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Why Amazon's Cloud Business Is Like Kindle Sales
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melgross
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melgross,
User Rank: Ninja
12/10/2012 | 7:16:05 PM
re: Why Amazon's Cloud Business Is Like Kindle Sales
Bezos is one of the world's greatest salesmen. As an innovator, he's not as great as is being stated here. One fact about innovation is its success in changing the way things are done. They've has some success in that, but not uniquely.

But what he prefers to gloss over, and those who interview him gloss over as well, is that he badly underestimated the expenses his business would need. Lets be honest here, his original concept was to have a small staff handling the web site, and sales, while product shipment would be handled by manufacturers and wish fulfillment companies. They quickly discovered that it wasn't to be. Their expenses opening and running product warehouses and shipment centers has cost them dearly. These expenses will never go away. The larger they become, the more centers they will need to open. Their expenses will always remain high.

As for them selling Kindle readers and tablets, remember his words carefully. In sales parlance, "near breakeven" means loss. It doesn't mean breakeven. So they are taking a loss on all their Kindle sales. If they are duplicating that performance for their cloud services, that's breaking rule number one in class 101 economics, which is to never take a loss on one product in order to make a profit on another, or on the same, later on. This doesn't equal the razor and blades for obvious reasons, or what should be obvious reasons.

I have little confidence that Amazon will ever make real profits, and that gives me a nervous feeling about those profitless products and services. There is only so long before you must raise prices substantially, or discontinue the product or service. Which will it be?


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