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Diversification is rarely good business, if it doesn't leverage some existing core competitive advantage. That's particularly true for public companies-- Amazon

Diversification 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 ago
How 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 ago
  Those 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 ago
    Thanks 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 ago
Yeah, who would buy cloud computing from a book store anyway?
- reitzensteinm 14y ago
  He 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 ago
  That 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.

dman 14y ago

How 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 ago
Those 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 ago
  Thanks 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 ago

Yeah, who would buy cloud computing from a book store anyway?

reitzensteinm 14y ago
He 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 ago
That 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.