Amazon Feels The Profit Squeeze

Just to follow up, Amazon has released their numbers. As expected, net income doesn’t look great — $177 million, down 58 percent year over year. But at least it’s not a loss (which Amazon had warned it might be).

That $177 million is on sales of $17.4 billion. Crazy. That’s what low margins — and selling hardware at a loss — will do to you.

Speaking of 177, that’s also the percentage that Amazon says Kindle sales increased during the holiday period when compared to the previous year — which means basically nothing since Amazon refused to release actual numbers last year. And they still refuse to this year.

Looking forward, Amazon expects profit to be anywhere from $100 million — to a $200 million loss next quarter. Ouch.

To be fair, unlike my earlier statement, Amazon did make more money in the entire quarter than Apple did in one day last quarter, but just barely: $177 million versus around $145 million.

But that’s an average. I’m sure during some of the busy shopping days, Apple actually did make more money in one day than Amazon did for the entire quarter.

Amazon’s profit for all of 2011 was $631 million. As a reminder, Apple made $13.06 billion in profit last quarter. Perhaps not a fair apples-to-apples comparison, but not exactly apples-to-oranges either.

A Tale Of Two Catalysts

Amazon will announce their earnings later today. As I outlined in October, the results this past quarter will highlight the difference between Apple and Amazon.

Writes Tricia Duryee:

Here’s one data point: For the holiday period, Apple’s gross margin was an impressive 44.7 percent, up from 38.5 percent a year earlier. Meanwhile, analysts are estimating that Amazon’s operating margin will fall to 1.3 percent from 3.6 percent last year.

44.7 percent versus 1.3 percent. 

What does that mean? It means that even though Amazon should report record revenues, their profit will likely be depressed — probably badly depressed. Why? Well, first and foremost, most of the goods they sell have low margins. But even the goods that should have high margins — hardware — have low margins. 

Or worse. Take the Kindle Fire — Amazon’s most popular product (though don’t bother asking how many they actually sold) — it’s sold at a loss. 

Like Apple, Amazon has built an amazing business that has revolutionized more than one industry. But context is important. Right now, Apple probably makes more profit in a day than Amazon does in a quarter. 

Update: The numbers are out.

Put this way, it sounds so simple. And actually, it should be this simple. Unfortunately, this discounts the fact that Hollywood is run by people with their heads up their asses. Like this guy. It’s a fucked up nightmare of politics and greed. It’s amazing that anything good comes out of the system at all — it’s a testament to the true creative talent behind the films themselves.  You can bet that Apple, Amazon, Google, Microsoft, and all the rest have tried to talk Hollywood into the system above. They’ve probably been doing it for a decade, if not longer. Instead, we get bullshit like UltraViolet — a giant middle finger to consumers.
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Put this way, it sounds so simple. And actually, it should be this simple.

Unfortunately, this discounts the fact that Hollywood is run by people with their heads up their asses. Like this guy. It’s a fucked up nightmare of politics and greed. It’s amazing that anything good comes out of the system at all — it’s a testament to the true creative talent behind the films themselves. 

You can bet that Apple, Amazon, Google, Microsoft, and all the rest have tried to talk Hollywood into the system above. They’ve probably been doing it for a decade, if not longer. Instead, we get bullshit like UltraViolet — a giant middle finger to consumers.

Apple Updates Final Cut Pro X

After all the hoopla, it sounds like these are all great updates, as Jim Dalrymple details. Enough to appease the old Final Cut Pro diehards? We’ll see.

This will help:

There is also good news from Final Cut Pro developers. Intelligent Assistance is releasing a new app today called 7toX that will allow users to import Final Cut Pro 7 projects into Final Cut Pro X. The app uses Final Cut’s XML to achieve the import. The app will be on the Mac App Store and costs $9.99.

Responding to Feedback, Microsoft Makes Changes to Windows 8 File Management

That’s fine. But the real question is: how on Earth did anyone working at Microsoft look at something like this nonsense and think it was fine in the first place?

The fact that they needed this feedback is actually the most troubling thing here.

The symphony of my life.

Fading To Gray

Nelson Minar’s thoughts on the recent Google issues succinctly capture what many other Googlers (both past and present) have been expressing privately in recent weeks.

His main point:

I imagine half of my readers are smugly thinking “See, I told you Google was evil all along”. I don’t think that’s right. In particular I refuse to give in to a cynical view of Google’s “Don’t be evil” motto; that ethos was very real, a sincere and important guiding principle. And if a big company like Google can’t avoid being evil, then what world-changing enterprise can? But I think Google as an organization has moved on; they’re focussed now on market position, not making the world better. Which makes me sad.

It’s not that Google has turned from good to “evil”, it’s that they’ve faded to gray. 

And that’s disappointing to everyone, but undoubtedly to many Googlers most of all. 

Apple Becomes World's Biggest Maker of Computers, Thanks to iPad

Cue dozens of people screaming bloody murder: “THE IPAD IS NOT A PC!!!!!!!”

Cue millions of the rest of us laughing at those people.

Just as with the move from desktops to laptops, the transition to tablets (or “pads” as Canalys humorously refers to them) is underway.

“But, but, but… it doesn’t have a keyboard!” Yes it does.

“But, but, but… it doesn’t have a physical keyboard!” How’s that argument working out for RIM?

“But, but, but… it doesn’t run PC software!” Who gives a shit? Clearly not the people buying millions of the devices each quarter.

All you need to know about the “is the iPad a PC?” argument: are people buying them instead of traditional PCs? Sure looks like it. 

Update: Including two tweets (at Anthony Ha’s request):

"Spouting Nonsense"

Tim Worstall, a Forbes contributor, absolutely rips apart the anti-Apple tone of the recent stories about Chinese factory conditions. 

This, alongside Tim Cook’s response and the letter to The New York Times from BSR President and CEO Aron Cramer refuting just about everything attributed to an anonymous “BSR consultant” in the most recent NYT story, certainly makes it seem even more like the laser-focus on Apple here was simply unwarranted.

Worstall’s best line is his last one:

Boycotting Apple for better Foxconn wages and conditions is like having sex for virginity. Entirely counter-productive and exactly the wrong thing to be doing.

[via The Brooks Review]

The Hector, Achilles, and Ajax Of Tennis

“Golden ages” in sports are weird things. They’re usually only declared after the fact — and often well after the fact. It’s often the “too far in the forest to see the trees” syndrome mixed with a lack of historical context, so perspective is lacking until further down the line. 

But that’s not the case with men’s tennis right now.

Because there are three players that are potentially the three greatest players that have ever lived, what we’re all watching now is unprecedented — and obviously the golden age of tennis.

Brian Phillips lays this out as well as I’ve seen for Grantland today. I find his comparison to The Iliad apt:

One of the great things about this era of the game, though — it goes along with the cruelty we were just talking about — is that it feels almost epic. That’s a word that gets thrown around a lot in sports, but I mean it literally here. Think about, say, The Iliad. It’s a book about combat, about wild golden armies tearing each other to shreds, but here and there in every battle there are heroes whom no one can touch. Hector and Achilles and Ajax and the other superheroes of the B.C.E. basically wade through the enemy, mowing down everything in their path. They’re not even in danger. There’s absolutely no chance that some minor Trojan is going to bring down Achilles; it’s not happening. And after hundreds of pages of this, when they finally start facing each other, you can’t freaking believe how intense the moment is, because you’ve been primed to think they’re invincible.

Isn’t that basically the state of tennis today? Federer, Nadal, and Djokovic have won every major tournament but one in the last seven years.

That’s insane.

Also insane: the fact that Andy Murray, the fourth wheel of this three-wheel car, might himself be considered one of the best players of all time as well were he not playing against Federer, Nadal, and Djokovic.

Murray’s five-set loss to Djokovic in the semifinals last weekend was itself a match for the ages. But it looks like nothing — and will be forgotten — because of the six-hour Djokovic/Nadal final.

Microsoft’s Facebook Investment: Smartest Deal Ballmer Ever Made?

Todd Bishop of GeekWire asks the question, I think the answer is “yes” (though the continued investment in Xbox and elements like Kinect should ultimately be close).

To me, there are two things that are most interesting about Microsoft’s Facebook investment.

1) Nearly everyone in the tech press at the time panned the deal as a ridiculous rip-off, sign of another bubble, etc. Those same people are now strangely quiet on the topic — for good reason, they look like huge jackasses.

It just goes to show you that you should never take anything the tech press says too seriously. Way too much is based on the present and there’s not nearly enough thinking about the future. This deal was all about the future.

2) Along those lines, while the return on this investment will be good ($15 billion valuation turning into $100 billion at IPO time — and it will probably be 10x in the near future), this is still not about the money — it’s all about the strategic alliance. Microsoft gave itself an “in” to get access to Facebook’s data. And the deal stopped Google from getting a similar deal.

Microsoft still hasn’t been able to do enough with the relationship to boost Bing, but even that doesn’t really matter. What matters is that Google and Facebook are at odds (or some may say, at war). Microsoft won by not losing.

Uncensored

Hunter Walk and Eric Ries brought together a pretty killer group of contributors — including yours truly — for a good cause: supporting the open internet. 

Uncensored is an eBook featuring a collection of blog posts on a range of topics. They’re asking you pay at least $4.99 (and suggesting a payment of $9.99), with all of the profits are being donated to the Electronic Frontier Foundation. 

You can buy it here through Leanpub. It comes in either PDF, ePub (iPad, Nook), or MOBI (Kindle) format.

The best way to describe the project is what Walk told the San Jose Mercury News: “We sort of view this of this as the tech blogger equivalent of the benefit album.”

The Obama Campaign Is Now Using Square For Fundraising

Very cool. Though I’d also like a Card Case option as well — maybe every time I’m within 10 miles of President Obama, open my tab and donate…

Update: Romney campaign too!

Google, The Patent Pusher?

Charles Arthur of The Guardian makes the case for why Google will have to get aggressive with their patents, lest the Motorola deal look like one of the worst purchases in recent years — maybe ever.

Writes Arthur:

The really profitable bit of the business is the “Home” division, which makes set-top boxes, but has been bumping along at around $900m revenues for the past year. It actually makes money - only around $60m per quarter, but at least it’s profit, compared to the consistent losses in the mobile business, which has only made a profit in two of the past nine quarters. Even so, it would take 75 years for the Home business’s profit to make back the money Google paid for the business.

In other words, in purely financial terms, MMI is a dog.

On the face of it, the Motorola deal is such a bad one for Google that it makes absolutely no sense. But one level deeper, when you consider how badly Google was getting screwed in the patent bidding wars, it actually almost seems like they had to do this deal — and that Motorola chief Sanjay Jha knew it.

The problem Google faces is that this reality doesn’t translate easily to shareholders. They’ll see Motorola dragging down Google’s numbers and wonder what the hell they were thinking with the buy? 

Even if Google spins out Motorola, it will look bad. 

That’s why Arthur’s argument isn’t totally crazy here. I still doubt Google will become a patent pusher — though you could have said the same about Microsoft a couple decades ago — but I think that’s the most obvious way to show what they got out of the Motorola deal. 

No Disputing This “Winning”