Amazon’s Jeff Bezos determined to avoid ‘Steve Jobs’ mistake’

“Amazon is legendary for its thin profit margins, but there’s a method to the company’s madness, as detailed in Brad Stone’s new book, The Everything Store,” Todd Bishop reports for GeekWire. “Part of it is that Jeff Bezos wants to avoid repeating what he considers ‘Steve Jobs’ mistake’ in pricing products.”

“At one point, Bezos explained to one of Amazon’s major shareholders that he wanted to avoid ‘Steve Jobs’ mistake’ of pricing the iPhone so high that it created fantastic profit margins,” Bishop reports. “The problem, Bezos explained, was that the strategy attracted a raft of competitors as a result.”

Bishop reports, “Stone tells the story of one former Apple executive, Diego Piacentini, who left to join Amazon around 2001. Jobs asked the executive why he wanted to work for a ‘boring retailer’ when Apple was in the process of ‘reinventing computing.’ Stone writes, ‘Then in the same breath, Jobs suggested that maybe the career move revealed that Piacentini was so dumb that it was a good thing he was leaving Apple.'”

Read more in the full article here.

Related article:
Newsflash: Apple sells premium products at premium prices to premium customers – October 23, 2012

42 Comments

  1. Everyone would love to run a business where the shareholders don’t care if you make a profit, the problem is, only one group of shareholders have been brainwashed to allow the CEO to do it.

      1. Low prices aren’t destroying our economy. But which company would you rather run, a company constantly concerned about its margins and barely scraping a profit, or one of the world’s most valuable and most profitable companies?

        Sure Bezos, Jobs made a mistake. Probably picked the wrong color paint for his house or something.

      1. Yup. Amazon’s shareholders keep thinking the company will take over retailing, or do something to explode its business and suddenly start making lots of money (or just send the stock soaring).

        Neither is going to happen. Amazon will always be around and a great place to buy items you can’t find locally, but no online retailer will ever take over retail sales. Too many items are needed locally, and too many people want to be able to touch and feel or see an item before they buy it. Plus, Amazon doesn’t really attract impulse buying.

        Evidence? Apple Retail Stores. Apple actually went in the opposite direction, selling mostly online/catalogues and now selling huge amounts from brick and mortar stores.

        1. Amazon wants to put All retailers out of business because it’s opening or intending to open physical warehouses everywhere. That’s why the company shifted gears to support online sales taxes.

          Amazon’s low in the radar good cash flow but little profit strategy kills off existing competitors and is a disincentive to any new challengers.

          And being a multibillionaire BEFORE creating Amazon has given him Wall Street cred.

          Yes, Amazon IS a threat to Apple.

  2. Yeaaa… Jeff. Have you noticed that making a profit will actually help once a competor begins to out perform your model. It always arrives and if you skate by you could be in serious trouble. Apple has the cash to survive and redine itself. Cash kinda does that. So, go ahead full speed into the unseen future. Just watch out for objects that my be in your path. One of them just my sink you and your model.

    1. I actually don’t use amazon unless i have no other options now. I hate giving my money to walmart, but at least they’re not trying to price apple out of certain businesses (books, media, music).

      1. Been in a Walmart just a couple of times in the past year.
        Target is better than Walmart, and price wise, competitive. One of those “shopping cart of items” price checks actually had Target besting Walmart once or twice.

    2. Exactly. The PE ratio indicates investors expect earnings growth, but the CEO comes out and says he is managing so there isn’t earnings growth. How does wall street walk past this?????
      Hedge funds should have huge short positions as this is the most dumbass strategy I have heard.

      How is this a good thing for shareholders? As a shareholder, I’m not looking for principal protection I’m looking for earnings growth. If I was looking for principal protection I would be in the Bond Market with collateralized debt instruments.

      And idiots like Rocco call for Tim Cook’s head.

  3. Listen, I buy from Amazon and I buy from Apple. Just this week alone I purchased an item each from Amazon and Apple – a medium capacity SSD drive that I wanted to install on my MBP and an AirPort Extreme base station.

    I didn’t want to go for a high capacity SSD because of Apple’s new Fusion Drive technology that you can do it yourself by installing an SSD alongside the HDD that came with the MBP and by using Disk Utility to fuse the two drives together.

    That’s why I love the MBP and I love Apple. They deliver so quickly and the manufacturing quality is so high. But I would never buy a peripheral device from Apple though – too expensive. I’d buy the MBP base option and order the peripheral from Amazon – much, much cheaper, sometimes up to 50% cheaper than what Apple charges.

    So both have their day in the sun. And I love both. They both give me top notch service.

    1. I use to buy the cheap hard drives from places like Amazon figuring Apple over charged. Apple’s drives though tended to last longer and I was having more failures with the other drives. Looking at the model numbers more carefully I found out Apple buys the enterprise versions of the drives. I haven’t had any failures since buying those but Apple’s prices don’t look as expensive any more. A word to the wise.

      1. I don’t buy that Apple buys the enterprise version of hard drives.

        The 5400 rpm 320 gig drive that came stock surely wasn’t an enterprise drive. It was a low end consumer drive.

    2. I hadn’t considered this before.

      How do you add an SSD into a MBP with a HD in place? Replace the DVD drive?

      Can the SSD/HD Fusion drive accomodate the Boot Camp partition in this arrangement?

      1. Depending on the model of MBP you have, you can install the SSD in the HD bay or optical drive bay. It’s more work if you have to install it in the HD bay because you have to remove the HDD drive first, then install the SSD in its place and then place the HDD in the optical drive bay that is vacated when you remove the SuperDrive and replace it with a drive caddy.

        Generally speaking MBP dating from late 2011 and later have SATA3 connections (6GBs) channels in both the optical and HD bay and will be compatible with the data transfer speed of the SSD. For MBP of early 2011 vintage and earlier, only the HD drive slot gives a SATA3 connection. The optical drive is SATA2 which is 3GBs negotiated speed.

        In relation to making your own Fusion Drive, you need to boot Mountain Lion from an external USB drive. Only versions of ML from 10.8.3 have Disk Utility that can create Fusion Drives. If you use an earlier version of ML, all you will be creating is a single Core Storage drive and not a Fusion Drive. The difference between the two is that the Fusion Drive will intelligently allocate the faster SSD to apps and the OS and relegate data and files to the HDD, depending on your usage patterns.

        Fusion Drive is not compatible with Boot Camp as Apple has not made Core Storage support Windows partitions or Windows NTFS file system.

  4. “Bezos explained, was that the strategy attracted a raft of competitors as a result.”

    And he’s going to awoid that! Best explanation in a long time – not. On par with Ballmer’s strategy that he loves so much

  5. Great quote from Slate.
    “…That’s because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon.
    It’s a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.”

  6. Assmazon is nothing but a bazaar marketplace that’s sells everything. Making profits from crap sales to find a loser product. People need to stop comparing this guy to SJ. Light years apart.

  7. Erm, didn’t Dell as one example try selling things at low margins? They had plenty of competition and are now basically screwed. Selling things at low margins only works if you get all the market, and don’t have any competition because you’re making all the profit there is, that isn’t the case though.

  8. This is comparing Apples with Pears. He doesn’t seem to understand that trying to sell tech products at near zero margins simply puts you into liquidation because a western company cant over time compete in that game with an Asian or similar company. With retail its simply not the same (at least for now) if you get a first mover advantage it is very difficult to out compete because Amazon has no greater add on cost than anyone else because it can operate wherever it is cheapest to do so and its massive headstart and size offsets what little further cost saving Asian companies can possibly squeeze out especially when selling in the prime western markets which still dominate profits for most products. At present the infrastructure outside of the west makes the Amazon system far less viable too.

    This will all gradually change over time and no doubt Asian companies will likely out compete it within Asia eventually and who knows what thereafter but in no way for the foreseeable future is the mature market designing and making technology products the same as selling whatever stuff by and from whoever online.

  9. When you deal in unique, premium products, you want a high profit margin, and you WANT to attract competitors so that they will put out inferior products against which your premium product looks even better.

    When you deal in things that anyone can sell, you want to sell these things for as low a price as possible and make your money on the volume.

    These are both equally valid business models for success; witness both Apple and Wal-Mart. (Yes, I know I have just triggered a firestorm of criticism about recognizing Wal-Mart for anything but being the evil exploiter — pardon me, Evil Exploiter — of the downtrodden. It still makes money, and that’s the point of this post.)

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