Sure, the 40% revenue growth is impressive. What's more notable, however, is that Amazon's operating income is growing even faster (on the order of about 60% ), despite them ramping up IT spending to north of $800M. This suggests a couple of things:
(1) Amazon's high-margin "platform" services are probably generating an increasing fraction of their revenue.
(2) Spending over $800M on technology and less than half of that on marketing suggests that Amazon is clearly committed to growing the more pure-IT-centric parts of their business model. In a sense, these are substitutes, because growing the platform plays a key role in attracting and retaining customers.
(Remember the November 2006 BusinessWeek article that suggested Wall Street was worried about Amazon not focusing on its core retailing business? Here's how Amazon's stock has performed since then, relative to a large traditional retailer:)
It looks like Bezos' risky bet is paying off. But here's the paradox. First, Amazon built the most enduring aspects of its platform -- scalable ecommerce fulfilment and inventory management -- by raiding WalMart's experts. Makes one wonder why WalMart, with its legendary supply-chain expertise, couldn't do this themselves. Second, having created capabilities that set it apart from the ecommerce pack, Amazon was bold enough to turn itself "inside out", and, rather than leveraging this core competency, offer its computing, process and human expertise up to anyone competitor who wanted to pay for it. This is almost like WalMart deciding to rent out its procurement and supply chain to its competitor's in the '90s, rather than using it as the source of proprietary advantage that led to their dominance. And, strikingly, this platform business model is working. Maybe there's a parallel with American Airlines and the Sabre system from a few decades ago.
So here's to Amazon's continued growth. Though it might be wise to steer clear of cloud computing as a business line. Do they really want Google and Microsoft as direct competitors?
