Tomahawk, WI 8/19/2013 (Basicsmedia) – Most Amazon.com, Inc (NASDAQ:AMZN) customers are site-struck and will wax eloquent about it at the smallest opportunity. It’s almost a lifeline for many people who migrate from one city/country to another. It will send you videos and books reliably to the most off-the-beaten track places. In the U.S, customers have the option to sign up for Amazon Prime. This gives them free delivery, free TV shows and movie streaming functionality.

It is undoubtedly the most heavyweight Ecommerce website on the planet. It is also an innovation colossal and will bring innovations to the market such as the Kindle tablet and the Amazon Web Services. Without a shade of doubt- Amazon is a marvelous company.

The spin

What is unfortunate though is that it cannot be tagged as a marvelous business. Yahoo Finance data suggests that over the past 2 years, AMZN ceased to amaze with its ultra-slim 1% operating margin and not a particularly noteworthy 4% margin in 2010. The bottom-line is not the only parameter that one gauges the performance of a company on. Nevertheless the numbers are definitely disconcerting.

Jeff Bezos asseverates that he can take the earnings out of the mothballs any time he chooses to. Another fact that he reiterates frequently is that he is bulldozing cash back into the business in order to catalyze growth. However, that just seems a little lame to me.

The hard facts

Last year, AMZN’s top line swelled by 27%- excellent! But is it really that exceptional for a technology company? Take a look at Google. The company grew its top line by 32%. In addition, Amazon is not the solitary company that invests in business-future.

In 2012, GOOG pumped $6.8 billion just into R&D while MSFT plowed back $10.4 billion, which was 13.4% of its net revenue. Both these companies are money-churners and pulled-in $12.7B and $26.7B in operating-profit in the last financial year, respectively.

As clear as day

I believe that the explanation for AMZN’s dismal earnings report is more elementary. Take more than a cursory glance at its operations and you will see that it does not hold a dominant position in any of the major categories. For instance, let’s pan its retail, tablet and web services business.

First, the stare-us-in-the-face fact; Amazon is not an undisputed dominant in the retail space. It is a Lilliputian in comparison to the Gulliver, Walmart and Target is much larger too. Both these companies manage to rake in decent profits despite the fact that they can’t hold a candle to Amazon’s Ecommerce platform. So, with neither a market-hoist nor a nest egg, it’s truly difficult to perceive how AMZN will ever top average retail margins.

Tablets

When the company unveiled the Kindle in 2007, it was truly the 1st tablet to catch the fancy of customers (though at that point of time, it was no more than an e-reader). Today, Google’s Android and Apple’s iPad rule the tablet roost. Once again, in a highly-competitive landscape, being a pioneer did the company very little good. AMZN is now little more than a spear-carrier.

Web Services

Amazon had the lead in web service. In this space, it typically rents out its imposing infrastructure to companies that either choose not to or who cannot afford to construct their own. The idea in itself is a brilliant one and the service, fantastic. Unfortunately, here too, the company is being wrung. This time the rollers are Rackspace and MSFT’s Azure.

Microsoft is unquestionably the much stronger technology company with deep-rooted enterprise expertise and startups are magnetized by Rackspace. As you can see, it is difficult to find a single main category in which Amazon is a clear vanquisher. And that is exactly what keeps its profits at “simmer-levels”. It is almost impossible to rake-in profits without any competitive edge.

When inspiration is insufficient

Amazon and Jeff Bezos will never cease to amaze and inspire. They definitely make the world a more interesting place. However, there are numerous other entrepreneurs and businesses that do the same. The recent release of Elon Musk’s open-source Hyperloop is one excellent example. The fact of the matter is that Amazon’s skipper, Jeff Bezos isn’t really entrenched into making money.

His vault is overflowing already. His large stake in Amazon is his bulwark against getting fired and he just prefers to cruise along an exciting and challenging route rather than a cash-strewn one. In my perspective, that makes Bezos a remarkable man, but one can’t really say the same about the Amazon business.

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