Why Amazon Has No Profits (And Why It Works)

What amazes me about Amazon is how Wall Street treats them.  I love companies that put their profits back into the company to make the future better.  Some companies, like Apple, cannot necessarily put all of the profits back into the company, it goes against their strategy of extreme focus.  

However, the secrecy of all the spend is what baffles me.  Not that Amazon has to tell anyone where it spends its money, but that Wall Street gives them a break on it.  Apple doesn't say what their future products will be and Wall Street gets very upset, yet Amazon spends billions of its profits on reinvesting in Capex and then tells Wall Street its none of your business what we are spending it on and Wall Street says, "ok".  

The thing that would worry me about Amazon is lack of focus.  The varying array of different businesses Amazon has gotten itself into continues to grow.  From the article:

Amazon is in fact organized not just in these segments, but in dozens and dozens of separate teams, each with their own internal P&L and a high degree of autonomy. So, say, shoes in Germany, electronics in France or makeup in the USA are all different teams. Each of these businesses, incidentally, sets its own prices.

The bigger Amazon becomes, the harder it is to manage.  Amazon then becomes a conglomerate and eventually starts doing nothing well, just runs a bunch of revenue through its coffers.  This leaves the valuable revenue and cash flow at risk, giving an upstart the opportunity to out perform Amazon by focusing on one part of their business.  If that happens to be the profitable retail business, Amazon could find itself vulnerable as it may be focusing on other business lines and be too late to react.  

Innovation...

Companies covered by larger numbers of analysts generate fewer patents, and the patents they produce have lower impact than those from other firms, according to an analysis by Jie (Jack) He of the University of Georgia and Xuan Tian of Indiana University. The findings suggest that analysts exert so much pressure on managers to meet short-term financial goals that they impede companies’ investment in long-term projects, the researchers say.

Hmmm.  Just what I said in my last post. 

Why Apple needs to innovate faster

ZDNet’s most recent Great Debate raised the question whether Apple needs to innovate more rapidly. The answer is a definite “yes” and here’s why.

I love when writers and analysts talk about other peoples businesses and come up with blanket statements like this.  What's even more amazing is to use the stock prices of two companies as your argument.   

Wall Street is the killer of innovation.  Innovation happens over time, you can't rush it.  It happens through iterations.  If Apple were to have hurried their innovation in the past they would have released the iPad first, which would have been a flop because it would have cost much more than it did when they introduced it.  Instead, they took their time and iterated and introduced the iPhone first, which allowed them to build up more buying leverage to reduce prices for the iPad. 

Apple will show us what their next innovation is and analysts and tech writers won't be the ones dictating the timetable.