Wednesday, October 26, 2011

Someone else might kill your business, so you'll do it instead?

Both Apple and Amazon have reported severe drops in profits.

Which makes me somewhat suspicious. High flyers who suddenly have crappy quarters, just makes me wonder how high the highs and how low the lows. In other words, did they -- for strategic reasons -- pile their profits in one quarter, and pile their loses in another?

But it also got me to thinking how, up until now, all I've been thinking about is how Amazon's Kindle is affecting bookstores. But maybe I should have been considering how the Kindle might be affecting what, up until recently, was Amazon's own core business:

Selling books.

You know, what was once their main reason for being.

Much like Barnes and Noble making their own business model obsolete by selling the Nook.

There is no guarantee, it seems to me, that these new high tech businesses will make them as much money as their old businesses did.

After all, the same dynamics that save them money on the digital, also make it possible for competitors.

In other words, no one was likely to pop up and be competitive to either Amazon or Barnes and Noble in the selling of physical books. They were pretty safely in the lead.

But I can see plenty of opportunity for smaller players to compete with them on the digital.
Not only the physical e-readers themselves, which I expect will eventually be divided into expensive e-readers and cheap knockoffs, which would make both the Nook and the Kindle in the no man's land in the middle, but also the digital content.

Smaller, more agile providers; or someone out of the blue, like Netflix.

Meanwhile, they've also opened themselves to competition from the big boys -- for instance, Apple, and it's IPad.

I'm still not sure I understand why businesses subvert their own business models.

Their answer -- if we don't do it, someone else will -- just seems lame. Sure, other people can try. But they might not necessarily succeed, especially if you aren't being cooperative.

This is doubly true for the publishers, who are making themselves unnecessary.

Yes, I understand that the music industry tried to fight it and failed. But I'm not sure caving in completely is the answer, either. Much less instigating the change and leading the charge.


RDC said...

If you read the Amazon information the reason for their profit drop is not a drop in revenue, it is as a result of increases in investment that will not show results until future quarters. For example they are building 5 new distribution centers. They have taken the expense of the new kindle fire launch, but sales will not occur on their books until Nov 15.

"Amazon's forecast would mean 27 to 44 percent growth from a year earlier. In the third quarter, sales grew 44 percent, less than the 51 percent gain in the second quarter."

Yep they are really having issues their sales growth is only projected 27 to 44% and won't reach the 51% growth they had this quarter.

So me thinks your conclusion, atleast in reguard to Amazon is incorrect.

Apple I do not follow so I don't have a comment there.

Duncan McGeary said...

Costs count.

Anonymous said...

Apple had a record quarter of profits...

And are on track for another.

Duncan McGeary said...

"Apple's earnings for Q4 2011 are out, and the company has fallen short of expectations. It still managed to rake in $28.27 billion in revenue during the quarter -- up from $20.3 billion in Q4 2010 -- but that's quite a bit shy of the $29.6 billion or so analysts were counting on." ENGADGET.

I was looking at this.

H. Bruce Miller said...

"Their answer -- if we don't do it, someone else will -- just seems lame."

Just seems true and logical to me.

For Amazon and B&N to refuse to sell e-books would be like a guy who owned a livery stable in 1914 refusing to sell those newfangled horseless carriages.

Anonymous said...

dunc every whore in asia has an iPhone,

Me personal guess is that the market is saturated,

The world market is much bigger than USA.

But at this point who can they sell too?

amazon of course is just a waste of time, and has no real product, they're really no longer relevant for anything,

Anonymous said...

Apple has the gig right because stolen content of books, movies, and music, and art is all locked and tied to the iProduct.

Amazon&BN have no lock, once they deliver electronic content they just created a competitor.

Physical books cost real money, electronic distribution is free.

Amazon and et-al make their money of shipping, pennys on the dollar, the sale price is largely passed by the shipper that is holding inventory,

Completely different business models, no comparison,, ... they're all gone,

But apple will continue to sell gadgets that people want for entertainment and they will make sure that the content is locked to apple products, thereby once a person buy content he/she will never veer from apple again, ... thus a cultist is born,

Anonymous said...

apple stock is holding just fine, amazon has plummeted,

there is no comparison

apples biggest problem is that their factorys in asia have the highest suicide rates in the 3rd world manufacturing biz,...

wall street loves murder, ... every killer is a winner in the USA, every corporate killer is a king-maker,

RDC said...

Duncan - not sure if my last comment simply did not get processed or if you simply chose not to post it.

So here it is again.

Yep really bad quarter for apple there revenues were only up 39% year over year for Q3 compared to an expected 45.3% growth. And gee Amazons sales growth was down to the lowly number of 44% growth compared to the 51% that they had last quarter.

Yep they are really killing themselves. Of course if you compare their growth numbers to your own you must consider your stratey to be suicidal since your growth numbers are nowhere close.

In reality both companies had number reached by very few other companys and they do it consistently. In each case they have major new development including product launches that should drive future growth and profits.

RDC said...

Just as a point of interest when you take your sales grwoth and use it to buy new product you are basically doing the same thing. If you had a formal balance sheet those investments in additional product show up as expense and a lowering of profit.

Me thinks your letting your bias against corporations poke out a bit much in this post and your conclusions are a bit flawed.

Duncan McGeary said...

"...a guy who owned a livery stable in 1914 refusing to sell those newfangled horseless carriages."

I'd be willing to bet that you had more chance of success those first ten years or so selling carriages.

The survival rate in car manufacturers was pretty much thin.

Like winning the lottery.

Duncan McGeary said...


Bias against corporations?

Whyever would I be that?

Anonymous said...

I am reading that the reason Apple's profits were less than expected is because they did not sell as many iPhones as were expected to sell. This has been explained that because everyone knew an updated iPhone would be released soon, they held off on purchasing one until after the announcement.

I would look at Apple's financials for the next quarter when they are released and see if they fall short of projections again. If so, then you might be able to say they are having a "severe drop in profits" but for now now I don't think there is enough evidence to say what you said.

AT&T, Sprint, and Verizon reported the highest sales numbers ever for a phone when the iPhone 4S became available a couple of weeks ago. Me? I'm not getting one, I'm happy with my 3 year old Android and it's quite a fair bit cheaper on the monthly cost compared to the Apple product.

H. Bruce Miller said...

"I'd be willing to bet that you had more chance of success those first ten years or so selling carriages."

Ah, true ... but the smart livery stable owner would have offered both, and then adjusted the mix according to the changing market.

The smart livery stable owner in 1914 would have realized he was in the transportation business, not just the horse-drawn carriage business. Amazon and B&N see themselves as in the business of selling books, not just selling paper between two covers. I think that's smart. Of course I could be wrong.