A former Amazon employee reveals, "the strongest predator" What is Amazon's business model?

Amazon.comWorldwide total sales in 2012 totaled $ 61,093 million (about 5.9 trillion yen), making the position of the world's largest net retailer immovable. But despite huge sales, Amazon is famous for publishing loss accounts every year, hence it is said that he gains tremendous trust from investors and also builds a stone stone position.

Amazon and the "profitless business model" fallacy - Remains of the Day
http://www.eugenewei.com/blog/2013/10/25/amazon-and-the-profitless-business-model-narrative

On October 24, 2013, Amazon.com announced the settlement of the third quarter (July to September 2013). According to the contents of the announcement, despite sales of 24 billion US dollars, 17.092 billion dollars (about 1.6 trillion yen), the net loss is 41 million dollars (about 4 billion yen). In addition to the core retail business of the core business, cloud service "Amazon Web Services (AWS)"The announcement of loss-making settlement of accounts by top-selling Amazon is a familiar scene in Wall Street, as the strong stock price shows that investor confidence in Amazon never shakes at all.


Eugene Wei, who worked at Amazon from 1997 to 2004, describes the company's business model as a classic 'fixed cost business'. This is because, once achieving sufficient sales, income transitions beyond fixed cost base to profit structure, Amazon has crossed the hurdle of fixed cost basis many times so far.

As early as Wei joined Amazon, it is possible to predict when revenues generate profits beyond a fixed cost base, adjust the turnaround time by actively making investments or slowing down the pace I was able to do it. Certainly, as represented by Kindle 's eBook on Amazon, we also deal with items that will be in deficit by selling. However, even if it is an item that costs as a shipping cost like a huge electronic device, correction is made over a long time, and intentionallyRoss leaderMost of the products are producing profits, except for the ones that are sold as an eye-catching item (eyeball product), and the profit structure is perfect, such as having a platform to earn huge gross margins like the marketplace.

So, despite having a business that produces profits so much, why would Amazon announce that it is in deficit every quarterly account settlement? For that reason Wei said "AmazonInfinite ambitionBecause there is. Amazon wants to swallow retailers all over the world. "

ByAlexandre Duret-Lutz

Amazon has a spectacular goal and has been deciding to invest in order to do larger business than before. For example, if you are doing a pure software business, the strategic fixed cost should have been smaller, but it is necessary to foster "a business that delivers products quickly to all customers all over the world" Only a handful of companies in the world have capital.

Amazon understand at an early stage that shipping fee is made as cheap as possible and that delivery of goods as soon as possible will increase customer satisfaction and lead to the next transaction. That's why we have spent billions of dollars on huge costs in building logistics centers around the world. When Wei joined Amazon, there was only one distribution center in the US, but now there are 12 logistics networks built up to 12 places.

ByScottish Government

Wei is convinced that Amazon will be able to easily make profitable quarterly earnings right now if we stop building a new logistics center or entering a new country. It says that Amazon was still doing business to sell books in the U.S., just as he was in 1994 as he joined. However, CEO Jeff Bezos never takes such a method. "Bezos and Mr. Bezos led Amazon is a predator at the top of the food chain and will never stop hunting," Wei says.

Often there is a claim that "flip the switch" is the ultimate goal for Amazon 's "not profitable" business model. In other words, Amazon surviving the retail outlets around the world and surviving to the end is an inference that one day suddenly raises the price all the time. However, Mr. Wei is dismissed as saying this is a sorrowful thing. The reason for this is that net sales, which is Amazon's core business, can generate profits at the market price level for each transaction, and even when the transaction volume grows to exceed the fixed cost of construction of the distribution center without switching the switch It is enough to wait and enough to raise profits.

What makes such a misunderstanding is that Amazon responds to questions such as "What is the number of subscribers to Amazon Prime?" "How much was the Kindle sold?" "What is the capital investment in the distribution center?" It is caused by not publishing at all in the financial report. However, Amazon's attitude like this is unique to high-tech companies such as Google and Apple, it is inevitable because of the pride that it is not investors but high-tech companies themselves to know the management of high-tech business more than anyone maybe.

But Bezos is also well-informed that Amazon's core business of selling everyday goods is essentially a business with a small margin (profit). With any technique, it is impossible to achieve a margin like Apple's hardware business. As a result, Amazon came to cloud service AWS, made huge investments, kicked rival IBM, concluded a computing service contract with the Central Intelligence Agency (CIA)Login and Pay with AmazonIt's quite natural from Amazon's infinite ambition that it is trying to challenge Paypal by serving the service.

ByJD Hancock

Some investors want Amazon to stop huge investment. They think that the rival has already kicked out, now it is a turning point. However, Sears, the largest retailer of 1982, became half of the size of Wal-Mart 9 years later. The blackberry that opened up the smartphone market is about to disappear. It is nonsense that Amazon wants to stop competition (race).

Wei likens Amazon as "being both a rabbit and a turtle." Amazon is extremely patient, it does not play like other companies, and even if it fails repeatedly, it will not come true. However, if you capture business opportunities, you can run quicker than anyone else. And, we compete with competitors by harbinging them to harsh environments. Wei says that if you are an rival of Amazon you will consider dropping a deficit every quarter as a horrible signal. He expects "It is that Amazon is preparing to raise the stage of the race to a thin high altitude of air and the retail competition will be harder in the future".