Amazon's profitless path

Twenty years ago today Amazon sold its first book, created the first online book store and went on to become a hugely profitable internet superpower. Today it's celebrating that anniversary with Amazon Prime day, 24 hours of special offers which will be the biggest day of e-commerce the world has ever seen.

Actually, scrub that first paragraph - almost every fact in it is inaccurate. That birthday? Three months earlier Amazon had already tested its systems, selling an academic work about artificial intelligence to a computer scientist in April 1995. It was not the first online book store - the previous year a British man, Darryl Mattocks, posted the first book sold by his Internet Bookshop, a venture soon eclipsed by Amazon.

Amazon Prime day is a clever piece of marketing - but won't be on the scale of Black Friday or China's Singles Day. It is also unlikely to give a big boost to the online retailer's bottom line - and there we come to the biggest falsehood in my opening paragraph. Amazon is certainly an internet superpower, but it is most definitely not "hugely profitable".

In fact, its story is one of a brazen contempt for what you might regard as the first rule of capitalism - the duty of a public company to maximise profits for its shareholders. Throughout its history, Amazon has seen its revenues climb inexorably while its profits hover around or below zero.

Last year its revenues hit $88 billion (£56 billion) , but it made a loss of $240 million (£153 million). (Just as a comparison, Tesco's revenues in 2014 were £71 billion, on which it made a profit of £2.6 billion - though this year it recorded a huge loss after writing down the value of its property. Oh, and right now the stock market thinks Amazon is worth roughly eight Tescos.)

It is not that Amazon has not made money - from selling books, then all sorts of other goods, then acting as a platform for all kinds of other businesses to sell their products. It is just that it has relentlessly ploughed that cash back into capital expenditure, mostly aimed at improving the delivery infrastructure at the heart of its business.

That means that it has been able to satisfy consumer desires ever more quickly. There is now even an Amazon button you can press every time you run out of household staples and then get them delivered without going near a computer or phone. Another innovation, the Echo speaker, will obey your every command, serving up digital media as well as taking orders for physical goods. And then there is the plan to deliver parcels by drone - a madcap idea which nevertheless speaks volumes about the company's ruthless focus on speedy service.

Better, faster service means shoppers gravitate to Amazon in whichever market it enters, generating more revenue which can in turn be ploughed into new conquests rather than returned to shareholders. In recent years, more of that cash has gone into a whole new business, Amazon's cloud computing service AWS. It is now generating substantial revenues - and to the surprise of many, turns out to be profitable, though again the surplus is likely to be directed towards further growth.

Investors now seem to accept this constant diet of jam tomorrow, which somehow never arrives. But in his company's first decade, Amazon's founder Jeff Bezos had to defy the market, refusing to change course when the word on Wall Street was that the business was heading for bankruptcy.