5 Ambitious Plans From AMZN: Which Will Work?

by James Brumley | February 4, 2014 11:49 am

AmazonWhether you love Amazon (AMZN[1]) or hate it, you at least have to admire its willingness to try new things. See, even if only half of its proverbial spaghetti sticks to the wall, that’s enough success to make all the company’s crazy ideas — taken as a whole — rewarding for AMZN stock owners. Case in point: Despite poor reviews immediately following its debut in 2011, the Kindle Fire has been a big success for Amazon … not necessarily as a competitor to the iPad, but in its own right as a platform from which Amazon can sell digital content. With that being said, each of the most recent initiatives from Amazon is en route to a pretty predictable outcome. Here’s a quick look at those ideas — and my take on what investors should expect.

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Amazon Gaming Console

Atari 2600It’s not actually been confirmed by Amazon yet, but it’s noticeably not been denied either — the digital content giant is rumored to be developing an Android-based video-gaming console that’ll sit right next to people’s television sets[3]. It’s unlikely that Amazon will dethrone industry leaders Microsoft (MSFT[4]) or Sony (SNE[5]) on this front, makers of the Xbox and Playstation gaming consoles, respectively. For that reason, the premise has been met with some criticism. One of the biggest criticisms validly points out that most tablet-based games are touch-screen games, and won’t function as needed on a television. On the other hand, the point isn’t to dominate the gaming landscape. This is about Amazon taking some technologies that already exist (and some technologies it already owns) and repackaging them in a box that permanently sits in consumers’ living rooms. See, the gaming system will also play on-demand videos available via Amazon Instant Video, and will almost certainly include a shopping app that browses the Amazon.com site. Even if Amazon only sells a few million of these machines, the cost will be minimal, yet the positive impact for AMZN stock owners will be noticeable.

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Amazon Payments

Digital WalletMove over PayPal: There’s a new e-commerce middleman coming to town. In October, Amazon unveiled “Login and Pay With Amazon,” which allows shoppers to use their Amazon account to facilitate a payment to an online retailer[6] … even for transactions not being made at Amazon.com. Like PayPal, the vendor must also have an established “Login and Pay” payment-receipt account in order to receive that payment. With an established name like Amazon, however, it’s not like those e-tailers are going balk at the new payment venue. But what about PayPal’s dominance in this space? The eBay (EBAY[7]) subsidiary owns about half of the online-payment industry’s market share, and it doesn’t plan on rolling over. Amazon doesn’t have to take this market by storm right away. The cost is relatively minimal, and incremental, and third-party sellers are going to do the marketing work. In other words, the company has nothing to lose here, and everything to gain. And even a small slice of the market would be a big victory for the value of AMZN stock. The online payment industry is on pace to transact $2.7 trillion worth of commerce next year.

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Amazon Kindle Checkout

Kindle FireAnything that makes the Kindle more useful to consumers makes it more marketable. Likewise, anything that puts the Amazon tablet in a user’s hand makes the Kindle’s owner more likely to buy digital content at Amazon.com. From that perspective, the recent announcement of an Amazon-supported point-of-sale/checkout system[8] that allows a retailer to scan a Kindle device seems like a brilliant idea. There’s just one problem. If Google (GOOG[9]) Wallet, Apple (AAPL[10]) Passbook, Isis, Square, PayPal, Clinkle, and a whole slew of other similar options aren’t getting any significant traction, the odds of Amazon making a meaningful dent are slim. And, even a small dent in the POS market wouldn’t give AMZN stock a measurable boost.

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Amazon Delivery Drones

Amazon Drone[11]Let’s get this straight. Amazon wants to build a fleet of unmanned mini-delivery helicopters toting goods from warehouses, dropping those goods at shoppers’ front doors, whizzing back to Amazon’s fulfillment center, navigating around buildings and dodging power lines and trees the whole time, spooking the neighbor’s dog, with the company praying the whole time that none of the airborne shuttles malfunctions in mid-flight and crashes into a busy freeway? Yeah, bad idea. It’s not going to happen, and that’s a good thing. But, if for some reason the idea wasn’t just some publicity stunt[12] staged to spark some sales in early December, then anyone who owns AMZN stock needs to consider selling their position once that first drone takes off. One bad landing in the wrong place — on someone’s head, perhaps? — poses a huge financial liability for the company … and it would only be a matter of time before such an accident happened.

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Amazon Smartphones

Zack Morris Cell PhoneWhile the foray into tablets and the pending foray into gaming consoles are savvy, fruitful ideas, it’s not like every consumer technology Amazon is working on is a surefire winner. Smartphones, for instance, may be an ill-advised business venture. Odds are good that any smartphone Amazon manufactures will be a quality phone, capable of competing with the iPhone from Apple and Samsung’s Android-based Galaxy line[13]. But the phone business isn’t just about building a quality device. The bulk of new smartphone sales are performed by wireless carriers like Verizon (VZ[14]) or AT&T (T[15]) … partners that Amazon doesn’t have, and partners that may not be looking to further complicate their more-than-adequate phone selection with yet another manufacturer (an unproven one at that). If the carriers aren’t going to get excited about it, then AMZN stockholders probably shouldn’t get excited about it either. As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  2. Compare Brokers: https://investorplace.com/options-trading/broker-center/
  3. developing an Android-based video-gaming console that’ll sit right next to people’s television sets: http://www.forbes.com/sites/erikkain/2014/01/28/amazon-reportedly-set-to-release-dedicated-game-console-in-2014/
  4. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  5. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  6. allows shoppers to use their Amazon account to facilitate a payment to an online retailer: http://www.zdnet.com/amazon-challenges-paypal-with-login-and-pay-one-click-option-7000021710/
  7. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  8. Amazon-supported point-of-sale/checkout system: http://online.wsj.com/news/articles/SB10001424052702303743604579351123788256930
  9. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  10. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  11. [Image]: https://investorplace.com/wp-content/uploads/2014/02/amazon-drone.jpg
  12. some publicity stunt: https://investorplace.com/2013/12/amazon-prime-air-amzn-stock-drones/
  13. capable of competing with the iPhone from Apple and Samsung’s Android-based Galaxy line: https://investorplace.com/2013/10/amzn-amazon-stock-smartphone/
  14. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  15. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T

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