Amazon is in a low margin commodity business with massive amounts of competition, but they're still massive and becoming even bigger because they do what everyone else can do just that little bit better that there's no real reason to switch away.

Amazon actually didn't have much competition at a key point in it's growth, i.e. just after the dot com crash. Amazon survived, many did not and Amazon then had a few years to cement their dominance in the online shopping space.

Amazon is also very different from Uber in that it a) went public earlier and b) didn't need huge outside cash injections like Uber and c) Wasn't making a huge gross loss on sales like people claim Uber is.

I believe Uber has already lost more money than Amazon has in it's entire existence!

http://s1.ibtimes.com/sites/www.ibtimes.com/files/styles/emb...

> Amazon actually didn't have much competition at a key point in it's growth

Except for every single brick & mortar store -- which has always been Amazon's biggest "competitor".

Brick and mortar stores were (and still are) extremely weak competition. That's why Amazon utterly crushed many of them and continues to do so. Not just small mom and pops either. Borders, which at one point was one of the largest bookstore chains in the nation, shuttered its doors because it didn't switch to an online model fast enough. Barnes and Noble at some point was in deep trouble as well.

Last numbers I saw had online sales across all categories at less than 10% of total retail sales. Hardly "weak competition."

https://ycharts.com/indicators/ecommerce_sales_as_percent_re...

(Note: that growth is still a good reason to be bullish about Amazon!)

If you look into the indicators that fall into the Retail and Services sales category, there are extremely big ticket items and high-volume items that aren't sold in high volume or at all due to regulation.

All auto sales, gas purchases, alcohol & tobacco, heavy industrial equipment (commercial farm equipment, etc) are included in that category.

Online sales only being 10% of that still probably looks massively outsized if you're drilling down to B&M clothing & electronics purchases. I haven't made a B&M retail purchase any more times than I can count on one hand since 2004.

Your spending habits may not be representative of the greater population.

And that last statement about my spending habits is tangential to everything I said previous to it.

> I haven't made a B&M retail purchase any more times than I can count on one hand since 2004

> (Amazon) didn't need huge outside cash injections like Uber

Amazon and Uber are very different companies, but this wildly oversimplifies the financing of Amazon. Amazon has taken on many billions of dollars in debt over the years in order to operate. If you add it all up, Amazon has taken (in very different terms) about as much money as Uber.

https://www.bloomberg.com/news/articles/2014-12-02/amazon-se...

Also a good point. Low margin doesn't have to mean unsuccessful. But it's taken 20 years for Amazon to get where it is. Uber's valuation seems pretty premature. Amazon lost money for years because it was building infrastructure. Uber is losing money because it is subsidizing its sales. Amazon may have been low margin, but I don't know that they ever took investor money and gave it directly to customers in the form of price subsidies.

Great contrast – and you're not really saying that Uber is not building infrastructure but that one is happening faster than the other one:

1) Uber: a) subsidize sales b) build infrastructure 2) Amazon: a) build infrastructure, b) grow sales at a sustainable rate even if it takes 20 years.

I think Zappos had the same business model. But we'll see.

Zappos is an Amazon subsidiary even if it does operate quasi-independently (and quirkily from a management perspective). It looks a lot more like Amazon though with generally far less emphasis on building out infrastructure. Ultimately it's sort of a niche because of the nature of selling shoes online.

Zappos is now an Amazon subsidiary. It grew sustainably for a decade before Amazon acquired it.

Yes. In many ways they grew more in the vein of many traditional mail order catalogs than Amazon.

Amazon also has crazy AWS profits to subsidize major investments. Uber lacks such a super profitable but tangential revenue stream.

People seem to underestimate just how much money AWS makes.

AWS makes almost no money compared to their core business, it's around 10%, maybe a little bit more. The profit from AWS, however, is something like 50% of Amazon's total profit. That said, it's not hard to occupy a huge percentage of profits from Amazon since they purposefully run almost every other facet of the business at razor thin margins.

3.2 billion of revenue in one quarter [1] is is nothing to scoff at. However the more important point is without the profit from AWS, Amazon would still be posting huge deficits [2] and would probably face much higher shareholder pressure to produce.

[1] http://venturebeat.com/2016/10/27/aws-reports-3-2-billion-in...

[2] http://www.geekwire.com/2016/amazon-without-aws-online-retai...

Isn't that an invalid assumption that Amazon would do nothing else differently if they didn't have AWS?

I always understood "make money" as referring to profit, not revenue. A business with $1 trillion in revenue and $1 trillion in expenses makes no money.

"I have a trillion-dollar business: I take dollar bills from one person and give them directly to another and repeat that a trillion times a year."

Maybe there can be profit to be made from this business too with a bit of _delay_ in between receiving and giving. I'm trying here just to imagine this company. I think it will work because of the scale. I'm thinking: I take dolar bills from one person, I keep them 10 days and then I give them to another one. And I repeat this for 1 trillion dollar value. Even if the profit in 10 days is 0.1% then you will have 1 million dollar remaining to you. What I am trying to say is that it seems to be a value in being so big, because of how big numbers math works but also because people are impressed by it (think going to a bank asking for money)

This is how Amazon benefits from free cash flow in their retail business. With payment days of >90 days to their suppliers but almost immediate payment from their customers they get 90 days to reinvest that money at a profit before paying it back. Essentially an interest free loan from their suppliers.

> almost immediate payment from their customers Isn't there a gap between customer making the credit card payment and the bank transferring the actual money into Amazon's account?

Probably. And they also won't always sell an item as soon as they receive it, which eats into free cash flow. But generally speaking, they get paid for goods by customers before they need to pay the supplier, which creates free cash flow.

And now with them having become an online-only warehouse club [1] with Prime, there is even less reason to switch away.

[1] https://en.wikipedia.org/wiki/Warehouse_club

As a long time Prime user I've recently considered dropping my prime subscription. I need to spend a lot of money (even more than I already do) to make the P&P work and the film offering is getting worse and worse.

Since Amazon seems to have shifted to generate profit instead of subsidizing prices, it went downhill (at least in Berlin). Amazon Logistics is a huge pain (several lost packages, Saturday and 8pm delivery to business) and the prices of most goods at Amazon is mediocre.

As a very good and Amazon customer for a very long time, I've reached the point to jump to something else should it materialize.

While I haven't experienced this sort of thing very often in the US, whenever it does happen Amazon has either sent another package, refunded the cost of the order, and/or offered a free month of Prime. And it usually only takes 5-10 minutes in an online chat with customer service to figure out. There are definitely plenty of meh things about Amazon, but customer service is certainly not one of them.

YMMV, I'm not happy if paying for Prime and 50% of packages get lost, I call, and get them some days later than expected or get them later as expected and payed for next day delivery in the first time.

Amazon got kicked by Zalando for Fashion at least in Germany and despite heavy investments and promotions for fashion can't compete with Zalando.

If someone starts an electronics site on the same professional, data drive, aggressive level as Zalando, I'm sure Amazon is in trouble here in Germany.

It's a business with natural network effects. The service that has the most cars on the road has the most liquidity to clear the market, and will have the shortest wait times. People pay for rides in both time and money, and you can be "cheaper" by getting a car to show up faster.

Network effects don't accumulate to a natural monopoly in this case. Yes you need a fleet large enough to get to a sweet price / waiting time optimum, but each new car in your fleet has a diminishing marginal effect.

You could say exactly the same for airlines: there's network effect. Each new plane allows your to fly more rotations, have more frequent lines, open new routes... The reality is that most people take decisions based on price.

We know most people are pretty bad at valuing their time, and even so, waiting a minute more for a cheaper service is something people will do for sure. As long as you're below an acceptable waiting time for your car, you can compete on price.

I'm curious about how Uber will avoid being a commodity just like airlines are.

Each new car in your fleet has diminishing marginal effect to a passenger, and has negative effect for the other drivers. And you need to compete for both drivers and passengers.

This is why Uber and Lyft end up in driver subsidy cost wars.

Interestingly, the negative effect part is wrong for carpools, but that is not Uber's primary business (I'm assuming carpool drivers would rather be passengers)

That inflection point happens after you have a _lot_ of cars on the road, much more any new entrant will commit. It's equivalent to saying the power company gets diminishing returns from additional supply after they've built enough capacity to meet current demand. No one but the natural monopoly actually gets to that point.

That's a possibility. I'm not sure it's true. Both Uber and Lyft have good waiting times right now. The hypothesis that they will replace privately owned cars supposes that the market will grow immensely.

Waiting time is a function of: number of cars, size of the city, number of customers (to ignore congestion for now...) To have a good start as a new entrant, it's just a property of the size of the city. Then, you need to grow your fleet with your number of customers to keep waiting time constant. That number of cars to start with, the barrier to entry, is a tiny portion of what you need to add to keep up with demand.

If you don't have to compete with drivers, with autonomous cars, it's not that hard to meet and start a price war.

Again, I don't see how Uber will avoid being squeezed out of their margins the way airlines are. It's not cheap to start an airline, yet many people have done it. And all you need is 3 competitors to drive prices, and margins, down.

The problem is that in this case, Uber doesn't own the car network. It's trivially easy for a driver to shift between networks, or even work for multiple networks simultaneously. Uber not only has to talk a rider into giving them the fare, they also have to talk the driver into taking that fare. There's just nothing special about Uber for either party unless Uber can be the one that performs that matchmaking service at the lowest possible transaction cost. Welcome to Uber's low-margin world.