Amazon and the “Profitless Business Model” Fallacy

https://www.eugenewei.com/blog/2013/10/25/amazon-and-the-profitless-business-model-narrative

by serviette • 1 year ago

102 36 1 year ago

eugenewei.com

aaronbrethorst• 1 year ago

(2013)

turnsout2• 1 year ago

An important note, because Amazon is now profitable (though not wildly so, given their revenue)

adventured• 1 year ago

$651 billion in revenue, $71 billion in operating income. They're approaching wildly profitable for an extremely large business. To be that big and to eclipse a 10% op income margin is exceptional. It's closing in on three times the margin of Walmart (obviously Amazon is making their margin in AWS and ads, not retail).

$71 billion in operating income is so exceptional only seven other companies in history have gotten that large: Apple, Microsoft, Google, Nvidia, Facebook, Exxon and Aramco (if you count them as a company). And importantly, that $71 billion is rapidly expanding - it has doubled just since fiscal 2023. In 15 months sales increased $76 billion and op income increased by $35 billion.

The spigot is flowing. $100b in op income is likely not far away.

a_c• 1 year ago

The 2013 me wouldn’t make any sense out of this article. I’m glad the Theseus ship worked a fair bit on me

CGMthrowaway3• 1 year ago

Is the whole gist of this article basically, "start with your fixed cost business model and reinvest all proceeds into growth and scale"? What else am I missing?

agentcoops2• 1 year ago

They bury the important point halfway through the article: Amazon is a free-cash-flow machine and it has almost always been so. The distinction is subtle [1], but consistent (and ideally ever-growing) free-cash-flow is what really matters in valuing a highly capitalized company, even if the firm has always re-invested it each quarter to date. The important point to investors is that the firm's re-investment is a decision -- the company is not brittle to economic downturn and any quarter could decide to payout investors through share buyback etc.

Copious free-cash-flow every quarter is why software companies generally have higher valuations than traditional industries and why it was novel that Amazon, which is not obviously a software company, behaves as one financially.

[1] https://www.investopedia.com/terms/f/freecashflow.asp

CGMthrowaway3• 1 year ago

Makes sense thanks. Software isnt the only industry where FCF matters most either

klank• 1 year ago

any quarter could decide to payout investors through share buyback etc.

Your etc. is layoffs. In this example, the "free-cash-flow" is people's salaries. I'm not personally comfortable with it being considered such a liquid asset.

ethan_smith• 1 year ago

You're missing the strategic focus on long-term unit economics and customer lifetime value, where Amazon prioritizes sustainable margin structures within each business unit while accepting delayed profitability at the consolidated level.

troupo• 1 year ago

Since then, Amazon kept growing and eating other markets (see AWS), or failing to eat markets (see Alexa) while still producing a shitton of money to finance all of that.

However, most of the rest of the industry simply collectively decided that profits don't matter. Most companies of past 10-15 years stopped caring about profits, and only talk about revenue. The are now only two goals in mind:

- survive long enough on unlimited investor money to be sold to the highest bidder and be immediately shutdown

- survive long enough on unlimited investor money to try and corner a market through investor-subdidized price dumping and near-illegal business practices, and then maybe look at how to get some of the lost money back, maybe

axus• 1 year ago

Get bought by IBM, Oracle, or Broadcom, and let them be the villains.

teddyh• 1 year ago

Once the exit is finalized, who cares about the customers? That’s not my department, says Wernher von Braun.

Animats• 1 year ago

"Profits don't matter" only worked during the period of zero interest rates.

AMZN started to become profitable in 2021.[1] By 2023, it was very profitable. $17 billion in Q1 2025.

[1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-in...

vineyardmike3• 1 year ago

Cable companies and other infrastructure companies have been focusing on free cash flow and revenue over profit for generations. Interest rates have fluctuated a lot in that time.

Amazon started to be very profitable because they couldn’t reinvest all that money into growing the business in a meaningful way. The timing aligning with when they stopped their Covid-buildout because sales behavior returned to in-store, they started scaling back the billions a year they wasted on Alexa, and started scaling back various moonshot ideas like Amazon Go stores.

jongjong• 1 year ago

It's weird because revenue can easily be gamed. I could set up a shell company and quickly sell expensive goods back and forth between the two companies and achieve any revenue number I want. Profits are much harder to fake however, especially in the long run.

typs• 1 year ago

This post tracks well with much analysis of some (emphasis some) AI companies in this particular audience.

pengaru• 1 year ago

"Revenue solves all problems"

metabagel• 1 year ago

Please update the title with "(2013)". This article was published on October 26, 2013.

RobotCaleb• 1 year ago

Yeah, it's hardly worth reading anymore

JCM9• 1 year ago

Amazon generates a ton of cash and the strategy of rolling that back into the business has, broadly, worked well. The challenge now as the company gets on in years is that there’s some bits making cash and a whole lot that’s not. That OK so long as the cash keeps coming in to subsidize things but if that changes things will get messy quickly. They’re clearly trying to start rationalizing that now, including with AWS where they’re starting to address some of the bloat there and lack of a coherent strategy at scale outside EC2, storage, and a few other core services.

Frieren• 1 year ago

They’re clearly trying to start rationalizing that now, including with AWS where they’re starting to address some of the bloat there and lack of a coherent strategy at scale outside EC2, storage, and a few other core services.

So, now that they have a defacto monopoly they will jack up prices and profit from companies being slow to move out. IBM did the same thing.

I_dream_of_Geni2• 1 year ago

Even though this article is seriously out of date, there is one thing missing in the analysis: Jeff Bezos was worth almost $30 billion in 2013, and is worth about $240 billion today. That money (value? worth?) comes from somewhere. So, yes, Amazon IS profitable (especially for Bezos)

jrflowers• 1 year ago

That’s not what profit is

I_dream_of_Geni2• 1 year ago

I'm sure you are right. Bezos hasn't 'profited' from Amazon. I was making a different point.

gnabgib• 1 year ago

At the time (231 points, 2013, 137 comments) https://news.ycombinator.com/item?id=6620598

Previously (95 points, 2021, 105 comments) https://news.ycombinator.com/item?id=29661261

Amazon and the “Profitless Business Model” Fallacy

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