Amazon In A Nutshell

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Ben Thompson summarizes very succintly how Amazon operates in his “Daily Update” of today (paywall):

[It’s] important to remember how Amazon operates: the company is, at a very high level, a platform for the continuous generation of new businesses on top of a shared infrastructure. Those businesses are, ultimately, experiments: the ones that succeed get more resources, and the ones that fail get the plug pulled. What is so impressive about this model is that Amazon has basically taken an iterative web development approach and applied it to the physical world, making it exceptionally difficult for either web-centric or offline-centric businesses to compete with them.

For anyone who hasn’t read it yet, last year’s “Why Amazon Has No Profits (And Why It Works)” by Benedict Evans from Andreessen Horowitz is great starting point for understanding Amazon:

So, we have dozens of separate businesses within Amazon, and over two million third party seller accounts, all sitting on top of the Amazon fulfillment and commerce platform. Some of them are mature and profitable, and some are not. And someone at Amazon has the job of making sure that each quarter, this nets out to as close to zero as possible, at least as far as net income goes. That is, the problem with net income is that all it tells us is that every quarter, Amazon spends whatever’s left over to get the number to zero or thereabouts. There’s really no other way to achieve that sort of consistency.

(..)

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.

6 comments

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