Amazon pays to play

A few days ago, Amazon reported its rare earnings miss, particularly on the bottom line. The primary reasons of the miss were their investments in AWS and especially their one-day delivery.

“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Jeff Bezos, Amazon founder and CEO. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”

Source: Amazon

A few days later, they announced the removal of groceries delivery fees for Prime members.

While their figures missed expectations, I think they are doing the right thing. Amazon has long been about long term investments and commitment to customer satisfaction. Two-day shipping wasn’t popular until it was introduced by Amazon. It was adopted by other retailers which wanted to compete. Now, Amazon upped their game and took it to another level with one-day shipping and free grocery shipping for Prime members. They are here to play and have the means to. With their AWS making up 62% of the whole company’s operating income and free cash flow up 54% YoY, Amazon has the luxury to make long-term investments to continuously being competitive.

I understand that in some cases, Amazon came across as a bully and deserved some of the backlash. Nonetheless, I think they earned their competitive position. Kobe Bryant spent hours in the gym and took thousands of shots to get to where he was in the record book. Amazon is willing to pay to stay competitive. The question is whether other companies respond accordingly and when.

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