It’s always worth reading Eugene Wei’s thoughts on Amazon’s strategy, and Amazon and the “profitless business model” fallacy is no exception. Wei discusses how most analysts don’t understand Amazon’s business at all. In particular, he tears into the idea that at some point, Amazon will just “flip the switch” — increase the prices on all their products and instantly become profitable:

But “flipping a switch” is the wrong analogy because Amazon’s core business model does generate a profit with most every transaction at its current price level. The reason it isn’t showing a profit is because it’s undertaken a massive investment to support an even larger sales base.

How does Amazon turn a profit? Not by flipping a switch but by waiting, once again, until its transaction volume grows and income exceeds its fixed cost base again. It can choose to reach that point faster or slower depending on how quickly it continues to grow its fixed cost base, but a simple way to accelerate that would be to stop investing in so many new fulfillment centers.

Amazon is using their revenue to build more and more infrastructure until they become so large (and efficient) that no one will be able to compete with them. That’s pretty smart.

Speaking of Amazon, Benedict Evans wrote an interesting post discussing Amazon’s “selective” secrecy. He explains in Amazon’s PR genius that there is one area they don’t mind exposing to the world — logistics:

Price is obviously a large part of the consumer story, but talking about logistics is a competitive weapon just like not talking about Kindle sales. Every story about how Amazon has built an amazing, incredibly efficient, incredibly low-cost distribution platform is another ecommerce start-up that doesn’t get funded, or even started. Jeff Bezos famously said that he was happy for Amazon to be misunderstood for long periods of time, but no-one is in any danger of underestimating the scale of Amazon’s distribution.