From Bloomberg:
Amazon makes no sense. It’s the most befuddling, illogically sprawling, and—to a growing sea of competitors—flat-out terrifying company in the world.
It sells soap and produces televised soap operas. It sells complex computing horsepower to the U.S. government and will dispatch a courier to deliver cold medicine on Christmas Eve. It’s the third-most-valuable company on Earth, with smaller annual profits than Southwest Airlines Co., which as of this writing ranks 426th. Chief Executive Officer Jeff Bezos is the world’s richest person, his fortune built on labor conditions that critics say resemble a Dickens novel with robots, yet he has enough mainstream appeal to play himself in a Super Bowl commercial. Amazon was born in cyberspace, but it occupies warehouses, grocery stores, and other physical real estate equivalent to 90 Empire State Buildings, with a little left over.
Investors have grown to love Amazon.com Inc. despite, or perhaps because of, its contradictions. Shareholders pushed its value above Microsoft Corp.’s for the first time on Valentine’s Day and to an all-time high of $774 billion on March 12. Only Apple Inc. and Google parent Alphabet Inc. remain more valuable, and unlike them, Amazon breaks all the rules of the modern corporation. It’s also wielding its power against an unprecedented range of other businesses.
. . . .
The company has grown so large and difficult to comprehend that it’s worth taking stock of why and how it’s left corporate America so thoroughly freaked out. Executives at the biggest U.S. companies mentioned Amazon thousands of times during investor calls last year, according to transcripts—more than President Trump and almost as often as taxes. Other companies become verbs because of their products: to Google or to Xerox. Amazon became a verb because of the damage it can inflict on other companies. To be Amazoned means to have your business crushed because the company got into your industry. And fear of being Amazoned has become such a defining feature of commerce, it’s easy to forget the phenomenon has arisen mostly in about three years.
. . . .
In 2014 everything was going wrong. Amazon introduced the Fire smartphone, one of the bigger flops in the history of consumer electronics. It posted its steepest quarterly loss before taxes and interest—an ignominious milestone for a company with a history of slim or no profits. Revenue growth in the 2014 holiday season was the second-worst since 2001, and executives started to sound downright pessimistic, as if the business was starting to mature or even stall. They promised the company would be more discerning about spending on projects that might not pay off for years or decades. At one point, Amazon’s top finance executive even tried to blame disappointing sales on students trying to save money by renting textbooks. It was a lame excuse befitting a stodgy company struggling to adapt, not a rising technology superpower.
Investors lost patience. Over the course of 2014, Amazon’s stock price fell more than 20 percent, making the company much less valuable than Walmart Inc. or China’s Alibaba Group Holding Ltd., an Amazon look-alike that went public that September.
. . . .
In April 2015, Amazon had what technology analyst Ben Thompson called a second initial public offering. It disclosed for the first time the staggering profitability of Amazon Web Services, which started in 2006 as an experiment to rent out computing horsepower to companies that needed it. It proved to be a big idea that allowed young businesses to get off the ground more quickly and cheaply than before. Large companies, notably Netflix Inc., also started using AWS—first for side projects, then eventually to support essential operations.
Amazon had always been the clear market leader in this kind of cloud computing service, but few outside the company were prepared for just how valuable AWS had become. Inside Amazon was a division with the muscular profit margins of Starbucks Corp. and higher annual sales than the entire Chipotle Mexican Grill restaurant chain.
The AWS disclosure changed the way investors and stock watchers valued Amazon. Suddenly there was evidence the company could be consistently and nicely profitable if it chose that route. It was also among the biggest signs that Amazon’s head-scratching investments could pay off in a huge way. In 2015, AWS was responsible for two-thirds of total operating profit. Last year it was more than 100 percent.
Two other long-gestating Amazon businesses also found their groove in 2015. The company tested the loyalty of its 10-year-old Amazon Prime program by holding its first Prime Day, a fake shopping holiday during the summer retail doldrums. The program, which delivers fast, free shipping and other benefits to members, gave Amazon not only a predictable stream of membership fees but also a psychological advantage with shoppers. Once they pay their annual dues, they have an incentive to buy as much as possible from Amazon. A year later, on the second Prime Day, total orders rose 60 percent above the first outing. Like Costco Wholesale Corp., Amazon had found a way to compel customers to pay them for the privilege of buying more stuff.
. . . .
No other company in Amazon’s ballpark is growing as quickly. Its roughly $180 billion in annual sales remains dwarfed by Walmart’s $500 billion, but sales at the big-box retailer inched up 3 percent in the year ended on Jan. 31. Amazon’s revenue rose at least 25 percent in 2017, excluding sales from Whole Foods. That also means Amazon is growing faster than it did three years ago, when it was half its present size.
Link to the rest at Bloomberg
And this is one of the reasons Amazon is so successful. It’s not afraid to fail, which means it also has the opportunity for breakout successes.
Look at the early reviews of the Echo.
Nobody even realized the thing was aimed at home automation until it was too late.
I wonder if all these industry voices realise that Amazon has competition? The Zon may be the biggest thing in the Western world, but Ali Baba is the Amazon of the East and that is one very big market place.
Some interesting comparisons here:
https://www.repricerexpress.com/amazon-vs-alibaba-winning/
There is a faint whisper of xenophobia floating around Alibaba, Hauwei, and other large Chinese operations. I don’t especially like the current Chinese leadership, but I have great admiration for the Chinese people and their culture. They are the largest market in many arenas. Miss that at your peril.
I’ve never actually visited Alibaba, but when I think of the size of their consumer base, my mind boggles. It’s like this massive giant sleeping quietly in the corner, ignored until one day it wakes up and the world changes.
I’ve been.
Their site is more like a Business to business eBay, with an outlet store component, rather than a consumer focused site Amazon or WalMart.
Alibaba, like Rakuten, is a site for small and not so small manufacturers to list their products. They bring producer and buyer together so they can do business. It’s an enormous business but they’re not a direct Amazon competitor.The
Different focus.
Not entirely without cause.
Their government has fomented a xenophobic and racist culture of aggressive nationalism. Keeping a wary eye on their activities is only rational, especially in view of the ways they ramped up their technology base.
They also have a very dangerous element at their command: a vast store of surplus young males.
‘..a vast store of surplus young males.’
You really think any future aggression will use human military?
I suspect it’ll be cyber based and economic. I hope it is. :/
Surplus males have many uses other than cannon fodder or minefield clearers. Hackers, mechanics, logistics, MPs.
Key point is they are expendable and cheap.
And yes, future aggression will still require “boots on the ground” as the IdiotPoliticians™ phrase it. Sooner or later, somebody has to move in and “police” the captured territory, whether it be Taiwan, India, or Australia.
Modern China shares many traits with Tojo Japan and yes, Nazi Germany. And with Emperor Xi in command the path to violence is one step closer. Whether it is external aggression or internal not-so-civil is unclear. It is not as stable a state as they like to pretend to outsiders. It remains two nations in one country, much like India: one modern and wealthy, the other dirt poor and much, much larger. And the rich nation isn’t rich enough to uplift the poor. The longer the disparity remains, the bigger the risk of violence.
I am not at all hopeful about the rise of a peaceful China. Hungry xenophobes have always been poor neighbors.
Also, Indonesia shares many of the same long term traits as China and is treading down the same demographic road. Crowded and poor, resentful and unstable states invariably explode outwards looking for “living space” and “spheres of influence”. And resources.
The dynamics of human demographics haven’t changed since the days of Rome. Wealthy Empires surrounded by hordes of hungry barbarians has never ended well.
There is a difference–it’s a lot harder to cross the Pacific than the Rhine or the Danube.
One crucial difference-it’s a lot harder to cross the Pacific than the Rhine or the Danube.
Distance doe mean what it used to.
Today’s “barbarians” aren’t limited to hoofing it and dugout canoes. And cybercrime can be done on the cheap.
Today’s “barbarians” are more into ransomware and stealing IP than swords and raiding abbeys.
‘…It sells soap and produces televised soap operas. It sells complex computing horsepower to the U.S. government and will dispatch a courier to deliver cold medicine on Christmas Eve…’
This is why ‘… It’s the most befuddling, illogically sprawling, and—to a growing sea of competitors—flat-out terrifying company in the world…’ and the one we turn to when we want soap, or cough syrup, or Christmas lights in July
Or books! Let’s not forget the despair of running out of reading material at 2am. 🙂
Poor befuddled Bloomberg (who keeps begging my deceased father to please renew his subscription) still can’t figure out how Amazon works – therefore Amazon be bad.
Evil Zon strikes again. Is there no end to Bezos’ conniving machinations of the marketplace?
The just told you their appetite is bottomless, so no, no end in “site”.
The best-run company I’ve ever encountered, in several decades of watching companies come to terms with online business, wholesale and retail.
It defines what a well-diversified growth engine looks like, and how to keep plowing money back in to make it stronger.
My only concern is succession, once Bezos is no longer in charge.
Agreed, Karen, especially about Bezos’ successor.
Apple’s still huge but…is it still innovative without Jobs?
Lack of innovation won’t hurt Apple.
Apple was never truly innovative. They were just real good close followers, letting others break trail and then pouncing in, “fashionably late”. They’re still doing okay, featurewise, where it matters: iPhones.
The real threat to their reputation is that their software quality control is slipping. Their bread and butter was “it just works”. And that is no longer a certainty.
http://www.zdnet.com/article/why-has-apples-reputation-taken-a-nose-dive/
Agreed, Felix.
While I have always admired Apple’s superb design sense and bought a high-end MacBook a few years ago, there were no good equivalents for a host of smaller PC programs that I use daily plus an even larger group of shareware/freeware PC programs I find very helpful on occasion.
I’ve owned three iPhones and 2017 was a year when I would normally have upgraded to the iPhone X, but I held off. I’m afraid most of the Steve Jobs genius has worked its way through the development process and into Apple products and there is no one with Jobs’ product design chops who can encourage startling innovations and make impossible demands to push brilliant new products out the door.
Or even know when to jump into an emerging market. They were two years late to the ebook party. And three years late to the home automation front-end business behind Alexa, Google, and even Cortana.
And then there is the backburner-ing of Mac hardware, going years between hardware updates.
iPhone is simply sucking too much air out of the rest of Apple’s businesses and they are starving for resources to properly exploit tbeir customer base.
I’ve seen suggestions at zdnet and elsewhere that Apple should spinoff the Mac and let it develop properly on its own, free to compete with the iPad wherever/whenever it makes sense. At a minimum, a Mac with a touchscreen shouldn’t be a $3200 aftermarket tablet conversion.
In the end, it all boils down to people, doesn’t it? One man with a vision, and the cojones to push through, can work miracles. A bunch of accountants attempting to maximise shareholder profits will never push for innovation because it’s ‘risky’.