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Ballmer Says Amazon Isn't a "Real Business"
theodp writes According to Steve Ballmer, Amazon.com is not a real business. "They make no money," Ballmer said on the Charlie Rose Show. "In my world, you're not a real business until you make some money. I have a hard time with businesses that don't make money at some point." Ballmer's comments come as Amazon posted a $437 million loss for the third quarter, disappointing Wall Street. "If you are worth $150 billion," Ballmer added, "eventually somebody thinks you're going to make $15 billion pre-tax. They make about zero, and there's a big gap between zero and 15." Fired-up as ever, LA Clippers owner Ballmer's diss comes after fellow NBA owner Mark Cuban similarly slammed IBM, saying Big Blue is no longer a tech company (Robert X. Cringely seems to concur). "Today, they [IBM] specialize in financial engineering," Cuban told CNBC after IBM posted another disappointing quarter. "They're no longer a tech company, they are an amalgamation of different companies that they are trying to arb[itrage] on Wall Street, and I'm not a fan of that at all."
$2 billion. For the Clippers.
Bezos wants to suck the entire market into the Amazon central economy.
But let us reason together: the distinguishing qualities of both Ballmer and Cuban are that they were both at the right place at the right time. And both are complete pricks.
Bezos is a menace. But Ballmer strikes me as clown and a lackwit.
Is he planning on making back the $2B from the Clippers? Or did he just need his own shiny like Cuban?
Starting up after dumpster diving for BASIC interpreter source code wasn't interesting enough?
The MS business model has always been to sell something that has already been demonstrated as a success by someone else and then use lawyers to stop the next in line doing the same thing. It's not unique (outside of computing) and it's not as bad as some of the practices of Cisco, HP etc (and MS being underhanded enough to deal with clones led to the cheap PC) - the only tragedy is they came to dominate so there wasn't really a lot of other stuff to copy and compete with. That's probably a major reason why computers generally still suck to use compared to what we would have expected by now. The MS Windows 10 desktop looks like a linux desktop from before this site even existed and the back end is nowhere near as good - how pathetic is that?
If Steve Ballmer said something complimentary about me, I would take that as a slanderous insult. Amazon should feel happy to be insulted by Ballmer. Amazon is the only big internet-based business that I like.
It should be kept in mind that the theory of perfect markets says that competition drives all profits to zero. So making an extremely slim margin is a sign of a healthily functioning market, whereas the absurdly high profits that MS have made in the last 20 years are proof that free markets did not do their job in the case of MS software. So I would say that MicroSoft was not a "real business". It was, as we all know, a de-facto monopoly. And a monopoly is not a "real business". Real businesses compete against other businesses.
Amazon isn't 'losing money' - Just take a look at it's top-line growth vs capital expenditure.
Amazon is re-invest revenue instead of distributing back to stakeholders, or keeping cash in the bank. Cash in the bank is seen as waste. Instead, cash re-invested is being leveraged to create accelerated future growth.
To me Amazon is not a normal company at all because the philosophy of its investors is "Do whatever you have to do, don't worry about profits/losses, we'll be right behind you." How can one compete against a company like that? It's as if a bank (hell, maybe Treasury!) opened an infinite credit line just for Amazon! No wonder our high-street shops (and online shops) are falling like flies!
From a BBC documentary on Amazon (Business Boomers) someone said "Amazon was designed to be a shark right from the start." It's true in a way. Since spending money is no issue, it can do whatever it wants with its prices while growing its business areas. However its brick & mortar (or online) rivals cannot. They don't have an infinite credit line with their banks or investors, and depend on their profit margins. I'm wondering why European governments have not cracked down on this unfair "business" that is Amazon?
> This self feeds where the vast majority internally still are riding on skills from 20yrs ago
Like UNIX, lightweight code, C, consistent API's, and documentation? I'm afraid that while you may run into stodginess problems, a large part of my income right now comes from cleaning up after entrepreneurial spirits who ignore some of our hard-won lessons. And I'm afraid I've now seen several generations of newer developers take on new fads and be forced to re-learn, and re-invent from scratch, the procedures we learned 20 years ago.
I'm not insisting that IBM engineers are currently doing this, but don't underestimate the usefulness of these old skills.
Since most of the loss comes from reinvesting revenue, at any point they could theoritically stop investing so much and turn a profit. They just choose not to.
So in theory at least, they should be fine.
You're missing the point. Amazon is making a profit, but it's not distributing it to investors, which is what gets flagged as "profit" by finance. Instead they are re-investing profit into more and more expansion.
If they were to stop the aggressive expansion, they could likely post a decent profit. But they choose not to.
Let me be the Devil's advocate.
First, Amazon is not "re-investing profit into more and more expansion." Amazon has one of the worse Return on Investment (ROI) in the S&P. That is, it has below average profits on its investments. What it is doing is exchanging profits for growth. It is a subtle but importance difference.
You are right, Amazon could be today's profits for bigger future profits. That is the general consensus among stock analyst. Which is why Amazon's stock price tends to flop around so much. Stock analyst have to guess what Amazon's profits will be in 10 years, which is shrouded in risk and uncertainty.
However there is a contra view. That Amazon is stuck in low margin business that will never generate large profits. That the only way to expand is to offer lower prices than anybody else, resulting in a "Red Queen's Race", where everybody has to run faster just to stay where they are. If that is true, Amazon will never be able to generate "normal" profits, so future profits will be small, not large.
Only time will tell on who is right.