Reminder: Amazon isn’t Apple, they’re not attempting to run a high margin business

January 29, 2013
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    Amazon announced their Q4 2012 financial results yesterday. How much money did they make? $97 million. That doesn’t sound like a lot, but here’s a number that does sound pretty damn incredible: $21.27 billion. That’s how much money Amazon took in during the last three months of 2012. Some tech sites that we’re not going to mention seem to think that because Amazon doesn’t have high double digit margins like Apple, that they’re somehow screwed. The thing is, that’s not how Amazon works.

    Different companies have different ways to make money. Apple ships objects that cost something to make. They want to sell those objects for more than what it took to produce them. Simple, right? Google loses money on just about every web service they run, but that’s not the point. They use those services to collect data about you so they can serve you better ads. It’s the ads that keeps the company alive. Amazon is in the middle. They sell objects, but they also sell digital goods. Electronic book sales are already a multibillion dollar business for them. Know how hard it is to host a 2 MB file of the hottest book on the market? Amazon doesn’t care about profit, they care about sustaining themselves.

    People have a hard time wrapping their heads around this, and we understand why, but to insult Amazon is just wrong. Their tablets may not be the best on the market, but they’re some of the most used, right behind the iPad. And their ability to sell you pretty much everything you’ll ever need for the rest of your life has huge value that can’t be underestimated.

    Jeff Bezos, Amazon’s CEO, doesn’t get the same amount of attention that Tim Cook or Mark Zuckerberg or Larry Page gets, but don’t ignore him. He’s a relentless genius who knows how to win. It’s taking him a while to reach the top of the hill, but he’ll get there.

    We’re sure of that.

    Recommended Reading: “FCF is evil” by Benedict Evans

    Comments

    • Mike Adams

      Is 0.46 percent really sustainable, though? Especially with such a downward trend? http://ycharts.com/companies/AMZN/profit_margin

      • silentcircuit

        Only a fool shows a large profit as a corporation — look at the tax rates. There are plenty of ways to get money out when you need it and avoid paying large chunks of taxes in the short term (and in some cases, ever).

    • umer936

      I see this as genius.

      Think about it, if they lose a little money in the short term, selling the Kindle Fires and stuff at a loss, (making them inexpensive) they sell millions of Kindles!

      That means, millions of people have Kindles in there homes, and people use these Kindles to buy books, apps, etc that MAKE AMAZON MONEY.

      Amazon may not have a huge profit margin now, but at the end of the day, they can make more money on later sales from the devices.

      I have a feeling that the iPad phase is already starting to phase out.

      The current Amazon model looks like they are trying to just stick as many Kindles in as many homes as possible, attempting to “ride out” until the iPad isn’t as popular.

      That way, once people start using their Kindles more, they can rake in the money.

      This shows that they believe their product is the best in the long run, not just the short.

      Also, didn’t Bezos say “If someone buys one of our devices and puts it in a desk drawer and never uses it, we don’t deserve to make any money.”?

      They are confident that people will start using Kindles more and more, and as people do, Amazon will start raking in the dough.

      Right now, they are simply at Stage 1 of their plan.

    • http://twitter.com/MysteryMannnnn Mystery Man

      Actually he gets more attention. He was times business man if the year in 2012 and is regularly praised for his risk taking ways and not being scared to enter every market possible without caring how much previous competition dominates said market.

    • williamworlde

      I don’t know Bezos’ background (and sorry, am not interested enough to research it; too much other crap to read on the InterWebs!), but maybe he’s from the old school camp: Building a solid business with a decent profit margin for long-term customer loyalty (if there’s such a thing anymore). Good for him and his company!

      Apple wants all the golden eggs NOW! The profit margin on at least their iPhones is >100%; I don’t know what else (again, too lazy). That is phenomenal, and quite frankly, I think enormously greedy!

      AND, people love to see big stars and big companies fail. Now, now, don’t be a hypocrite; you know you do. So, everyone’s – except the stakeholders – happy to see Apple’s stock drop “so low”.

      Just wait til Amazon gets a loyal fan base and turns into the new Apple; then you can write about how much they too should be scorned, because that’s what we like. Hmmm…..

    • http://twitter.com/nachomartr Ignacio Martin

      Well, amazon runs their business on low margin and high volume to wipe out competition. If we end up only with wallmarts and amazon, that’s not good.

      • zzz

        Why won’t it be good exactly? Higher efficiency + lower cost? Oh wow yeah that’s bad.

    • http://www.mhoffbauer.com Marius Hoffbauer

      “Different companies have ways to make money.”

      But Amazon isn’t one of them currently, now is it…

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