Amazon’s brilliant, losing strategy

by: Nate SwannerApril 23, 2013

Amazon pricing

Amazon is, as a company, quite the conundrum. Always being discussed, always making sales… but rarely turning a real profit. They have a foothold in just about every aspect of online shopping, and have been an example of how it’s supposed to be done with eCommerce. So how does a company, with no profit or anything in the works touted to revolutionize their business model, intend to be solvent?

They don’t… and that’s the trick. Jeff Bezos, Amazon’s founder and CEO, also seems to think he’s a magician. He’s probably right, too. His recent letter to investors smacked or either prideful ignorance, or boastful brilliance… I’m not sure. Either way, he believes they’re on the right path, in spite of typically poor stock performance and continued loss. How can he possibly sell this? By making shareholders believe what they didn’t see.


The Pledge

The magician shows you something ordinary

The letter Bezos penned to investors was expected fodder: positive about Amazon’s direction, praising staff, reminiscent of the old days, etc. It was, as most letters of its kind, meant to cheerlead and encourage. That’s all normal CEO stuff… when things are good.

The letter was ripe with examples of just how great Amazon is, and what good work they do. He mentions, in a few spots, feedback from customers about how well they were treated. Refunds issues without provocation, or the benefits of Prime membership without additional fees. All very nicely slipped in to bolster the aim and focus of Amazon, which is the customer.

Amazon does a very good job of it, too. Customer service is clearly a priority to them, but to what end? They have general eCommerce in a near choke-hold, yet fail to turn a profit. Bezos, to his credit, seems unfazed by this. That’s where it get’s interesting.


The Turn

The magician takes the ordinary something and makes it do something extraordinary.

Logically, you’d think a letter written by a CEO to investors of a company that has, once again, failed to turn a profit would be apologetic. Perhaps that letter would even be amenable to change, and swear to become tractable during their new path to success. That’s normal… but this is Jeff Bezos.

Rather than promise a new path to financial success, Bezos claims that’s the wrong way to think. The opening lines of his letter read as follows: “As regular readers of this letter will know, our energy at Amazon comes from the desire to impress customers rather than the zeal to best competitors. We don’t take a view on which of these approaches is more likely to maximize business success. “

That opener set the tone for a broader illusion, repeatedly hammering home that customer service is the long term gain. Bezos then seemed to try and sell profitability as a short term gain for a long term loss. In another bold move, Bezos likened stock to intelligence, noting “We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way.”

Investors of Amazon are seemingly being asked to subscribe in blind faith, and to hold out for an unseen future. No mention of a long term growth strategy, or any business model that indicates where they are in the grand scheme. Bezos is touting their efforts and almost damning profitability, all while painting a picture of the delighted customer. That happy customer, loyal to Amazon, who clearly doesn’t spend enough.

Perhaps the grandest gesture to this part of the trick is his invitation that Investors blindly come along for the journey. As Bezos puts it, “Our passion for pioneering will drive us to explore narrow passages, and, unavoidably, many will turn out to be blind alleys. But – with a bit of good fortune – there will also be a few that open up into broad avenues.” That’s an interesting dictum.

By the end of the letter, it’s conceivable that the Investor would find themselves entranced, bewildered, and excited for what is to come next. This is precisely where the magician wants his audience at this point. Bezos has mastered his craft… a commendable feat in itself.


The Prestige

You want to be fooled. But you wouldn’t clap yet. Because making something disappear isn’t enough; you have to bring it back. That’s why every magic trick has a third act, the hardest part, the part we call “The Prestige”

This is where Bezos has work to do. We have, time and again, seen the first two acts. Amazon really is fantastic in their focus, which is obviously putting the customer first. For a company of their size, and that reaches so many people, they absolutely have customer service figured out better than their peers. That’s where confusion sets in.

Amazon is to online shopping what Kleenex is to facial tissue. A company that is almost single-handedly challenging the brick-and-mortar retailers, yet doesn’t have their overhead, is failing. Jeff Bezos may measure success one giddy customer at a time, but the rest of the world does not. Bezos needs to bring Amazon into profitability, and engage in a little bottom-line thinking.

Or does he? After this last round of questionable quarterly profit and loss, stock was up. Amazon outperformed expectations, yet seems to lose money at every turn. This behemoth of a company we call Amazon seems to be succeeding, in spite of itself. Either Bezos is truly a master of his craft, or just a mad genius.

If you weren’t completely befuddled by this ruse, there’s one more head scratcher for you. In discussing why Amazon doesn’t move as swiftly as competitors, Bezos notes “I think long-term thinking squares the circle.” That’s a cute idiom, and a connotation Amazon is finding the solution to a problem that seems impossible to solve. Or, for Bezos, perhaps a strategy to deflect blame for another day.

We may never know… but we’re all impressed.

  • Amazon will be the worlds #1 company in 10 years.

    • not if they don’t fix all the bugs on their website…

      • Hal

        Which bugs are those exactly? I shop on Amazon quite a lot and have never encountered a bug that made me not enjoy my shopping experience. So if you’re going to say things like this, I think you need to back it up with some evidence. Evidence that indicates a significant number of customers are experiencing problems that ruin their shopping experience, driving them to a competitor.

        • Well first of all, it depends on which browser you use, so your experience might be different than mine. Second of all, i’m not going to write some 2 page comment about the bugs that i have encountered. So, in short, when using google chrome and you are browsing and clicking the back button to go back out to your initial search, the page will freeze up more than usual, also, sometimes it doesn’t even go back no matter how many times you click the back button. If they are going to be a successful web-based company and really do well, they really need to focus on optimizing their website for every type of browser out there

          • Jillxz

            Nate , I have used all three browsers at one time or another. Chrome , Firefox , IE 9 and none of these browsers have encountered a bug.

          • Mvrcel Lgt

            I got the same bug =/ I cant go back ever. Its permanent on Chrome…

      • Jillxz

        I do a lot of shopping on Amazon and have yet to find those bugs you are talking about.

    • seyss

      we heard that 10 years ago, and nowadays they sell devices at cost

  • PopeJamal

    Amazon “failing”? Are you kidding me?

    This, sir, is the same type of “cash or GTFO” mentality that says that regular people don’t need jobs, (let alone raises) and that using the third world as an endless resource bucket and a toxic chemicals dump is completely fine.

    Grats on the groupthink!

    • CoolCustomer

      Absolutely, if a company isn’t hemorrhaging money and has steady cash flow to hell with the stock price. Stock value is really just a glorified circle-jerk.

  • DAngelo8

    Cash flow is king, on paper profits not.

  • zzz

    I love spending my money at Amazon. I can’t say that about any other place.

  • Nice to read push back against Wall Street’s short term Profit Uber Alles paradigm.

  • Marcus Harmon

    Amazon is doing great as usual, but stepping into the tablet business is a risky move. Their e-readers are great, but tablets can easily substitute them. When they introduced the Kindle Fire and Kindle Fire HD, they took a turn into unfamiliar territory. I feel like this is the reason why they haven’t done as well. If they want to improve, they should improve their Kindle store selection or enable their video services onto non-Kindle devices. If they are not making money when people are selling their devices, they basically are saying they are wasting money making these devices when they could improve on what they are already good at.

  • Amazon is AMAZING. Simple as that :D

  • Jillxz

    I don’t see why Amazon isn’t making a profit. They sell an awful lot of stuff. All varieties of things. I love shopping at Amazon . They are terrific.