It shouldn’t be, but it is. 20 years ago, in the far-off year of 2005, a lot of tech companies more or less followed the same path, where it took decades for them to actually be profitable, if they were at all.
YouTube ran at a deficit for something close to 15 years. AI companies are likely following this trend, and running mostly on investment money, rather than being self-sufficient.
People don’t realise how much the storage and bandwidth costs are for a site as big as YouTube, and it keeps going up due to the huge number of videos being uploaded. People think that Google are making huge amounts of money from YouTube. In reality, they’re not breaking even and rely on other, profitable business units (like their Workspace and cloud services) to subsidize it.
There’s no way the ads fully cover the cost, and more and more people are blocking ads. Advertisers don’t pay for blocked ads, and YouTubers don’t make any ad money from your views if you use an ad blocker. (this is the main reason YouTubers say they make less money from ads than they used to - ad blockers)
Yeah it’s part of their overall strategy to be seen as a core part of the internet / the web. Same as Yahoo in the 90s and early 2000s.
The more people that use their free services, the more appealing they are to advertisers compared to competing ad platforms (broader reach), and the more paid subscribers they get.
Products like Visual Studio, some Jetbrains IDEs, VMware ESXi, and a lot of SaaS products, are (or used to be) free for individuals or for open source usage for a similar reason - people get familiar with them at home, and end up recommending them and buying them at work. A few individuals liking the product can result in large companies signing paid contracts for tens of thousands of users.
I don’t know about now, but Amazon ran a deficit for pretty much its entire existence. Amazon is a bit different though since it was part of an R&D strategy and they could’ve stepped off the gas at almost any point and been profitable.
That’s a long established myth. Amazon started out in 94, and became profitable in like 10 years. Most of their hardcore R&D is self-financed cause they generate just that much free cash.
Right. They spend their free cash (and sometimes more) on R&D and infrastructure, which by definition means they’re unprofitable. Profit is what’s left after expenses, so if you have nothing left, you’re unprofitable.
Thanks for clarifying that profit is calculated using a subtraction, but you’re missing the core of my comment. Amazon self-finance their R&D and STILL make a fuck load of profit. They made like 30B$ of free cash last year alone. In the last 15 years they’ve made >100B$ in overall profit and only been in the red twice.
They’re not just profitable they’re an insane money printing machine that doesn’t show any sign of slowing down.
They’re a money printing machine, but they’re usually unprofitable because they spend it all.
If you made $1M/year and spent $1M/year, your household would be less profitable than one that made $100k and spent $90k. That’s what profit means, it’s the amount you keep after all expenses are paid (assets - liabilities). It’s obviously more complex since there are other measures (e.g. EBIT), but that’s generally how profitability is calculated.
Their R&D tends to go to things that will make more money, so it’s not wasted, but it’s only profit if they don’t spend it.
Oh thanks for clarifying in even more excruciating details how a subtraction works that is really helpful.
Why would you repeat the lie that they’re “usually unprofitable” when the information is publically available in a million places on the internet ? In 2023 Amazon made :
575B$ in sales
If you remove costs of goods that’s 270B$ in gross profit
If you remove operating expenses (including R&D) that’s 30B$ in net income
Amazon is factually not “usually unprofitable”, they have in fact made profit (as in money which actually goes into your pocket after discounting all expenses) every year for the last 15 years except in 2022 and some tiny losses in 2014 and 2012.
The company started in 1994, posted it’s first profitable year in 2001, and had little or no profit through 2014. So for the first 20 years or 2/3 of the entire history of the company, they were unprofitable or barely profitable.
That’s my point, Amazon has historically been hugely unprofitable, so looking only at profit doesn’t tell the full story.
OpenAI was founded ~9 years ago, which isn’t all that different from the timeline for Amazon. They are in very different markets (ironically more similar now with AWS getting huge), with Amazon starting as a logistics company and OpenAI being a pure tech company, so the financials of both will look quite different.
So for the first 20 years or 2/3 of the entire history of the company, they were unprofitable or barely profitable.
We must have a wildly different definition of “barely profitable”. Half a billion in 2004 money is a lot of profit, a billion back to back in 2009 and 2010 is a lot of profit.
I think you’re confusing Amazon with the next generation of loss-leader companies. Let’s talk Uber, let’s talk Twitter, if we want to point at “hugely unprofitable” companies. But Amazon is a beast of its own, they have a very coherent financial story. Even during their money-losing decade they posted insane results, frequently multiplying revenue while barely increasing operating costs.
It shouldn’t be, but it is. 20 years ago, in the far-off year of 2005, a lot of tech companies more or less followed the same path, where it took decades for them to actually be profitable, if they were at all.
YouTube ran at a deficit for something close to 15 years. AI companies are likely following this trend, and running mostly on investment money, rather than being self-sufficient.
Pretty sure youtube still runs on deficit. Storage costs alone would probably bankrupt some small countries.
People don’t realise how much the storage and bandwidth costs are for a site as big as YouTube, and it keeps going up due to the huge number of videos being uploaded. People think that Google are making huge amounts of money from YouTube. In reality, they’re not breaking even and rely on other, profitable business units (like their Workspace and cloud services) to subsidize it.
There’s no way the ads fully cover the cost, and more and more people are blocking ads. Advertisers don’t pay for blocked ads, and YouTubers don’t make any ad money from your views if you use an ad blocker. (this is the main reason YouTubers say they make less money from ads than they used to - ad blockers)
I guess the cost is worth it to Google just to entrench themselves and their products even further into the lives of most people.
Yeah it’s part of their overall strategy to be seen as a core part of the internet / the web. Same as Yahoo in the 90s and early 2000s.
The more people that use their free services, the more appealing they are to advertisers compared to competing ad platforms (broader reach), and the more paid subscribers they get.
Products like Visual Studio, some Jetbrains IDEs, VMware ESXi, and a lot of SaaS products, are (or used to be) free for individuals or for open source usage for a similar reason - people get familiar with them at home, and end up recommending them and buying them at work. A few individuals liking the product can result in large companies signing paid contracts for tens of thousands of users.
And it would give a competitor a foothold to build a competing ad business
I don’t know about now, but Amazon ran a deficit for pretty much its entire existence. Amazon is a bit different though since it was part of an R&D strategy and they could’ve stepped off the gas at almost any point and been profitable.
That’s a long established myth. Amazon started out in 94, and became profitable in like 10 years. Most of their hardcore R&D is self-financed cause they generate just that much free cash.
Right. They spend their free cash (and sometimes more) on R&D and infrastructure, which by definition means they’re unprofitable. Profit is what’s left after expenses, so if you have nothing left, you’re unprofitable.
Thanks for clarifying that profit is calculated using a subtraction, but you’re missing the core of my comment. Amazon self-finance their R&D and STILL make a fuck load of profit. They made like 30B$ of free cash last year alone. In the last 15 years they’ve made >100B$ in overall profit and only been in the red twice.
They’re not just profitable they’re an insane money printing machine that doesn’t show any sign of slowing down.
They’re a money printing machine, but they’re usually unprofitable because they spend it all.
If you made $1M/year and spent $1M/year, your household would be less profitable than one that made $100k and spent $90k. That’s what profit means, it’s the amount you keep after all expenses are paid (assets - liabilities). It’s obviously more complex since there are other measures (e.g. EBIT), but that’s generally how profitability is calculated.
Their R&D tends to go to things that will make more money, so it’s not wasted, but it’s only profit if they don’t spend it.
Oh thanks for clarifying in even more excruciating details how a subtraction works that is really helpful.
Why would you repeat the lie that they’re “usually unprofitable” when the information is publically available in a million places on the internet ? In 2023 Amazon made :
Amazon is factually not “usually unprofitable”, they have in fact made profit (as in money which actually goes into your pocket after discounting all expenses) every year for the last 15 years except in 2022 and some tiny losses in 2014 and 2012.
The company started in 1994, posted it’s first profitable year in 2001, and had little or no profit through 2014. So for the first 20 years or 2/3 of the entire history of the company, they were unprofitable or barely profitable.
That’s my point, Amazon has historically been hugely unprofitable, so looking only at profit doesn’t tell the full story.
OpenAI was founded ~9 years ago, which isn’t all that different from the timeline for Amazon. They are in very different markets (ironically more similar now with AWS getting huge), with Amazon starting as a logistics company and OpenAI being a pure tech company, so the financials of both will look quite different.
We must have a wildly different definition of “barely profitable”. Half a billion in 2004 money is a lot of profit, a billion back to back in 2009 and 2010 is a lot of profit.
I think you’re confusing Amazon with the next generation of loss-leader companies. Let’s talk Uber, let’s talk Twitter, if we want to point at “hugely unprofitable” companies. But Amazon is a beast of its own, they have a very coherent financial story. Even during their money-losing decade they posted insane results, frequently multiplying revenue while barely increasing operating costs.
Tech companies were in that boat in the late 90s as well.
The dot com bust deflated it somewhat, but somehow the industry got right back to it within a couple of years.