Yes. This is like saying Toyota is dumb because they were selling the early Priuses below cost.
Smart companies are willing to invest heavily in new products, and base their pricing on long-term costs, not short-term costs.
Giving no thought to margins is one way to kill a startup. But paying too much attention margins is another way.
Amazon has been particularly smart about this. E.g., the Amazon Prime program. From what I've read, it more or less breaks even. They surely lose money on some people over some periods. But now that they've captured 90% of my on-line purchases, they can start squeezing out the costs. E.g., their move to set up local distribution centers and same-day delivery. Cheaper for them than using FexEx, and better for me. And utterly impossible for people too focused on per-sale profits to compete with.
Amazon is an interesting case, partly because they really are doing on-line commerce and product distribution infrastructure on a scale that basically no-one else does.
I'm wondering how their next chapters are going to play out when (a) people get fed up with the automatic pricing mechanisms that keep dramatically changing the prices with no logical basis from a customer's point of view, and (b) too many bricks and mortar stores start to go under, and people can't browse there before sneakily shopping on-line afterwards any more.
Here's an obvious example from just this past week. Back at Christmas I bought the first season of a show, and after enjoying the first few episodes, I put season 2 on my Amazon wish list, which I basically use as a convenient bookmarking tool. At the time, both box sets were about the same price, and it was roughly the going rate for such things. A few weeks later, I'd finished the first season and went to order the second, credit card literally in hand, and found that they had basically doubled the price since I bookmarked it. There was no obvious justification, so I assume it was their automated pricing doing something funny. In any case, I immediately removed it from my wish list; I enjoyed the show, but not that much. Last week, I went back to take another look in case the price had come down again, but no, season 2 is still way more than season 1 and other comparable products. The following day, I learned that a TV channel I get is showing both seasons back to back, so if I just wait a few days I can have the whole thing for free. Score: Me 1, Amazon 0.
It's not as if this is the first time I've seen their pricing do silly (from a customer's point of view) things, or the first time they've annoyed me for that reason, but it's the first time it was so silly that I just walked away from a purchase without hesitation, and in this case clearly I'll never go back now. I've heard similar anecdotes from enough friends now to realise that I'm hardly alone, either.
This leads me to wonder whether all of this computerising and optimising that they are doing will backfire at some point, and a lot of the advantages they seemed to have in better pricing compared to bricks and mortar stores were actually temporary or illusory.
Smart companies are willing to invest heavily in new products, and base their pricing on long-term costs, not short-term costs.
Giving no thought to margins is one way to kill a startup. But paying too much attention margins is another way.
Amazon has been particularly smart about this. E.g., the Amazon Prime program. From what I've read, it more or less breaks even. They surely lose money on some people over some periods. But now that they've captured 90% of my on-line purchases, they can start squeezing out the costs. E.g., their move to set up local distribution centers and same-day delivery. Cheaper for them than using FexEx, and better for me. And utterly impossible for people too focused on per-sale profits to compete with.