Amazon: Overcooked, just right or raw?

Amazon's stock price took a beating Wednesday with its stock tanking 13% in a single day of trading after announcing less than stellar earnings and also some Q4 projections that could see the retailer even post a loss for the first time since 2001. So are the Wall St boys right or are they over-reacting? First, let's look at the flip side of the equation. Until recently, Amazon had actually, under some measures, been more richly valued even than Apple. If you compare PE ratios (price / earnings) you'll notice that up until Wednesday the stock traded at 119 times earnings. Compare that with Apple that trades around 14 times earnings and you have to question whether Wall St. was ever getting it right in terms of this stock. Second, I think you also have to think about what kind of company's Wall St. likes - nice smooth, predictable companies with smooth cash flows that reward investors. This is often times anathema to company's being able to make aggressive investments for future growth. Particularly in technology where product cycles and consumer preference often change quickly, companies have to be able to react quickly or face being left out of the market (Nokia, Microsoft, HP?). This isn't necessarily what investors like to hear. I mean would you prefer to get a higher dividend check or see a company increase capital expenditures? That really depends on your investment horizon for starters. So the truth is that Amazon is placing a big bet on the future. They're betting that a big part of their business will be the distribution and retail of digital content. This includes books, music, movies and apps. This really shouldn't have been a surprise to Wall St particularly given the launch of their Android App store and their focus on distributing music over the Web. In addition, the company has a history of making significant investments for the future. For many years Amazon actually lost money as it was growing its brand, distribution footprint and acquiring new customers. The good news today is that Amazon is a household name in many parts of the world and has an enormous user base of consumers who buy everything from MP3's to video games and now apps. They've also established themselves as a very good manufacturer and retailer of hardware with their line of Kindle products. Wall St.'s view on the Kindle Fire to me seems short sighted. Although they say each device causes a $10 loss, it's unclear what their assumptions are behind Amazon's ability to make money off content sales on this device. We know Kindle users purchase content since they primarily use it to buy books. With the Kindle Fire it's save to make a couple of assumptions: - They will acquire even more content since the device is even more powerful and also able to run more than simply books but also better suited to movies, music and apps - They have an established form of payment already integrated given that they will likely need an Amazon account (credit card included) to use the device So if you assume a consumer purchases at least one song or app per week at .99$ at a 30% revenue share to Amazon then that already earns Amazon an extra $14.25 a year which wipes out the loss on the device. Throw in Amazon's ability to cross sell other products, scale their buying power of components for the Kindle to bring down the cost and also the sale of higher value digital goods the picture becomes even better. So what's the problem? Simply put Amazon was overvalued. A number of investors made the comparison to Apple. This really isn't fair. Apple is a device manufacturer selling premium products at premium prices. Amazon is a retailer. It's a bit like comparing Apple to Walmart. Walmart business is about scale and selling millions of items at low margins. Fundamentally, Amazon is in the same business although they have their cloud services business and Kindle business which have better economics. The question becomes whether they can leverage their consumer relationships into something that provides better margins. So over-reaction? yes. However, overvalued also yes. let's see what Jeff Bezos comes up with next. Mad Mork

Does The App Ecosystem Needs Its Own Trade Body?

Another day another lawsuit. Another day another developer gets their app suspended by a store front. Another day and another change takes place to the T&C's app stores have for content owners or OS owners have in the way OEM's use their platform. While many of the changes are designed to improve the individual ecosystems they serve at times these changes can also be overwhelming and even confusing for the developers and partners they are meant to serve.

The mobile app ecosystem has indeed come a long way since it started to boom in 2008. Various estimates place the number of downloads in 2010 anywhere from 8 billion to 10 billion downloads. App stores have mushroomed to the point where there are now well over 100 different known stores that can be found on wipconnector.com. To serve this ecosystem a whole industry of "enablers" has also surfaced to help content owners / developers with anything from development (Appcelerator, Didmo, Ansca) to billing (Zong, Boku, Billing Revolution, Tanla, Mach) to analytics (Flurry, Distimo, Zokem, Comscore).

The reality is that as in any industry, rapid growth brings its own degree of chaos, uncertainty and fear. But is this really necessary? is there a better way to manage all this?

Content owners and developers are overwhelmed by the speed of change and the complexity of the different ecosystems. Each time they want to spread their content to another platform they need to ask themselves a million different questions such as:

- What is the submission process for this particular store / ecosystem?
- What's the policy in terms of the price of my app? who manages this?
- Do refunds exist?
- When do i get paid / how often?
- How long does it take for my app to get approved?
- Who should I speak with if it doesn't?
- What recourse do I have if my app is removed?
- Can I use third parties for billing?
- What marketing tools can I use to create awareness of my app?
- What are the rules when it comes to cross promotion of apps?
- Should I agree to exclusivities proposed by certain stores? what's my downside?

And so the list goes on. The risk today for most developers and enablers as well is that unless they have close, mostly personal relationships with ecosystem owners (OS owners) they either don't get clear answers to these questions or these "directives" are basically handed down via fiat. There is no debate. This is just the way it is. Take it or leave it.

So the necessary question has to be asked, is this really the best way for the industry to flourish? Can most developers even make some real money unless some standard best practices are in place or without having some sort of voice in the process? Maybe we're reaching a point in the evolution in our industry where we need a unified voice that can speak for the little guys and has some power to propose, debate and agree best practices with ecosystem owners. Maybe it's time to make our voices heard....

wouldn't we all benefit?

Patrick "Mad" Mork