Amazon: all change

Enrique Dans
Aug 3, 2016 · 3 min read

Since its creation in July 1994, Amazon has pursued a singular strategy: investing constantly in the growth and development of its business, not paying out dividends, a common enough practice among other companies in its industry, and never reporting a profit, thus systematically disappointing the analysts, and something that usually leads to a lower share price.

Despite this, the company has performed spectacularly on the markets, and its shares have risen in value by 44,000% since it went public: enough to make you jump aboard a time machine and head back to 1997. Amazon’s shareholders have been patient, trusting in the company’s two-decade-old policy of reinvesting.

Now there are signs that things are changing. Its second-quarter results, announced a few days ago, show that it has racked up a fifth consecutive quarter of profitability, the last three of which have each outdone the other, and flummoxing the markets in the process. The company says its outstanding results are based on obsessive efficiency and economies of scale, but there is no doubt that its founding and guiding principle has changed: a company that had no problem reporting loss after loss because it was working to a plan that went far beyond the vision of most analysts now seems to rethought its strategy and is finally harvesting the rewards of many years of hard work.

The five consecutive profitable quarters are matched by an equally positive metric: the company has increased its workforce by 10% a month over the last three months, and by 47% over the last year. The 183,100 employees it had a year ago has grown to 268,900: that’s 85,800 new hirings, without including seasonally contracted workers to deal with peaks at Christmas.

At the base of this growth is the healthy performance of Amazon Web Services, the result of the company’s diversification strategy. Having searched for solutions to its problems, it is now trying to create value from the know-how is has developed by offering solutions to third parties, as it did previously with its logistics. Today, thousands of companies around the world store their products in the company’s warehouses and distribute their products through its distribution chain, in the same way that thousands of developers and companies around the world use its computing services, cloud storage and broadband, with some $2.8 billion in revenues, and that has grown by 58% over the last year.

The man who left his job as a Wall Street VP to move to Seatlle and set up Amazon is today the world’s third –richest man, bested only by Bill Gates and Amancio Ortega. He owns 18% of Amazon’s shares, which have risen in value by 50% since last February, putting his estimated worth at some $65.3 billion.

So what next for an Amazon that is highly profitable and that, contrary to what many say, does pay its taxes in the countries where it operates. Basically, its strategy is unfolding before us. More distribution, rapid logistics, and in general, by changing the way in which we, the customers, buy things. This is a company that, as Eddie Cantor once said, has taken more than 20 years to become an overnight success. If you think you know Amazon, then you might just want to check the facts again.


(En español, aquí)

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School and blogger at enriquedans.com

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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