Business November 2013

The Amazon Mystery: What America's Strangest Tech Company Is Really Up To

Investors love Jeff Bezos's global-everything store, even though they aren't making any money from it yet—and it's not clear how they will.
Amazon’s logistics machine recalls Sears, Roebuck’s pneumatic-tube-powered warehouse. The company may become the Sears of this century. (Ross D. Franklin/AP)

If there’s a sentence that sums up Amazon, the weirdest major technology company in America, it’s one that came from its own CEO, Jeff Bezos, speaking at the Aspen Institute’s 2009 Annual Awards Dinner in New York City: “Invention requires a long-term willingness to be misunderstood.”

In other words: if you don’t yet get what I’m trying to build, keep waiting.

Four years later, Amazon’s annual revenue and stock price have both nearly tripled, but for many onlookers, the long wait for understanding continues. Bezos’s company has grown from its humble Seattle beginnings to become not only the largest bookstore in the history of the world, but also the world’s largest online retailer, the largest Web-hosting company in the world, the most serious competitor to Netflix in streaming video, the fourth-most-popular tablet maker, and a sprawling international network of fulfillment centers for merchants around the world. It is now rumored to be close to launching its own smartphone and television set-top box. The every-bookstore has become the store for everything, with the global ambition to become the store for everywhere.

Seriously: What is Amazon? A retail company? A media company? A logistics machine? The mystery of its strategy is deepened by two factors. First is the company’s communications department, which famously excels at not communicating. (Three requests to speak with Amazon officials for this article were delayed and, inevitably, declined.) This moves discussions of the company’s intentions into the realm of mind reading, often attempted by the research departments of investment banks, where even bullish analysts aren’t really sure what Bezos is up to. “It’s very difficult to define what Amazon is,” says R. J. Hottovy, an analyst with Morningstar, who nonetheless champions the company’s future.

Second, investors have developed a seemingly unconditional love for Amazon, despite the company’s reticence and, more to the point, its financial performance. Some 19 years after its founding, Amazon still barely turns a profit—when it makes money at all. The company is pinched between its low margins as a discount retailer and its high capital spending as a global logistics company. Last year, it lost $39 million. By comparison, in its latest annual report, Apple announced a profit of almost $42 billion—nearly 22 times what Amazon has earned in its entire life span. And yet Amazon’s market capitalization, the value investors place on the company, is more than a quarter of Apple’s, placing Amazon among the largest tech companies in the United States.

If Amazon doesn’t seem entirely coherent in the context of its contemporary rivals—it appears to be simultaneously competing with Walmart, eBay, Netflix, Microsoft, and Apple, for starters—it makes considerably more sense in the historical context of American shopping. “I think Amazon’s efforts, even the seemingly eccentric ones, are centered on securing the customer relationship,” says Benedict Evans, a consultant with Enders Analysis. The Kindle Fire tablet and the widely rumored phone aren’t frivolous experiments, he told me, but rather purchasing devices that put Amazon on the coffee table so consumers can never escape the tantalizing glow of a shopping screen.

In a way, this strategy isn’t new at all. It’s ripped from the mildewed playbooks of the first national retail stores in American history. Amazon appears to be building nothing less than a global Sears, Roebuck of the 21st century—a large-scale operation that aims to dominate the future of shopping and shipping. The question is, can it succeed?

The company’s warehouses are proliferating, enabling limited same-day delivery to urban areas—but will that yield a durable competitive advantage? (Charles Ommanney/Getty)

In the late 19th century, soon after a network of rail lines and telegraph wires had stitched together a rural country, mail-order companies like Sears built the first national retail corporations. Today the Sears catalog seems about as innovative as the prehistoric handsaw, but in the 1890s, the 500-page “Consumer’s Bible” popularized a truly radical shopping concept: the mail would bring stores to consumers.

But in the early 1900s, as families streamed off farms and into cities, chains like J. C. Penney and Woolworth sprang up to greet them. Sears followed, building more than 300 stores between 1925 and 1929 that specialized in “hard” goods like household appliances and spare parts for a mobile technology revolutionizing retail: the rapidly proliferating automobile. The company’s focus on the emerging middle-class market paid off so well that by mid-century, Sears’s revenue approached 1 percent of the entire U.S. economy. But its dominance had deflated by the late 1980s, after more competitors arose and as the blue-collar consumer base it had leaned on collapsed.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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