No, I think the key difference with Amazon is that they aren't losing money on each individual transaction - ie selling everything at a loss. Amazon's non-profits were due to aggressive reinvestment, not pricing.
Exactly! It's the difference between losing money on a macro-level and losing it on a micro-level. You can't lose money on every transaction and make it up in volume, as the old joke says. But you can make money on every transaction and choose to invest it in expansion, so that you lose money overall.
> You can't lose money on every transaction and make it up in volume, as the old joke says.
You actually can. It's the oldest trick of the industrial age, mass production and economies of scale. A good rule of thumb is that increasing production of a physical good by a factor of 10 will drop the unit cost by half. For non-tangible goods the effect is even more pronounced. The fist copy of Microsoft Windows might cost 1 billion dollars to produce, while every next copy is essentially free.
What this new breed of money loosing company signifies is a shift of business models to the software-eat-world paradigm: high upfront capital investment, zero marginal cost, exceptionally strong consumer lock-in (thus profits) once you break through and dominate the market. There is nothing fundamentally different between Amazon Prime and MoviePass, they are both loss leaders designed to increase foothold in the market, with a view to later use that dominance to dictate the rules. One was built on good economics and well executed, the other is not and will fail, but it's essentially the same business move.
But what you're saying is that eventually you'll make money on every transaction which just goes along with the comment made before. The joke is really about goods where you can't lower the cost or increase the price enough to make the economics work.
> The fist copy of Microsoft Windows might cost 1 billion dollars to produce, while every next copy is essentially free
You'd have to split R&D costs by the units sold here. If you spend 1B and sell 1000 copies a price of 100$ per copy won't help you.
You are of course correct in your math, but the point is that it reverses the equation. Windows doesn't cheaper to make if you plan to sell fewer copies: the production cost is set (Roughly) so you have to target volume.
Then you have the secondary effects of lock in (with software/services) that makes every sale also reduce the cost of a future sale or economies of scale (physical goods) that again make volume more desirable.
This doesn't contradict the adage about having to sell at a per unit profit, but it complicates figuring out what number that is and can lead to some non-intuitive results, which does trash the value of the adage as a simple way of looking at things.
Not saying every company that is selling at a loss to get customers in hopes that they'll mysteriously figure out how to later profit is doing so correctly, but some are. Oversimplification adds little value to these problems.
MoviePass and Amazon Prime aren't the same, because Amazon Prime produces a lot of its own content, and is the consumption point for the other content it serves. Amazon buys the rights to shows, and produces shows - so it has a fixed cost. It then sells access which has practically 0 marginal costs.
MoviePass sells subscriptions and then buys tickets. For each extra subscriber they've got an increase in marginal cost. You might argue they can make a profit by charging more for the subscription than they pay for the tickets, but there's lots of factors working against that:
1. When they IPO their suppliers will know their revenue and can demand high prices to match, seriously threatening their marginal cost.
2. Their suppliers already have scale and so will be difficult to leverage - further hitting marginal cost.
3. Their suppliers are extremely capable of producing a competing product undercutting them- destroying the lock-in component. The suppliers control access to the content not MoviePass.
There's a key flaw in the wording that might lead to confusion if trying to explain this to someone new to investing.
Amazon stopped making /losses/ rather quickly. They /invested/ in the health of their business and future opportunities instead of delivering profits to outside investors.
Arguably, a better structure for incorporation does exactly that; it provides benefits to it's employees and the community it serves.
To a limited extent large retailers like Amazon and Walmart actually can lose money on every transaction and make it up in volume. By delaying payments to their suppliers they get 2 - 3 months of float and can earn extra income by investing that capital. Of course in today's low interest rate environment it isn't much, but at their scale it adds up.
This is so suspicious though. Apple somehow managed to become a bigger company by revenue and profit while being profitable most of the way up.
There is a lot of trust here that Amazon is secretly really profitable not just growing because their profit margins are unsustainably low. It wouldn't be the first time a large company engaged in questionable accounting if it turns out their unit numbers are actually not as good as they claim because of some accounting shenanigans.
Apple and Amazon operate completely different businesses, your comparison doesn't make sense. Walmart has more than double the revenue of Apple (or Amazon) and yet has less than a 2% profit margin [1]. Is that suspicious? If anyone is an outlier I'd say it's Apple selling luxury priced goods (along with their fat margins) at consumer like scale.
Apple invented and brought to market a revolutionary new product at the right time (3G mobile internet), and their products are obviously high quality that can't be matched by others due to extremely high barriers of entry.
It's completely different to retail, which historically has low margins and has to compete with Walmart.
I don't think Amazon is cooking the books, investors think that Amazon has a better more sustainable business and that Apple is just one misfire away on the next iPhone from imploding. Most of Apples money either comes from the iPhone or services based on iPhone sells.
I'm not saying I necessarily agree with this assessment.
