Amazon and the "Profitless" Fallacy

This morning I came across a post by fellow San Franciscan Eugene Wei on Amazon's "profitless" business model. Guy Kawasaki sent it out to his 5.2M followers on G+, so I probably wasn't the only one. 

But that's beside the point. Anyone interested in strategy, the future of retail, or who just wants to know why items that are $15 in the real world are $10 on Amazon should read this article. Here's why: Amazon matters, and Amazon's business model matters. It's a behemoth that has got sticky fingers in basically every corner of the modern economy and the economic clout to drive a lot of other companies OUT of those corners. It has also remained, despite it's massive scale and technological prowess, stubbornly profitless. In fact, Amazon was once famously called "a charity run on behalf of consumers." But it isn't that. Amazon is a retail killing machine, and it's boss Jeff Bezos is an apex predator:

"To me, a profitless business model is one in which it costs you $2 to make a glass of lemonade but you have to sell it for $1 a glass at your lemonade stand. But if you sell a glass of lemonade for $2 and it only costs you $1 to make it, and you decide business is so great you're going to build a lemonade stand on every street corner in the world so you can eventually afford to move humanity into outer space or buy a newspaper in your spare time, and that requires you to invest all your profits in buying up some lemon fields and timber to set up lemonade franchises on every street corner, that sounds like a many things to me, but it doesn't sound like a charitable organization."

Check out Eugene's full article here.

Yet Another Excuse to Cut Out Early

In the mood to start your weekend early? It might not be a bad idea, according to an article in Sunday's New York Times by Jason Fried, the co-founder and CEO of a Chicago-based software company called 37signals. In it, he discusses two experiments that his firm has used to improve creativity and productivity:

1. During the summer, the company runs on a four-day workweek. Rather than cram forty hours into four days, they actually switch to a 32-hour workweek. This creates helpful pressure without introducing creativity-crushing stress, just as we discussed in earlier posts (Creativity Under the Gun and You Should Go Home Early Today).

2. Every June, employees use their non-essential time to explore projects and ideas of their own. As Keith Sawyer points out in his excellent blog "Creativity and Innovation", this is actually a technique commonly used at companies like Google (20% time) and W. L. Gore (dabble time). The practice dates back to 3M, which initiated "15% time" as early as the 1940s. The basic idea, as always, is to encourage divergent thinking and allow employees to find the products that might become the next big thing.

It's a short article, but it's exciting to hear about companies that are exploring creative new ways to get work done. Creativity may not be a primary consideration in every profession, but I wouldn't mind seeing our society place a greater emphasis on those in which it is. After all, taupe walls and square lines survived through a period of amazing economic growth and revolutionary innovation over the past half century, but it's arguable whether those environments have been good for the people in them. The same holds for the length of the American workweek, which has been climbing steadily over the past decades and is now one of the longest in the world. Three cheers for the managers that see happy and healthy employees as a key part of a healthy (and creative) company.

Check out Jason's op-ed at NYTimes, and thanks to Keith Sawyer for tipping me off.