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.” Part of it is that Jeff Bezos wants to avoid repeating what he considers “Steve Jobs’ mistake” in pricing products.
The story comes up in the book as Stone explains the logic behind the company’s pricing strategy for Amazon Web Services. Bezos decided to price AWS as a “utility with discount rates, even if that meant losing money in the short term,” writes Stone in the book.
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. The problem, Bezos explained, was that the strategy attracted a raft of competitors as a result.
“The comment reflected his distinctive business philosophy,” writes Stone. “Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible.”
That’s just one of the points of conflict between the companies. The book offers behind-the-scenes details of their competition in areas including devices and media, and their battle over e-book pricing that resulted in a court judgment against Apple earlier this year.
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.”
Piacentini remains a top executive at the Seattle company, overseeing its international consumer business.
Brad Stone, the author of “The Everything Store: Jeff Bezos and the Age of Amazon,” will be our guest this weekend on the GeekWire Radio show. He’ll also talk about the book Oct. 22 at Seattle’s Town Hall. Tickets available here.