It started with customer reviews.
Back in 1994, folks thought that Amazon.com (NASDAQ:AMZN) CEO Jeff Bezos was crazy. He was going to be allowing everyday folks the opportunity to review the products he was selling on-line. The detractors had a long list of negative outcomes: trolls would take over; competition would purposely submit negative screeds; e-commerce would end before it ever began.
Then came Amazon Prime, where anyone could get their orders delivered to them in two days by paying a flat yearly rate. "The company will go broke on delivery costs alone," the peanut gallery shouted.
And then, in 2007, the real coup came: the Kindle e-reader. "[The] new electronic book reader device will fail, and fail terribly ," one Amazon fan sadly wrote.
To which Bezos would reply to all of these detractors: ""Willingness to be misunderstood is one of our greatest strengths."
Amazon Prime Air
Though it hasn't even been public knowledge for much more than a day, many of you have no doubt already heard about Amazon's goal of having orders delivered within half an hour of an on-line purchase via drone delivery.
Rather than trying to describe in words, have a look for yourself.
Of course, the detractors are already chiming in. Some say that the air being filled with drones sounds awful, others say the FAA will never approve such a device. If you're on Twitter, it seems like the biggest concern is how dogs will react to all of these flying drones.
Missing the point completely
I have no doubt that Amazon will figure out how to make the drones work, and it will be sooner rather than later. But from an investing standpoint, focusing on this one thing—Prime Air—misses the bigger point entirely.
Back in May of 2012, I revealed that Amazon was my highest conviction stock on the market. Sure, the company had sustainable competitive advantages; but what makes me comfortable not selling shares—when they already comprise 13% of my real-life holdings—is that innovation is baked into the DNA of the company.
Amazon has a history of disrupting entire industries one at a time: first it was book stores (remember Border's?), then it was general e-commerce, followed by streaming video and cloud hosting services, now it is the transportation and delivery industry.
As I wrote back then: "I'm not saying that every one of these [divergent] businesses will prove successful over the years. The company needs only a few to do well. And in a business environment that's constantly being disrupted by innovation, I take solace investing in proven innovators."
Since then, the stock is up 85%.
The idea of multiple futures
Fool co-founder David Gardner has a phrase for betting on companies like Amazon: investing in businesses with "multiple futures."
He states, "Every company has multiple futures that will translate to one actual figure based on management's strategic choices, brand strength, and external factors like competition."
Most of the time, large businesses only have one or two possible futures. Take Wal-Mart (NYSE:WMT)—one company suffering more from Amazon's ascendance than most—as an example. By the turn of the century, it had emerged as the dominant retailer of the country. It tried to compete with Netflix's DVD delivery service and failed. It started to focus on groceries, and that has largely succeeded .
But where else can the company go from here? It would be hard to put together a plan showing that the company could expand outside of this narrow realm anytime soon. And—this can't be understated—there's nothing wrong with that, from both a business and investing standpoint.
It does, however, serve as an excellent counterpoint in demonstrating what a company with multiple futures really looks like. What's incredible is that Amazon continues to do this. It's easy for a start-up to change directions on the drop of a dime. A $180 billion company with close to 100,000 employees: not so much.
As Joshua Topolsky put it in an article for The Verge, Bezos is the cog that makes it all function:
I started to see Amazon as a kind of Venn diagram itself...On one side is incredible optimism, a kind of shocking, exciting, scary-fun optimism that makes you feel a little bit like anything is possible. Like the future is now. Like it's only going to get better. On the other side is insight; a shrewd, cutting, almost preternatural sense of where it's all going, what consumers want, how businesses get built, and the knowledge to find or build a path to that destination. And there in the middle — where those two disparate sides meet — is Jeff Bezos, laughing.