The Case For Amazon To Beat The Rest Of The 'Gang Of Four'

Nov.25.11 | About:, Inc. (AMZN)

There has been talk that four major companies dominate the Internet technology sector:

1. Google (NASDAQ:GOOG)

2. Apple (NASDAQ:AAPL)

3. Facebook


My view is that on a 10-year period, Amazon the company I believe has the highest probability of emerging with the largest market capitalization, with Google being a close second. With that said, though, I think Amazon is still drastically overpriced at the moment, and so I think a large dip is needed before accumulating - or the tolerance for a drastic drop in price for those who are currently in AMZN positions.

The issue of which company has the highest market capitalization ultimately boils down to one question: Which company can serve as a platform for entrepreneurship - an infrastructure that helps small businesses grow? The winner of the Gang of Four will be the one who can create the most value for small businesses and capture a piece of the profits this generates.

From this perspective, Apple is basically out of the game. While Apple has issued over $1 billion in payments to its community of app developers, and has helped the music industry find a way to monetize digital music, it is openly interested in creating a singular customer experience that the firm controls. This may in fact yield immensely satisfied customers and high profits for the company, as has already been proven. But it will limit long-term growth opportunities, something most clearly seen at the moment in Apple's general absence at the enterprise level.

Facebook is seriously disadvantaged as a tool for small business growth, as illustrated by the fact that only a few game developers have really blossomed on Facebook. Also, in my opinion, it competes too closely with Google for software engineers and for many products, and I believe Google is much better positioned here. I do not regard Facebook participating in a value network that is sufficiently different from Google to displace it.

And so there were too: Google and Amazon.

I simply find Amazon to be better positioned, largely due to its distribution infrastructure, its web infrastructure via AWS, and its real consumer data via its e-commerce operations. In my opinion, Google's big opportunity is in new energy sources. I'm not sure what else the company can do that is truly disruptive, meaning it not only creates continued improvement along current trajectories (sustaining innovations) but rather creates entirely new trajectories and new markets (disruptive innovations). The real growth opportunities are in disruptive opportunities, and I think Amazon is better positioned to disrupt everything from shipping to banking to movie production and perhaps many more industries. While the executives operating all of these companies are undoubtedly extremely talented, I also am most comfortable investing in Bezos.

But with that said, current price and relationship with the macro-economy must be considered before making a purchase. I find Amazon's P/E ratio to be too high, as I have written numerous times here on Seeking Alpha. At this point, I still need share price to fall to at least $45 before being comfortable with the risk.

Apple, on the other hand, remains a favorite of mine in the immediate term so long as the company can continue to deliver hit products ... 2012 should bring us the much anticipated Apple television set. Failure to do so, though, may be the cue to exit.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.