Suddenly a bunch of people want to live on the moon. Rebid, win contract that says I now have 10 deliveries per day. I don't have enough rockets to support 10 deliveries per day, so I need to build a lot.
I also need to do it extremely quickly. Instead of $5B per rocket, I need to pay $10B (expedite, overtime, shortages, etc) in order to meet my contract's deadlines. My capacity also means, I can no longer rely on existing launch sites, $100B to build my own launch site plus an additional $1B per launch.
As long as I can keep my position on this contract, I'll make mega bucks in the long run, but short term I'm hemorrhaging cash.
For example right now they are trying to hire 100,000 people to cover the increased demand. In the meantime, they are making their existing people do the work of those 100,000, or letting the work go undone. In both cases that's lost profits.
Also, paying someone to work overtime to serve the same orders is most definitely lost profit, because it costs more to deliver the service.
Amazon's systems aren't designed for this type of sudden surge. They usually have to ramp up and prepare for it (like around Christmas).
It comes down to the software side of their business, and they have some great back end software.
> This is hardly the first time their system has been overwhelmed
They have specifically said, publicly, multiple times, that they've never seen an increase like this before in the history of their business.
> it’s designed to be robust and maximize profit.
Within limits. It doesn't scale infinitely. There is a human aspect involved that doesn't scale instantly.
> Further, a simple ships in X weeks gives them plenty of time to ramp up staff.
Except, again, you are not accounting for lost profits due to increased customer service requests, increased credits to Prime members for not meeting the Prime SLA, increased costs of the warehouses being full of products they can't move because they are constantly moving the new essential products that are coming in, and a whole bunch of other fixed costs that they have not related to their variable costs.
> They have specifically said, publicly, multiple times, that they've never seen an increase like this before in the history of their business.
That’s true, but not that relevant.
> Increased customer service requests
Customer support is a controllable expense. When customer support lines spike past a threshold they simply lack the people to take additional calls etc.
> Warehouses being full
Amazon has cut down on new items being added while still shipping some non essential items. What your suggesting is an extremely dumb move their not going to make.
> Prime SLA
What prime SLA?
From time to time, Amazon may choose in its sole discretion to add or remove Prime membership benefits. https://www.amazon.com/gp/help/customer/display.html?nodeId=...
> That’s true, but not that relevant.
It was in direct refutation of your claim that they have dealt with this type of load before. They haven't and they have said that they have never dealt with anything like this before. That's why it's relevant.
> Customer support is a controllable expense. When customer support lines spike past a threshold they simply lack the people to take additional calls etc.
You clearly don't understand Amazon if you think this is true. Customer service is their number two core competency after logistics. It is paramount to their success.
Besides, what do you think happens when they stop answering customer service calls? Do you think people just go away? Obviously customer service is important to their business or they wouldn't have it. They can't just drop calls. So no, it's not really controllable.
> What prime SLA?
They're still giving credits if you call in and complain that your item didn't arrive within two days. Even though it tells you before you order that it won't.
Because they care about customer service.
No, I said they have dealt with load past capacity before. Saying it’s 1% or 200% over capacity does not change the fact they have procedures in place to deal with it.
> It is paramount to their success.
Yet, you have not said how it suddenly inherently spikes in cost after their capacity is reached.
> They're still giving credits if you call in and complain that your item didn't arrive within two days.
That’s not an SLA, they will do quite a bit if you call and complain up to a point. It’s designed to maximize revenue not a contract obligation, many companies budget this under advertising costs for a reason.
Further, on the flip side they can reduce normal advertising spending which is more than enough to cover some nominal difference. But you don’t need to take my word for it, their a public company and we can just wait and see what their profit is.
It is an unrelenting expense if you are going to do it in a way that satisfies your customers.