“Percentage margins are not one of the things we are seeking to optimize,”
“It’s the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that’s something investors can spend.”
Bezos is more concerned with driving cash flow than making money because he believes the opportunity offered by the Internet, and by e-commerce, is massive and still largely untapped. To him, it’s still a land grab. So he’s prepared to cut prices to the bone and add all those freebies to cultivate customer loyalty and drive sales growth. Then he reinvests it all in more low prices and further expansion, driving additional customer loyalty.
The strategy manifests itself in Amazon’s constant flood of news announcements. The company just announced plans to build a million-square-foot fulfillment center in New Jersey. It just extended its Prime two-day shipping service to Canada.
The new fulfillment centers, operating outside such major American cities as New York and Los Angeles, could serve as the centers of a hub-and-spoke logistics network that will allow Amazon to store perishables like fresh fruit. And when Amazon owns a network of vans humming around most major urban centers to deliver groceries, it will be able to pack items such as the most popular DVDs and books and deliver them to customers within 24 hours after they are ordered, just as it does now in Seattle.
