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I never got this attitude. "They are expanding beyond their core base, they shouldn't do that!" Why, exactly, this is the case mystifies me. A) Amazon is a bett
by duaneb 14y ago
I never got this attitude. "They are expanding beyond their core base, they shouldn't do that!" Why, exactly, this is the case mystifies me. A) Amazon is a better judge than anyone on what they can or cannot do, let alone should and shouldn't. B) Diversification is simply good business. C) Amazon is not expanding into drastically new markets. If anything, their initial jump into selling software (AWS) was a riskier proposition because it was unlike anything Amazon had done before, and a relatively untried business.
Finally: People scoffed at the iPod and iPhone when they came out; it wasn't Apple's business to go into consumer electronics or even telecoms. The Michelin Tires company produces the most widely respected restaurant guide. Clearly, someone should have put a stop to them - they shouldn't have done that.
Much like Bic is the maker for cheap, plastic tools (pens, razors, lighters), I don't see why Amazon can't continue to write software. There is virtually no risk and minimal investment.
- newbie12 14y agoDiversification is rarely good business, if it doesn't leverage some existing core competitive advantage. That's particularly true for public companies-- Amazon investors wanting some social game company exposure can easily buy some Zynga stock.
- dman 14y agoHow about the whole Virgin empire then? Or Reliance industries or Berkshire Hathway ? Maybe Amazon is morphing into a giant holding company over time (industrial robots, cloud computing, ecommerce, ebooks, games, consumer hardware, video streaming, selling non branded commodity versions of electronics under their own brand (amazon basics sells things like hdmi cables, mice etc))
- rm999 14y agoThose are conglomerates, which are quite controversial in the investing world. They're usually stable businesses, but often come with a "conglomerate discount" that leads to lower investor returns. This is due to increased overhead, murkier financials, and the simple fact that the management can't be as focused. http://www.investopedia.com/terms/c/conglomeratediscount.asp http://www.investopedia.com/terms/c/conglomeratediscount.asp
- dman 14y agoThanks for pointing the discount out - I wasnt aware of it. http://www.google.com/finance?catid=59360336 http://www.google.com/finance?catid=59360336 does indeed confirm that over long periods of time conglomerates appear to perform poorly when compared to the S&P.
- eli 14y agoYeah, who would buy cloud computing from a book store anyway?
- reitzensteinm 14y agoHe said rarely. The fact that Amazon made it work is one of the notable business stories of the last decade, so if anything I think that reinforces his point.
- shinratdr 14y agoThat example is extremely unique and is more akin to selling a byproduct or runoff from some other production. AWS doesn't exist as an entirely new venture, it leverages everything Amazon has become good at over the years but never sold directly to the public. This isn't really the same situation at all. Amazon knows nothing about game development, and now has to hire a bunch of new people experienced in game development and focus on getting it right. AWS was already there and a clear benefit to the business before the idea of selling it to users as a service was even on the table.
- MartinCron 14y agoI remember feeling odd when Amazon moved beyond just books. Wow, I am old now.
- troymc 14y agoAmazon could abuse their position (as a big store) by telling makers of competing games, "We're sorry, but we rejected your application to sell your game in our store." Fortunately, the US has laws against this sort of thing, but they can take years of legal hassle to enforce. Meanwhile, loads of competing game makers are shut out of a big store. Amazon could diversify into plenty of other things where such conflicts of interest are avoided. (AWS is a good example. Nobody was selling a competing service via the Amazon store.)