Amazon Makes Two Brilliant Business Moves

Online-retailing giant Amazon.com (Nasdaq: AMZN  ) continues to boldly push the limits, making two of its biggest, most-important strategic moves yet: one that will shore up and even further streamline its already dominant online-retail business, and a second that will boost its content-streaming business to the next level.

Here are full details, what it all means for investors, and why it's Amazon's good fortune you can't download a refrigerator.

A few billion here and there adds up
On the internet-retailing side of the business, the company's bread and butter, Amazon has announced it will be building new fulfillment centers in three locations here in the U.S.: Virginia, Tennessee, and South Carolina. More fulfillment centers means more locations from which to ship merchandise. More locations also means getting physically closer to customers, which should mean not only shorter shipping times but also cheaper shipping.

All of this should lead to a cheerier clientele, better margins and, as Burt Flickinger, a retail consultant, told Marketplace, "an extra two to three to four days' worth of business, which can be worth billions of dollars."

I want my MTV, and everything else
On the content-streaming side, the up-and-coming side of Amazon's business, the company just signed a licensing deal with Viacom, the cable-content giant that owns and operates such popular channels as Nickelodeon, VH1, MTV, TV Land, Spike, Logo, BET, and Comedy Central. The deal will let Amazon Prime members choose from a selection of thousands of additional shows from these channels.

Amazon Prime members pay $79 per year. For that, they get Amazon's existing streaming catalog, which includes films and television shows from Warner Brothers, PBS, CBS, Disney-ABC, Fox, Sony, and NBC. The Viacom deal brings Amazon's grand total of instant-streaming titles to a formidable 15,000.

It's good to be diversified
Netflix
(Nasdaq: NFLX  ) is, of course, the major video-content provider in the U.S. And with this new content deal, that's exactly whom Amazon is aiming at. And a real advantage for Amazon in this space is that video streaming isn't the company's only line of business.

Whether by wire or via post, delivering video content is Netflix's sole source of income. Because of this, the company must be better at it than anyone else. Amazon can always fall back on its ridiculously successful retail businesses if video streaming doesn't work out, or takes a few years to spool up.

And it is indeed taking a few years to spool up, another advantage in itself. That is, Amazon can take its time and cut content deals at its leisure, which should lead to deals that are more to the company's long-term advantage. Netflix needs content, and needs it fast, to stay ahead in its one and only game, which means the deals it cuts will almost invariably be less advantageous.

Video streaming as hobby
Speaking of competitors who can sit back, take their time, and not act in haste, Netflix also has to worry about both Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) in the content-streaming arena.

Apple is taking its good old time to get its fledgling Apple TV service up and running, or for that matter, even to take it very seriously. CEO Tim Cook recently went so far as to quip, "Our Apple TV product is doing quite well … but in the scheme of things, we still classify Apple TV as a hobby." Netflix CEO Reed Hastings must spit pure, green venom when he hears such ruthlessly blithe remarks.

With its Google TV, another fledgling, unformed video-streaming service, Google is out there biding its time, as well. With their size, reach, and immense financial firepower, both Apple and Google, when they decide to put some muscle into it, are going to give Netflix a real run for its money in this space. And just like Amazon, since both Apple and Google don't need a profitable content-delivery service right now, they can take their time and get it right.

And, rumor has it (presumably not just for the sake of a "hobby") that Amazon is gearing up to launch a separate streaming service of its own, distinct from Prime, which would go truly head to head with Netflix. Amazon itself hasn't commented on any of this, but Netflix took the rumor seriously enough to issue an official response.

Is this fridge downloadable?
After more than a decade, Amazon is still doing things right -- building out its physical-product distribution services to make the most of that bread-and-butter part of its operation, while going powerfully but thoughtfully after video streaming, one of online media's holy grails.

The other beautiful thing about Amazon's varied business model is, nobody's yet discovered a way to digitally deliver toasters, ballpoint pens, refrigerators, or any other of the myriad hard-cargo items the company sells. So Amazon is winning on the physical-product delivery side, and is getting ready to win on the digital-delivery side. You have to really be looking for reasons not to be bullish on Amazon these days.

Amazon is a classic disruptor, like Netflix, Apple, and Google -- companies that have upended the status quo and changed the way the world does business. Read about another company, a disruptor in the field of data mining and business intelligence, set to change the face of business in its own way in this free Motley Fool special report: "The Only Stock You Need To Profit From the NEW Technology Revolution ." Get your copy while the stock is hot by simply clicking here now.

Fool contributor John Grgurich uses the word "blithe" whenever and as much as possible, but he owns no shares of any of the companies mentioned in this column. The Motley Fool owns shares of Apple, Google, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix, Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 09, 2012, at 9:26 PM, waxer1 wrote:

    Anyone can sell stuff at a loss. Amazon is really good at having low margins and NOT earning money. What a great investment? The stock is down $60 from the top and the chart looks awful.

  • Report this Comment On February 10, 2012, at 11:18 AM, XMFGrgurich wrote:

    Volume, volume, volume. That is Amazon's game. And moving as smartly as they are into digital delivery, I still think they're the company to beat for now and into the future. Cheers. Thanks for checking in.

  • Report this Comment On February 10, 2012, at 11:47 AM, MDuffy63 wrote:

    Nice article, John, but I think it should have been titled Why Netflix Should Be Kissing it's A** Goodbye. Even if Amazon, Apple and/or Google do start making money at video streaming they clearly don't have to make as much, which puts Netflix in between the rock of licensing fees and the hard place of price point.

    Hopefully for consumers all three of these giants will get more serious about streaming in the near future.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1777809, ~/Articles/ArticleHandler.aspx, 8/29/2014 2:36:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement