Pixel Envy

Written by Nick Heer.

The Anti-Apple

MG Siegler on the two reasons Wall Street loves Amazon:

First, they know that Bezos is devouring Amazon’s profits by pouring them into infrastructure build-outs. Data centers, shipping centers, etc. These are one-time costs that should pay off in the long run.

Second, they believe that at some point in the future, Amazon will flip a switch and, voila, profit.

I have been just as mystified as anyone as to why Amazon’s stock is doing as well as it is, despite quarter after quarter of loss. I think Siegler’s first reason is clever, but his second is misguided. Horace Dediu:

What I take issue with is the premise that Amazon is the “anti-Apple” in its hunger for growth and patience for profits. Apple has its own “Amazon-like-business”: iTunes has been growing at a steady 25% or more and it also has its ancillary zero-profit hardware analogue to the Kindle called Apple TV. iTunes is a great business in the Amazon vein, harvesting hundreds of millions of users (and their credit cards.) Presumably iTunes could also some day “flip the switch” and become profitable, but something magical needs to happen. Something like becoming a payments processor or retailer of other things. Analyst beware however. There might be conditions that make such switch flipping extremely difficult.

At an even deeper level, Apple and Amazon are much more alike than they are different. They are both hired for similar jobs (convenience, ease of use and a controlled, predictable environment for average users interacting with technology). They both focus on delighting customers and controlling all the variables which come into contact with that delight. They both have long-term views and are driven by vision rather than competition.