If your primary business is selling things online and then shipping them to customers, then you're probably very focused on how to do that as quickly and efficiently as possible. It turns out, however, shipping things quickly is expensive. Especially if you offer it to your customers for free.
That's the TL;DR version of Amazon's earnings report yesterday.
More specifically, the company spent more than $800 million to build out the infrastructure necessary for the 1-day shipping it offers its Prime members on a growing selection of items. In fact, the company's shipping costs are up 36 percent.
It's really not a surprise then, that the company's run of record profits has come to an end. If you spend a bunch of extra money, less of it ends up on the bottom line.
For a lot of people, that's the story: Amazon made less profit than expected. But the far more interesting reason is why, and it's a lesson for your business.
Amazon is playing the long game.
Most of that money was spent building out a distribution network closer to more customers, so that in the long run, one-day shipping won't be nearly as expensive. It's also why the company is working on controlling its entire delivery infrastructure, so that it can reduce the cost of depending on third-party services like FedEx or UPS.
"We expect we'll be working through that for a number of quarters, but when the dust settles, we will regain our cost efficiency over time," said Brian Olsavsky, Amazon's chief financial officer during a call with analysts.
In fact, Amazon has long been willing to spend money upfront to put in place systems that give it a competitive advantage or save it a few dollars on each item it sells. When you sell as much as Amazon, those dollars add up over time.
Of course, Amazon is able to make big bets and spend huge sums of money on projects without an immediate payoff because it's a huge company with plenty of cash. I suspect most of you aren't in that same situation, but you can still consider how you can get creative about preparing for the things that will help you grow into the future, even though they might not payoff today.
Amazon is forcing others to follow.
Amazon Prime is the reason that two-day shipping is the standard by which all online retailers are measured. That's just reality. And we probably wouldn't have the prevalence of in-store pickup and same-day delivery services like Shipt if Amazon hadn't pressured its competition to up their game.
Sometimes you can make a move that doesn't directly, or immediately, benefit you, other than it forces everyone else to react. The same thing is true of Amazon's Prime Day sale. Everyone wants in on the game, because they're afraid of missing out.
One of the most effective ways to win is to change the rules of the game to your advantage. When you can force your competition to compete on your terms, you have the advantage even if they payoff might take time.
Amazon has to find different ways to grow.
Even though the company is doing fine, there are certainly outside forces pressuring the company to adapt and change. The company is facing investigations on both sides of the Atlantic Ocean, and could face extraordinary fines as a result of its allegedly anti-competitive behavior.
Amazon Web Services (AWS), the company's cloud-computing platform, and one of its most profitable divisions, is experiencing increased competition from Microsoft's Azure, and Alphabet's Google Cloud.
Target is building out smaller-footprint stores closer to its customers, and offering same-day delivery.
All of that means that Amazon has to find new ways to grow, since it can't continue to rely on its cash cows to continue to payoff forever -- at least not without adapting.
That's true of any business -- yours included. Your job is to figure out what's next. What's the next thing you can start now, that'll make a big difference later. For Amazon that's one-day shipping.
Whatever it looks like for your business, if it's really that important, start it now. It might cost you in the short-term, but change always has a cost. The good news is that making the right changes now always costs a lot less than watching your competition change, and following them later.