Wednesday, November 18, 2009

Creative Destruction at Amazon

Amazon has expanded its potential market base to world wide with the introduction of the Amazon Kindle for PC and Amazon Kindle for Mac software products.

While everyone is focused on the Kindle, the more exciting opportunity is in the software for the computer in my opinion.  Kindle is still expensive and will only be adopted by first adopters while the PC and MAC software is FREE and easy to use.

If you're a resident of  a country that Amazon does not deliver to, say India, the Middle East, Africa and you need a title, all you need is a PC.  Think about what that does to their model.

We're looking at a worldwide technology delivery company, lower COGS, larger market and electronic delivery model.

The impacts of this surge towards electronic delivery will be felt starting immediately in my opinion.  I'm late to the stock as the market has obviously recognized this and the stock is expensive. But this is a story that I will be looking to accumulate on dips.

A similar type of model extends to NetFlix along with similar competitive advantages. Valuation for Netflix is far more reasonable than Amazon and it is a stock I have owned since it was in the mid 30s.

Concern: One of the concerns that does get raised is that this does potentially lower the barriers of entry for  So what's to prevent Google or Apple or Walmart from entering the digital book selling space? To date, Amazon has succeeded on fulfillment and execution.  So will the expansion of the addressable market override the competitive concerns.  At the end of the day, the web will be controlled by dominant brand names and this is a net positive for Google and the like and a positive for Amazon for now.

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