Amazon revenue large depth 】 【 thin margins, the money gone?

(translation: Chen yu)

if you are mindful of the amazon into revenue, profit curve graph, you can find a startling fact: since it was founded in 1995, while amazon’s revenue in the stable growth, but its net profit is almost zero.

we can not help but ask, as the world’s biggest e-commerce sites, amazon earned money? If so, then it’s pure profit, where did he go again?

before solve this problem, we also need to analyze the other a statistical chart. Below is the amazon in December 2009 – June 2013 free cash flow (FCF) curve. We see that the amazon in the period of free cash flow continues to decline, and in contrast is gradually rising capital spending.

eliminate seasonal factors and the effect of one-time spending market, it seems we can conclude that amazon does really profitable, but almost all the electricity giant cash, are used in the market expansion, lower prices and capital expenditure and so on.

for amazon the revenue, expenditure policy, there are two views. A view that amazon is burning money to buy the market. Once have enough share, then it will change the existing strategy. By then, amazon will rely on its own market advantage, get a higher bargaining power.

another view is that amazon is playing tricks – an old investment ponzi scheme. This view personage points out, amazon can only survive in the form of zero profit. The reason is very simple, in order to maintain stock and the company’s false prosperity, amazon had large capital expenditure, shroud to Wall Street and investors.

“LTR” (translator note: a ponzi scheme is refers to the use of new investors’ money, to make up for the original investor returns, which form a profitable illusion.)

apparently, formed when a firm’s business model, it is difficult to change. Similarly, although amazon does not seem to have net profit, but this pattern to make it in the heat of the electric dealer market standing. Perhaps, from another point of view, we can understand the amazon this strategy – amazon is, in fact it is not to become a unified business company.

below is the amazon in the field of different business revenue. From it, it is easy to find, the amazon’s revenue obvious fragmentation trend. Different product lines in addition to differences in target market, also presents different or even opposite state of development.

although continue to expand new business, make difficult situation in the amazon is zero profit or negative growth, but it is always carried out their own market strategy, and maintain a stable development momentum.

so far, amazon’s revenue is mainly used in the following four aspects (overlap each other) :

1, is used to develop new business capital spending

2, artificially lowering the price of their product

3, as the cost of new business department

4, as the cost of the existing business department

outsiders are difficult to understand the amazon exactly what is the purpose of this complex industry combination. We only know the amazon that profits are turned into a series of field profit tends to zero. If just for the sake of data, the above four aspects, can have two pieces of compressed off (1, 3) to get a beautiful results.

to put it another way, amazon is like the same platform under the collection of much home appliance business start-ups. The money that part of the profits, are used to support those losses.

this is not to imagine that two analogy, the first is the general electric, the company is also very careful to control the profitability, let the outside world not to see the company inner workings.

another analogy is marxism. As pointed out: the marxist historical materialism, the biggest problem is that it cannot be falsified. A scientific theory is scientific, however, is that it provides may be falsified. But you are unable to disprove marxism, because marxist would say: “conditions are not mature… Wait for the next century revolution will happen.”

in the same way, that “although I don’t understand the practice of amazon, but it will someday profitable, wait and see”, also seems to exist with the same problem with the marxist philosophy, cannot be falsified, had to wait.