This was the game played by John D. Rockefeller. He had so much infrastructure built up by the time they split up Standard Oil, that each new state Standard Oil immediately had everything it needed to keep operations going and the breakup was essentially a bunch of paperwork. As a stockholder in all of the new firms, Rockefeller's net worth tripled, from ~300m to ~900 million.
To make this strategy work, you need mountains of cash. In his salad days, Rockefeller cultivated excellent relationships with bankers, who would stop him on the streets of Cleveland and ask him if he needed money. Eventually he decided to buy up Cleveland's entire refining industry, an event that became known as the Cleveland Massacre.
John offered three choices to rival refiners, cash, Standard Oil stock, or to get crushed. He leveraged his extensive railroad connections and infrastructure to bury competitors, for one thing he owned virtually all the oil tank rail cars, without which you couldn't sell your products because you couldn't move them efficiently.
The right choice was to have taken stock, which would have made you fabulously wealthy. If you were any good at the oil business at all, he would also offer you a job, which again would have eventually made you very very rich. He had an insatiable hunger for quality staff. It was never a good idea to bet against Rockefeller.
It runs against the conventional story of SO being an inevitable monopoly.
Their main competition was from Russia oddly enough.
Above and beyond that, simply as a history of the most important substance in all of human history beyond sheer biological necessities, it's utterly fascinating. It's principally through Yergin's work that I came to pretty much diametrically opposite conclusions of the future of energy from his.
Thanks for the heads-up.
Am curious. What would your nominations be for the Rockefeller of the tech (software/hardware) world? Ever thought about that?
There are plenty of ruthless people in business even today. But Rockefeller was driven by the belief that cooperation in business, rather than competition, was the way forward for society. The business he built reflected that. Eventually the world learned from his model and now business isn't quite so cutthroat.
But it took Rockefeller to create this new order. Someone so genius at business that there was no stopping him from doing anything he wanted to do. Not even the full might of the federal government could bring him low. Maybe they could have eventually, but the government's position on monopoly softened after it realized what the economies of scale it generated meant for our wartime industrial efficiency. There were other titans in that time period. Rockefeller stands above them all.
Really, you don't see what is happening here?
Who else mounted a private space company able to dock with that of the global governmental effort that is the ISS?
But. They're not there yet. At the moment, they're currently providing a launch facility that is equivalent to services offered by a number of other vendors, albeit at a slightly lower (currently) price. And the service they're providing really does not directly impact on 99.9% of the lives going on around you.
Yes, their reusable launch system program is way ahead of anything else anyone is doing, but it's still experimental, and isn't yet providing benefits to even their direct customers, let alone anyone else.
Musk hasn't made lasting change yet with SpaceX. I really, really hope he does. Becoming a multiplanetry species would be the biggest thing for Humanity since, well, fire, standing upright, or speech, and Musk seems to be the person best placed to make that happen in the next 20-40-odd years.
But he's not done it yet.
http://www.spacex.com/news/2014/07/14/falcon-9-launches-orbc...
http://www.spacex.com/news/2014/08/06/spacex-launches-asiasa...
http://www.teslamotors.com/de_AT/blog/promise-electric-vehic...
At its peak Windows was running on 90% of computers and the biggest rival Apple (Steve Jobs) was taking money from Microsoft (Bill G) to survive.
Bill was able to leverage almost all other software companies to create software for Windows to create a lock in fro the customers.
> The day before the announcement Apple had a market cap of $2.46 billion,[58] and had ended its previous quarter with quarterly revenues of US$1.7 billion and cash reserves of US$1.2 billion,[59] making the US$150 million amount of the investment largely symbolic.
http://en.wikipedia.org/wiki/History_of_Apple_Inc.#1996:_Ret...
It's hard to see how many people suffered who didn't fail thanks mainly to their own mistakes. I'd put DR, IBM (Lotus), Novell and Netscape in that group.
AFAIK he wasn't off kicking puppies and punching beggars in his spare time. You can be a ruthless businessman and perfectly good human being.
> John offered three choices to rival refiners, cash, Standard Oil stock, or to get crushed
... is also a pretty good description of how Microsoft approached anyone they considered competition in the '80s and '90s: you either licensed your software to them ("cash"), sold your company to them ("stock"), or got destroyed by them.
Gates' charitable efforts have earned him a warmer and fuzzier reputation these days (another parallel to Rockefeller?), but back then he was an absolute barracuda.
Rockefeller had a strong Christian Soldier belief system, in which he was righteous and most other oilmen were sinners. (The 19th century oil business attracted a lot of hard-drinking, gambling, womanizing types.) He did good works with his money, while many of his competitors would have spent it on vice. Therefore, he was furthering God's plan for the righteous to inherit the earth by beating them in business.
It's a worldview difficult for moderns to relate to, but I think it was authentic for him.
That was eerily reminiscent for me, too.
I like to say yes. I think. I mean, he may have destroyed hundreds of people's livelihoods/jobs/companies, but his efforts these days are literally saving peoples lives.
Does anyone have an opinion on this? I'm a firm believer people can change and while this might not be Bill Gates changing, it might simply be him "atoning for his sins" so to speak, not that I'm religious, nor that he is either I think.
Microsoft wrote some software that was, I would argue, overall an improvement on the software against which it competed. So Microsoft did some good. However, in the process of extracting value, they actively - and, in my opinion, often unethically - suppressed the efforts of those with whom they competed. I don't pretend to be very knowledgeable on the exact value of these positive and negative effects, but I think it's pretty clear that all of the above effects more or less amounted making a bunch of computer nerds like us a little richer, or a little poorer. Not necessarily in money, but in power... like the power to track business expenses cheaply (which Microsoft enhanced, with Excel), or the power to collaborate on making productive software for ourselves and share it freely with the world (which Microsoft harmed, see the Halloween Documents, or other conspiracy evidence of your choice).
For the most part, this only affects a few dozen million humans, and even interpreted broadly it affects perhaps 10% of humanity. And the effects are small; for almost all of the affected, life gets less than 1% better or 1% worse, due to Microsoft existing. I mean, that's bigger than most companies, but.
I'm less able to give clear magnitudes of the impact of the Bill and Melinda Gates Foundation. My understanding, though, is that they're playing a significant role in the attempts to eradicate polio. Frankly, you can inflict Windows95 on me for the next 50 years, if that's what it takes to save one person from polio. Suppose that it turns out that polio is eradicated, and the B&MGF is due 1% of the credit for that; wouldn't this be more valuable than all the harm ever done by MS, past and future? And then there's their malaria-eradication efforts, their money spent on education, their money spent on sanitation, etc etc.
Bill Gates seems to have stolen a very manageable amount of our first-world wealth, burned a good fraction of in an engine of inefficiency (for example, Ballmer got some money too), and given most of the rest of it where it could do the most good (modulo a small fraction kept for himself, to indulge in fabulous luxury). As far as I can tell, although it astounds and confounds me, Bill Gates is Robin Hood. wtf.
No. Changing doesn't remove your past sins and helping one person doesn't balance your hurting another. To believe so would mean saving a life makes up for taking another life, obviously it doesn't.
It's certainly not fair to make the comparison of saving one life in exchange for taking another. A better comparison would be saving many (millions?) of poor, non-white lives in exchange for stealing money from privileged white men (majority of people in the software industry during his era).
In the 1980s, Apple went round Hong Kong, Taiwan and China suing companies for making knockoffs of the Apple II (ie better, faster, more reliable and much cheaper versions of the Apple II). Then along came the PC industry, which welcomed them -- and their innovations -- with open arms.
How do you balance a handful of self-righteous American programmers against the wealth and the millions of jobs generated by Acer, Asus, MSI, Hon Hai, Wistron, Pegatron, Quanta, Compal, Inventec, etc?
Of course not.
> It's certainly not fair to make the comparison of saving one life in exchange for taking another.
It's exactly the right example because it makes the moral choice clear and that same choice applies to the lesser scenario.
> A better comparison would be
We don't need a better comparison, it's already been made clear that you can't make up for sins against one by helping another.
They did an absolutely unprecedented assault on the Internet on the developer, policy, and user front when they found out they could not compete there, until they turned that policy around. We only see vague results of this today, on that all development of the web itself was put on an 8 year hiatus, and in some of the crazy proprietary formats that still plague us.
But how do you put it in economic terms? How much is the break-ins at RSA, Cisco Google, Valve, and inbetweens unknown worth to the global economy, because bad business practice forced peoples email clients to have the ability to run code?
My candidate explanation, Melinda.
Also a reminder that the term "visionary" is very relative to your horizon.
Exxon still breathes Rockefeller, his imprint can be seen all over that company. To call him a visionary is absolutely appropriate.
If you have low self-esteem maybe. Rockefeller was a piece of shit.
It's not a "non-technical API". We have name for those things: they're services. Amazon provides services, and that extends to both digital services (with which you interact via APIs — that P stands for Programming, damn it!), and meatspace services.
For instance, why can't I install a local print shop as a system printer? I do some graphics work, then I click File->Print..., pick the "Printing Company XYZ", alter preconfigured defaults if needed, OK, and the next day a courier brings me my print job, all payments and address information transfer being handled in the background.
Let me order pizza by RPC (we could streamline ordering in our local Hackerspace by voting on toppings on IRC and using a bot to make the order ;)). Let me do shopping by a POST request.
The end result would be that the use of aby service that doesn't require your physical presence could be streamlined, a lot of time wasted on boring paper/legwork could be optimized away, and the system would work smoothly in the background as long as you top up your credit card regularly.
I'm pretty sure that FedEx Office (formerly FedEx/Kinkos) has supported doing that for many years. I suspect they aren't alone.
A few minutes of Googling didn't turn out what I was looking for though. I can see an "upload and print" feature on FedEx website, I can see a dedicated mobile app that apparently can print files via FedEx...
... but what I was looking for is something that pretends to be a normal printer, so when i do File->Print in Word or Photoshop, I can choose it as a destination, much like we used to do with "PDF printers", which were programs that installed as printers but outputed PDF files, back in times when MS Office couldn't do PDF export.
So if I'm missing an obvious hyperlink to that, could you please help me out here and post it? ;).
In general, I don't want print shops to start making mobile apps or (even worse) desktop apps to "streamline the process" (i.e. scare the shit out of the living with crappy UI and "upselling opportunities"). My dream is for them to integrate into the system, like every self-respecting piece of consumer hardware does. In the end, I might even not care at all which print shop is doing the job (much like I don't care where I order Asian cousine - those restaurants are all commoditized - I only care about it to be hot, tasty and delivered on time). In a perfect world, I'd love to have it reduced to a single argument, a drop-down in printer settings dialog (but I'd happily accept a system printer per printing shop for now).
That isn't a coincidence. According to[0] "The Everything Store"[1], the latest biography of Amazon, Bezos picked up the model for Amazon retail from Costco founder James Sinegal.
The first aspect was "value trumps everything" - where prices would be slashed and net margins thin. The second was the subscription model - Bezos learned that 70%+ of Costco's profit was from the membership fees. It was easier to charge a membership fee once and offer lower prices than it was to attempt to spread your profit margin across products and into the pricing.
Amazon slashed its prices and adopted the thin margin model in the future and then implemented Amazon Prime.
"The Everything Store" is a decent read, easy to flick through and some interesting cases and anecdotes within it. Ignore the negative reviews and give it a read if you haven't already.
[0] http://bobmorris.biz/what-jeff-bezos-learned-from-jim-sinega...
[1] http://www.amazon.com/The-Everything-Store-Bezos-Amazon-eboo...
All the long winded explanation of the circumstances (such that Benedict gives in his writeup) hoping that people will be overwhelmed and not want to question what is going on (like a 20 page legal contract that can't easily be deciphered by non lawyers) I mean who even has the time to fully vet even what Benedict has "summarized" (not that it can be called that).
There is a saying in negotiating which is "you can name the price if I can name the terms". In the case of Amazon it's like "Let me name the business model and I will also name the time frame toward profitability".
One thing is for sure. Bezos may prove right in the end or not but there is no question he is operating according to his vision and doesn't look anywhere close to deviating from his (Benedict's words here) "lifestyle" business.
Jeff Bezos can do no wrong in this market place; that is where we have a somewhat growing marketplace for certain professions. Professions that provide a livable wage, with a few dollars left over after rent in order to spend on Amazon.
Besides Jeff's vanity projects(newspaper, drones, I don't fell like doing a bunch of research)--his business model has one glaring flaw. He needs cheap gas. There is good reason why have huge trucks that move a large amount of goods from one location to a more convenient location. Don't get me wrong I like Amazon. I am surprised he hasen't bought up some of the dirt cheap commercial Realestate and put in Amazon retail outlets. Outlets that just provide a place where customers could pick up their packages. Hell--he could automate them, and they could be open 27/7?
http://www.amazon.com/gp/help/customer/display.html?nodeId=2...
Well this is my opinion based on 35 years of business experience and having graduated from an Ivy business school as well. And reading, operating and observing business from before most HN readers were born. In other words not just reading blogs or online comments or whatever. It's a pattern that I've seen. Having seen bullshit of different types previously.
Sure I could be wrong "ask 10 doctors" but I do have a basis for my thoughts.
Edit: Because of course being in business and making a profit for 35 years means nothing to the younger generation on HN.
They have a healthy EBITDA, they're just choosing to reinvest their earnings, as they deem it's more efficient use of their capital than declaring a profit, paying a corporate profit tax off it, and then keeping the rest of the cash.
This invalidates the time value of money. In other words, if I am not getting a quarterly/annual dividend (ie a profit payout) on a stock, over the long term there is no incentive to hold onto that stock, because I could get a dividend from a different stock or some other investment in general.
But I definitely agree with the gold example.
Amazon has already set this up for books with their Kindle Direct Publishing platform[0]. Writers directly publish on Amazon (cutting out publishers) and their books are electronically delivered to customers' Kindles -> everything stays on Amazon.
Interestingly enough, after reading that, I realized that Google doesn't stand a chance in hell of beating them at commerce.
I used to work for a strapping start-up. Our competition had a lot more money, and people than us... but it didn't really matter because we were smarter in how we approached building the product.
The future of eCommerce is going to be very heavily dependent on AI & robots. Product Suggestions > inventory management > ware house > packing > delivering.
AI makes your customers buy more, and robots make delivering it cheaper.
As good as Amazon is at creating this infrastructure, google has demonstrated a mastery in AI, and they're purchasing every robot company around. The competition is on, and I wouldn't count them out.
Google is much more forward looking, looking for big changes, like self driving cars. I can see google taking over more markets like they did with search. "more wood behind fewer arrows" was the saying.
Amazon is much more broad, if Amazon has something, they'll rent it to you.
The future of EVERYTHING is going to be very reliant on AI and robots. My view is that the last 20 years have been the Internet revolution. The next 20 are all about AI and robotic automation. Both disciplines have existed for a long time, but they've hit a tipping point where price and effectiveness are putting them within reach of total ubiquity.
a bit like Xerox and its PARC
I know for myself, my motivation to get capital (profits) is so I can build things that improve decision making, increase longevity and in the end expand knowledge worldwide. Perhaps Bezos has motivations that are along the same lines and this is how he is achieving them.
Because stock is a claim against the assets in the event of dissolution, so it should be valuable as long as the company is expected to have a positive net worth.
Dividends are simply a mechanism allowing stockholders to realize value prior to dissolution. Of course, so is simply selling stock.
Further, if Amazon runs out of good opportunities to funnel operating returns into expansion, then it would make sense to start returning some via dividends, its just that its not there yet and that situation isn't even apparent on the horizon -- its not that they'll never pay dividends, its just that it doesn't seem to be the optimum strategy for the foreseeable future.
stock is a claim against the assets in the event of dissolution
But that's because as long as a corporation is solvent, stockholders either expect that it will have greater net value in the future or can find someone else who thinks that, making holding or selling the stock preferable to dissolution. But its the claim against assets in the event of dissolution that supports all that.
I mean there are large monster e-commerce giants in other nations, it is a very real possibility that Amazon will have to battle with some company at scale who is also in the razor sharp margin mindframe.
Its not impossible to imagine a world where amazon gets into a war with an Asian e-commerce giant for domination of the worlds e-commerce needs. If this does come to fruition this battle will probably not be resolved until 2020 ish time frame... so its a real possibility that amazon could be in business for 30 years, never return a profit to its investors, and NOT end up ever ruling ecommerce.
Amazon is worth money right now. Just like a lawn mower doesn't turn a profit on its own, but it is still worth something.
In the long term view, which Amazon definitely takes, this current process is just there to fund the final business. Which is providing infrastructure. It uses its current operations as a way to fund the build out of that infrastructure. The future of Amazon, in my opinion, is not selling books etc, but providing someone with the infrastructure to sell books. Its using its current book sales etc to fund that build out.
I dont think Amazon is taking a bad approach but, realistically feel Amazon is not going to produce any other return for its investors for the next ten years until it completely dominates the world market. Couple this with the fact that Amazon is not guaranteed to ever actually completely dominate the world market... its just unusual for a company to never return a profit after 20 years of business and investors are still hungry for the stock.
By that definition, literally every investment would be a Ponzi scheme. A savings account would be a Ponzi scheme.
Only the ones that you only expect to turn a dime on by finding a bigger fool to buy it from you. If the investment is something that returns money to you (for example, dividends), you're not expecting to make money by selling it for more. You're expecting to make money because you own a small piece of a business that makes money for its shareholders. I have a number of investments that I expect I will never sell (or at least, am not hoping to sell for more that I paid for it); I'm very happy just being given a nice share of the profits every year.
These investments do not require anyone else to buy in, ever; hardly a Ponzi scheme.
Many investments do not earn dividends, including ones that are widely considered to not be Ponzi schemes.
Essentially, there's a philosophy among some CEOs that at current tax rates profitability is something to be avoided, but a healthy EBITDA and reinvesting the capex is the way to increase the shareholder value. The voluntary nature of capital gains tax makes stock buybacks or busines reivestment a more efficient mechanism of delivering value to shareholders.
It's certainly possible amazon could end failing and the stock would end be worthing much less than expected. It seems unlikely the name brand, market capture, datacenter and distribution facilities, etc would not end up with amazon being acquired by a walmart or something ala AOL/TW.
Couple that with a nice PR machine ( can't understate the value of people like PMarca writing about how amazing they are ) and you've got a way to reliably grow your portfolio.
Amazon is completely different from that, no? A tremendous amount of their value is in intangibles that produce revenue, rather than have intrinsic value. This is fine when you say "I want to own a piece of that revenue stream for the future profits", but if Amazon by choice will never produce net profits from that stream... do you see what I'm getting at? A goose that lays golden eggs has no value if the eggs are never sold and simply hatched.
The bet that investors are making is that at some point the revenues and cash flow will be so huge that Amazon won't know what to do with them and at that point they will start showing a profit and perhaps even pay a dividend. It's not entirely unreasonable. Even Apple finally started paying a dividend once they got to 100 billion or so in the bank.
Noticing that Amazon only has 1% of the retail market is pretty crazy. the potential opportunity they have is staggering. It's not unreasonable to think at some point their will be profits to be had.
hedging
diversification
lottery tickets on bezos owning a significant fraction of world commerce
Saying that Amazon doesn't make a profit depends on a misleading definition of the word "profit". Amazon's individual operations do generate a profit, except for the new bleeding-edge expansions into new businesses. Those things run at a loss, fed by the profitable wings of the company. And when they become profitable, they become a part of the other side of the machine and Amazon expands further.
Amazon simply chooses to invest every penny of profit into growth. Somehow we don't consider that "profit".
It's only misleading if you pick a definition of "profit" at random rather than investigating the definition being used in the article. As the article states, Amazon's gross profit is over 20%. And the article briefly hints that gross profit is not a very useful metric. It's certainly of little immediate relevance to Amazon's investors.
To say otherwise is to confuse the issue, even if technically correct in some contexts.
It's the longest of long bets, and since Bezos / Amazon is betting on itself there is a large number of ways in which he can affect the outcome. If he would invest his profits after dividend into some other company (after all, just letting it lay around would be very wasteful) he's likely not get as much influence and not as high an eventual ROI.
It's a very smart long term strategy.
Likewise, I think Amazon's self-funded retail operations are largely a break-even enterprise. Other businesses have been successful with this -- Costco comes to mind -- but the scope of capabilities Amazon is looking to develop is staggering.
If they can build a completely vertically integrated retail platform from procurement to payment to delivery, basically they're operating a retail enterprise without taking any inventory risk on themselves. Which is what this article means by "capture a significant portion of US retail": if they can provide merchant services to investors, it turns Amazon into basically an investment bank. Amazon takes a retailers money, turns it into inventory, sells it, takes a cut, then returns money. The only inputs and outputs into the Amazon machine are money, and it turns retail operations into an investment product.