Jeff Bezos' Strategy for World Domination

A blog about business and economics.
April 12 2013 12:56 PM

Jeff Bezos Explains Amazon's Strategy for World Domination

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Amazon CEO Jeff Bezos doesn't want his company to win votes; he wants it to be heavy.

Photo by JOE KLAMAR/AFP/GettyImages

Jeff Bezos' latest letter to Amazon shareholders quotes me, sadly leaving off the name:

Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company. “Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers,” writes one outside observer. But I don’t think so. To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

Don't get me wrong. I don't mean this as a criticism of Amazon. I think Amazon is one of the greatest companies in the world if not the greatest company, precisely for this reason. It's also the most terrifying competitor in the world. My main point is simply that the key here is Bezos' relatioship with shareholders. Lots of companies would, I'm sure, love to delight their customers by slashing prices to a zero-margin level. The problem is most companies would worry that plummeting profit margins would lead to fired executives and mass layoffs of rank-and-file employees. But Bezos has the confidence of the investment community and earns a staggering P/E ratio for his company. Wall Street has so much confidence in Bezos that he can say things like this in the very next paragraph:

As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.
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And good for him. But this really is an idea that cuts against the basic logic of modern shareholder capitalism.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.