I'm amazed by Amazon. Some of their moves follow a playbook. Books -> Clothes -> Diapers. A non-technical CEO turning the company into an API machine that outsources it's own technology... Every textbook would say crazy, but he's on to something. Makes one wonder about the drones.
Monstorously smart. I consider him one of the top CEOs of all time because he succeeds on so many levels: Business design, technology enablement, hiring, surviving market ups and downs, investor relations...
I had (wrongly) assumed he was a business person first since he had most recently worked at Bankers Trust and DE Shaw. Thank you for the clarification. This explains his insights that would drive AWS.
Their AWS services is a pretty cool tech and business.
But as for their other stuff:
1) Their core business (the store) barely makes any profit. Their profit margins are razor-thin, and until recently operated at a loss IIRC.
2) Their ebooks and music store are ho-hum.
3) Their hardwares, Kindles (Fire and plain) are simply loss leaders for content sales. Which (1) is not that profitable in itself anyway. Not that difficult to sell stuff like readers and tablets at a cost or slight loss.
That's the genius though. They are the ultimate Walmart, and that is one of the best things to be. Even better, they are Walmart with the option to expand into anything, because they don't have the stigma of being cheap. They can sell luxury goods (at small margins), highly complex technical solutions (at small margins) etc etc. What Amazon have managed to do is essentially to brand a bunch of things that were highly commoditized before. The potential in that is amazing, and almost scary.
Amazon MWS, their horrible piece of an API.
If I were to give someone an example of a bad API it would be Amazon MWS, because it has everything:
-XML only (which is often strucured in the most obscure ways, and inconsistent through the API)
-shared reqeust throttling across all authorized applications (which turns the API from "barely useful" to "I can be lucky if I get a valid response")
-inconsistent across all marketplaces (of course I can't use the "fullfilmentLatency" attribute on the US-marketplace like in the rest of the world)
-unreliable (yeah Amazon, just ignore the list of prices I just sent you and mark them as processed, I am used to it)
That and many more things(e.g. hiding competitors in the responses) makes the API so useless that many people resort to just scraping the Amazon pages. An API that is so bad that nobody uses it is almost as bad as none at all.
I'm sorry, I didn't mean to rage but seeing that Amazon treats 3rd party developers and merchants like shit while doing everything to make the customers happy always makes my blood boil.
The Kindle e-readers are excellent products in their own right. With the Paperwhite they've perfected the category IMO. The software -- e.g., the Xray feature, and the overall gesture UI -- and the hardware are equally good.
> 1) Their core business (the store) barely makes any profit. Their profit margins are razor-thin, and until recently operated at a loss IIRC.
The choose to do this. I read an excellent article on it some months back but can't find it again, but suffice it to say there is far more to their low margins than you think.
Yes - the general idea is they could monetize their business to get profits now, at the expense of future growth later. They write to their shareholders to be patient, so it's transparent.
Or it will be the same as it is now -- because I don't think there's any magical path to make a low-margin, comoditized, operating at almost break even business in a highly profitable one.
Hmm. Every time I see the name Stallman I just conclude it's all about materials not distributed freely. Essentially, don't buy anything from anybody who don't support free redistribution (iTunes, App store, Play Store, etc).
I for one don't need to read every rant by RMS against Digital Restrictions Management, even if I agree with him by and large. I have much better things to do with my time. A lot of useful prejudice work that way in a lot of domains.
I have my own personal boycotting policies, and one of them is to never, ever buy digital media with DRM. Which, strangely enough, Amazon has long allowed me to avoid if the rights holder allows, e.g. I have a nice set of MP3s I got from them for a CD of Scandinavian music that in physical form was by then out of print and way too expensive.
They also tell you if a Kindle digital book has no DRM at the bottom of it's description. They don't really care, and I respect their choice to abide by rights holder's restrictions and sell the stuff anyway.
No it is not useful in this case, because Stallmanns page is much more about than just materials not distributed freely. For your convenience the headers of his page about Amazon:
The additional stuff pretty much falls into categories of:
Already covered by my policies.
Don't believe it.
All big companies have some insanities; if that bothered me I'd be living off the grid.
Don't think it's a problem.
And RMS and I have very different political views ... and a lot of his are remarkably uninformed (disclaimer: I knew him rather well in the early '80s, e.g. we were roommates when he started the GNU Project).
This covers the whole Political Harm section, I'm "right wing" myself, so it's not axiomatic I'd mind ALEC's lobbying, the Left's campaign against "voter suppression" is a existentially dangerous campaign for more voter fraud, and Stand You Ground laws have nothing to do with any sort of "Shoot First" policy. Heck, I'm not sure I've even seen that insane phrase before, but the gun-grabbers are ever inventive in their total dishonesty. (RMS is also one of the last people in the world you should be paying attention to when it comes to the self-defense area, it's a miracle he's still alive.)
Note, there's a relevant point in going into details below; this is an area of personal expertise going back to the early '70s:
Stand Your Ground is shorthand/American value invoking propaganda wording simply for having no duty to retreat, nothing more or less, although I suppose if you're a rabbit it's antithetical. It's extremely valuable against abusive prosecutors who insist in the calmness of a courtroom there was some plausible way for you to retreat:
In two Massachusetts cases I'm familiar with, convicting when retreat wasn't really possible, or would have required abandoning a child to the tender mercies of a home intruder. As of late, it's been noted that more blacks have benefited from Florida's Stand Your Ground law than whites....
The major point I'm trying to make is that RMS's sophistication about things outside the domains where he's good, the ones relevant to me limited to computer stuff, is very poor, sometimes to the point of implicitly suicidal, and I have nothing to gain from reading them, as I have just reconfirmed.
But e.g. when he coins a new relevant meme, like Digital Restrictions Management, I do pay attention.
Thankfully a lot of bother care about insanities. They are in the grid of thinking, good people.
The whole free software movement is a an evidence that a lot of people care about insanities. RMS is the founder and forerunner of this impressive socio political movement.
Disclaimer: I'm a software engineer working for AWS. But not on EC2.
I feel the margin number conclusion is deeply flawed for variety of reasons.
There are some questions the author cannot have answers for, that greatly change the margin numbers for EC2. A couple that comes to mind are:
1. What percentage of time are customers being charged for the available servers?
2. What percentage of instance hours are being charged at on-demand prices, vs reserved instance?
Also it completely ignores services that makes EC2 stand out from plain hosting, and adds much value, such as AutoScaling, CloudWatch, Elastic Load Balancing, OpsWorks, and Elastic BeanStalk. And believe me when I say that support cost is NOT trivial. In many cases, the number of engineer hours involved makes the support pricing look like a real bargain.
Even if this analysis was correct, it doesn't say anything about the margins of the rest of the business. There is plenty of gross margin in almost every business Amazon is involved in, but it will never show up in the net profit line until Amazon decides to stop reinvesting every cent of cash flow.
I agree that AWS almost certainly has a great profit margin.. but that article includes no details. He says AWS has X in costs, trust me. I have no idea how he arrived at that number.
Well he's a cs grad. And one thing nearly all cs grads have in common is the idea that software/software products will dominate economies "real soon now". And they usually believe it's their own software that will do so. I actually found a 1950's article claiming that.
But let's face facts here : IaaS might dominate the hosting industry (I think not, but maybe ), but that's the furthest it can possibly go. Amazon's other businesses are way bigger.
But no way you're going to convince IT people of that.
I think PaaS vendors, the biggest of which will be Oracle/SAP/Salesforce (maybe, maybe salesforce) will realize their margins will be better served by not participating in any public cloud. I don't have good figures though.
Small, but relevant for history. In 2006, AWS was the first cloud. At the time, a datacenter with extremely low prices, super-massive customer base and where you could spin off/shut down instances on demand was crazy. The impact changed the way we think about computing.
I admit that, had they not been there, someone else would probably have invented it. Some dodgy website hosting service, for example.
I think I know what you are trying to say, but my understanding is Amazon fails to report profits because they are heavily reinvesting into the company. I don't think it is because they are taking a loss on sales.
Agreed, nobody really understands that. Every dollar earned is a dollar invested without selling additional shares.
When they're building hundreds of millions if not billions of dollars worth of infrastructure every year you can't expect them to make much money.
Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel.
Amazon is doing exactly the same but somehow almost nobody manages to figure this out.
But is it all going back into infrastructure and the like? What if it is allowing them to subsidise lower prices on products, killing competition?
I don't really know of any other company that has managed to not produce really any profit in 20 years of operation, most of that as a public corporation.
It doesn't seem sustainable to me. Also, to use your analogy most of the railroads ended up bankrupt/closed down because they vastly overbuilt with the assumption that more passengers and freight would come, despite going into really rural areas. It is perhaps quite apt for where Amazon could end up going.
Their R&D was nearly $7 billion in 2013. Could you cut that in half while running Amazon exactly the same way (i.e. not improving it but not making it worse)? I think so, and that would improve profits by roughly 10 fold. Suddenly Amazon's earnings multiplier isn't 500, it's 50.
Furthermore there's another $12 billion in the selling/admin/general expenses line item. What's that? Could some of their building spree be contained within that item? Quite possibly. It's safe to say that it's coming from SOMEWHERE. I would be surprised if it cost them $300 per square foot between the building, the shelving, the conveyors, etc to build a new distribution center. At that kind of price a 1.2 million square foot building is a $360 million dollar expense. From what I gather they're building a couple of those every year. That adds up. What happens when they don't need to build new ones and can instead just operate their existing ones profitably?
Do you hear stories of people being worked to death at Target and Wal-mart? I hear that at Wal-mar they keep their employees just shy of full-time to deny them benefits, but I don't read stories about how they're asking to do inhuman amounts of work. But I do hear those stories about Amazon. Sounds to me like they probably have a more efficient workforce coupled with cheaper real-estate and very low "shrinkage" (stolen merchandise). If their supply chain is more efficient than Wal-mart or Target and they aren't selling stuff much cheaper (seems like the Amazon discount is about 10% at best these days) then it stands to reason they might be able to make more money.
I'm not saying that Amazon has crazy huge margins, but I do think that their margins are quite reasonable. They (Jeff Bezos really) just keep spending all the money they make to keep making the business better. Given how big retail is in the US I find it unlikely that they'll accidentally overbuild and find themselves in quite the predicament. It's not as though Amazon is building giant distribution centers on tiny islands where it makes absolutely zero sense. They're putting them near population centers, where people already buy stuff.
Wal-mart did $450 billion in revenue in 2013. Amazon only did $80 billion. Target also did about $80 billion. So Amazon is now as big as Target but not as big as Wal-mart. The reports of Amazon's impending demise seem a bit overblown to me.
>Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel.
Yeah, exactly like that, only it's been 15 years already, and it's not like the don't already have the largest online store, or there's any magic solution for them to rise their margins in the future.
