Having conquered e-commerce and gained a significant share of all commerce, Amazon.Com, Inc. (NASDAQ:AMZN) now has its sights set on Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and its Google unit.
The media is all a-flutter over the growing rivalry. Amazon’s Fire Stick no longer supports Google’s YouTube. The feud is supposedly hurting customers.
While Amazon.com can’t threaten Google’s dominance of search — yet — it is striking at the periphery of Google’s “moat,” its cloud and key growth driver of artificial intelligence. The challenge is as serious as a heart attack.
Amazon should no longer be thought of as a retailer. It is now a major player in the “Great Game” of technology, the rarefied air where only a few big names get to play, and where the prize value is now measured in trillions of dollars.
Not bad for an outfit that started 22 years ago selling books.
Amazon.com and the Great Game of Technology
I have followed what I call the “Great Game,” the business of defining the future of technology, for my entire reporting career.
In the early years, I was reporting on what seemed like giant companies, AT&T Inc. (NYSE:T) and International Business Machines Corp. (NYSE:IBM), companies so huge they could only be threatened by governments. I saw AT&T broken up, and I saw IBM lose its lead to Microsoft Corp. (NASDAQ:MSFT).
Then came the internet and, out of it, the cloud-and-device era now dominated by Apple Inc. (NASDAQ:AAPL) and Google. Somehow all the “traditional” IT vendors, from Oracle Corp. (NASDAQ:ORCL) to Hewlett-Packard Inc. (NYSE:HPQ) fell by the wayside.
What were left were what I call “Cloud Czars,” companies big enough to spend $1 billion per quarter on new data centers, the way poker players throw two cents into the pot to start a hand. Apple, Microsoft, Google, Facebook Inc. (NASDAQ:FB) and Amazon.com, which got into the cloud initially to serve its own retail operations, are now the players that count.
Of these, the leader today is Amazon.com. Amazon leads because of Alexa, supposedly a smart speaker, but actually an interface that is taking over huge swaths of the technology future, from the Internet of Things to fog computing to artificial intelligence — areas that Amazon’s cloud rivals have only been studying and experimenting with throughout the decade. Alexa is the MS-DOS, the iOS, of our time and Amazon owns her.
Amazon says its Fire Stick, a marketplace for what replaces cable TV, and its Echo Dot, an interface to the Alexa ecosystem, were its best-selling products of 2017. This didn’t just make Amazon the dominant online retailer, with a 44% share, it means Amazon now controls the next turn in the Great Game.
As consumers learn to deal with spoken language interfaces, Alexa will be their lingua franca. As they cocoon among their entertainment streams and FedEx Corp. (NYSE:FDX) parcels, it’s Amazon they will be talking to.
Numbers Don’t Tell the Story
The numbers for Amazon are awesome, but they don’t tell the whole tale. A “whisper number” of nearly $60 billion in fourth quarter sales will take 2017 revenue to $165 billion, so even with a $600 billion market cap, you’re buying Amazon today at less than three times its expected 2018 sales.
Amazon now represents 4% of all retail and fools are speculating wildly on who it might buy next in that space, ignoring the fact that Amazon is no longer a retailer, but a tech company. If Amazon wants to spend $100 billion or more, which is what a retail rival would cost, it should acquire Nvidia Corp. (NASDAQ:NVDA). That’s the game Amazon is playing.
Small wonder that our Josh Enomoto and Will Ashworth are pounding the table for Amazon today, insisting that, even at 310 times earnings, it’s a can’t-miss opportunity.
There’s nothing I can add, except for this explanation as to why they’re right.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.
