In logistics system development, how did Amazon determine through first principles thinking that 'building warehouses at a loss' is the long-term optimal solution?

This is an interesting question, let's talk about it. You can actually understand this whole thing with a simple analogy.

Imagine you're a top chef who opened a wildly popular online pizza shop. Your pizzas are the best in the world, but you've hired Old Wang next door to handle deliveries for you.

At first, business wasn't huge, and Old Wang's deliveries were fine. But soon, problems started to emerge:

1. Uncontrollable Speed: Old Wang might ride fast if he's in a good mood today, but tomorrow he'll take his sweet time if he's tired. You promise customers "delivery in 30 minutes or less," but you can't guarantee it; it all depends on Old Wang.
2. Uncontrollable Service Quality: Sometimes Old Wang would deliver pizzas vertically, turning them into "pizza rolls" by the time they reached the customer. Customers would blame you, not Old Wang.
3. Rising Costs: The better your business, the more dependent you become on Old Wang. Seeing this, Old Wang would think, "Hey, they can't do without me," and he'd dare to raise his prices, leaving you with no leverage.
4. Inability to Scale: You want to expand your business to the next city, but Old Wang only delivers in your village. You simply can't expand.

So, what do you do in this situation?

The average person's thinking (or 'conventional wisdom'): I'm a chef, not a delivery person. I should continue working with Old Wang, or switch to a more professional delivery company. I should focus on making my pizzas even tastier.

First Principles Thinking: Let's break the problem down to its root. What is my business? It's "ensuring customers happily receive my hot, delicious pizzas." Within this goal, what are the most critical elements that absolutely cannot go wrong?

1. The pizza must be delicious. (This I can control)
2. It must be delivered to the customer's hands on time and in perfect condition. (This is what I currently can't control, and it's the biggest bottleneck)

Therefore, to achieve my business goal, I must control the "delivery" aspect. How can I completely control it? There's only one answer: I build my own delivery team.

Buying vehicles, hiring people, setting up stations... this would definitely be a money-losing venture initially. The financial statements would look terrible, and your neighbors might even mock you: "A chef, spending so much money on a motorcycle fleet?"

But what about the long term?

• Ultimate Customer Experience: I decide when, how, and how fast to deliver. I can make a promise like "delivery in 20 minutes or less, or it's free," which others can't. This creates a moat.
• Cost Advantage After Scaling: Once my delivery network is established and handles enough orders, the per-order delivery cost will be significantly lower than using third-party courier companies.
• New Business Opportunities: I can not only deliver my own pizzas but also help the fried chicken shop or bubble tea store next door with their deliveries, earning money from them. My delivery network itself becomes a new business.

Now, replace "pizza" with "all products sold by Amazon," "you" with "Jeff Bezos," and "Old Wang next door" with "logistics companies like UPS and FedEx," and the story makes perfect sense.

Amazon's foundation is "customer-centricity," and its first principle is "What do customers want?" — Customers want more choices, lower prices, and faster delivery.

At the time, everyone thought e-commerce was just about being an online retailer and handing over goods to logistics companies. But Bezos saw through it: delivery speed and experience were crucial to customer satisfaction, and this critical point couldn't be left in others' hands.

Therefore, the act of "losing money to build warehouses," which Wall Street viewed as crazy spending and a foolish, low-profit endeavor, was, in Bezos's first principles logic, buying control over the customer experience. He wasn't losing money; he was building the deepest moat for the future.

When the Prime membership service (two-day delivery) was launched, the power of this moat became fully apparent. Users became inseparable from Amazon due to the ultimate logistics experience, which in turn attracted more merchants. More merchants brought a wider variety of products and lower prices, which again attracted even more users... forming a powerful growth flywheel.

And the engine of this flywheel was the warehouses and logistics system that were initially built by "losing money."