Alex Le’s Blog

I was reading the VentureBeat’s post on Amazon on its vision and was taken to the original BusinessWeek.com article. I have to say that I have great admirations for Amazon and its amazing technology to support the $10 billion dollars annual revenue. However, reading the article, it seems to me that even the interviewer did not quite appreciate the R&D efforts of Amazon. His questions were based on a simple perspective: why are you [amazon] doing all of this stuff just to let your profit halved this year? The interviewer, the public analysts, and the investors do not understand the complexity nowadays of e-commerce, especially at the scale of Amazon.

Amazon is a technological company, just like Google. Without its infrastructure, Amazon would not work. Period. The company has been around for a while, hence the brand is strong enough to have people’s trust. What Amazon has to do is everything it can to keep up its reputation. And it is doing an AMAZING job at that. I am a proud Amazon’s PRIME subscriber because I trust in amazon, its delivery speed, and its wide selection of books and other items. Amazon’s recommendation system is really good because I have bought quite a few books that I saw in the recommendation section. All of this is happening because the supporting technology.

I am a web designer/ coder. I know how hard it is just to simply build a Content Management System, and it’s even harder to design the CMS application to scale up when it gets more traffics. I bet most financial analysts don’t know or even hear about things like “load balancing”, “caching”, “query-optimization”, or even “fail-over”. Let’s take Slashdot.org. Slashdot.org is 100 times less complicated than Amazon, yet if you ask any sysadmin of the site about how they run it, you will have quite a story. To actually see how hard it is to run a large-scale website, try this link and read for yourself. http://ask.slashdot.org/article.pl?sid=05/12/18/178231. Now imagine how hard it is to run Amazon.com. I bet $100 very few financial analysts would understand that. It’s like the two economics classes you’ve taken in college: micro and macro. Building a website is micro, but building it up to the scale of amazon, it’s like all macroeconomics now. You need Ph.Ds and engineers for that stuff.

It seems to me that people don’t get the big picture of what Amazon is trying to do. Amazon is building the infrastructure of future e-commerce. That’s what’s they are doing. Just like eBay a few years ago. eBay got big not because it sold stuff. eBay got big because people used the platform provided by eBay to sell their stuff. eBay created a sub-economy, an entirely new marketplace for online auctions. And similar to Amazon, we cannot separate eBay out of its technology. If you haven’t yet seen the big picture, here’s mine:

Imagine mom & pop shops now can offer their goods through amazon and through amazon’s network. Amazon has already had that capability, but what we see right not is still a tip of the iceberg. Through its highly distributed computing network, amazon can offer that very mom & pop online shop the same capabilities of high-end, expensively built, dedicated shops. Amazon is building up the very infrastructure for future e-commerce. And I am glad that they decided to share their success with other people, and first of all, to the developers community.

The game is still of an early stage and since Amazon want to be misunderstood, “No, we’re very comfortable being misunderstood.” — quoted from the BusinessWeek article, a lot of people, especially the financial analysts and general investors don’t see what actually is going behind those reported numbers of dividends, annual revenues and profit. Most people can see the chart of Amazon’s stock value. The stock’s price is declining, true, but it does not mean that Amazon is in trouble. If I were Borders or Barnes and Noble, I would be very worry because soon, Amazon will be the dominate player on online retails business and both Borders’ and BN’s marketshare for books will shrink like Yahoo’s search vs Google’s search (FYI, 60% of the traffic to my blog is from Google. I see very few searches from Yahoo) And until the general public see the final outcome, Amazon’s stock will then be up 200%, 300%. If I have money now, I would seriously try to get into Amazon’s stock now. What a bargain. I don’t know why people are complaining it.

Every dollars that Amazon are spending on R&D will probably give them back 2, or 3 times the original value in a few years. The internet now has over 100 million sites (netcraft novemver 2006), and probably a lot more users than that when we on this earth get our own broadband connections. And again, to support e-commerce activities for such a large population of net uers, we need serious R&D money. I guess my message to the public investors is: it’s okay for Amazon to “waste” money on R&D, they know what they are doing. So keep your stocks. Don’t short AMZN yet. I’d like to take Toyota as an example on how important R&D is. Toyota was the one company that started to do R&D for hybrid cars while Ford, GM, and other automakers were busy churning out SUVs. Guess what, now Toyota is busy licensing its technology to Ford and GM to make hybrid Escapes. Both Ford and GM’s cars wouldn’t sell when oil price shot up. GM, the American’s pride, was going through serious troubles and had to lay off so many employees. The moral of the story is: R&D money is good and wise money. It’s okay if the company seems to spend a little more than it “should”. In this cut-throat global economy, if you don’t stay innovated, you’ll loose.

Another question that Jeff Bezos was asked is

aren’t you enabling many more potential competitors by giving them these services to get a company up and running much faster?

Even though Jeff did not answer the question frankly, what Bezos’s strategy for Amazon is to provide the infrastructure for future e-commerce and e-retails. The more people rely on Amazon’s services, the better. Amazon can just maintain, expand the system, while other people, those mom & pop shop owners are paying Amazon a cut on every transactions, just like ebay. Remember, Amazon is building the new web economy and they are collecting tax already.

Moreover, Amazon has attained what people would call “critical mass”. Can you imagine a company with a solid $10 billion dollars annual revenue going out of business within a year or two? Amazon is way too smart and too technologically ahead of the rest for that to happen. It’s still the leading online retails company online, and it will still remain so. I can safely back that statement because Bezos mentioned about Amazon’s Prime adoption rate, which he said had been extremely well. People trust Amazon.com. It’s the brand, it’s the image, it’s the vast selection, it’s the low pricing, it’s the recommendation technology, it’s the prompt shipment, it’s the excellent return policy. It’s Amazon. What can you ask more out of Amazon’s current retail business? I don’t see any one can seriously compete with Amazon on online-retails business.

I found it quite amusing that Jeff Bezos maintains his “wish-list” for his family and kids. What exactly he’s wishing to have? I bet he has an “uber-prime” subscription to get the stuff from amazon in like 30 seconds. And that’s what I’d define being successful in life: running a successful company and still be able to spend time and enjoy life with your family. Life is not full without family and love.

Finally, Jeff Bezos is smart, don’t underestimate him.