2 min read

πŸ₯Έ Sales are a vanity metric

πŸ₯Έ Sales are a vanity metric
Photo by Ryan Quintal / Unsplash

In the context of a looming recession, most governments think again that maybe big tech should start paying a fairer amount of taxes. Prepare for talks on e-commerce and social media regulation to fire up all around (except in China, where they brutally clamp down the sector). Given the legal firepower that said tech giants have, it's doubtful that these talks will lead to anything significant anytime soon.

That said, a few simple moves could bring back order and common sense to the tech market. The e-commerce side of Amazon, for instance, operated for decades at a loss, only surviving through the operating profits of its cloud service branch. And the disproportionate spread of revenues vs. profits of these businesses are still acute today. If you consider operating profits (the money that stays on the table), Amazon is a cloud service business that dabbles in its spare time in e-commerce:

How AWS is fuelling Amazon e-commerce (source Visual Capitalist). 

As such an imbalance dramatically prevents fair competition, the obvious regulatory move would be to split Amazon into two companies. Set free the very profitable AWS on one side, and let Amazon's e-commerce business try to find a Β footing of its own after 15 years of using massive crutches.

Whether you care or not about tech regulatory issues and market dynamics, there's a lesson to learn here. Very rarely do we discuss EBIDTA as the key strategic metric for decision-making. We discuss it... eventually. The initial focus is always on market shares, sales, and unit economics while keeping in mind that profits are somehow important too. This, in turn, means that we just glaze at the underlying engine of our own business and competition.

How many companies are navigating with a skewed vision of their ecosystem, where they only focus on the largest competitors that are barely making profits or divert as many resources possible to their largest business line while keeping the lid on the ones that are the real money-makers?

The first step that I learned the hard way about business strategy?

Start to think of sales and market shares as only vanity metrics.