Great profile of Reed Hastings by Ashlee Vance for Bloomberg Businessweek. Three standouts:
The master copies of all the shows and movies available to Netflix take up 3.14 petabytes of storage space. (In comparison, Facebook uses about 1.5 petabytes to store about 10 billion photos.) Hollywood studios used to send individual films and shows to Netflix on a disc or thumb drive; now they use a Netflix system called Backlot to send encrypted files via the Internet. Netflix then compresses the files and creates more than 100 different versions, each tuned for the varying bandwidth, device, and language needs of its customers. (An hour of video for the iPhone would be about 150 megabytes.) This compressed catalog comes to about 2.75 petabytes.
Wow — also, Pi.
Netflix began to experiment with cloud services from Amazon and Microsoft, where Hastings served as a board member. In 2009 he bet his company’s future on Amazon. Up to that point, nothing the size of Netflix had placed so much of its crucial technology on Amazon’s systems. Hastings sent an e-mail to Amazon CEO Jeff Bezos, announcing his plans. “I asked him if he was comfortable with that idea,” Hastings says. “If not, there was no point going forward.” Bezos gave the go-ahead.
That seems like a pretty large diss of a company where he’s a board member — especially when you consider that Amazon is now a very direct rival.
And finally, the best for last:
Qwikster was a fiasco, but far less threatening than a debacle that preceded it. In August 2008, Netflix’s technology infrastructure melted down. This was when the company was still known for DVDs-by-mail, and for three days it could not send discs because a crucial Oracle database kept malfunctioning. Reporters and customers took notice. Netflix traced the problem to an expensive, third-party storage system that went haywire after a software update. The incident still annoys Hastings. When the subject comes up in the watchtower, Chief Product Officer Neil Hunt, who’s also gathered at the table, suggests they not mention the storage-system vendor by name. Hastings responds, “Let IBM have it, baby.” (An IBM spokesman declined to comment.)
Said another way.
Yaakov Kimelfeld, chief research officer at Kantar Media Compete, talking to Reuters about the company’s advertising network prospects.
“As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.”
This ad is actually pretty awful: badly scripted, with mediocre camerawork, direction, and acting. There’s no subtlety, and the punchline has all the humor of a dropped brick. But on the other hand, yay.
Yeah, pretty bad across the board.
Shaun Rein, the managing director of China Market Research Group, speaking to Bloomberg.
It’s interesting just how poorly Amazon is doing in China. This can be seen two ways: either they’re being out-Amazon’d there by Alibaba and will never be able to crack the country (just as eBay couldn’t). Or the massive upside if they are able to crack China eventually.
But, as Rein’s quote indicates, Amazon may have to flip its content-driven model. It’s hard to subsidize hardware with content sales when people refuse to pay for content.
Jeff Bezos to Wall Street in 2005 after the stock had fallen more than 40 percent for the year.
As David Streitfeld notes for NYT:
That was bad advice. The stock is up almost 700 percent since then, hitting a record this month.
Brilliant, as always.
“But Apple might not be the right behemoth to use as a benchmark for Amazon’s recent performance. In 1994, Walmart’s net sales topped $60 billion for the first time, the neighborhood that Amazon’s playing in today. A decade later, Walmart’s sales had nearly quadrupled to $256 billion. Last year, Walmart’s sales clocked in at just south of $444 billion.”
It seems pretty clear that Amazon is optimising its cashflow to zero: pushing it as low as it is possible to go and still run the business. This is rather like Tim Cook at Apple managing inventory to zero: Amazon manages cashflow and profits to zero.
It’s such a fascinating play.
Mark Gimein for Bloomberg:
Comparing Bezos’s fortune to Amazon’s earnings highlights how deeply puzzling that increase has been. Since 2003, the first year in which Amazon earned a profit, through the end of 2011, Amazon has reported a total of $5 billion in earnings. Amazon has not yet reported results for this year; it lost money in the last quarter, but is expected to turn a profit for the year.
Think of it this way: if Bezos had started the company himself, still owned all of it, and had taken out every penny in profit, his bank balance would be less than one-quarter of what his shares are worth. Or think of it another way: Apple’s profit for the last quarter alone is well over twice Amazon’s profit over its entire entire existence.
It’s crazy, but Amazon appears to be “gaming” Wall Street by not being extremely profitable. There really is nowhere to go but up. The sky is still the limit. As opposed to Apple, which has earned more money in the past year than any company ever save one: Exxon. If the sky is the limit, they’re almost in outer space.
Eugene Wei on a key facet of Amazon’s business that few people think about:
Almost all customers paid by credit card, so Amazon would receive payment in a day. But they didn’t pay the average distributor or publisher for 90 days for books they purchased. This gave Amazon a magical financial quality called a negative operating cycle. With every book sale, Amazon got cash it could hang on to for up weeks on end (in practice it wasn’t actually 89 days of float since Amazon did purchase some high velocity selling books ahead of time). The more Amazon grew, the more cash it banked. Amazon was turning its inventory 30, 40 times a year, whereas companies like Barnes and Noble were sweating to turn their inventory twice a year. Most people just look at a company’s margins and judge the quality of the business model based on that, but the cash flow characteristics of the business can make one company a far more valuable company than another with the exact same operating margin. Amazon could have had a margin of zero and still made money.
Amazon continues to fascinate me because increasingly, they’re playing the same game as Apple (meaning in the same markets: music, movies, books, tablets, phones, etc). But they play the game in the opposite way — and it still works.
“Amazon’s price-earnings ratio is currently a mind-boggling 3,275x. Apple’s is 10x. Traditional valuation metrics are obviously pointless for Amazon, but if you were to use Amazon’s PE for Apple, the stock would be trading at $144,618 per share, for a market cap of $136 trillion.”
Sarah Perez of TechCruch:
Amazon is today introducing a new service called Amazon AutoRip, which automatically gives customers free MP3 versions of any CDs they’ve purchased from Amazon since the launch of its Music Store back in 1998.
It’s a good idea by Amazon since they have that type of sales data going way back. But all it really reminds me is that I haven’t bought a CD in seven years and counting.
Mike Shatzkin, the founder and chief executive of Idea Logical, on Barnes & Noble’s most recent quarter.
I have fond memories of going to Barnes & Noble as a kid; I fear that’s all they’ll be soon: memories.
Also, what’s up with this part of the story by Leslie Kaufman of The New York Times:
Other companies do not break out sales of their digital tablets, but Amazon has been saying sales of its Kindle Fire were strong. Analysts say Apple’s iPads also appear to be doing well.
Um, sure, Amazon is cagey with their numbers, but Apple always tells us exactly how many tablets they sold in a quarter — no mild prognostications from “analysts” necessary.