebay, skype and how few buy-outs really do succeed like that.

Google could make the web work too. Remember how slow yahoo a basic webmail service was. The idea that they'd make an excel that worked.. it wasn't trivial.

But I think you're right on the lead skill. If it works best with an exabyte of data, a billion CPU-years... it works best on a google.

I think that is an interesting insight - the majority of Google's offerings are from aquisitions of 'established' implementations, whereas Amazon's are developed in-house to solve a pain-point, that is felt by other businesses, too.

So, is Amazon really more B2B, while Google is B2C?

Is Amazon using e-commerce like a US university looks at undergrads for funding?

Google has a good mixture of acquired and organic. You really want to successfully be able to do both but most really only can do one or the other.

Google has bought a number of companies, yes (Google Maps is another piece that started as an acquisition) but I'd note that which acquisitions survive and thrive also relates back to the core competencies.

I recall an episode of Software Engineering Daily where the host, Jeff was interviewing some Microsoft guys and they suggested AWS was the result of Amazon selling it’s own infrastructure. Jeff interrupted him and said that was “not accurate.” Sorry I don’t have link to the episode here but it was not a very good one. The Microsoft guy responded by saying the truth of the story didn’t matter, which is pretty absurd but I think reflects how Amazon came to dominate the public consciousness. The truth just doesn’t matter in advertising or in reputation. We’ve learned how to undermine it with buzz and mediation.

For example, many were sick of Wal-Mart. Was it because of the way they treated their workers? No. If it were, they wouldn’t have ran to Target and Amazon instead. The actual shopping behaviors are guided by convenience but judtified by cultural associations. Target capitalized on the same image appeal without offering anything new at all. Amazon is, culturally, Target + Silicon Valley. Ad agencies all understand this very well. Amazon is neoliberalism in the flesh. There’s nothing a bit surprising about it.

I've always wondered about how Target can maintain this image as some kind of forward-thinking retailer when they're no better than Walmart is on most of that stuff, but I think the answer is honestly mostly "the Wrong Kind of People shop at Walmart."

They offer better service and selection in many areas than Walmart. This is particularly true outside of the south, where Walmart is just better for some reason. Here in the northeast, Walmart is like DMV especially when benefit checks come in.

They also appeal more to women, and eschew product categories that men and poor folk flock to like car parts, guns, fishing, Jesus books, crafting, etc.

> eschew product categories that men and poor folk flock to like car parts, guns, fishing, Jesus books, crafting, etc.

Other than guns and car parts, I've seen all of the above at Target.

(However I'm in Houston, so product selection may vary regionally)

> They also appeal more to women, and eschew product categories that men and poor folk flock to like car parts, guns, fishing, Jesus books, crafting, etc.

Target does not eschew most of those categories (guns and car parts are the only ones I think they consistently don't carry). Also, as an aside, crafting isn't a “men and poor people” category, anyway, but a famously huge interest for middle class women.

My local Walmart probably has two full aisles for crafting stuff... probably about 200 linear feet. The next aisle is ball jars and canning.

Target probably has about 40 feet of that stuff, mostly scrapbooking and similar stuff. No yarn, no knitting needles, etc.

Fishing in my local Target in a single 4-ft section, next to 12ft of water bottle and Thermos jars. Walmart is probably two half aisles of stuff.

While I don't doubt that there are some differences in focus, Walmart generally has more of everything than Target.

Women are also more religious and more likely to attend religious services.

I live in Massachusetts. My experience is that the selection is smaller and more expensive but the goods are not of a higher quality (especially if you have a Walmart Super Center). But I think the "especially when the benefit checks come in" aside illustrates exactly what I am talking about.

Walmart targets the market, it isn't a good or bad thing. Walmart is sort of an ersatz bank for under-banked folks and folks on the margins.

For me it's as simple as making it so the stores don't look like they've been through a looting riot recently. I still go to Walmart sometimes, but I'm generally not happy about it.

> Jeff interrupted him and said that was “not accurate.”

Not accurate to say that Amazon is selling its own infrastructure, or not accurate to say that they had the internal competencies to launch AWS due to building their own infrastructure? I've always assumed it's the latter -- AWS is an abstraction of tools they needed to build anyway -- rather than literally sharing compute etc. with Amazon services.

I think this was some lazy paraphrasing on my part. I’m pretty sure the latter is what they meant. Personally, to me, it sounds like ones of those business idea myths that may have some bit of truth but it’s mostly a viral spin.

What I assume is being referred to is the story that AWS got started to sell Amazon's spare compute capacity. Werner Vogels has publicly stated that this is a myth: https://news.ycombinator.com/item?id=8658383

I think it was "the amount needed during normal periods" vs. "the amount needed during the one extremely busy month of the year".

They realised other people will have this problem (maybe at different times), and they already had the technology.

Granted its easy to speculate with hindsight.

So much this. A commerce company needs peak compute in December and tax companies in March, so why not share server farms? If you extend that idea to a business model, you make a normally internal cost center into an external facing revenue generator.

AWS was surprising.

Stage 1: Railroads are going to be the next big thing. Smart play: Be one of the first with a railroad.

Stage 2: Everyone knows railroads are the next big thing. Tons of people are raising money to build railroads. Smart play: Sell those people the stuff to build railroads.

Rhetorical:

So now - what is Stage 3; once everyone has a railroad - then what?

Buy trains.

The metaphor was broken.

Stage 2: make it easy for everyone to have a railroad by leasing them yours. Lease yours multiple times over, each time for less than it would cost the customer to build a new one.

Stage 3: everyone has a railroad which they rent from you. Collect rent on all railroad activity forever.

How about: Everyone owns a car?

rent out the cars

And this is where Uber/Waymo are going.

Welcome, you just reinvented the problem of rent-seeking.

“Rent-seeking” has nothing to do with “renting someone a car”, common term notwithstanding.

Rent seeking has everything to do with trying to extract a continuous profit out of a resource.

Are you sure?

It always comes back to the car analogy

Where cars are a small Virtual Server, and the VPS provider runs on AWS. Oh no, it was a railroad all along!

So now - what is Stage 3; once everyone has a railroad - then what?

Then it's a long time after the initial Industrial Revolution, and you're in a fantastic world where it's commonplace for ordinary people to own a steel machine which can travel as fast as a train at "high speed."

I don’t know where the metaphor is supposed to go, but I’d imagine that the next stage for AWS is to move further into SaaS products, and to introduce new products and features that lower the engineering overheads of operating on AWS.

Surprising or not, AWS makes a lot of sense when you look at Amazons core competency. Logistics.

Look at any individual AWS service by itself, none of them are all that groundbreaking or innovative. What is groundbreaking is that Amazon has managed to take all of these services, and distribute them through a massively complex and infinitely scaling ecosystem. That’s logistics.

This is very true. I remember around 2005-06 when they publicized black Friday as a proof by fire of their technology, pretty much daring the internet to bring their site down with huge deals all at the same time. And it was amazing that their website kept working. After that it seems like they realized they could sell the idea of automatically, infinitely scaling infrastructure, but it wasn't at all obvious from the outside.

If the leap to AWS had not happened, Amazon would likely not be here today.

All of Amazon's operating income comes from AWS. The other departments ranging from moon launches to book selling are just cost centers.

http://www.zdnet.com/article/all-of-amazons-2017-operating-i...

http://www.businessinsider.com/amazon-web-services-cloud-onl...

https://www.geekwire.com/2016/amazon-without-aws-online-reta...

“Cost center” doesn’t mean “unprofitable department”. And actually two of the three segments appearing in Amazon financial reports are profitable.

> “Cost center” doesn’t mean “unprofitable department”.

That's unnecessarily pedantic. A cost center is an organizational subunit that incurs cost but does not directly contribute to the company’s profits. Since I said "department" and "cost center" it really should be clear what was meant. Why, it is just like the article itself using "Amazon" as both a noun and a verb!

> And actually two of the three segments appearing in Amazon financial reports are profitable.

Amazon had 6 segments in 2017 not 3.

If you look at the Operating Profit, Operating Margin, and P/E considering the context of my comment about AWS vs. the other departments, I think you will see why AWS has kept Amazon (and AMZN) afloat.

Using “cost center” in the first place was unnecessarily pedantic. And wrong.

According to note 11 in the annual report for 2017 “We have organized our operations into three segments: North America, International, and AWS.”

I would be skeptical. They conjured up profits when the analysts finally demanded it.

My guess is that Amazon will be the next big accounting scandal. I doubt anyone truly understands how the company works.

AWS has a big head start, but the margins aren’t going to last as Microsoft and Google grow. Once one of them decide to buy the business by slashing network costs, poof.

I dunno. Depends on how rapidly folks move away from AWS to other clouds. And that to some extent depends on lock in.

If all you are doing on AWS is ec2/vpc, moving to gcp is pretty easy. But if you are leveraging any of the proprietary tech like kinesis, lambda or sqs, it's going to take an application rewrite. Which means that it will have to be a very compelling price break. I don't have a good feeling for what the product penetration is for non IAAS services is.

Now, for green field development, where there's no legacy AWS integration, pricing becomes a lot more important.

Walmart has got their fingers in a lot of pies too. I am not sure you meant to use them in that sentence anyway because they don't do "car stuff."

That he came up with AWS tells us a lot about his acumen. Google reportedly has failed to build a viable rival although they had kubernetes in their internal system for a long time.

https://www.cbinsights.com/reports/CB-Insights_Amazon-Strate...

The point the author is making is that it makes no sense from a traditional, conventional wisdom business perspective.

The point the author is making is that it makes no sense from a traditional, conventional wisdom business perspective.

Here's where Marx and Engels get it right: You have to analyze the change and the direction of change. (Many other things, they get dead wrong.) Look back at history for perspective on what's happening today, and it makes perfect sense!

"Riches to those who get there first."

I always hear that but it should be "Riches to those who do it right". A lot of first comers get killed by second comers.

Exactly.

Apple didn't do the first personal computer, MP3 player, music store, smart phone, tablet, or smart watch.

Whether they did it all right is a matter of opinion. But they did do it profitably.

They did it "more right" overall than others. That's all that's needed. I don't think MS was ever first at anything either. But somehow they often managed to do things better than everybody else.

IMO, unless you get their right you did not get there first. Myspace was not a social network even if people think of it in those terms looking back.

>I always hear that but it should be "Riches to those who do it right". A lot of first comers get killed by second comers.

You are absolutely correct.

Apple didn't have the first MP3 player, but figured out how to do it right.

Henry Ford wasn't the first automaker, but he figured out how to do it better.

Facebook wasn't the first social network, but it figured out how to beat a slew of competitors.

Silicon Valley wonks are always pontificating about "first mover advantage." It's a bunch of bunk from the same people who repeat the same cliches they hear bouncing around their echo chamber.

What I discovered in my years of bouncing around the west coast dot-com industry is that it's 60% used car salesmen/fake-it-till-you-make-it posers, 38% grunts basking in the fictional glow of the dot-com mutual admiration society, 1% genuine leaders, and 1% innovators.

A great example is the Amazon article, which states that LESS THAN 10% of buying is done online. I bet that came as a shock to a lot of people in SV, who imagine that we live in a world where brick-and-mortar is just dust-and-memories.

> LESS THAN 10% of buying is done online

I have a lot of my online purchases sent to my employer because we have a lot of porch pirates in my neighborhood.

My boss and fellow colleagues would claim that I account for a large part of that 10%...

I assume that 10% figure is either retail or "consumer goods" and doesn't account for things like travel. I imagine something like the inverse for travel. Probably similar for other spaces where shipping isn't involved.

Right, even with Amazon you could argue that Ebay was there first as the online marketplace for 'everything'.

How do you die broke sitting on top of a gold mine? Ask the guy who found the Comstock lode. No, his, or rather their, name, wasn't Comstock. Though he died broke too.

"Extending one's market power," to use the legal phrase, makes sense for that business (and profits), it's just illegal; tolerating it as it destroys a wide swatch of a previously competitive marketplace makes no sense.

Traditionally, vertical integration has been a tolerated exception, but that doesn't match what Amazon is doing.

Yes, corporate America, it's terrifying when a company actually invests its profits in its own business instead of payouts to shareholders and stock buybacks, isn't it?

But - how do you know for sure that Bezos had a master plan all along? It could have been a series of cunning changes just as well.

Also, Corporate America hosting more of their data with Amazon is not helping.

Absolutely. The headline and the banal terror in that quote are all I need to see here. Buy some things from Walmart/Jet if you’re really that worried about a new player monopolizing new industries (for very good reasons). In the worst case there’s still going to be antitrust law.

It’s a shame in some ways.

Setting aside the rest of it, the core Amazon experience is kinda annoying. Trying to find anything in its morass of Bad metadata is increasingly challenging. The marketplace aspect is comprehensively shitty, to the point that I will entirely avoid anything that isn’t actually shipped by Amazon.

Haven’t you ever hit a product page for say, a pair of shoes, and the “colour” options are things like “Blue”, “Green”, “EXTRA LARGE”, “pair”, “SHOE”, “red” - each of which actually turn out to be different products from different sellers with different delivery terms. Or a listing for an SD card that combines different manufacturers for different sizes, except some of them are actually SSDs and other ones are 3.5” hard disks? I’m full of rage just thinking about it.

And it’s a shame because ordering from Amazon is great. Fast and reliable delivery, easy returns, that kinda stuff. If it was easier to find things on it, I’d use it even more. As it is, I barely tolerate it, and there are other options that are actually pretty appealing.

This absolutely enrages me, too. Especially when other big retailers are copying the same model. It's made shopping for computer parts an absolute nightmare.

I swear the plan is to maximize the time it takes to find anything and thus have more time to try to sell you more junk.

There is a shop in my city that will just sell you computer parts. You walk in there, tell them 'I want a basic mouse' or whatever, they will hand you one they approve of, you give them money and walk out. By now this is faster than trying to find one online, including the ride there. It will not even be significantly more expensive.

> It's made shopping for computer parts an absolute nightmare.

Give Newegg a try, they get it right.

Though each order seems to result in six emails, without a way to turn it off.

I have filters for all "order" emails, so I haven't even really noticed anything like that.

They used to. Now they copied Amazon and it's a nightmare.

Just a random example, you want a bluetooth headset but you get like a 25% SNR in that category:

https://www.newegg.ca/Bluetooth-Headsets-Accessories/SubCate...

Amazon has pretty abysmal filtering, yeah.

Funnily enough, I used to search on ebay for computer parts first, the metadata system there is way more thorough so I can filter out the parts and then check them directly on amazon via partnumber or model name.

Lately I've been confused by the number of generic brands on Amazon. If you look for USB CD drives, there are LG and Dell branded ones (ok), but also: Chuanganzhuo, Gipow, Versiontech, Blingco, Wsky, Lacdo, Dansrue, Cocopa, Rodzon, Miluotech, iClever…

Does Amazon let the same people list the same items under different sellers? Is China actually a capitalist paradise where anyone can start a lifestyle brand of CD drives?

>Does Amazon let the same people list the same items under different sellers?

Yes.

>Is China actually a capitalist paradise where anyone can start a lifestyle brand of CD drives?

Yes, but you will be surprised at how difficult it is to succeed. For each of the brands you mentioned, there are hundreds, if not thousands, of failed ones selling the same product.

>Haven’t you ever hit a product page for say, a pair of shoes, and the “colour” options are things like “Blue”, “Green”, “EXTRA LARGE”, “pair”, “SHOE”, “red” - each of which actually turn out to be different products from different sellers with different delivery terms. Or a listing for an SD card that combines different manufacturers for different sizes, except some of them are actually SSDs and other ones are 3.5” hard disks? I’m full of rage just thinking about it.

This is called ASIN merging and happens when a malicious seller wants to quickly boost their review count.

Please report it as a violation.

Walmart also sells everything, and it actually sells more of everything than Amazon by quite a lot. Just not online.

The gap is not even close. Walmart sells almost $500 billion in goods every year in the US alone. Amazon sold less than $200 billion in 2017. You could fit more than 2 Amazon.com's into Walmart. This is admitted by the article halfway down but a lot of people don't really take this into account when they think about Amazon.

Amazon may be a very exciting stock, but it is not the leading retailer. It is only the dominant retail website online, and that dominance in market share is actually quite misleading because the Amazon Marketplace is not a 1:1 comparison with how Walmart retail stores work. The Amazon Marketplace is hundreds of thousands of independent retailers daisy chained together to supply the website with valid, high quality offers combined with a small number of conventional vendor suppliers. Walmart is Walmart. When you buy from Walmart you buy from Walmart (unless it's through the online Walmart Marketplace which aspires to be an Amazon Marketplace clone).

Amazon has had some breakout successes in entirely different markets from retail, like their leading cloud business.

Amazon will do about 50% of online sales this year. Regardless of whether it's marketplace or not, it means that they see 50% of online sales in the US.

If you think Amazon is competing on just "goods sold" then yes, at this fixed point in time, Walmart is much bigger and better at that.

If you are thinking that online sales will eclipse retail in the near future (even groceries: http://www.nielsen.com/tz/en/insights/news/2017/grocery-e-co...), and that this is an inflection point in buyer behavior, then Walmart is a leader who will run out of gas soon, and Amazon is just hitting their stride.

Yes it does do roughly half of online sales.

>If you are thinking that online sales will eclipse retail in the near future (even groceries: http://www.nielsen.com/tz/en/insights/news/2017/grocery-e-co...), and that this is an inflection point in buyer behavior, then Walmart is a leader who will run out of gas soon, and Amazon is just hitting their stride.

That is not likely. The report you are citing does not support the projection you are making.

>then Walmart is a leader who will run out of gas soon, and Amazon is just hitting their stride.

This kind of fantasy is almost ubiquitous among people who write articles about tech-y business or who run non-ecommerce internet businesses. However it is not supported by actual breakdown of online vs. physical retail sales.

See Nielson on what that breakdown is: http://www.nielsen.com/us/en/insights/news/2017/as-us-retail...

You can't necessarily draw a straight line based on the growth or even compare the US directly to China which has a much greater proportion of online vs. retail sales. There are various complications across many different product types that make it challenging for pure online mail order to completely displace physical retail.

The complete lockstep faith in this 'inflection point' stuff that I have seen and heard from people leads me to be extra-skeptical of it. Just because Marc Andreessen said it doesn't make it so.

Pretty much every dollar my household brings in comes directly or indirectly from ecommerce. I am very personally invested in the continued growth of ecommerce. But I am also quite aware of the many difficulties and risks that the industry faces.

It was really surprising to me that Walmart, being as anal about logistics as they are, didn't invest all that much in their digital marketplace. Even now their website is not ideal.

They are now. But before ecommerce as a whole was such a tiny fraction of the overall retail market. They do still have one of the largest online retail websites.

For traditional retailers, e-commerce is an upstart that 'steals' sales from established geographically-based territories. To support the e-commerce project is to betray all established players. It cannot gain support until it is much too late.

This is true of almost all 'disruptive' technologies, and is the reason that startups can win so big.

A topic very well explored in "The Innovator's Dilemma" by Clayton Christensen.

Looks interesting, thank you. Just bought it on amazon.

With stores like Toys'R'Us shutting down in UK, the market for Amazon will grow bigger I guess. More and more traditional retailers will go out of business, and I don't think all of them will be able to pivot to online. And that's when Amazon steps in.

> [...] to supply the website with valid, high quality offers [...]

hahah! have you ever shopped at Amazon??

When you buy from Walmart you buy from whoever outbid the competition for that shelf space this month not Walmart. When you buy from Amazon you buy from whoever is offering products in that space right now.

I think you've overlooked this bit of the article:

> (Amazon's) roughly $180 billion in annual sales remains dwarfed by Walmart’s $500 billion, but sales at the big-box retailer inched up 3 percent in the year ended on Jan. 31. Amazon’s revenue rose at least 25 percent in 2017, excluding sales from Whole Foods. That also means Amazon is growing faster than it did three years ago, when it was half its present size.

So to sum up: (1) Amazon doubled it's revenue in 3 years (2) It's growing faster now than it was 3 years ago (3) None of that even includes Whole Foods; and (4) Walmart's revenue grew only 3 percent.

So if it continues on it's current path it seems that Amazon could pass Walmart within 5 years. I'm not saying this will surely happen but I wouldn't at all be surprised if it does.

As an aside it's also worth noting that Amazon has a significant non-USA presence, AFAICT Walmart has none.

As just a customer, Amazon is the closest I've gotten to Star Trek level technology. I tell Alexa what I want and two hours later a set of headphones, a box of Tide and a package of Earl Grey tea materializes on my front porch.

Not quite as fast as Picard's replicator but for all practical purposes, the same thing.

Sci-fi wise, Amazon is the closest to Wall-E's Buy n Large. (Even though Buy n Large started as a frozen yogurt company.)

Yeah, any retailer that requires me to fight traffic, parking and morose customer service just to obtain an item that I can instead have delivered to my porch is at a severe disadvantage.

If anyone is interested, the original Amazon letter to the shareholders (reproduced with every succeeding letter) is worth a read [1]. In some ways it pretty much explains all of Amazon.

[1] http://media.corporate-ir.net/media_files/irol/97/97664/repo...

I don't see why so few people seem to understand that Amazon's key feature is as a payment processing facilitator. People don't shop at Amazon because they have the best deals or have the best logistics or whatever. They shop at Amazon because they can generally find almost anything on there and have it on its way within seconds. People use Amazon because they don't have to think about it. They don't have to get out their credit card or even think about credit/debit cards. It's so damn simple I really don't see how anyone else is really going to compete. The absolute number one reason I don't go to Amazon competitors to buy things is having to deal with payment processing (from a customer standpoint). The only time I don't use Amazon is that rare occasion when Amazon (or one of their "partners") doesn't have what I want.

I disagree. Their core feature is rapid, reliable delivery of the ordered item. Other sites are cheaper than Amazon, but I don't trust them to actually deliver what I order in a timely manner.

When I do shop elsewhere, I don't mind entering payment details as long as I'm not required to save them (I don't trust most sites not to be hacked and leak my payment details). But if I ever get a delivery time over a week or a 'back ordered' status, I cancel the order immediately, because I know that they don't really have the item on hand and are just gambling that they can broker the sale at a profit. I've had merchants outright admit that they can't fulfill an order unless they can add some high margin accessories to an order. Not a game I'm interested in playing.

Also returning things and knowing, that they deliver on time (mostly).

At a random online shop: are they trustworthy? do they really deliver on time? Are those reviews legit? etc. etc. Before I deal with that, I just order from Amazon. Convinience.

And yes, once you are in prime, you are even more bound and inclined to it.

I think what people don't understand about Amazon, is that internally it's not one big company, it's a thousand little companies that serve each other through what amount to API's. In that sense it's much more like a conglomerate.

This confused me when I went to meet with some of the teams because it didn't seem like they even talked - and that was kind of the point, they weren't supposed to really talk. Each stove-pipe had to "sell" their services to each other or build them from scratch.

So in that sense it's always competitive because every group is basically fending for themselves like a startup, but has fantastic resources and access to services backing them up. That also means they can "move" into any industry that there is margin in, and rapidly grow inside of it.

Pretty genius really.

I think that's definitely part of it. It's very interesting to observe the lifecycle of many of these services.

- The company has a business need. - Because of the economics of scale, it often makes sense to develop an internal solution. This is true both for fullfilment centres, and for purely internal problems: e.g. a video conferencing system for half a million employees. - As the product matures, the team or leadership recognises how people beyond Amazon might benefit from it. (think fullfilment, AWS, etc) - The internal service becomes a public product.

Amazon is winning because they have realized in the information age, central planning has become far easier and more effective. The bigger they get, the more they'll grow until they take over everything.

And then they will outsource their core competencies to dubious third parties as they did with the amazon marketplace.

The bigger they get, the more the chorus for anti-trust will grow.

Look at this article for example:

https://www.ft.com/content/aba8d444-fb94-11e7-a492-2c9be7f31...

Which cites this too:

https://www.yalelawjournal.org/note/amazons-antitrust-parado...

The problem for some of their competitors too is that if they do suddenly trigger a slew of new laws, then Google Play and the Apple Store will probably get caught up in it too.

The other thing that could happen is the balkanization of the internet, where heavy trade tariffs will start being applied to America's dominant internet firms. It's already effectively happened in China. They've certainly not engendered any positive will in the rest of the world either for all their tax dodging.

Unlike most accusations of a monopoly (see Apple) this is actually approaching something close to being applicable.

One piece of anti-trust law is that you can't leverage one monopoly to create another. Can definitely see this become an issue as Amazon gets bigger and bigger.

When I first saw the movie Wall-E, I assumed the mega-corporation Buy-N-Large was a thinly disguised Amazon. Every year that goes by reinforces that assumption.

And Mega-Lo-Mart from King of the Hill is a thinly disguised Wal-Mart.

Central planning, whether governments or megacorporations, has always let you win big ... when the central planners were competent and lucky.

The reason decentralized capitalism has done so well in the long run even when centralization can really stomp it in the short run is because sooner or later you have a bad run. Maybe your central planner loses their touch or is replaced, maybe they just get unlucky and a new development or natural disaster turns a good bet bad.

When that happens in a decentralized system, some part of it fails, the rest prospers, and new businesses start to replace the failed.

In a centralized system, if the bet that went bad was big enough, it's game over. Healthy pieces are dragged down with the rest, and only a shattered shell remains.

The information age may make it easier for a central planner to manage, but it doesn't change that basic problem.

Amazon isn't that centrally planned, though, is it? They are mostly a middle-man between either publishers and consumers (for books and other media) or between buyers and sellers (for all of the goods on the marketplace).

This is funny to read if you remember that teams within Amazon are given a lot of autonomy and responsibility, instead of being given plans from a central authority. IIRC, AWS was built as an internal thing to allow independent IT teams within Amazon to cooperate more easily, and then productized.

Probably spawned by the famous memo... https://apievangelist.com/2012/01/12/the-secret-to-amazons-s...

Well, Mr. Bezos' own nightmare is Alibaba for obvious reasons - when most of what he does is reselling stuff from China, how he is gonna compete if he has to sell Chinese stuff cheaper than Chinese do themselves?

That does not compute...

Btw: Alibaba is still slowly picking at US market, teaspoon at a time https://news.cgtn.com/news/3d677a4e77517a4d/share.html

until they have warehouses in the US, it’s worth it to me to pay the amazon premium to get stuff delivered quickly

Given the outsized role that AWS has on the bottom line (mentioned in this article and elsewhere), what is publicly known about which parts of AWS are the most lucrative?

Now only Apple and Alphabet is more valuable than Amazon and it looks like Amazon will overtake Alphabet to be second only to Apple soon.

Next up: Facebook to rename itself to also begin with the letter A.

Acebook?

I'd so much prefer SafeBook, but it won't happen soon...

I don’t agree with this. In long term data is most valuable thing in the world. And Google is best postioned to have more data than anyone.

there’s no such thing as pure data - different kinds of information have different values. Google hasn’t figured out how to turn indiscriminate data collection into economic value, except as a venue to host advertising mixed with search results - and their ad targeting is still abysmal!

Google is worth over $800B yet growing at over 22% and accelerating and not figured out how to monetize data?

Plus the most valuable data

https://m.youtube.com/watch?v=TS2der4Ag_s Google Is Digital Truth Serum - YouTube

Amazon sells at a much much higher premium than Alphabet and Apple. If their growth ever begins to falter they won't be such a hot stock. Amazon has an amazing ability to pinch pennies and beat estimates every time. But with Microsoft and Google pushing on their cloud margins, I wonder how long that will last. They are the enemy of a lot of people. Google, Microsoft and Walmart to name a few. Not saying Amazon is doomed, just think people may be a bit over optimistic in thinking they will not hit road blocks going forward.

The author seems prone to exaggeration. Everything was going wrong for Amazon in 2014? Amazon makes no sense. Working at Amazon is like a Dickens novel. Amazon breaks all the rules.

FYI - Amazon is a huge driver of small businesses. More than 50% of all the revenue from their whole e-commerce business is from 3rd party sellers, who are generally small operators.

This can be true and still be not so great at the same time. What any company like Amazon tries to do is capture revenue, typically by taking it away from someone else rather than create something new.

In the short term that can mean a boon for small business as large competitors to Amazon are undermined. In fact, Amazon uses small sellers to do the undermining. Once everyone in a market segment essentially works for Amazon then they are free to tighten down the screws and extract more profits.

In my experience when we brought our small (10yr old) brand to Amazon prime it doubled our revenue in the first year. Albeit at a lower margin, but still higher that wholesale. The customer crossover is surprisingly minimal, so it is not stealing from our traditional online business. I know this through extensive promotions on our direct website that do not seem to sway demand on amazon.com for the same thing at a much higher price.

Yes, this is true. I have bought things on Amazon from small sellers that were difficult or impossible to find otherwise, or that were only available on a custom site where I was hesitant to give my payment info.

Wait, are those products listed at higher prices on Amazon or your website?

If I can get an item cheaper from the seller directly, assuming paying them securely is not a problem and shipping costs stay constant, of course I'll switch to buying from the seller's website directly.

Unless if the seller's website is harder to use or their business/domain is name not that memorable/trustworthy.

There's a lot of ways in which I worry about Amazon's dominance, but actually if the alternative is (and it was) Barnes&Noble (books) and Wal-Mart (everything else), which drove small retail completely out of business instead of just coopting them, I prefer Amazon.

How many of these businesses are fly-by-night vendors offloading junk-tier goods at inflated prices? Most of the unbranded goods are straight from Alibaba, with a 40%+ markup.

Just try buying batteries on Amazon. You'll wade through countless reviews claiming "counterfeit" before tiring and just buying some batteries that you hope are legit. Or driving to an actual store that you trust sells legit items on its shelves.

3rd party sellers are going to be a pain in Amazon's ass and a massive ding to their reputation if they don't fix it soon.

Some, but in my experience going to conventions and such it's more often established businesses.

I dislike how I can't get prime for just shipping without the video services.

Isn't this just bullying Netflix and other video streaming services? Not only they sell stuff online but they also have a video service. Which is fine but it's not a la carte.

It feels monopolistic. But I'm not sure if that's fair or not of a comparison but I personally don't think it's fair.

How can anyone justify in a P/E ratio of > 250 is beyond me. Math and logic seem both out the window. For investors who want to invest on the scale of decades - like you and I- this will become either a cautionary tale or the greatest returns on an ecommerce stock - ever(Only by then it will be much more than ecommerce).

It is because Amazon purposefully depressing the earnings part of P/E by outlaying massive amounts into capex and R&D. They have a gross profit of ~$66b but a operating income of ~$4b. If they halved their operating expenses that ~$4b becomes ~$34b and the P/E becomes ~30 which is much more reasonable.

Eh, I still don't buy the hyperventilating.

The breathless narrative is that Amazon is some all-consuming all dominating monster that is just going to crush everyone everywhere.

I don't see any justification for this.

(1) Walmart is much bigger. Not to mention Tencent and Alibaba who.

(2) They have well-funded competition and no monopoly power in any of their sectors.

(3) They only have 4% of all retail (online and off) hardly a stranglehold.

Yes, they will do well and grow, but I don't think they will just effortlessly win in every market like this article is implying.

"In 2015, AWS was responsible for two-thirds of total operating profit. Last year it was more than 100 percent."

AWS was responsible for more than 100% of the operating profit? Despite being impossible statistically, is this a sensationalist way of saying that it accounted for all of the profit and covered some or all deficit as well?

> It’s the third-most-valuable company on Earth, with smaller annual profits than Southwest Airlines Co., which as of this writing ranks 426th.

Would somebody mind explaining this to those of us who are not investors? Is this saying Amazon's stock is super inflated by investment speculation?

It could mean that, but in Amazon's case it means they are reinvesting all of their earnings back into new internal investments, which leads to small annual profits.

In that case is the high value still justified speaking strictly in terms of revenue alone?

Also not an investor, but intuitively reinvesting revenue to grow future revenues seems more valuable than being profitable without taking steps to (substantially) grow revenues. Can anyone to speak whether this intuition is reasonable or not?

Exactly. Profits lead to dividends, but also to taxes. As an investor, it is preferable to reinvest and keep growing the business. The trick is that mature companies have a very difficult time achieving double digit growth. Amazon (still) doesn't have that problem.

Investors are credibly speculating that Amazon will continue to have very high revenue growth rates.

Southwest last year grew revenue 4%

Amazon grew revenue 38% (!!)

If you believe that pattern will continue for a very long time, it makes sense to give Amazon an enormous valuation.

As a practical example, if you discount the future by 10%, Amazon is growing discounted yearly revenue by 28%; Southwest by -6%.

Now stocks follow (the sum of) discounted future profits, not current. If Amazon's revenue increase continued indefinitely, while holding fixed profits, Amazon would be worth an infinite amount, while Southwest's value is actually bounded. Of course Amazon certainly will slow revenue growth at some point - but it isn't too hard to see why it could very well be worth an order of magnitude more than Southwest.

I thought Southwest was managing an outsize profit margin for the airline industry for many years on arbitrage bets on the price of fuel and finally ran out of steam in the last couple of years, so it's not a good yardstick.

Yes all about growth. Google is similar as now over $800b market cap and growing at over 22% and accelerating but also much more profitable than Amazon.

My biggest issue is the anti competitive behavior by Amazon in banning all companies on their marketplace from being allowed to sell competing products from companies like Google.

Fine do not sell yourself from not allowing anyone else is going too far.

Maybe someone can explain the unit economics of how Amazon makes a profit. Identify the product category (outside of the marketplace business and AWS) where Amazon has a cost advantage versus the most direct competitor - Best Buy, Petsmart, Netflix, Costco, etc. It's hard to do.

Most people don't buy at Amazon because it is the cheapest.

cost not price. You be the lowest price and have higher costs for a while, but eventually something has to change.

My assumption is the Cloud market is much smaller than the everything market. If the cloud market becomes mature and profits shrink, their growth stalls.

If they divert too much cloud money to big physical infrastructure then are they able to stay ahead of the feature curve against competitors?

Then again as both a customer and vendor of cloud maybe their ability to determine new use cases and customer needs is more in-tune.

But Amazon only competes with Google and Microsoft. Both have high margins in their non-cloud products, and are probably not interested in reducing those margins.

People on the internet tend to ignore the value of a quality item, and of one-day Prime shipping.

And even within Amazon, I'll buy something marked "sold and shipped by Amazon" before I'll be a similar product from "ReallyGoodOverSeasNumberOneCo."

And I've had incredible luck with the Amazon Basics line of goods. So far, just batteries and headphones and other miscellany, but the quality is far superior to any of the Eastern drop-shippers.

Then again, it was AT&T that ran commercials in the 80's saying "You get what you pay for" and "Be the best and you'll never go out of business."

AT&T is now out of business, with its name bought by Southwestern Bell after its death in order to cash in on the brand.

I'll warn you right now that even if you buy something "sold and shipped by Amazon" you can get one of the items sold by 3rd party as new. Amazon dumps them all in the same box. I believe they call it "co-mingling". You may still get junk/counterfeit for all your work. The only things actually protected properly are direct Amazon brands.

So you are already fully deceived by "sold and shipped by Amazon". It may not be.

I've heard about co-mingling, but taking a chance with "sold and shipped by Amazon" is about the best I can do.

But why would you exclude of marketplace and AWS? That's where rivers of money come from to help them enter into new categories!

Setting any of the major parts aside would disregard the benefits Amazon reaps from being so integrated. For instance, do we credit the market with Prime membership? Well, now that Amazon originals and prime video exist, there are people who are Prime members because of video. And for others, it may be the various benefits in combination.

And, in turn, Amazon is able to use Prime membership money to outspend Netflix. Etc.

We can estimate the value of AWS and marketplace by comparing to Azure, eBay, etc. So it's not that hard to put a number on those businesses. That leaves the legacy business, selling stuff on the internet. The history of "integrated" businesses is generally poor. Has your bank tried to get you to invest in a mutual fund or buy life insurance? It's natural adjacency and yet no bank has managed to make it work. Here is the former head of Amazon programming basically admitting that Netflix is impossible to compete with. Multiply across every other product category.

https://twitter.com/ballmatthew/status/973382126992175104

yeah maybe I pay twice as much dollars, but my _time_ is so much more scarce than my disposable income. I get an Amazon package delivered right to my door, almost every day. If I was gonna drive to Petsmart, that would take a several hour commitment. And the selection would be limited by their pbysical space - there’s no guarantee they’d even have what I’m looking for! It’s pretty rare that I’m going to think that’s a good idea, even if it saves me twenty bucks.

The Fortune 500 have an alternative. Build a nonprofit cooperative for their own data centers. Offer only S3, in memory S3, RDS, Lambda (with GPU/FPGA instances too), and SQS equivalents as generic compute services. KISS. Beat AWS on price and simplicity.

IBM/Lenovo can do it too. Custom fabric for affinity of Lambdas and in memory S3 on the same rack for insanely low latency. Killer is an MPI Broadcast primitive over a tree network and other bare bone equivalents of fundamental MPI operations. DOE alone will stop buying CRAY when they can use commodity low latency racks for HPC.

idk, it'll be curious when a $5.99 video rental online will actually mean a near instant delivery to your door. Amazon is trying to do instant deliveries.

Then all these services won't be as valuable.

My point is, might it be smarter to make a coop logistics company? Consumers may favor slower(but not too slow) delivery of a higher quality product for the same price as it's digital equivalent.

How can a company the size and market dominance as Amazon not be subject to monopoly discussion?

They have grown far to big. Unfortunately with Alibaba there is no more alternative than to allow companies to become as dominant.

Jeff Bezos is a star trek fan. May be this explains his desire to create a society free of labour which means eradicating the middle men as the first process.

I wonder when Amazon will break itself apart (a la Alphabet) in order to lessen regulatory scrutiny?

I have been wondering the same thing. How would that affect employees though? For instance, employee movement within Amazon is straightforward today, but will that still be the case if Amazon went the Alphabet way?

Employee movement between companies in Alphabet is not really different than movement within Google.

I would consider movement within Amazon to be more difficult than movement within Alphabet as you have to interview again for your new team at Amazon, or at least this was the case when I was there.

(I work at Google and previously worked at AWS)

Does the recipient team of an internal transfer at Google not conduct any kind of interview? (I'm not talking about your traditional whiteboard interview, but surely people meet up and make sure that the transfer meets the bar of the new team?) I've noticed that expected skill for a job level depends strongly on location, so trying to sync up with a transfer doesn't feel strange to me.

Sorry I should have been more precise. The manager has to approve the transfer so presumably they would talk to you first to make sure you're a good fit and give you more context into the role. So I suppose although it's not called an interview, it basically is one.

Alphabet didn't break itself apart. It reorganized. There is a big difference. Standard Oil was broken apart into different companies.

your stated difference being that one occured before, while the other after, an antitrust lawsuit?

My point is that alphabet is still 1 company. Standard Oil was broken up into many different companies.

Alphabet wasn't broken up. It is 1 company. There is a difference between reorganization within 1 company and breaking up a company into separate companies. Not sure how else I can explain it.

Standard Oil was broken up into separate companies - which eventually become exxon,amaco,mobile,chevron,etc. Alphabet just reorganized their corporate structure. Meaning after the reorganization, google, youtube, deepmind, etc remained part of alphabet. Exxon, Amaco, Mobile, chevron, etc were not part of standard oil after the break up.

Unfortunately, this is merely Bezos cashing in on the US government's ignorance on sales tax and the internet and winning [1]. If you see Bezos' history you can see that he is a financial engineer and he engineered it well [2]. That's not to say it isn't ridiculously impressive regardless of that and there were many other points that could have been missed, and weren't.

But the amount of money that was, essentially accidentally, injected into Amazon this way, accelerating it's revenue by double-digit percentages in a way inaccessible to it's competitors is staggering.

The problem with mail order has always been that they can never match Walmart's prices on logistics, because of the economies of scale. Because Walmart's customers bridge the expensive last mile for Amazon. Amazon has worked very hard to make the cost difference for the last mile less, but even now it's not a match. So how could Amazon ever become competitive ? Tax optimization.

And then Bezos' figured he could make sales tax pay for last mile : that despite having local state infrastructure he would not have either pay sales tax himself or force his customers to, which was a big gamble, and frankly questionable in legality, a clear advantage over his shop-based competition. But he won, despite a few incidents. This was the main, but not the only successful "tax optimization" Amazon successfully executed.

This is the same hole Alibaba exploited and quite a few others. Cheap toys from China work because they

1) don't pay fair price for delivery due to international postal agreements [3]

2) don't pay taxes like their US based competitors do. They don't pay sales tax, nor do they pay quite a few other taxes. (I'm going to assume this is well known)

Now there are plenty of other companies that were extremely well positioned to do the same, above all perhaps Ebay, but they ... well they screwed up royally.

Perhaps this did not need to lead directly to Amazon and Alibaba/"China inc" perse, but something like them are the result of government "planning" (between quotes because this is how a whole host of negotiations by lots of people interested in other things turned out, not the result of anyone's plan, it is a series of accidents (and mostly costly mistakes) cemented in international and interstate agreements).

So the great accomplishment of Amazon and Bezos is to (a) be new, and able to construct their companies around the holes in these agreements (b) to know about the holes in the agreements in the first place. The greatest threat to Amazon is China.

But sadly, and despite that I agree that Amazon's technical and organizational structure are a remarkable feat, the company is the result of Bezos exploiting accidental governmental financial engineering to a large extent.

[1] http://money.cnn.com/2017/03/29/technology/amazon-sales-tax/...

[2] https://en.wikipedia.org/wiki/Jeff_Bezos#Early_career

[3] https://www.washingtonpost.com/news/storyline/wp/2014/09/12/...

It isn't, but Mr. Bezos wants everybody to think that it does, and it appears that it works for him.

> In 2015, AWS was responsible for two-thirds of total operating profit. Last year it was more than 100 percent

wait, so why doesn't amazon ditch the online shopping business?

Because they can switch on a 30% profit margin at a moments notice once the competition is sufficiently demolished

doesnt their history indicate that they can't have so large margins in online sales?

With vibrant competition, no

Not quite. Firstly, retail is not a huge loss maker like people make it seem. Amazon has shown in the past that it can make a 6.6% margin on retail (which is fairly huge). Even right now North American retail makes about as big a profit as AWS, losses are coming from international retail.

So in the end you can imagine Amazon being something like 6-7% margin on retail (that's not assuming any technological paradigm shifts like fully automated warehouses, amazon owned banking and payments, fully amazon owned logistics) and 25% margins on AWS.

On top of that you have a fast growing ads business that is destined to rival Google and Facebook (if not displace them) with fat margins, and a big chunk of the smarthome/IoT market via Alexa and AWS.

Doubt you will see Amazon compete in ads at a competitive level with Google or even fb.

Big problem is media buyers knowledge of their platform and willing to.learn it as well as integration with the ad ecosystem.

The retail side is currently a very convenient place to generate losses to counterbalance those profits.

One simple reason is that the Retail part of Amazon is a huge, probably the biggest, customer of AWS. I don't know true this is, but I could go one step further and say that they test a lot of new cloud technologies at scale internally before selling them to external customers.

Some would say it's the reverse right now. Amazon retail is running some big projects to migrate to AWS. Some AWS services are used heavily, others are not.

e.g.

https://www.theinformation.com/articles/in-major-shift-amazo...

Amazon is just one scalability improvement in blockchain away from getting a major DApp-based competitor with the potential to obliterate its e-commerce side (while keeping cloud one) within a decade.

What part of a decentralized app gives such a market advantage?

To think that centralization is Amazon's main weakness is, pardon me, quite comical. At the end of the day, much of their power stems from efficient centralization of supply chain, purchaser-side negotiations, economies of scale, and team coordination.

Just because an app is on the blockchain doesn't innately make it a winner. It has to deliver the same value to customers at a cheaper price. Amazon doesn't make much money on most transactions, so saying the "cut out the middle-man to save money" argument doesn't really work.

So where's the logic? I'm genuinely interested, but just not seeing it.

First, as you say Amazon is a middleman charging from 3-15% per sale, making many small 3rd party sellers unable to compete (if they pay shipping themselves etc.)

Moreover, they often abuse their position by insta-banning sellers e.g. upon very first listing etc. due to faulty machine learning fraud detection, so using their platform is increasingly risky even for quality sellers.

The main advantages of Amazon are centralization of payment information without the need to enter CC etc. at different shops for every single purchase (which blockchain has no issues with by design), fast shipping times with Prime (this might be tricky to reproduce; here is the supply chain efficiency advantage you mention; nevertheless a drop-shipping idea with generic warehouse robotics would commodize it) and returns for any reason (this is people-intense unfortunately and not so easy to automate right now). For us programmers, they also supply state-of-art merchant API services with some interesting things like real-time repricing possibility, observing top sellers for any category to duplicate etc. yet there are quite a few flaws and their API feels dated and could be made much better.

Amazon as a brand name is also trustworthy; here trust-less approach in DApps and observing any seller/buyer's transaction history can obliterate this advantage, though some implications are quite scary.

To replace Amazon, you'd need a marketplace, which seems like the easiest thing for a DApp; another DApp for background checks on sellers/buyers; for Prime you'd need additional robotics (which is no longer so difficult to be honest due to advancements in the past 3 years, especially in confined areas with known environment map), cheap land with pre-fab warehouses that could be owned and ran by individual communities. Obviously, human nature would be biggest risk here (trading illegal goods and services via chains of fully-automated companies, referencing each other), and you might argue that orchestrating all of this might require something like Amazon to exist anyway; I believe though that it only takes for Amazon to make a few hundred capable single programmers to become upset to solve many of coordination problems in automated fashion. Legal and political requirements might be much higher hurdle.

This is blockchain/crypto delusion.

Blockchain does not exceed existing systems in any dimension:

* In the long run, any valuable blockchain will tend towards centralization so long as there is such a thing as "economic returns to scale". The largest miners will make more profits that they can re-invest in becoming big enough. This has already happened with bitcoin. Eventually, if they become big enough, they (individually or as a cartel) can just take all property rights recorded on the blockchain.

* Blockchain is not cheaper than other ways to commit globally distributed transactions. The per-transaction cost of Bitcoin is way higher than something like DynamoDB, Spanner, AWS Aurora et al.

* Blockchain is not more efficient than existing database technologies, and will never be. Why do we need to use the electricity consumption of a small-medium country to move bits around?

I could go on.

I think it's notable that the serious cloud providers like Amazon and Google have not even pretended to care about bitcoin or blockchain. If they really thought it was the currency of the future, they would just kick all the customers of their public clouds and use their resources to takeover any blockchains of value.

I think you are conflating cryptocurrency with blockchain-based DApps; they are different animals. See e.g. here advertised Origin protocol's whitepaper to understand threat vector for Amazon's dominance. Cryptocurrencies are IMO just a neat alpha version of what could be possible, a testing playground somebody took way too seriously; their current implementation is seriously underwhelming (i.e. <30tx/s). While neither Amazon nor Google take blockchain seriously publicly, their VC arms do.

The really terrifying thing about Amazon is that investors allowed them to operate at a loss for decades, which is a luxury afforded to nobody else. How are you supposed to compete with that? Even if you knew how to build a competitor to Amazon, the market would never give you enough time to do it.

The “loss” was more akin to reinvesting margins for growth. The difference between this, and say Berkshire Hathaway, is how much of those investments were in to experiments.

Amazon has not operated at a loss since 2001. They've had positive free cash flow every year since then.

Apparently people (the investor class) are upset that a company has the audacity to the invest in itself rather than pay out dividends.

The absolute horror.

Most actual investors in Amazon were never upset by this. They bought with the full knowledge that Bezos was playing a long game.

They also fended off any sort of corporate raiders/vulture capitalists who could leverage a billion in debt, buy it out, take it private, then strip it of assets.

Growing tech companies have never really been expected to pump out dividends.

Microsoft didn't pay one until 2003, when it was 28 years old and sitting on $43 billion in cash (and then it declared an annual dividend totalling less than $1 billion).

Amazon is great example of how the short-term focus of public company CEOs won't end well. Long-term thinking is best for building a valuable company.

That luxury was earned. The competitor would need to offer the same level of consistent high growth YoY and achieve one goal after another, thats the hard part.

> The really terrifying thing about Amazon is that investors allowed them to operate at a loss for decades, which is a luxury afforded to nobody else.

I would argue that is because nobody else posts consistent growth rates like Amazon does. They are still hitting about 40% YOY growth rates which means they double their revenue in 2 years and grow it 32 times in 10. That is insane for a company with 100 billion in sales.

But it's not really a loss, but rather a continuing bet on the company's growth prospects. Reinvesting free cash flows at the expense of paying dividends is arguably one of the main reasons Amazon is the behemoth it is today. Investors "afforded" them that luxury because they believed in the potential.

Retain control of the company and deliver 20 - 30% yoy growth and you can do whatever the hell you want.

Amazon is a darling to investors.

It is now, but for a long time investors lamented Amazons self investment and long-term outlooks.

Some investors, bloggers, and websites that need clicks lamented it. The ever increasing market cap implies that obviously a greater share of investors did not lament it.

Which is fine; those people chose not to invest in Amazon.

Actually only sort of, it's likely only because Bezo's retained enough control to fight off an activist investor with a shorter term horizon. Structuring themselves to insulate from takeover by short term interests is something that several startups have conciously done.

nobody else? Uber loses like a billion / year with no clear strategy of how they'll make it up. I thought this was the maximum growth / user share strategy. Offer most value at a loss until they are locked in, but it is not clear how Uber will differentiate enough to retain this share when bleeding stops. Amazon seems to have had this figured out and nobody even came close no matter how much money they threw at it (see jet.com)

This is a classic "Short term thinking, what's a long term?" comment that arrives often on articles like this.

Start thinking more long term, and not just "how can I make a profit RIGHT NOW?!"

It also helps that virtually all their competition is in a race to the bottom of making customer service, the stores themselves, the shopping experience, etc. all markedly worse to cut costs.

I have never once heard of a company made successful by cutting costs. Sure you can defer the death, but the death is still coming. You're just buying time.

The competition was caught competing against a company that has a vastly different cost structure, namely that they don't have to even maintain buildings, have all that staff, and take on all the liability that comes with having people in your stores.

There's no way you can compete with that, the people have voted that they would rather order many things online than go to the store for it. I don't care how much service you provide, but for 90% of the things I buy, being able to do it wherever I am and having it show up to my door is way better than going to try and find it.

I feel the same way, but the thing is, there are plenty of things I need to buy and will need to buy someday that I know nothing about, and would very much appreciate the expertise of a proper salesman (not a salesman in terms of the coffee-voiced dolts we're so accustomed to, I mean a real salesman) when making my purchase decisions, and you just can't find them anymore, with rare exceptions.

I don't know if that would save many businesses, but it seems insane to me to take that one point where Amazon literally cannot compete on, and obliterate it.

Unfortunately, it's just not feasible. Salespeople are just not necessary for many day to day purchases, and the costs of a giant big box store don't work out.

Also, the information obtained from various online forums, reviews, websites and youtube could be more reliable and complete than from a salesperson. There are specialized products where a good salesperson can do wonders, but just not for much of retail.

Well I was picturing specialty retail and things like dealers, not really big box stores. I think big boxes are doomed, and I think we're better as a society for it.

> there are plenty of things I need to buy and will need to buy someday that I know nothing about, and would very much appreciate the expertise of a proper salesman

I can't think of ever feeling this need. I can't really remember needing a salesman for anything besides charging me.

Man, never did I think I'd see the day when people would get mad at rich shareholders for not demanding enough money for themselves.

I think Amazon illustrates that our understanding of 'monopoly' is lacking. It is not just a company which owns 95%+ of the market which is dangerous, but just normal old large companies that own 20% or 40% or so of markets. Oligopolies have their own effect on markets - the econ 101 explanation is a kinked demand model where there is no incentive for the companies to lower their price.

Whose understanding of monopoly? For example, the EU antitrust law cares about whether the firm is dominant in the market - a large share is only one way to show that. (And it's not conclusive evidence! A firm can still dispute that they have dominance, despite the large share)

The understanding of US law and those who enforce it. We've dramatically weakened antitrust enforcement in the past 50-60 years.

US antitrust enforcement has basically settled on "if it's not directly leading to higher costs for consumers leave it alone." This is kind of Matt Stoller's signature issue that he's always writing about.

I actually like that definition. If it's causing harm to customers - prove it. Efficiency is not a crime.

The problem with it is twofold: one, it ignores indirect harms to consumers from monopoly power (for instance, maybe they're not engaging in all-out price gouging but they are keeping competitors or new services out of the market). Two, it ignores other externalities, like regulatory capture or systemic risk, that result from having huge business interests.

"It is not just a company which owns 95%+" Lol! What? Where did you get that ridiculous number form?

"A situation, by legal privilege or other agreement, in which solely one party (company, cartel etc.) exclusively provides a particular product or service, dominating that market and generally exerting powerful control over it."

That was wiktionary.org, but it's not too different from other dictionary's definition, I bet, and that's because it's what most English-speaking people mean when they say "monopoly". That doesn't mean it's the right way to think about it, of course, but it's not uncommon, and the meaning of an English language word is defined by how the typical native speaker uses it.

A very old, classical definition of monopoly is >20% market share. The more modern 95+% definition is a fairly new concept that's emerged from trying to explain Economics to the masses.

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