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Amazon’s P/E ratio and business strategy.
Two days ago, I started this post:
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As I mentioned before, Amazon’s business strategy looks like cheating:
- Sell product for a loss
- Sell a lot of that product
- ???
- Profit
Amazon lost money for many years.
Their most recent financials show them making 3% profit.
That is not very much.
By comparison, Apple makes ~25% profit (though Apple is on the high side of the spectrum).
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…then, just today, this report came out:
Perhaps I was on to something.
Amazon Kindle Fire. Sort of.
Two thoughts on Amazon.
First: Amazon’s business strategy seems like cheating.
- Sell product for a loss.
- See a lot of that product.
- ???
- Profit.
Something doesn’t add up. Who is being screwed?
I have heard that Amazon uses the Walmart strategy of pinching suppliers. Except Amazon’s suppliers are the content creators, the authors and artists.
Merlin Mann explained the difference between Apple and Google business strategies this way:
Google: Thanks for looking at 100s of ads you hate.
Apple: Thanks for buying 100s of dollars of stuff you love.
So, would Amazon be: Thanks for buying 100s of dollars of stuff for so cheap that someone isn’t getting paid?
Second: Why is the Kindle so primitive and cumbersome?
People who own a Kindle, love it. That might be all that matters. My experience with a Kindle is limited to helping two people set up their Kindles (now called Kindle Keyboard). And it was horrible. The two people were thrilled. But I was literally offended by the primitive, cumbersome way you interacted with it. The keyboard was embarrassingly horrible, navigating was horrible, browsing the internet was horrible.
Almost a third point: Why seven models? (Is the DX still available?) Aside from the fact that every business (except Apple) operates that way: make a confusing number of products; give them confusing names; operate on poor revenue-to-profit margins.
Almost a fourth point: Amazon’s PE ratio. !?
I don’t care if it’s cheaper or free.
There are too many ads on the internet.
We’ve had sold so much we have sold everything.
Go to www.nba.com and you don’t get basketball. You get a little basketball and a violent assault of ads.
Go to www.nytimes.com and you don’t get The Times. You get The Times hidden in the midst of a barrage of ads.
Been to Facebook lately? The. Whole. Thing. Is. Ads.
Much has already been written about Google and ads. (Hint: YOU are the product, the advertisers are Google’s customer.)
Amazon’s Kindle is now ad-supplemented.
Selling ads is not as profitable as selling a product. But it certainly scales. Just sell more ads. And then more.
It’s not going to stop. And it’s already too much. What happened? What have we sold?
Why can’t anyone replicate Apple’s success?
Why can’t anyone replicate Apple’s success?
Everyone is trying. From yogurt makers to car makers to internet search companies, everyone tries to copy Apple’s products, or design philosophy, or retail strategy, or marketing, or chase Apple into an industry that Apple created.
But none of the copying transforms any of the companies that try.
Why not? It is an interesting question.
I offer two answers:
1) Everyone is chasing Apple. You cannot overtake anyone when you are trying to keep chasing them. Still, I would think that the chasing would have the ol’ “Hitch-your-wagon-to-a-star” effect; I would think that at least some of the companies would find themselves transformed into very profitable companies. But that does not happen. Except for Microsoft in the 1990s. But it hasn’t worked for them since them… Microsoft’s market capitalization in 1999: 500 billion; Microsoft’s market cap today: 200 billion. Still very large. But 2 1/2 times smaller than it was.
2) Everyone is trying to copy the external, peripheral factors in Apple’s success. Why isn’t anyone (a company or individual) copying Apple’s focused vision? Organizations and companies spend a lot of money and time and energy on gathering data, buying data, reading data, training, fads, etc. But, I submit, you could spend that money and time (or less) on learning about, growing, sharpening your vision–as a person or a company.
Vision trumps all. That’s the explanation for Apple’s success. You likely already have a vision. Go with it. If you don’t, knock yourself out finding and focusing your vision. Anything else is just a game. An unprofitable, unsustainable game.
Maybe Google bought Motorola because…
Maybe Google bought Motorola because Google is desperate.
Let’s review:
- Google is being sued by Oracle over Google’s use of Java in Android. And it seems Oracle will win.
- Microsoft makes $5 for every HTC android phone. (Every one!). Microsoft is negotiating to get $15 for every Samsung android phone sold.
- Apple has blocked the sale of several Android tablets in a number of countries.
- Google bid a lot of money on the Nortel patents.
- Google buys Motorola for a ton of money… after losing the Nortel patents
Could Google be desperate that all their (admitted) copying has caught up to them? Is it possible that the Motorola buy was not planned or part of a strategy to move into hardware manufacturing, but that it was a sweaty-desperate move to keep Android alive?
…and then there were… fewer.
Today, Hewlett-Packard announced that they are abandoning WebOS, the mobile operating system they bought 16 months ago for 1.2 billion. HP also announced that they will get rid of their computer division… you know, the part of the company that makes HP computers. I’m not sure what will be left.
What did we learn: that Apple’s strategy is not only better, it might be the only strategy that works (is profitable, sustainable). Apple continues to climb. Their market capitalization in 2000 was 17 billion; today it is 340 billion. The “race to the bottom” is unsustainable (as clear-thinking people have been saying for years). Which company is next?
Apple is the largest company in the world.
It happened briefly, slightly yesterday, then with feeling today… Apple has passed Exxon-Mobile in market capitalization to become the largest (most valuable) company in the world.
Those of you within earshot of me will remember that last year, I predicted that this would happen by the end of this year. It happened ahead of my prediction.
What did we learn from this? What I said yesterday: Vision trumps everything. Whether you are parenting, teaching, running a business, pastoring, painting, writing,… having a clear, laser-focused vision will produce infinitely better results than trying to guide yourself via surveys, market-studies, feedback, examining data.
Vision, vision, vision. The more you reduce it (simplify it) the better. The clearer (more defined) the better.
Vision trumps everything.
Steve Jobs: “[Dell], we’re coming after you.”
As of this morning, Apple is now larger than Dell, Microsoft, AMD, and Intel. Combined.
The main lesson of Apple’s growth is this: vision trumps… everything.
Every other company (other than Apple) seems to be playing business. Everything they do seems like gimmicks and noise. They seem to be thrashing about–blindly, madly–hoping that one of the partnerships or marketing campaigns or products will take off (and fund all the other divisions and aborted products).
If you’re gonna copy Apple, copy what really matters: vision.
