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I've wondered about this. The explanation can only be that investors expect Amazon to continue to grow revenue and profits at a high rate. How reasonable is t

by marze 16y ago

I've wondered about this. The explanation can only be that investors expect Amazon to continue to grow revenue and profits at a high rate. How reasonable is this expectation? I've always thought that the intense competition in the on-line retail world would eventually result in lower profit margin for everyone including Amazon, but I hesitate to bet against such a well run firm.

jbail 16y ago
I don't have statistics on how big cloud computing is projected to be in the upcoming years, but Amazon is clearly poised to take advantage of this huge, relatively new market. I could see their P/E reflecting (at least to some extent) their unique ability to capitalize on this.
- AlexMuir 16y ago
  But how big can it be? Almost by definition dedicated servers are always going to be cheaper. Any business that needs a dedicated server is going to get one, with lower/flexing demands sure, they'll go with cloud. I love AWS as much as anyone, but there's plenty of competition out there and I now use Linode.
  - edash 16y ago
    This is wrong for the same reason you don't produce your own power. See: http://www.nicholasgcarr.com/bigswitch/ http://www.nicholasgcarr.com/bigswitch/ Economies of scale create a cheaper alternate solution. That was accomplished in physical goods years ago and the cost of "transporting" physical goods is much higher than the cost of "transporting" massive data processing power.
    - quellhorst 16y ago
      You are forgetting about the virtualization tax. Currently running on EC2 is slower than bare metal because of the XEN environment.
    - lsc 16y ago
      see my post here: http://news.ycombinator.com/item?id=1820590 http://news.ycombinator.com/item?id=1820590 It's easy enough to produce compute units at a lower cost than amazon. I'm doing so even now... and you can bet your bottom dollar than amazon is going to lower their prices more slowly than costs fall. But that's why amazon is in such a strong position right now. They are basically positioned to become "the oracle of cloud computing" - Who cares if it's slightly more expensive... if you are a middle manager in a large corporation, paying another 50% or even a few hundred percent more is no big deal if it greatly decreases the chance of a big meltdown. And more to the point, if it protects you from blame when there is a meltdown. edit: This is what I hope will happen, anyhow, because if amazon wanted to scrap with me down at the bottom, you are right about those economies of scale. they could crush me like a bug. But I don't think they will. I think they prefer to just take their efficiencies as profit, and target the larger customers who are willing to pay extra for the comfort of a big name
Gibbon 16y ago
It doesn't make any sense to me for the author to compare three companies that have nothing to do with each other. One if a all-purpose retailer, one a hardware company and one sells advertising. That being said, Amazon is the runaway freight train in online retailing. With sales of $24.5 billion, there isn't anyone else even remotely close. Staples is no.2 at $9.5 billion and Walmart is an order of magnitude smaller than Amazon. Amazon are on a tear this quarter with net sales growing 40%. Now you add in their position as a leader in cloud-computing, along with the kindle.. and I think their future prospects are great.
- robryan 16y ago
  To be fair Amazon and Google are more or less in direct competition with their cloud offerings. Also Amazon and itunes for that matter.
bdr 16y ago
Is there intense competition? For the foreseeable future, no one is going to beat Amazon on price or UX. Seems like the winner could take all here.
smackfu 16y ago
Check out these Amazon acquisitions: * Woot (leading deal of the day site) * Stanza (leading e-reader) * Zappos (leading shoe retailer) * dpreview.com (leading camera review site) * AbeBooks (leading used book marketplace) * Audible (leading audio book seller) * BuyVIP (group purchasing) * Amie Street (online music) There model seems to be to try to compete with a home-grown offering, and if it doesn't work, buy the competitor with their cash.
- jakarta 16y ago
  But being a leading retailer doesn't make you great. Zappos I believe had razor thin margins that really left little room for error.
  - smackfu 16y ago
    Buy revenue, then worry about profits.
  - mlinsey 16y ago
    Amazon is accustomed to operating at razor thin margins. It's one of the advantages they believe they have in the cloud computing business compared to Microsoft and Google.

by marze 16y ago

jbail 16y ago

I don't have statistics on how big cloud computing is projected to be in the upcoming years, but Amazon is clearly poised to take advantage of this huge, relatively new market. I could see their P/E reflecting (at least to some extent) their unique ability to capitalize on this.

AlexMuir 16y ago
But how big can it be? Almost by definition dedicated servers are always going to be cheaper. Any business that needs a dedicated server is going to get one, with lower/flexing demands sure, they'll go with cloud. I love AWS as much as anyone, but there's plenty of competition out there and I now use Linode.
- edash 16y ago
  This is wrong for the same reason you don't produce your own power. See: http://www.nicholasgcarr.com/bigswitch/ http://www.nicholasgcarr.com/bigswitch/ Economies of scale create a cheaper alternate solution. That was accomplished in physical goods years ago and the cost of "transporting" physical goods is much higher than the cost of "transporting" massive data processing power.
  - quellhorst 16y ago
    You are forgetting about the virtualization tax. Currently running on EC2 is slower than bare metal because of the XEN environment.
  - lsc 16y ago
    see my post here: http://news.ycombinator.com/item?id=1820590 http://news.ycombinator.com/item?id=1820590 It's easy enough to produce compute units at a lower cost than amazon. I'm doing so even now... and you can bet your bottom dollar than amazon is going to lower their prices more slowly than costs fall. But that's why amazon is in such a strong position right now. They are basically positioned to become "the oracle of cloud computing" - Who cares if it's slightly more expensive... if you are a middle manager in a large corporation, paying another 50% or even a few hundred percent more is no big deal if it greatly decreases the chance of a big meltdown. And more to the point, if it protects you from blame when there is a meltdown. edit: This is what I hope will happen, anyhow, because if amazon wanted to scrap with me down at the bottom, you are right about those economies of scale. they could crush me like a bug. But I don't think they will. I think they prefer to just take their efficiencies as profit, and target the larger customers who are willing to pay extra for the comfort of a big name

Gibbon 16y ago

It doesn't make any sense to me for the author to compare three companies that have nothing to do with each other. One if a all-purpose retailer, one a hardware company and one sells advertising. That being said, Amazon is the runaway freight train in online retailing. With sales of $24.5 billion, there isn't anyone else even remotely close. Staples is no.2 at $9.5 billion and Walmart is an order of magnitude smaller than Amazon. Amazon are on a tear this quarter with net sales growing 40%. Now you add in their position as a leader in cloud-computing, along with the kindle.. and I think their future prospects are great.

robryan 16y ago
To be fair Amazon and Google are more or less in direct competition with their cloud offerings. Also Amazon and itunes for that matter.

bdr 16y ago

Is there intense competition? For the foreseeable future, no one is going to beat Amazon on price or UX. Seems like the winner could take all here.

smackfu 16y ago

Check out these Amazon acquisitions: * Woot (leading deal of the day site) * Stanza (leading e-reader) * Zappos (leading shoe retailer) * dpreview.com (leading camera review site) * AbeBooks (leading used book marketplace) * Audible (leading audio book seller) * BuyVIP (group purchasing) * Amie Street (online music) There model seems to be to try to compete with a home-grown offering, and if it doesn't work, buy the competitor with their cash.

jakarta 16y ago
But being a leading retailer doesn't make you great. Zappos I believe had razor thin margins that really left little room for error.
- smackfu 16y ago
  Buy revenue, then worry about profits.
- mlinsey 16y ago
  Amazon is accustomed to operating at razor thin margins. It's one of the advantages they believe they have in the cloud computing business compared to Microsoft and Google.