Amazon – future promise or too diverged to survive?

imageI have been earlier following the cloud war between #amazon, #microsoft and #google. Things would be easier to observe, if these would be pure cloud providers, but most of their business is else where. The question that comes to my mind is, if that is sustainable and is there enough focus?

Just read an interesting article by Doug Kass: Why you should avoid Amazon stock at all costs from The Street.

While writing this AMZN has just droped 8,34% to $287,06 during last night. In above mentioned article mr Kass speculates that depending on chosen strategy Amazon will be trading in surroundings either $200 or $400. Higher figure expects that the projects will start to show some profit.

I think the potential for Amazon it that they have created capabilities that are truly competing of the top position in their respective sectors. The challenge is do they have bandwidth to proceed on all or most of those. And maybe more importantly do they have courage to make real strategic decisions and cut the loses where no progress or positive financial impact is not visible in near future?

Michael Wade illustrated Amazons position nicely in his presentation at IMD few weeks ago.

  • The ultimate disruptor
  • Strong customer focus
  • Successfully bridging online and offline worlds
  • Will need to show sustainable profitability soon

All others seem to be in perfect order except the last one. Carrying on with 7 different business models without caring about profits cannot be sustainable. Even though you control 1/3 of all online shopping in US.

Three Months Ended September 30,
2014     2013
Net Sales:
Media                                                                      5,244    5,033
Electronics and other general merchandise  13,953  11,048
Other (1)                                                                 1,382    1,011
20,579  17,092

  1. Books                                            are ebooks the future?
  2. Other goods                                 why not move to broker mode fully?
  3. Commissioned sales broker     taking benefit of the existing customer interface?
  4. eCommerce platform                sounds early last decade topic, doesn’t it?
  5. Amazon Web Services             time to utilize competitive advantage here before it is too late?
  6. Device manufacturing               devices seem commodity?
  7. Content producer                       could be valuable as they have the channel for distribution?

The challenge seem obvious if you compare sales numbers for different businesses. AWS, which is the interesting topic for me, is only 10% of electronics! Selling electronics doesn’t usually carry the best profit margins, but being over half of the sales will definitely take management time more than smaller areas.

It all boils down to capability to tolerate failure. Profit should be something company can utilize to boost growth. In case of Amazon it seems that they don’t care about profit. They rather invest all back to company (like acquisition of Twitch $1billion). For me this sounds like they will remain in death valley all the time, where new business model is sucking profits from existing ones and they cannot reach the surface. So it is risky business, without capability to take hit from several new initiatives at the same time the future sounds shaky. Investors start to give their votes.

Need to drill in deeper to understand this semi-giant against its competition. Revenue they have and they need to turn it into profits soon. The other question is how sustainable many of those revenue sources are against competition?

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