Eugene Wei worked for Amazon from 1997-2004. The linked blog post explores Amazon’s push for revenue growth while forsaking profits, at least for the short term.

Does Amazon lose money on sales of some individual items? For sure. The first Kindle ebooks that were priced at $9.99 when Amazon had to pay more than that per copy to publisher were one example. Giant, heavy electronics items that Amazon sometimes ships for free when the shipping cost is clearly non-trivial and cost more than the usual thin margins on such goods are another.

But those represent a tiny fraction of the whole:

The vast vast majority of products Amazon sells it makes a profit on. Over time, more of these products that inadvertently sell at a loss will be corrected so that no longer happens, and what remains will be products Amazon intentionally uses as loss leaders.

And then there’s Marketplace sales:

The platform of Amazon is profitable, too. When other people sell products on Amazon Marketplace the gross margin is huge. I sell a used book on Amazon, it takes a cut of the transaction, I am the one packing and shipping that item to the buyer. You don’t have to be a financial whiz to understand the cost of that transaction to Amazon is minimal.

If Amazon tends to make money on the vast majority of its transactions, why doesn’t it generate boundless profits?

Because Amazon has boundless ambition. It wants to eat global retail.

Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford.

Fascinating read.