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Amazon has been making observers like Ballmer look foolish for two decades. Photo: Bloomberg
Amazon has been making observers like Ballmer look foolish for two decades. Photo: Bloomberg

At 20, Amazon continues to defy predictions

A Google-initiated price war actually boosted Amazon's fortunes by pushing more chief information officers to take a look at the public cloud

You’ve got to hand it to Steve Ballmer. On 22 October, Microsoft’s ex-chief executive officer appeared on Charlie Rose and threw some serious shade at Amazon.com, his former crosstown rival. “They make no money, Charlie," Ballmer said. “In my world, you’re not a real business until you make some money."

Ballmer’s record as a technology forecaster is not good. (See: “There’s no chance the iPhone is going to get any significant market share.") But this time, Mr. Contrarian Indicator may have outdone himself. Until that day, Amazon stock was down 27% on the year as investors worried about slowing growth and its inability to make money.

Improbably, Ballmer’s prognostication coincided with the exact bottom of Amazon’s fortunes. Since he spoke, the stock has risen 42% on rebounding revenue growth and even some meager quarterly profits.

In its cloud services unit, Amazon Web Services, a Google-initiated price war actually boosted Amazon’s fortunes by pushing more chief information officers to take a look at the public cloud, in which Amazon offers the most comprehensive mix of services. AWS is now set to bring in around $5 billion in 2015, with a healthy 17% operating margin. It looks, in other words, very much like a real business.

This is not to meant to pick on Ballmer, who cuts an exceedingly poor contrast with Amazon CEO Jeff Bezos. (One is still a tech king who steered his company into new markets; the other has moved on to basketball, as the owner of the Los Angeles Clippers, after missing a decade of important trends.) Rather, it’s a good way to mark the impending 20th birthday of Amazon on 15 July, an occasion the company is celebrating with something called Prime Day, a panoply of deals meant to draw attention to the site’s low prices (nothing to see over here!) and to its two-day shipping service.

Amazon has been making observers like Ballmer look foolish for two decades. It was 20 years ago that Bezos and a few early employees, working from a small office near the former Kingdome stadium in Seattle, opened their text-heavy bookselling website to the world.

People first said they would fall quickly to Barnes & Noble, then that they would run out of cash and perish in the dot-com bust, and then that they would get steamrolled by Wal-Mart Stores. Later, they insisted that Amazon had no business running a retail portal in the age of Google search, or competing in hardware against a resurgent Apple.

Bezos has not made it any easier on observers, keeping plans and perspectives close to his chest. Even on this anniversary, the company is doing and saying little to reporters. As far as I can tell, Bezos has granted no special interviews. (Next week, Amazon will host a celebration for employees headlined by Macklemore, and Head and the Heart.

For Amazon’s 10th birthday, there was a free Bob Dylan concert.) Even as Amazon pushes deeper into our lives, it’s getting more opaque. The company prefers to make noise by speaking to consumers with enticements such as Prime Day, which prompted Wal-Mart to issue its own set of competing deals.

Ballmer’s mistake was to think about Amazon in conventional terms. Amazon has never been a conventional company. Its older businesses, such as its North American retail arm and third- party e-commerce marketplace, are highly profitable, but the company sinks those profits into new businesses, like its Prime Now two-hour delivery service or Amazon Fresh groceries. And it is voraciously opportunistic. When it sees such potentially big markets as original online video, or new technologies like drones, it jumps in headlong and starts hiring experts, even when it has no natural expertise in an area.

Amazon has had its share of messy failures that can cloud the eyes of observers. The Fire Phone launch last year was embarrassing, in large part because Bezos himself drove that bus, and Amazon’s decade-long misadventure in China was expensive and ultimately, futile.

But Amazon has always been willing to change course. When its foray in China failed, it pushed into India. With its ambitions in smartphones curtailed for now, Amazon has pioneered devices for the smart home, such as the quixotic but well- reviewed Echo, a wireless cylinder that plays music and listens to and responds to spoken queries. Amazon is the ultimate either-or company. You can be a Prime subscriber or just an occasional customer; buy an Amazon Fire tablet on its website or an iPad; read a physical book or buy a Kindle copy; rent a new movie, a la iTunes, or stream an old one, a la Netflix.

Amazon at 20 has pulled back on some of its more aggressive behavior. It now collects sales tax in most U.S. states, and it is changing its tax collection practices in Europe. In its fulfillment centers, Amazon offers tuition reimbursement to full-time workers and a path to full-time employment to part- timers (unlike Uber and other on-demand companies, which often make contract work the only option). After a tense standoff with New York book publishers over the last few years, Amazon finally bowed to demands and now lets big publishers set their own prices for e-books.

Amazon still faces pressure. After a wave of critical coverage, Amazon’s presumptive partners in the literary world continue to fear it; they recently petitioned the Department of Justice to open an antitrust investigation into how the company uses its extraordinary power in a market where it sells one- third of all new print books. Beyond that, Amazon now faces a litany of well-funded new competitors such as Jet, Instacart, and maybe, one day, Uber, that treat existing stores like fulfillment centers and can avoid the expense of operating big warehouses.

Perhaps more important, Amazon still lags behind Google and Apple in the race to design and sell mobile devices, the new gateways to the media world. This may be Amazon’s real existential threat: fending off the companies that seek to siphon away its customers. Or maybe that’ll turn out to be just another bad Amazon prediction in a long list of them. Bloomberg

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