
Nobody Seems to Understand What Jeff Bezos is Doing. Does He? - suprgeek
http://pandodaily.com/2012/05/05/nobody-seems-to-understand-what-jeff-bezos-is-doing-does-he/
======
graeme
The author misses one big implication of Amazon Prime: it's an invitation to
start routing thousands of dollars in annual spending through Amazon.

I'm in Canada. If prime were available here, I would rarely go into a store
except for groceries. Most other things I need I would just get shipped to me,
much easier that way.

Not everyone in the US has figured out that free delivery of supplies is
usually easier than driving to the store. But once amazon gets someone inside
their ecosystem, it will be much easier to convince them to route more and
more purchases through amazon.

Given the broad range of amazon's offerings, it's a huge mistake to treat them
as a book company, or an e-reader company.

~~~
bmelton
Exactly this - I will often go check up Amazon before I go grocery shopping,
because I am a Prime member. Shipping is fast and free. In our area, we
sometimes have the option for same day shipping, and products ordered in the
morning arrive later that evening. Often, two day shipping results in next-day
arrivals.

While Amazon isn't something I'd think of for groceries (we don't have "Fresh"
in the area), there are things that it works well for -- deodorant, dog foods,
that sort of thing, and where ordinarily, shipping costs would keep me from
buying things online, Amazon has made that barrier go away entirely.

Now I _prefer_ to shop on Amazon wherever I can. Even if the only advantage is
one less bag I have to haul from the car to the house, that's often worth it
enough for me to buy on Amazon vs. brick and mortar. I won't pay more to shop
on Amazon, but for things that are same cost or cheaper, it's usually the way
I go, if only to justify my Prime membership.

~~~
hyperbovine
That opens up a whole other can of worms though. How is Amazon making money
overnighting me deodorant for cheaper than what I can buy at Safeway? I know
there is an argument about all the other higher-margin items I buy from prime,
but seemingly 95% of my prime purchases are for items where I would be
surprised if their margin exceeded the cost of expedited shipping.

Presumably they have good knowledge of the distribution of consumer behavior
and have figured out how to make money in aggregate, despite the presence of
people like me. I agree with Manjoo though, at times it's hard to believe.

~~~
moe
_How is Amazon making money overnighting me deodorant for cheaper than what I
can buy at Safeway_

Your local safeway had to have that deodorant shipped at some point, too.

Then they had a shop clerk unbox it, put a label on it, place it on a shelf,
eventually drag it over a scanner and (in america) put it in a nice brown
paper bag for you.

The brown paper bag, the scanner, the shelf, the label, the clerk, and no
least the brick & mortar store surrounding all that costs Safeway significant
amounts of money - in addition to the truck that initially shipped the
deodorant.

Amazon pays only the truck.

~~~
krakensden
Also, your local Safeway has to eat a lot more money stocking products that
never get sold than Amazon does.

------
stcredzero
The odds are that Mr. Bezos knows exactly what he's doing. People asked
questions like this when Amazon was transitioning from selling books to
selling everything. Lots of people at the time thought it was crazy. Now it's
recognized as a brilliant move.

Ask yourself, how many other things has Amazon done that seemed a bit out
there, but turned out to be brilliant moves? How about competing with Apple
with a tablet computer? Also ask yourself, how do these crazy or out-there
seeming things fit with an overall vision in retrospect? I think the answer
is: amazingly well.

My best guess is that Jeff Bezos has a roadmap for the next 5 years and vaguer
plans for the next 10 or 15. (I happen to know that Intel had a roadmap out to
15 years in the late 90's, so it's not unheard of in tech to plan on this
timescale. Probably a good thing to note for serious investors in the stock
market.)

EDIT: I've said it before on HN -- Bezos is a player of the game at Steve
Job's level. He's just not getting up on the really big stage and so avoids
becoming a target of celebrity attention.

~~~
AnthonyMouse
I agree that Amazon probably knows what they're doing. Amazon is Internet
Walmart. The article seems to say, "Walmart is selling razors and razor blades
for less money than the mom and pop store! How can this be a sound business
strategy?"

More than that, eBooks have no marginal cost outside of the royalty they
negotiate with the publisher. If they make Kindles super cheap, and make
eBooks super cheap, they own the book market. If they own the market then they
can dictate royalties to publishers. ("We've decided to sell your book for
$10, so we're going to pay you an amount that makes that retail price
profitable for us. Or you can sell your book at Borders... oh wait.") Then
they can keep selling eBooks for $10, and do so profitably by paying
publishers less. Like I said, Internet Walmart.

~~~
stcredzero
_Amazon is Internet Walmart._

Or in other words, Amazon is the ultimate middleman. It's not about ebooks.
It's about making Amazon the most frictionless way to buy anything.

 _If they own the market then they can dictate royalties to publishers._

If they own the market, they can disrupt the publishers. If I were Amazon, I'd
be creating software infrastructure to enable serious businesses to create and
market _curated collections of content_ because that's all publishing is in
its purest form, be it books, music, or whatever. Distribution is plumbing,
and why would someone choose to compete with Amazon on that front?

~~~
dlgeek
They already have that. www.createspace.com. It's an Amazon subsidiary.

------
IsaacL
A very dumb article. A shame, as it seems the author did have some interesting
insights, but missed the main point completely.

Bezos is a very, very smart guy. He's the closest thing we have to Steve Jobs
right now.

(Though that's not really a fair comparison -- Jobs excelled at product and
branding. Bezos isn't as good in those areas, but he has a solid background in
finance and tech, and he's _far_ better at strategy.

Jobs was a samurai warrior that was so good at swordfighting he didn't need
much guile. Bezos is a ninja; not as tough in a straight fight, but he never
lets it get to a straight fight.)

E-books are a massive growth industry right now. In a growth industry, it's
generally strategic to invest heavily in growth at the expense of profit. If
you want to have a nice profitable business, within a few years your business
will be undermined by the "foolish" guys that burned cash to gain market
share. Walmart followed a similar strategy.

(Lesson: if you want a nice profitable business, don't enter a new, high-
growth market).

First the publishers ignored e-books, then laughed at them and hated them. Now
they're fighting, and some time in the next two years, Bezos will likely win.
When you look at the Kindle strategy, you're looking at a business unit
mobilised for war. An army doesn't return a profit until after the land is
conquered.

I read Bezos' biography recently. From that, and from other comments about the
guy, I think the guy is thinking long-term. Not just "a roadmap for the next 5
years and vaguer plans for the next 10 or 15" as another commenter said.

I'd guess he has concrete plans out to at least 2030 (though obviously with
room for various contingencies and black swan events). His current areas of
focus like retail and cloud computing are likely just preliminaries. As one
internet commenter put it:

"I wouldn't be surprised if Jeff's secret goal is to achieve Singularity in
space by 2030. That isn't my guess, but that's the scope you should be
considering."

Sources:

[http://www.forbes.com/sites/venkateshrao/2011/12/14/the-
amaz...](http://www.forbes.com/sites/venkateshrao/2011/12/14/the-amazon-
playbook/)

[http://www.antipope.org/charlie/blog-
static/2012/04/understa...](http://www.antipope.org/charlie/blog-
static/2012/04/understanding-amazons-strategy.html)

~~~
quanticle
_In a growth industry, it's generally strategic to invest heavily in growth at
the expense of profit. If you want to have a nice profitable business, within
a few years your business will be undermined by the "foolish" guys that burned
cash to gain market share. Walmart followed a similar strategy._

Not always. I mean, isn't this the reasoning behind the first dot-com bubble?
At some point you have to turn a (operational) profit, and the more money you
invest, the more profit you have to turn in order to recoup your investment.

 _First the publishers ignored e-books, then laughed at them and hated them.
Now they're fighting, and some time in the next two years, Bezos will likely
win. When you look at the Kindle strategy, you're looking at a business unit
mobilised for war. An army doesn't return a profit until after the land is
conquered._

Wars are very risky things. The publishing industry (like the RIAA) isn't very
large financially, but is disproportionately powerful politically. It's very
possible that the publishing industry will lay legal obstacles that would make
Amazon's "conquest" a very expensive affair. Let's remember that wars,
historically, have not been profitable enterprises.

~~~
dvogel
Amazon is turning a profit, both in terms of earnings and free cash flow.

~~~
quanticle
Well, yes, but like the OP has stated, Amazon is a huge company, doing
everything from delivering deodorant to PAAS. My questions are 1) is Amazon
Prime profitable and 2) is the Kindle profitable. If they are, then great. If
not, what's the justification for keeping them around?

------
YuriNiyazov
What a nasty, nasty article.

Jeff Bezos knows exactly what he is doing. Amazon is, at its core, an
infrastructure company, much like your plumbing or your electricity, except
it's one level above those. It's major offerings are infrastructure for web
services, infrastructure for shopping fulfillment, infrastructure for digital
publishing, and probably a few others. Sure, it is willing to make money by
using its own infrastructure to sell you books, shoes, and industrial
supplies. In fact, it built the infrastructure to do that, but even if the
lion's share of Amazon's profits right now come from selling over the web to
consumers, it is not the business that Amazon wants to be in.

Amazon wants _you_ to build a business on top of Amazon where you do the
marketing and decide what to sell, but use Amazon's Web Services, Fulfillment,
Payments and Digital Delivery to run it.

~~~
ippisl
I think what bezos does, is asking: in the e-commerce business, what are the
difficult parts and the parts that change less often and how do we make sure
that we are the best in every one of them?

This is the reason bezos thinks long term. because he can.

Some of those parts are:customer trust,the need for
computing,fulfillment,delivery,payments and access to targeted eyeballs,all
content will be digital, need for marketers(affiliates).

Serving as a leading infrastructure platform is a great way to achieve this.It
gives you revenues , it puts you under customer pressure and i think the new
market dynamics works better for amazon also as an integrated retailer, by
letting amazon control prices and service levels and limiting the platform, by
decreasing competition to a small number of companies in the industry and by
pulling startups towards them.

Now combine the (small?)benefit of each platform gives you over competitors,
together, and you got a big competitive advantage.

On the other hand, having a great platform let's you profit and learn from the
things that change fast.

------
aresant
Amazon's mission to me is "Buy anything you want faster and cheaper than
anywhere else."

I've been long on AMZN stock since an afternoon last year when I got home to a
delivery of (a) Baby stuff from Amazon's Diapers.com (b) A handful of SSD
drives for our business (c) Light bulbs (d) Chocolate.

Whenever something comes up that we need to buy the first thing we do in my
house is type in Amazon.com. Everybody that I "infect" with Prime by telling
them about it gets hooked nearly as fast.

Bezos pushing people to Prime from all sections of the site, as a result,
makes me believe Bezos knows exactly what he's doing.

------
jakeonthemove
Well, I don't know what Bezos is thinking, but he always seems to be right.

Amazon in general is one amazing company. I can buy anything from them, and I
know they can be trusted, their collection of reviews always help me decide
what to get, and I just recently found out about Amazon SES - guess who's
moving away from Aweber soon?

------
vbo
Amazon is giving away free stuff in order to get you to subscribe. There's
nothing novel in this. It gets confusing when you consider the number of
businesses Amazon is into and the way they interact. Does Bezos know what he's
doing? Yes. A lot of things at once, likely with different levels of
confidence and surely with different outcomes, which Amazon will adapt to and
evolve into. They aren't afraid of trying things out. What's great about
Amazon is that, like Apple, it hasn't settled onto what they do, except what
they're doing right now; this isn't an issue with their focus, but evolution.

------
dfriedmn
I'm not sure what's so confusing about this strategy - Amazon certainly wants
to make money off selling content, and the fire is a content consumption
machine. But, they also know how much extra $ prime users spend, and figured
they could convert people to prime users by giving them other stuff. That
doesn't mean it's not a product in and of itself - it's just also being used
as a marketing channel.

------
larrys
"But giving away the razor and the blades in order to make money on a
subscription loyalty program as a way to sell everything else?"

As reported by CNBC in a recent special about Costco apparently all of
Costco's profit is from their annual fees and they claim they break even on
actual product sales.

Here's an article about that from a different news source:

[http://abcnews.go.com/blogs/business/2011/10/costco-
increase...](http://abcnews.go.com/blogs/business/2011/10/costco-increases-
membership-fee-wholesale-clubs-comparison/)

------
brown9-2
The author seems to completely miss the idea that Amazon can still profit by
selling e-books to Kindle owners _while still_ giving them one free e-book a
month.

~~~
mhb
Also Hunger Games is worth much less than $0.

------
tmuir
Nobody seems understand what Pando Daily is talking about. Do they?

~~~
anigbrowl
Yes - itself: <http://news.ycombinator.com/item?id=3930700>

------
skarayan
Bezos is trying to take over the world, like the guys at Google and Facebook.
They are architecting the new world as they envision it. It isn't about just
one industry or some obscure way of making profits, it is really about all of
it.

------
lnanek
Man, whenever me or a family has Prime, amazon is the first place we check.
It's a great lock in. The trials and share with family functions help make it
viral even.

Businesses love subscriptions too. Get paid even when they subscriber doesn't
do anything? Yes, please! So now we've combined lock in and subscription.

We hear Zynga makes a ton of their profits from whales, so low numbers of
prime subscriptions doesn't really scare me. Those are whales.

Amazon is a business, if they haven't already figured out this will make money
and it doesn't end up making money, they'll stop after a while.

Makes plenty of sense to me. This isn't a big deal.

------
DiabloD3
The rule on headlines that ask questions: If a headline is asking a question,
the answer is no.

This has unfortunate implications for Jeff Bezos.

~~~
mindstab
Might it more be that "the answer [the author believes] is no" which is only
unfortunate if you believe the author in this case to be smarter or know
something secret about Jeff Bezos. Since Jeff was ahead of the curve with the
online book company and then again ahead of the curve with the internet
architecture (AWS,EC2 etc) thing I'd say he's pretty bright and just because
some semi technical author can't figure it out doesn't mean that the authors
conclusion is correct.

~~~
kefs
Jeff Bezos is a brilliant mind and I'm thankful for all of his innovations
within the tech community, but what interests me most is his 10,000 year clock
project currently under development in a Nevada/Texas mountaintop.

<http://longnow.org/clock/>

[http://www.wired.com/gadgetlab/2011/06/10000-year-
clock/all/...](http://www.wired.com/gadgetlab/2011/06/10000-year-clock/all/1)

~~~
grey-area
The Long Now foundation was not started by Jeff Bezos, or run by him, I think
it was founded by Danny Hillis and others, though they do have funding from
Bezos and I think they're building it on his land.

~~~
kefs
> This Clock in the Mountain is being funded and built on property owned by
> Jeff Bezos, the founder and CEO of Amazon.com.

> Bezos is also active in designing the full experience of the Clock.

~~~
grey-area
Thanks for repeating what I told you by quoting the website. The long now
foundation had this idea and the plans for the clock long before bezos gave
them lots of money, it is not in any sense 'his' project, it's a team effort
which started long before he became involved. Haven't read the wired article
but I wouldn't use that as a basis for your opinions as wired is not exactly a
reliable source. Do some more reading on the website though as it is a
fascinating project, in some ways I prefer the Rosetta disk and wish he had
taken an interest in that as well. Anyway, this is straying off topic.

------
Karellen
He's making sure he's the only guy between publishers and readers, creating a
simultaneous monopoly and monopsony, locking both sides in with DRM.

[http://www.antipope.org/charlie/blog-
static/2012/04/understa...](http://www.antipope.org/charlie/blog-
static/2012/04/understanding-amazons-strategy.html)

------
joedev
Amazon Prime is not about books or Kindles, but everything else you would ever
want to buy in all areas of your personal and professional life. That is why
Bezos dangles all of these carrots in order to get you to become a Prime
member. Bezos clearly knows that he is doing.

------
SatvikBeri
I'm guessing that with the advent of the Kindle, there is a large segment of
customers who have a Kindle but not Amazon Prime. Having the lending entices
Kindle customers to subscript to prime, which in turn entices them to spend
more at Amazon in general.

------
sbtest
Its only confusing if you still view Amazon as a book retailer or even book +
X + Y retailer. They are a retailer of all categories of goods. Using ebooks
as a loss leader to dominate a far broader market is a fairly straight-forward
strategy.

------
easp
In easing this, I couldn't help but think of complicated derivative schemes.

------
ricardobeat
It's just NetFlix for books, this ought to be the norm someday. Another idea
off my drawing board (or not).

------
option_greek
I will probably grow wings before Bezos makes a dumb business decision.

------
klbarry
I know that marketplace sales for Amazon in most categories is growing by 70%
per year. That is remarkable.

