October 13, 2014
Research on companies which have come public in the last several years is available mostly from the investment banks who were paid by the companies during the IPO process. This leads to a conflict of interest as the investment bank seeks to please the owners of the company, as well as provide an objective assessment of the company’s growth prospects to investors, the other group of clients whom the bank serves through its brokerage arm.
This conflict continues long after the IPO is complete, for once a company becomes public, investment bankers and analysts who played a role in the IPO may advise the company on future stock offerings, mergers and acquisitions, and customized plans for insiders to sell their stock.
As a research-only firm, Battle Road is focused on helping asset managers seek out stocks to buy and stocks to avoid, without the conflict presented by conducting business with the subject of its research. Since our founding in 2001, we have remained true to this principle.
The idea for the Battle Road IPO Review originated with one of our clients, a portfolio manager, who sought our help in seeking out solid companies with sustainable competitive advantages –and reasonable valuations—from among the many companies which have come public in recent years. Using quantitative and qualitative measures we developed a methodology for screening for new buy ideas.
The Battle Road IPO Review has become a monthly service that screens for new ideas from a uniquely designed universe of over 180 growth-oriented IPOs of the last seven years. The universe includes software, internet, computer hardware, cyber security, consumer, and business services companies. The median market cap. in the Battle Road IPO universe is $1.1 billion. The universe is rapidly growing with the addition of newly-minted IPOs on a regular basis.
We rank order the stocks by group each month and call out names for further exploration, based on our assessment of the company’s strengths and weaknesses, as well as other measures which include our interpretation of the company’s current valuation, balance sheet, quality of earnings, and other metrics. We draw upon these metrics, as well as qualitative factors to determine our monthly Exploration List, which is a sub-set of all stocks that we believe should out-perform the overall coverage universe. The Exploration List is therefore a screening tool for new ideas. We strive to develop a list that features both growth and value-oriented stocks. Our goal is for the median stock performance of the Exploration List to exceed the median stock performance of the coverage universe.
Our clients use the Battle Road IPO Review to:
About Battle Road Research
Battle Road Research provides fund managers and analysts with an independent voice on technology and consumer stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. We present our findings in straight-forward Buy, Hold, or Sell research reports. In addition, we publish The Battle Road IPO Review, a monthly screen for new ideas that examines the prospects of more than 180 growth-oriented IPOs of the last seven years. Since our founding in 2001 we have refrained from investment banking, company consulting, company-paid reports, and personal investment in the stocks we research.
Battle Road Research was one of the first eleven members of the Investorside Research Association, www.investorside.com, the only trade group that certifies its members are free of investment banking, consulting, and research for hire conflicts.
With a stroke of the pen, or more likely the click of a mouse, Amazon.com CEO Jeff Bezos approved the second largest acquisition in the company’s history, when it announced last week that it will buy privately-held Kiva Systems of North Reading Massachusetts for $775 million. Kiva’s orange-colored robots have become the rage among ecommerce companies that are looking to reduce labor costs and collapse the time between a website order and shipment.
Kiva Systems, which opened a new 160,000 square foot facility in May of 2011, had risen to about $100 million in annual revenue, and an unknown level of profitability. As a venture-backed start-up that had undergone a management shakeup two years ago, Kiva Systems, we surmise, had been positioning itself for an IPO, as evidenced by the hiring of a high profile CFO last year. That a bird in the hand may well be worth two in the bush certainly explains the motivation of Kiva’s owners to sell the company.
The same, however, cannot be said of Amazon.com, whose motivation to buy Kiva Systems is less obvious.
Amazon’s acquisitions of recent years, including Audible, Zappos, and Quidsi, the parent of Diapers.com, added new products to sell over its websites. Kiva Systems, on the other hand, makes robots that help retail and ecommerce companies manage their warehouse operations. To be sure, Amazon.com has invested heavily in website development and other technology infrastructure since its inception, and Kiva certainly fits into Amazon’s strategy to add millions of square feet of fulfillment center capacity each year around the world.
And yet, if Amazon.com was already a Kiva Systems customer—and presumably had the ability to purchase tens of millions of dollars of robots over the next several years—why would it pay eight times revenue when there is no evidence to suggest that Amazon has ever paid more than three times revenue—and often substantially less—for any company it has acquired in recent memory?
Theories abound. Could it have been that Kiva gave Amazon a glimpse into its future product plans, which in turn led it to believe that such technology in the hands of its competition would reduce its competitive advantage? Or could it have been a logistics automation vendor that lured Amazon into a bidding war for Kiva?
After reflecting on these questions, we conclude that Amazon.com bought Kiva for four reasons:
Against all odds, Kiva Systems founder Mick Mountz built a substantial enterprise, selling orange colored robots capable of performing incredible feats of industrial strength and cunning. As a replacement for conveyor belts, and human beings wandering miles of warehouse space, Kiva’s robots are able to locate and lift loads of several thousand pounds, moving palettes over a warehouse floor, even in conditions of poor lighting, and ventilation. The labor cost reduction stemming from the elimination of workers who walk several miles each day to retrieve goods from remote parts of the warehouse is a key benefit cited by Kiva’s customers. As the fulfillment center becomes the physical store, and the website a cash register for the retailer, Kiva has become an integral part of many ecommerce vendors’ fulfillment efforts.
Another benefit is making the most obscure and infrequently ordered products as accessible as the most popular items, a key differentiator for an ecommerce site versus a physical store, and one of the many reasons that Amazon.com has been so successful against its brick and mortar competitors.
Just as brick and mortar retailers were keen to stock up on inventory management and replenishment systems in the 80s and 90s for fear of getting pushed out of business by Wal-Mart, so have the country’s leading retailers and ecommerce sites been stocking up on Kiva Robots for fear of being upended or obliterated by Amazon.
Kiva’s Many eCommerce Customers
Known Kiva customers—all of whom compete with Amazon.com in some way, shape, or form—include Staples, the Gap, and Drugstore.com (now owned by Walgreens) which chose Kiva for help in fulfilling orders drawing from a catalog of 50,000 unique non-prescription drugs and health oriented consumer items. Kiva evidently also assists in things like inventory control, forward replenishment, as well as classic pick, pack and ship. Accumen Brands, the Fayetteville Arkansas ecommerce leader that runs trailsedge.com, toughweld.com, scrubshopper.com, and babyhabit.com, was able to install and get Kiva up and running in its 400,000 square foot warehouse in 14 weeks.
Dillards, the multi-channel US retailing giant with annual sales exceeding $6 billion, and 294 sore locations and 13 clearance centers across 29 states also utilizes Kiva, as does Timberland, Dickies, Fisher Price, Under Armour, Crate & Barrel, Toys R Us, Office Depot, SaksFifth Avenue, and Dansko, the footwear maker that ships its shoes to over 2,500 US and international locations. The Gilt Groupe found that it could process orders from website customer click to fulfillment in as little as 15 minutes. Even Follett Corp. the venerable 150 year-old, privately held purveyor of, among other things “pre-owned” textbooks for college students, has been using Kiva for order fulfillment through its stores and website.
To make things easier for retailers, Kiva announced a robot rental program in June of 2011, designed to help ecommerce fulfillment centers handle peak demand during the holiday season, thus easing the burden to purchase a basic system, which is estimated to be in the vicinity of $5 million or so.
Amazon’s Rising Fulfillment Costs
In each of the last two years fulfillment expense—excluding stock-based compensation—has outstripped revenue growth at Amazon.com. Though each of Amazon.com’s operating expense line items, which include marketing, technology and content, and general and admin, have all risen in excess of sales growth, fulfillment expense may be the most labor intensive of Amazon’s operations, and likely susceptible to further automation.
Fulfillment costs in 2011 were $4.4 billion. Assuming that Amazon can shave as much as 10 percent from its fulfillment expenses annually, the acquisition may pay for itself in as little as two years—not to mention the incremental revenue Amazon can generate from selling robots to its competitors, as well as other industries. The ability to avoid additional labor costs during peak shopping seasons, by deploying more or smarter robots, is a benefit that Amazon will reap as well.
In the mean time, Amazon shows now sign of letting up on fulfillment center expansion as it opened 17 new fulfillment centers in 2011, bringing the total to 69 world-wide. This year, it plans to open another 17.
Amazon.com as eCommerce Sphinx
Amazon has stated that it intends to continue to conduct business with Kiva’s customers, most of whom are dyed in the wool competitors. At first glance this might appear to be preposterous. However, when one considers that Amazon licenses elastic cloud computing resources to Netflix even as it competes head to head against it in online movie rentals, and that Amazon sells books that it publishes under its own imprint— alongside books from Random House and virtually every other book publisher—as well as new and used books from their party merchants, one begins to get a sense of how large and intertwined with its competitors are Amazon’s operations.
The extent to which Amazon’s ecommerce competitors will continue to buy robots from a wholly owned subsidiary of Amazon is unclear. The acquisition may provide the opportunity for other robot companies to fill the void. These include privately-held Seegrid, a robotic technology company based in Pittsburgh, whose solution is working at Cabela’s.
Fear of Kiva Falling into the Wrong Hands
An unanswered question that lingers in our mind is why Amazon.com paid eight times revenue for Kiva, when a Kiva IPO certainly would have valued the company at a much lower EV-to-sales multiple. While Wal-Mart has publicly claimed that it was not interested in buying Kiva, we find it hard to believe that there were not other companies who may have been approached by Kiva’s private equity owners, and who may have placed a bid for the company, given the success of its customers, its unique technology, and the large opportunity for robot sales into ecommerce and other industries.
The desire to achieve cost reduction and faster order fulfillment times only partially explains Amazon’s desire to buy Kiva. More likely, there are four other reasons: the desire to secure access to a future flow of robots ahead of its competitors; the ability to drive Kiva’s software development efforts in Amazon’s direction; the preference to customize Kiva’s robots for its proprietary warehouse operations, and finally the necessity to keep Kiva out of the hands of another suitor that may have wanted to point the company’s orange robots in a new direction.
For Immediate Distribution
Monday, April 2, 2012
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology, health science, consumer, and renewable energy sectors, has announced that company President Ben Z. Rose will participate in the Bloomberg Technology Roundtable, a featured event at the annual Investorside Research Conference in New York City on Tuesday, April 3rd. The conference showcases thought leadership from the industry’s leading independent research companies, all of whom refrain from investment banking, and research for hire.
This year’s conference will feature a Technology Sector Roundtable hosted by Anand Srinivasan, semiconductor and hardware analyst at Bloomberg Industries. The panel theme is entitled The Emergence of the Technology Sector from the Prolonged Recession: What has Changed and What Hasn’t? Topics to be discussed include consumer electronics and social media, corporate Capex and ROI Measurements in hardware and software, unstructured “Big Data,” and the implications for various companies throughout the technology landscape.
Battle Road’s technology research is focused on internet, software, and hardware companies that are poised to capture growth opportunities in ecommerce, online advertising, cloud computing, social media, and digital manufacturing. Through its impending launch of Small Cap Snapshots, Battle Road is also on the lookout for stocks that have been overlooked by Wall Street and regional investment banks, as well as IPOs from the last two years that have fallen off the radar, or may have little coverage beyond the research reports written by their underwriters.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology, health science, consumer, and renewable energy stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Road has been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Road has received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
Ben Z. Rose, President
Battle Road Research
781-894-0705, ext. 204
For Immediate Distribution
Monday, March 26, 2012
Battle Road Research Announces Small Cap Snapshots
A New Service focused on Scouting Out Small Cap Ideas
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology and consumer sectors, has announced Small Cap Snapshots, a new service designed to help fund managers and analysts scout out small cap ideas. The initial focus will be on companies located in New England, with stock market valuations under $1 billion.
“We see a growing number of intriguing small cap companies in our backyard and beyond that have been overlooked by Wall Street and regional investment banks,” according to Ben Z. Rose, President of Battle Road Research. “A second group of companies consist of IPOs from the last two years that have fallen off the radar, or may have little coverage outside of the investment banks that took them public. These companies represent fertile ground for a fresh, independent perspective. We believe that Small Cap SnapShots will be a timely addition to our clients’ research process,” said Rose.
Combining fundamental research with key financial metrics, Battle Road’s Small Cap Snapshots are designed to help fund managers and analysts screen for investment ideas in the technology and consumer sectors. Small Cap Snapshots are available immediately to Battle Road Research clients through its website at www.battleroad.com. A formal launch of the service will take place on Patriot’s Day, Monday, April 16.
Established in 2001,Battle Roadis a research-only firm, not an investment bank, not a broker dealer, and not an asset manager. Unlike Wall Street and regional investment banks who are paid by the companies they research,Battle Roaddoes not accept –nor has it ever accepted— a dime from any company that it researches.
“As we set out in search of investment ideas for our clients, the company management teams with whom we meet will know that we are not seeking a quid pro quo for research coverage. Specifically, we are not interested in placing our name in the hat for future public offerings, lining up convertible debt, or pitching M&A ideas. These are services provided by the investment banks,” said Rose.
“Our research has been battle-tested for ten years in the institutional marketplace by some of the world’s leading portfolio managers and analysts. We are confident that Small Cap Snapshots will help our clients seek out new investment ideas, and will further our reputation as a research firm free from the influence of investment banking,” Rose concluded.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology and consumer stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Roadhas been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Roadhas received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
We welcome investors to visit our website at www.battleroad.com
Ben Z. Rose, President
781-894-0705, ext. 204
Amazon’s torrid growth in electronics and general merchandise has prompted a major expansion in infrastructure to support its operations. The company now has 69 fulfillment centers around the world, having added 17 this year. Amazon plans to add 17 more in 2012. Amazon.com’s headcount now exceeds 50,000 people, having grown over 60 percent over the prior year, and it has begun to feel the strain of its warehouse and fulfillment operations.
Amazon also continues to invest heavily in cap ex related to its data center expansion, which is required to support the growing number of companies that tap into its web services. Starting with packages that offer five gigabytes of storage for free on a monthly basis, companies ranging from venture-backed start-ups to global corporations and government agencies can purchase computer and storage power on a per use basis, rather than make large capital outlays for computer servers, storage racks, and networking gear. AWS already has several hundred thousand customers across the globe in more than 180 countries. We expect the business to grow in excess of 50 percent compounded annually, though like its other businesses, Amazon does not report on its margin contribution.
Amazon recently launched a frontal assault on Apple in order to lay claim to its unfair share of the emerging computer tablet category. The Kindle Fire, a $199 color Amazon branded tablet, may have sold more than five million units in the most recent quarter, and we think that Amazon.com will confidently lay claim to the number two position in computer tablets within the next few months. The Kindle Fire enables Amazon to sell more of everything digital that it already sells, including video on demand, online game and music services, ebooks, audio books, pictures, and data and backup storage.
Amazon’s video on demand service, for example, allows access to over 100,000 movies and television show episodes s on a pay-per-view basis. Most can be rented for a price which ranges from $1.99 per television episode, to $2.99 per movie. Amazon also offers 13,000 movie and TV shows free for members of Amazon Prime, the company’s $79 per year service which provides unlimited two-day free shipping services. The Kindle Fire also fits well into Amazon’s Cloud Drive strategy, as it already offers 5 gigabytes of free storage for videos, games, music and other data.
It may be hard to believe that electronics and general merchandise now comprises more than 60 percent of Amazon.com’s quarterly sales, up from about 40 percent three years ago. From its humble roots as an online bookstore, Amazon.com now serves over 160 million active customers around the world. Traditionalists will be happy to note that despite rapid growth in electronic books, physical books, that is, hardcover and paperbacks grew by double digits in the most recent quarter.
Just three days before Christmas Akamai (NASDAQ: AKAM) put to rest speculation raised in November that it might acquire Cotendo—its only meaningful competitor in the web acceleration services market. We believe the acquisition vanquishes a key competitor, provides Akamai with excellent technical personnel, and keeps AT&T from encroaching on Akamai’s turf.
The acquisition of Cotendo for a net cash payment of $268 million should close in the first half of 2012. With 100 employees, we speculate that Cotendo’s annual sales are between $25-30 million, and growing in excess of 30 percent per year.
Cotendo is the second largest acquisition in Akamai’s history, and is strategic for five reasons: first, it vanquishes a key, emerging competitor, which had evidently been gaining ground at several large customers, including Google and Facebook. Second, Akamai will gain access to vital product and technical personnel with excellent product know-how, half of whom are based in Israel. Third, the acquisition damages AT&T’s presence and credibility in the CDN space, as a result of its much ballyhooed alliance with Cotendo, which will likely come to an end.
Cotendo was founded in 2008 by former executives from Commtouch Software and Limelight Networks. Cotendo had received private funding from Sequoia Capital, Benchmark Capital, and other venture firms, as well as investments from Citrix Systems and Juniper Networks. With cloud-based software valuations soaring to new levels, we speculate that the VCs on the deal were interested in maximizing their investment as soon as possible.
Israeli newspaper Calcalist first speculated in late November that Cotendo, a Silicon-valley, venture-backed Akamai competitor, with offices in Israel, was on the block for sale, and that Akamai, AT&T, and Juniper Networks might have been bidding for the company, at an estimated price of $300 million.
Cotendo is best known for a service which competes with Akamai’s dynamic site acceleration product, which improves the performance of high volume websites. We have seen reports that suggest that several Akamai customers, including Facebook, Microsoft, and Google, were utilizing Cotendo’s services. Facebook’s VP of technical operations, was a member of Cotendo’s advisory board.
AT&T announced in July, 2010 that it would begin to re-market website acceleration services from Cotendo. Four months later, in November 2010, Akamai, along with the Massachusetts Institute of Technology, announced a patent infringement claim against Cotendo. AT&T may have chosen not to bid for Cotendo for fear of inheriting its lawsuit, and the potential to pay Akamai and M.I.T. damages should Akamai have prevailed in the suit.
In addition to entering into a formal distribution agreement with AT&T for its website acceleration services in July of 2010, Cotendo had also announced a partnership with Citrix Systems, which made an early stage investment in Cotendo. The partnership seemed to center around services that accelerate delivery of web-based applications, which sounds very much like Akamai’s application acceleration product. Citrix and Cotendo claimed that their jointly-developed product boosts application performance by 50-80 percent, and reduced bandwidth requirements by 50-95 percent. The agreement was similar to one that Akamai announced with Riverbed Technologies not too long ago.
Akamai’s Dynamic Site Accelerator is utilized by a large number of ecommerce and media sites. A new version planned by the company was already in beta, and we learned at its analyst meeting in December that the product could ship in the first quarter of 2012. At this juncture we are unclear as to whether the product will ship, or whether Cotendo’s functionality will be melded into Akamai’s DSA product.
Akamai will ship at least four new products in 2012, and we expect that Cotendo will be able to contribute to all of them, including: (1) a new version of Akamai’s Dynamic Site Accelerator; (2) new website and ecommerce security software products; (3) a cloud accelerator optimized for mobile platforms, an area where Cotendo has evidently taken an early lead; and (4) a new CDN solution that will be licensed to network operators.
All in all we believe that the Cotendo acquisition makes strategic sense for Akamai, and should enable the company to extend its lead in its key markets.
Investors long accustomed to thinking of Google as the leader in online search and Amazon.com as the king of commerce may be surprised to learn of the growing rivalry–some might say hostility— between the two companies. Only last week The Wall Street Journal suggested that Google may be speaking with brick and mortar retailers about a one day shipping service that would up the ante on Amazon’s two day free shipping service, which it provides to its most elite customers. If the report is true, one would surmise that Google could only have had the intent of taking Amazon off guard, in advance of the critical holiday shopping season.
Given the vast no man’s land which defines the border between ecommerce and online search, one may ask where the seeds of this now bitter rivalry were sewn.
We would speculate that it began with Google’s bold online book initiative, in which it sought to scan the world’s out of copyright book collection ensconced in the bowels of the nation’s great universities, including the University of Michigan. With the intent of making hard to find texts available online for the first time, Google’s ostensibly altruistic effort, lauded by researchers, became the object of scorn among the world’s publishers and authors who resented Google’s efforts to corner the market on out-of-print, and out-of-copyright books, without due consideration to paying author royalties.
Amazon.com, no doubt looking to fend off a challenge to its position as the world’s dominant online book reseller—which, by the way includes used, out of print, and out of copyright books—saw it as an obvious threat to its franchise. Thus, it joined forces with Microsoft and others to fend off the Google challenge.
To make a long story short, a period of détente began to emerge between Google and Amazon.com when Google sensibly abandoned or at least temporarily suspended its book initiative. Amazon.com, in keeping with its sophisticated yet sphinx-like approach to ecommerce (see Amazon.com: ecommerce Sphinx), began to sell Google’s internet PC on its website. Amazon.com, in a gesture of rapprochement, selected Android as the operating system for its new tablet, the Kindle Fire.
Dissatisfied with the pace at which the rest of the world was adopting Android, Google suddenly, in our opinion, lost patience with the pack of Android licensees, and purchased, out of left field, Motorola’s Mobility unit, whose Xoom tablet places it in direct competition with not only Apple, but Amazon.com.
Thus, the ante has been upped in the tablet wars, with Amazon.com’s Kindle Fire an increasingly sure bet to become the number two tablet in the next 12-18 months. This probability may have been realized only recently by the Googlers, and serves to explain—or at least better understand—its controversial decision to acquire Motorola’s phone and tablet group.
Facebook founder and CEO Mark Zuckerberg recently visited Cambridge MA, where he spent time at MIT and Harvard, speaking with students and recruiting for his company. While in Cambridge, Zuckerberg, who started Facebook in his Harvard dorm room, said that while his company wishes to tap into the local talent pool, Facebook has no near term plans to open an East Coast office.
We would not, however, be surprised to see Facebook make an about face on that decision.
Mr. Zuckerberg may soon come to the same conclusion reached by many other Silicon Valley leaders, namely that the West Coast talent pool is a finite resource from which to draw. Moreover, many of the most talented engineers and entrepreneurs—for a variety of reasons—may not be interested in leaving the East Coast.
Mr. Zuckerberg may well conclude that his best bet for recruiting local talent may be to take a page from Google’s playbook that will give Facebook a ground-level presence in what is widely considered an area rife with talent.
Google began its New England presence with a modest outpost in Cambridge, and after building up a relatively modest staff announced in July of 2010 that it would acquire ITA Software, whose specialized search algorithms for the travel industry have since been subsumed into Google, albeit after a lengthy anti-trust review. In one fell swoop, Google acquired a local company which it will use as a base for future recruitment.
Facebook’s near term expansion plans include opening an office in Seattle, which Mr. Zuckerberg notes is less than a two hour flight from Palo Alto. Our sense is that this may be a short term palliative to what may become a longer term growth issue: how to attract and keep the best talent independent of geography.
One of the most perplexing aspects of Amazon.com’s business model is the ability to sell products and services that compete directly with its many suppliers and resellers. For example, Amazon is the world’s largest reseller of new and used books, both physical and digital, yet it offers CreateSpace, a venue for self-publishing authors, as well as seven publishing imprints. Thus, Amazon competes with major book publishers for new author talent.
Amazon also conducts a large music download business, competing directly against Apple, yet it also sells both new and used iPods on its website. In its most audacious move to date, Amazon will sell the Kindle Fire, a bona fide competitor to Apple’s iPad, and Motorola’s (soon to be Google’s) Xoom. Yet Amazon sells both iPads and Xooms on its website.
Amazon recently boasted that the Kindle Fire will support Netflix’s streaming service, even as it ramps up its own movie and television show streaming service, a portion of which will be free for any Amazon.com Prime customer, of which there are millions.
How and why does Amazon do—or get away— with this?
First, it is important to know that its seeks to be dominant in any category in which it participates. This means that it takes an interest in not just reselling others’ products, but in creating products itself.
Second, unlike other companies that evaluate profit margins by product line, seeking to maximize the sales of their most profitable products, Amazon.com has a completely different strategy: maximizing gross margin dollars. This means that it seeks to gain market share, regardless of the level of profitability generated by the category.
Finally, I suggest that the company is respectful, or perhaps fearful of the potential anti-competitive implications of its success. Amazon.com’s management team is likely mindful of Microsoft’s missteps when it fought against the USgovernment’s anti-trust efforts. It is not difficult to imagine Amzon.com, through the success of the Kindle Fire—or Apple through the success of its iPad—guilty of anti-competitive behavior, should the government decide that bundling proprietary services stifles competition.