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.

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