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Amazon.com as a consumer-benefit charity

January 31, 2013

Here’s an interesting perspective:

Amazon kept up its streak of being awesome this afternoon by announcing a 45 percent year-on-year decline in profits measuring Q4 2012 against Q4 2011. Not because sales went down, mind you. They’re up. Revenue is up. The company’s razor-thin profit margins just got even thinner, and in total the company lost $39 million in 2012.

The company’s shares are down a bit today, but the company’s stock is taking a much less catastrophic plunge in already-meager profits than Apple, whose stock plunged simply because its Q4 profits increased at an unexpectedly slow rate. That’s because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon.

It’s a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.  [emphasis added]

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