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Mark Matchen  

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  • Amazon Fire Phone: A Confirmed Bust [View article]
    Tesla has low sales so far. It may never succeed, but it might – they are re-inventing the technology at their octo-factory in Arizona. People are making a reasoned bet on it. Twitter has just taken its first baby-steps into monetizing. Facebook stock didn't begin to rise until after it showed it could monetize, and there is a reasonable chance Twitter will do likewise. It's a decent bet.

    Amazon has ENOURMOUS sales. And they grow a lot every year. And year after year, they fail to make money. That's the difference. There is no sign Amazon will EVER make money. You can claim it's all just a build-out, and eventually they will say, OK, we don't need any more warehouses or drones and we can start making money now. But there is zero sign of that happening, and zero hint from Jeff what it will take for him to stop spending money.
    Sep 19, 2014. 04:49 PM | 4 Likes Like |Link to Comment
  • Amazon Fire Phone: A Confirmed Bust [View article]
    "The Fire Phone could help Amazon generate about $2 billion from e-commerce products alone."

    Only if both people who bought the phone spend $1 billion on e-commerce products.

    But it's worse than that. Amazon is losing money on everything it sells. So $2B more in sales means another $100M in losses. Scale should help, right? Not with Amazon. They grow their top line every year, and still break even at best.

    You know the old joke? "I lose money on every sale, but I make up for it in volume." At Amazon, that's not a joke – it's a business model.
    Sep 19, 2014. 04:37 PM | 9 Likes Like |Link to Comment
  • Why Amazon's Fire Phone Had To Be Expensive, And May Be Unsellable [View article]
    Allen, let the games begin! You're right that the cheap phone providers are in a race to the bottom. High margins are great. Just remember, the strategy worked for Apple, and is working for Samsung, but it's not working for anyone else right now. Check out Blackberry, Motorola, Sony, LG and others – they all have premium phones, some of them superb. Doesn't seem to matter.

    Remember, I didn't say that Amazon was coming to market with a low-end phone; I said they were coming to market with a subsidized, high-end phone. That should have been their disruption strategy.

    "The best and coolest product" only matters at the beginning of a category's lifecycle. Apple had that for a few years with the iPhone, but it doesn't any more. The iPhone is not head and shoulders above the others (although I wouldn't trade mine). Once a category is mature, other factors take over, and price becomes increasingly important. The Fire's coolness factor is a) debatable and b) moot.
    Jul 2, 2014. 09:00 AM | Likes Like |Link to Comment
  • Why Amazon's Fire Phone Had To Be Expensive, And May Be Unsellable [View article]
    You've got that right, John. I don't think any product has ever had the promotion the Fire is getting on the Amazon site, and look at the results. Sinking like a stone.

    http://seekingalpha.co...

    Some people here have suggested Amazon went with the high price for early adopters, and will drop the price in time to undercut the iPhone 6. Or simply that dropping the price, if necessary, is an easy thing to do. Wrong on both counts. Screwing your most loyal customers is a great way to lose them, fast. And acts of desperation don't play well with consumers – or reviewers. Products need an identity. Amazon has given the Fire a luxe identity. Tossing it on the bargain table isn't going to save it now.
    Jul 2, 2014. 01:01 AM | 1 Like Like |Link to Comment
  • Why Amazon's Fire Phone Had To Be Expensive, And May Be Unsellable [View article]
    I don't understand your thought, Peter; can you elaborate? Amazon is providing the phones to AT&T for a certain price. AT&T is probably roughly doubling that price for retail. Then AT&T applies a standard offset against the retail price based on the terms of a contract, if any. If Amazon gives AT&T the phone for $200 less to begin with, then the no-contract price should be roughly $400 less. The contract price could be zero.

    Yes, AT&T and Amazon would have had extensive discussions about this, and I can only speculate about that. AT&T might have said that they thought the best play was the high price play. They would have said that based on their product mix and customer mix and who knows what else. It's also possible that Amazon is paying them some cut of sales generated through the phone.

    But in general, I don't know why you think Bezos has no hand in this.
    Jul 1, 2014. 08:52 PM | 1 Like Like |Link to Comment
  • Why Amazon's Fire Phone Had To Be Expensive, And May Be Unsellable [View article]
    This is a good place for me to jump in. Although ksherman isn't buying my argument, we're in agreement on two key points. The first is that Amazon IS, in a sense, a profitable company. On a top line basis, they do very well. Bezos has simply chosen to re-invest massively in the business, year after year. The market has clearly stated (by driving up the stock) that it prefers re-investment to dividends.

    Of course, there's a limit. Bezos has never said precisely when Amazon will make money. He's never described the end-point of his build-out. The market just believes he'll know it. In part, the deal seems to have been that he can keep spending as long as he funds his investment out of operations and not debt. He's now breaking that pact (although the stock began its huge dive before the negative outlook).

    The second think ksherman and I share, I think, is great admiration for Bezos. The guy, in my opinion, is absolutely brilliant, and a magnificent business leader. Any time you see an article from me, the perspective will be, how do we account for hard-to-comprehend behaviour from people who we can assume to be smart and thoughtful. That was my perspective in this article.

    Note that I did not accuse Bezos of being a fool. On the contrary, I was looking for the logic behind what seems a perverse course of action. In analyzing good companies, this is the approach I always take. Assume there is a method to the madness. Find it, and you have insight. Of course, just because there's method or logic, doesn't mean they're right.

    In my follow-up piece, I'll be dealing with another of Amazon's adventures that seems even more bizarre to me. And there too, I'll try to account for it, and to shed some light on the company's thinking.
    Jul 1, 2014. 08:51 PM | 3 Likes Like |Link to Comment
  • Why Amazon's Fire Phone Had To Be Expensive, And May Be Unsellable [View article]
    Hey eenk, that's an interesting question, although it's not totally germane to my point. The short answer is, it would have cost a bloody fortune. Apparently, four years of development. They probably had to buy up a wad of patents. They developed a highly differentiated version of Android. Again, the cost would be enormous.

    But so what? That money is gone. As they say, each phone after the first costs about $100 to build. The first one costs a billion, or more. That money was sunk long ago. By this time last year and later, it was too late to do anything about it. They just had to forge ahead and make the best of it. That's why I said they now have the worst case scenario. They don't have a phone that sells on its merits and they don't have the market share to generate lots of ancillary income.
    Jul 1, 2014. 08:51 PM | 1 Like Like |Link to Comment
  • Apple roundup: 12.9" iPad, Air margins, Deutsche's checks, sapphire [View news story]
    Can they really get it built in time to produce sapphire in quantity for the watch in Q4?
    Nov 5, 2013. 02:36 PM | Likes Like |Link to Comment
  • The Apple Bubble Is Ready To Burst [View article]
    It's one thing to say that Apple is ready to transition from a growth stock to a value stock. It's even reasonable, if arguable, to suggest that the stock is overvalued. Go ahead, short it. I happen to agree with your law of big numbers argument, and I doubt they can grow in the ridiculous way they have been. But $85? On what do you base that? As others have said, the cash on hand is worth most of that. Do you really believe fair value for Apple, absent its cash hoard, is around $20 a share? To what other company are you comparing it? Do you believe its market share will collapse utterly in 12 months? That it has zero international growth potential? That it has no chance of introducing new, successful products (even though it's well documented that the next two years are largely mapped out, that being Jobs' work)
    Nov 29, 2011. 08:26 PM | Likes Like |Link to Comment
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