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."
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.
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.
Yes. Very true. Amazon is one of the few survivors of the dotcom bubble. For every Amazon there's a Boo, Pets.com, Webvan.
My response would be: those companies failed because they grossly overestimated the size of their markets, or were too early, or there was no market at all. If you overspend, you risk being the next Boo.com -- but if you underspend, you risk being the next Books.com. It really is all dependent on the market you find yourself in.
BTW, I am not personally attracted to "get big fast" cash-furnace type companies. The startup ideas I'm considering tend to be those in non-winner-take-all markets (ie, lots of small competitors, no one big competitor) where it's possible to turn a profit quickly.