Does Amazon favor customers at the expense of shareholders?
Amazon CEO Jeff Bezos holds up the new Kindle Fire HD reading device in two sizes during a press conference on September 6, 2012 in Santa Monica, Calif.
It seems like Amazon sells everything these days -- baby clothes, power tools, lawn furniture, oh yeah, books. And it undercuts competitors with rock-bottom prices. Critics say that might be good for you and me, but it's lousy for Amazon shareholders because the company barely ekes out a profit, if any at all. Some accuse CEO Jeff Bezos of running the company like a "charity" for consumers. Now Bezos is pushing back, responding to his critics in a recent letter to shareholders.
Look, he says, we’ve had the same strategy for years: Keep prices low, which does lead to lower profits, but builds customer loyalty. As he says in the letter: “Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas.”
Jeff Howe is a visiting scholar at MIT media lab. He says Amazon is onto something.
“They think long-term instead of short-term," he explains. “They don’t get distracted with a shiny little object that’s going to please shareholders for two quarters.”
Still, shareholders do seem to be fairly pleased with Amazon, right now. The stock has more than doubled over the past five years. And there doesn’t seem to be any massive shareholder revolt.
“If people were really worried about Amazon’s future prospects, they wouldn’t be buying the stock,” says Tim Carmody, who writes for the online magazine The Verge.
But, Carmody says, if Amazon revenue falls or the company falters in new markets, shareholders will flee. For now, Carmody says Amazon’s long-term focus on consumers is working.
Just look at customers like Andrew Wallace. He’s 23, from Brooklyn. He buys everything from books and music to nuts and frozen food on Amazon. He says, “Amazon is this great big and easy thing that keeps you coming back for more.”
But does Wallace love Amazon enough -- would he shop there even if found stuff cheaper somewhere else? Maybe not.
“It’s hard to feel loyalty to something so big," he says. "You know what I mean?"
Are you listening, Jeff Bezos?