I once characterized Amazon as a “charitable institution being run by elements of the investment community for the benefit of consumers.” Bezos took issue with this in a letter to shareholders. His argument is that Amazon isn’t a charity; it’s a business—a business whose strategy is to make its customers as happy as possible. And that, fundamentally, is what makes Amazon great. Profits are in severe tension with the idea of pleasing customers—a profitable firm is, by definition, charging customers more than it needs to.
If you’re running a non-technology company or even an “old” technology company, you’re probably still picking your jaw up off the floor at the sheer amount of chutzpah today’s web CEOs have in eschewing profitability for growth.
The story of how Amazon’s Jeff Bezos “gets away with it” – and by it I mean doing $73 billion in sales last year while earning less than $300 million – dates back to the CEO’s masterful bond sale just before the dot com crash in February 2000 along with some well-timed profitable years once the magic had worn off in the mid-aught’s. Bezos grabbed capital when he could, not when he needed it, and he put up big earnings when earnings were “required”.
This strategic savvy bought him the leeway to essentially do whatever he wants now and young web companies like Twitter are paying attention.
Matt Yglesias has a new piece at Slate’s MoneyBox (perhaps one of his last?) that walks us through this phenomenon, along with the cash-hoarding and activist-repelling that have become all the rage in the Valley of late. This weekend’s must read is below: