Stephen’s Posterous

The Wall Street Journal reported that Wal-Mart is launching a price war with Amazon.com. On October 15, 2009, Wal-Mart said it would sell 10 top selling book titles for $10 a piece on it's website, Walmart.com.

A few hours after reporting this, Amazon.com matched the price at $10. Wal-mart then followed up with $9 a book.

The Wall Street Journal said that the price war sent shivers through the publishing world.

Will readers now expect to pay only $10 a book? The $10 price tag comes close to the $9.99 price that Amazon.com charges for its Kindle e-reader best-sellers.

Wal-Mart is most likely losing money at these price levels as retailers typically pay half the list price for a hardcover book. Wal-Mart is world's largest mass merchant with annual sales topping $400 billion.

Amazon.com on October 15, 2009, launched a local express delivery program that offers same day shipping to customers in seven cities, including New York, Boston and Washington, D.C.

On Walmart.com, you can pre-order Steven D. Levitt and Stephen J. Drubner's SuperFreakonomics for $14.50, a 52% savings. Amazon has the book for pre-order for $16.19, a 46% savings. Of course, no sales tax is due for the Amazon order, but for Walmart.com, there is sales tax. Wal-mart may also not provide the service to all 50 states.

Source.

TechCrunch reported that MyFab has just raised €5 million in a second round of financing. The round was led by BV Capital and included previous investor Alven Capital. The total amount invested in the company is now €7 million.

TechCrunch has reported that Trusera Inc., the operator of a health Web site, will shut down on May 27, 2009.

Keith Schorsch, founder and CEO, said in March 2009 that unless the company was able to secure additional funding by the end of April 2009 it would close. Wall Street Journal's Venture Capital Displatch reported that Keith Schorsch told VentureWire on May 21, 2009:

“The capital markets dried up in the fall and we were not in the position to continue operations beyond this time.”

TechCrunch wrote in their posting:

Founded by former Amazon exec Keith Schorsch, Trusera launched almost a year ago. Trusera sought to bring users together who were suffering from similar health conditions. The site also took other personal information into account when connecting people, including a user's hobbies, location, and age. Trusera would then match people up according to all of these factors and allowed users to receive email updates whenever a new match submitted a story or tip, which meant that users didn't have to worry about constantly searching the site for new information.

Keith Schorsch, Founder and CEO, wrote in a blog on the Trusera website:

With sadness, I write today to inform you that we have not secured the additional funding required to maintain Trusera. These difficult economic times make it difficult to sustain even strong communities like ours.  As such, we will secure all the information on the site and close Trusera to the public as of May 27.  Should economic circumstances change, we will seek to reopen Trusera at a later date.  To learn more about what this closure means to our community and for answers to Frequently Asked Questions, click here.

Trusera has been my personal passion and dream for more than two years. Since Trusera launched last June, you built an amazing place.  I have been touched and inspired every day. You shared stories of insight and courage. Hundreds of thousands benefited. You have shown the world the power of sharing personal health experience.  For that I am eternally grateful.

TechCrunch added that after the website closes, Trusera will keep a landing page with information about the website and its mission but will disable all other functionality. Trusera says that the content of site will be secured so that it can be preserved in the event that the startup is able to raise additional funds in the future.

Venture Capital Displatch reported that:

Trusera was backed with $2 million in funding from investors including Benaroya Capital; Erik Blachford, former CEO of Expedia Inc.; Christopher Ackerley, partner at Ackerley Partners; Kim Rachmeler, vice president at Amazon.com Inc.; and Craig Tall, vice chair of corporate development at Washington Mutual Inc.

In the comments section of TechCrunch, one reader wrote:

My own site, http://www.medications.com, is not sexy, has no funding, but we make a comfortable six figure living from it without some VC breathing down our necks. Expenses are almost zero, except for hosting and editing, and when we feel like it, we make improvements as our users suggest.

Another reader wrote:

Publishers Nurture Rivals to Kindle by Shira Ovide and Geoffrey A. Fowler, WSJ.com

Some newspaper and magazine companies, feeling let down by the Kindle electronic reader from Amazon.com Inc., are pushing for alternatives.

A few publishers are forging alliances with consumer-electronics firms to support e-readers that meet their needs. Chief among their complaints about the Amazon portable reading gadget is the way Amazon acts as a middleman with subscribers and controls pricing. In addition, the layout isn't conducive to advertising.

Hearst Corp., which publishes the San Francisco Chronicle and Houston Chronicle as well as magazines including Cosmopolitan, is backing a venture with FirstPaper LLC to create a software platform that will support digital downloads of newspapers and magazines. The startup venture is expected to result in devices that will have a bigger screen and have the ability to show ads.

Gannett Co.'s USA Today and Pearson PLC's Financial Times are among newspapers that have signed up with Plastic Logic Ltd., a startup that is readying a reading tablet, the size of a letter-sized sheet of paper, that can displays books, periodicals and work documents. The device, which uses digital ink technology from E Ink Corp., the same firm behind the Kindle, is slated to be rolled out by early next year, and will offer publishers the chance to include ads.

People familiar with the matter have said Apple Inc. is readying a device that may make it easier to read digital books and periodicals, a prospect some publishers are eagerly awaiting. News Corp., which owns The Wall Street Journal, also is exploring a possible investment in a Kindle competitor. Amazon declined requests for comment.

Behind the publishers' e-reader efforts are hopes for a digital-distribution mechanism that offers new venues to expand readership and collect revenue for news and information, publishers say. The tablet-style devices play a role in the debate about charging for electronic content.

Some publishers regret not charging people for newspaper and magazine subscriptions on the Web. They believe mobile devices, whether it's the iPhone or e-readers, re new enough that consumers won't balk at paying for the digital content.

"This channel potentially could revolutionize the consumption of content in much the same way the Internet did," said Rob Grimshaw, managing director for the Financial Times's Web site.

Publishers see an opening in the failings of existing electronic reading devices, the Kindle most prominently. The Kindle, introduced in 2007, has the U.S. periodical market pretty much to itself. Sony Corp.'s Reader is sold in the U.S., but it isn't yet adapted for newspaper and magazine subscriptions.

Sony said it will launch a wireless e-reader device that can download "daily content," and is currently in talks with publishers. A Sony official declined to say when that device would make its debut.

Critics gripe that Kindles don't allow for displaying ads and are poor substitutes for the look and feel of thumbing through pages. Magazine and newspaper executives also stew that Amazon won't let them set subscription prices for their own publications. Publishers keep less than half of the revenue from sales of their subscriptions on the Kindle, according to publishers.

Amazon has kept figures on Kindle hardware and title sales confidential, but the number of people reading periodicals on the Kindle remains small, partly because of price. The latest generation, the Kindle 2, costs $359.

The Wall Street Journal, the second-most-popular newspaper for the Kindle after the New York Times, has more than 15,000 subscribers, according to a spokeswoman for the paper, compared to its paid circulation of more than two million daily.

Fortune magazine has roughly 5,000 subscribers, according a person familiar with the matter, while the magazine has an average print circulation of nearly 866,000. Subscription prices vary, and are set by Amazon. In general, newspaper subscriptions range from about $5.99 to $14.99 a month, and magazines range from $1.25 to $7.99 a month.

Some publishers chalk up any Kindle shortcomings to early growing pains, and Amazon itself is developing a new Kindle, according to people familiar with the matter, with a bigger screen more suited to newspapers and magazines.

The Detroit Free Press and Detroit News are placing some bets on the competition, though. They hope to have roughly 100 Plastic Logic devices to test with readers this summer, months after the papers stopped delivery of the print newspaper most days of the week.

"We believe the Plastic Logic experience is going to be so much better," said Janet Hasson, senior vice president of audience development and strategy for the Detroit Media Partnership, which manages business functions of the two Detroit papers. Executives are discussing plans to lease the Plastic Logic e-reader to long-term subscribers, with the money going toward purchase of the device.

The papers also are prepping for sales on the Kindle because readers have requested it, Ms. Hasson said.

Some publishers also are focusing their portable-reading efforts on devices people already use. The new iPhone applications store rolling out this summer will support subscription prices, spurring the Financial Times, Time Inc. and other publishers to tinker with ways to offer subscriptions on the iPhone. Last week, Amazon bought a small startup that makes free e-book reading application Stanza for the iPhone

Van Baker, consumer electronics analyst for research firm Gartner Inc., said e-readers likely will appeal to only small numbers of people because of their cost, and he wonders whether a slew of devices will confuse consumers. "If the newspaper has one reader, and the book store has another reader and the magazine publisher has another reader, it just doesn't make any sense," he said.

Source.

Amazon.com Watches Start-Up Investment Portfolio Sink in Value by Tomio Geron, WSJ.com

Venture capital firms aren’t the only investors watching their start-up portfolios plummet in value. Amazon.com Inc. today showed how some large companies are facing the volatility that comes with investing in start-up companies.

Amazon.com disclosed in its 10-Q report that the value of its equity investments was $89 million as of March 31, down 64% from the $248 million reported just six months earlier.

“We review our investments for impairment when events and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our analysis includes review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data,” Amazon wrote in explaining the value.

“Impairment” is a nice way to describe what’s happening to start-ups as they raise new rounds of funding at lower valuations in today’s tough fund-raising environment. Amazon did have a stake in online payments company Bill Me Later Inc., which was acquired in November 2008 by eBay Inc. for $945 million, which could account for some decline in the value of its investments.

But Amazon still held stakes in a number of start-ups, including Yieldex Inc., a provider of advertising inventory management and forecasting technology, that raised an $8.5 million Series B round in February 2009 led by Amazon. In August 2008, Amazon co-led a $12 million Series B in Elastra Corp. a provider of software to manage applications hosted on Amazon’s Web platform.

Amazon has also invested in Engine Yard Inc., which helps companies host and manage Ruby on Rails applications and Talk Market Inc., a video shopping Web site.  More recently, the retailing giant seed invested in two companies, Foodista and Booktour, according to TechFlash.

Source.

Taking Helm at MySpace by Jessica E. Vascellaro, WSJ.com

When Jonathan Miller, News Corp.'s chief digital officer, phoned Owen Van Natta to finalize his appointment as chief executive of MySpace last week, Mr. Miller offered the dealmaker the sort of job he had been seeking ever since he was elbowed aside at Facebook Inc. last year, people close to him say.

As the 39-year-old Mr. Van Natta sets out to turn around MySpace, Facebook's closest competitor, he can draw on more than a decade of Internet experience, including several years at Amazon.com Inc., where he hammered out partnership deals.

But MySpace, with more than a thousand employees and flat user growth is a challenge unlike any Mr. Van Natta has seen. His mission, handed down to him by his new boss, Mr. Miller, who joined News Corp. earlier this month, is to jump-start growth and recapture some of the buzz that MySpace once generated, people familiar with the matter say.

MySpace, based in Beverly Hills, Calif., remains the largest social-networking Web site in the U.S., but the gap is closing fast. In March 2009, it attracted 70.1 million unique U.S. visitors, down 3.6% from a year earlier, according to comScore Media Metrix. Meanwhile, Facebook, which has surpassed MySpace in world-wide users, grew 72% to 61.2 million unique U.S. visitors.

Mr. Van Natta, known for a blunt style that has caused friction with co-workers, is walking into an organization that analysts, advertising executives and former executives say has lost its focus and become bloated. Pali Capital analyst Rich Greenfield predicts massive cost cuts will be needed to align MySpace with its revenue. A spokeswoman for MySpace declined to comment.

People close to Mr. Van Natta say he has just begun digging into details of the Web site's operations. They say he has been reviewing organizational charts, and has some ideas to simplify the site and place more emphasis on its technology.

Mr. Van Natta is keeping his roughly 0.5% stake in Facebook, according to people familiar with the talks, a move recruiters say is fairly common in the tech industry, where executives frequently jump from company to company. A Facebook spokesman declined to comment on Mr. Van Natta's keeping his stake.

Conscious of his lack of technical experience, Mr. Van Natta has begun narrowing the field to choose a senior product person, say people familiar with his thinking. They expect him to hunt for engineering talent within Silicon Valley, where his family will be based for now.

Mr. Van Natta isn't likely to turn MySpace into another Facebook, these people say. He views Facebook more as a communications channel and MySpace as a destination, where people come to entertain themselves by discovering music and meeting new people, they say.

The executive landed at Facebook in 2005 following an introduction by Silicon Valley investor Ron Conway, among others. At the time, the site was a small group of mostly 20-somethings seeking an experienced hand to help them negotiate partnerships. Facebook Chief Executive Mark Zuckerberg brought Mr. Van Natta on as vice president of business development, promoting him to chief operating officer five weeks later, according to people familiar with the matter.

He focused first on recruiting. He also solicited bids for the role of third-party advertising provider, helping seal a crucial alliance with Microsoft Corp. But over time, his hard-driving personal style, an asset at the negotiating table, aggravated disagreements between him and Mr. Zuckerberg, who is also know for a stubborn streak, say people familiar with the matter.

The two sparred in 2006 over Facebook's refusal of a nearly $1 billion takeover offer from Yahoo in 2006, which Mr. Van Natta had helped negotiate, according to people familiar with the matter.

Mr. Zuckerberg told Mr. Van Natta that he felt he needed to build out his management team and wanted him to take on a different role, according to two people familiar with the matter. In August 2007, Mr. Zuckerberg made him chief revenue officer and elevated several other executives to a similar rank.

Mr. Van Natta played a key role in negotiating a new round of financing in 2007. At a dinner in his Palo Alto, Calif., home with Mr. Zuckerberg and Microsoft CEO Steve Ballmer, Mr. Van Natta played hardball, say two people familiar with the meeting. Soon after, Microsoft took a 1.6% stake in the company in a deal that valued Facebook at roughly $15 billion.

Mr. Van Natta left the company in April 2008, telling friends and colleagues he was leaving because he always wanted a chief executive job and was tired of the erratic schedules of 20-somethings, according to these people.

He chilled out in Santa Cruz, grew a beard and made a few small investments in start-up companies, friends say. He turned down an opportunity to head MySpace Music, say people familiar with the matter. Instead, in November 2008, Mr. Van Natta became CEO of music-streaming site Playlist Inc.

Mr. Van Natta continued to weigh other possibilities. He interviewed with News Corp. Chairman Rupert Murdoch about the chief digital officer position, according to people familiar with the matter. Several weeks later, after Mr. Miller was named to that post, he started conversations over dinner with him about the MySpace chief executive job.

Emily Steel contributed to this article.

Source.

The Twitter Revolution by Michael S. Malone, WSJ.com

"Twitter is the side project that took," says company co-founder Biz Stone, 35. "Now it's our chance to do something transformative."

When I arrive at Twitter's headquarters on a recent morning, Jerry Brown is waiting in the lobby, just another day at the world's hottest high-tech company. "It's pretty bizarre," says co-founder Evan Williams, 37. "At least once per day we look at each and say, 'What the hell?' It's like we're living out the script of the ultimate start-up company story."

But other than the familiar face of California's attorney general standing near the steel front door, you would hardly know that this little company of about 30 employees is the epicenter of the Web, used by an estimated 20 million Americans on a daily, even minute-by-minute, basis. Just how fast Twitter is growing is a company secret, but its traffic appears to be more than doubling every month.

The company itself seems calm and casual. The employees drift in, grab some free food and eventually make their way to their desks. It's located in an anonymous warehouse just a couple blocks from South Park, the once-frenzied environs of the dot-com companies of the first Internet boom.

In his sports shirt and slacks, sipping a bottle of apple juice, Mr. Williams exhibits indifference to the trappings of success. So does Mr. Stone, who last year won an Oxford Union debate wearing a borrowed bow tie and a pair of black sneakers.

The company is hiring like crazy, it expects to double its size in the next month or two, and is also adding a senior management, notably new vice-president of global operations Santosh Jayaram, hired away from Google. "We've never had a company that grew past 15 to 20 people," says Mr. Stone, "We're kind of excited about that."

Even faster than Google, Amazon and eBay in their days, the three-year-old Twitter has become deeply embedded in the culture. President Barack Obama twittered the words, "We just made history," on the night of his election. It was a twittered image that first captured the forced landing of US Airways Flight 1549 in the Hudson River.

Scores of people trapped in the Mumbai terrorist attack twittered desperately for help. And in a much discussed event, a San Francisco technology writer twittered his surprise to discover his home was being broken into.

Strictly speaking, Twitter is a social networking application that enables users to post short text messages,  called tweets, of no more than 140 characters on their personal feed. These real-time diary entries can then be read by other users, called "followers," who have subscribed to that page.

Twitter is much more than a novel way to share updates of one's daily life with friends. It's now evolved into a powerful new marketing and communications tool. Regional emergency preparedness organizations are looking at Twitter as a way to reach millions of people during a disaster.

NASA is using it to regularly update interested parties about the status of space shuttle flights. And one journalist solicited help from fellow Twitterers to get himself out of an Egyptian jail. It worked.

The real Twitter revolution may prove to be much more everyday. When I stop for a latte at Peet's Coffee on the way to the interview, the manager tells me that he plans to start sending out tweets to let regular customers know when a table is open. He isn't alone.

A Manhattan bakery twitters when warm cookies come out of the oven. "It's those small stories that really inspire us," says Mr. Stone. "Those are the things that transform people's lives."

Mr. Stone vividly remembers the first time he appreciated the power of Twitter. He and his now-wife had just bought a house in Berkeley and, having spent the day scraping up carpet and painting walls, he was tired and sweaty. "That's when I got a twitter from Evan saying, 'Up in Sonoma drinking pinot noir after a massage.' I just started laughing. That's when I realized that this technology could be entertaining too," as opposed to a basic communications tool, he says.

"It took us a while to figure out that it really was a big deal," says Mr. Williams. It was at the annual South by Southwest tech conference/music festival in Austin, Texas, in March 2008, that the social power of Twitter came home to the co-founders. "I found myself watching groups of people twittering each other to coordinate their actions, which bar to go to, which speech to attend, and it was like seeing a flock of birds in motion," says Mr. Stone.

As with many Web entrepreneurs, Messrs. Williams and Stone took unconventional paths to success.

Mr. Williams was born on a soybean, corn and cattle farm near Clarks, Neb., pop. 361, where he attended the single public school there. In a class of just 14, he took part in everything from sports to band. "In a school that small, everyone does it all," he says.

But he was an indifferent student and felt like a black sheep at home, too. His father and brother loved to farm and hunt, while Evan, a vegetarian, preferred to read and ponder schemes for building enterprises.

Eventually he made it to the University of Nebraska, but he never declared a major, took as few classes as possible, and eventually dropped out. In the years that followed, Mr. Williams drifted around the country, Key West, Dallas, Austin, working various technology jobs and trying to pursue start-ups.

But every time he got started on one idea, some new idea would pop into his head, luring him away and preventing him from ever following through on a project. "It was turning into a constant pattern," Mr. Williams recalls.

By 1996, Mr. Williams found himself back on the family farm, with little money and few prospects. "I was in the dumps," he recalls. He had long worshipped California's Silicon Valley from afar, and now, with nothing to lose, he decided to move there. "Unfortunately, my aim was a little off," he says, since he landed in the farming town of Sebastopol in Marin County, working for the old-guard media/conference firm O'Reilly Inc.

In the end, that proved fortuitous. What began as a marketing job ended up as an independent contractor job writing computer code, and in short order, Mr. Williams parlayed that into freelance work with legendary Valley companies like Intel and Hewlett-Packard. "For the first time, I learned what it was like to work in an office and have a normal career. To be in real meetings. I also learned that I didn't want to do that."

Did Mr. Williams ever feel that there was something wrong with his inability to hold a traditional job? "No," he says. "I always figured there was something wrong with everybody else."

In 1999, Mr. Williams teamed up with another contractor, Meg Hourihan, and founded Pyra Labs to make management software. A much admired product which allowed managers to handle complex projects online, Pyra earned him a reputation as a brilliant entrepreneur who didn't know how to make money.

"The truth is," Mr. Williams protests, "we had revenues from the first day . . . there just wasn't enough of them." It should have ended in yet another business failure -- but in computer parlance, Mr. Williams decided to 'turn a bug into a feature.' This meant taking one of his distracting brainstorms and turning it into a company.

The new company, called Blogger.com -- Mr. Williams invented the term -- which was developed from a note-taking application on Pyra, was the original blog prototype. It proved to be one of the few successes of the era. Better yet, Mr. Williams even managed to nail down some real venture investment just as the bubble burst.

Mr. Williams finally had a real company and real money. Now he needed a team.

Enter Christopher Isaac "Biz" Stone. Raised in Wellesley, Mass., Mr. Stone had an early love for graphic arts and theater. But at the University of Massachusetts, he too had proven to be a distracted student, and when a job at publisher Little, Brown evolved from moving boxes to designing book covers, Mr. Stone dropped out of college.

In the years that followed, he, like Mr. Williams, discovered a natural gift for Web design and programming. In fact, the two young men had admired each other's work from opposite coasts.

So when Evan invited Biz to join Blogger, Biz moved West. He arrived just in time to get the news that Google decided to acquire Blogger. Messrs. Williams and Mr. Stone, neither of whom technically qualified for the CV-obsessed company, were suddenly Google employees.

The gig lasted 20 months and both men say they thoroughly enjoyed it. Mr. Williams even met his future wife at the firm. But the entrepreneurship gene couldn't be denied forever. And in 2005, both men decided to strike out on their own. "It was about the toughest decision I ever made," recalls Mr. Stone, "and if I'd known how high Google stock would go, I'm not sure I would have made it."

Once out of Google, Mr. Williams teamed with another entrepreneur, Noah Glass, to found Odeo, a podcasting company. It was a brilliant plan, until Apple decided to offer its own podcasting application in iTunes. Says Biz, who had also joined the firm, "I remember asking Evan, 'Do you really want to be the King of Podcasting?' And he said, 'No.' And that was it." Looking back, Mr. Williams says, "I didn't follow my gut. I intellectualized myself into Odeo."

Mr. Williams had taken venture capital money to build Odeo and to change its business model, and he had to buy out those investors with a big chunk of his Blogger cash. Once again abandoning the main idea for a sidelight, he transformed Odeo into Twitter by stripping down and selling off the podcasting component and keeping the social-networking tool, the last a concept proposed by Jack Dorsey, now Twitter chairman.

Under the guise of a fun communications tool, Twitter is building one of the world's most valuable real-time information caches. And as Twitter's profile continues to explode, Oprah just sent her first tweet on yesterday's show, many wonder whether the company will ever find a revenue model.

Others speculate about who will buy the young company. Google seems to be the leading candidate. "We know there are a lot of people looking at Twitter right now," says Mr. Stone.

For now, Messrs. Williams and Stone are keeping their plans secret. With patient investors who just put in $35 million in third-round funding, the company is in no hurry. Mr. Stone will only say that "we are enamored with the idea of going all the way." Adds Mr. Williams: "We want to have as large an impact as possible."

Mr. Williams says that the amount of money it would take to buy Twitter right now is more than any company could justify to its shareholders, but suggests three other possible scenarios.

First, that Twitter could go public, probably without him, as he has little interest in running a public company. Second, Twitter could remain private and somehow buy out its investors. Or third, they discover some other option no one has thought of yet.

Of course, there's still one more possibility: Yet another one of Mr. Williams's obsessive distractions, as he calls them. Lately, he's been pondering a way to revolutionize email.

Source.

The Wall Street Journal's Heard on the Street column says that eBay's statement that Skype can maximize its potential as a stand-alone company sounds dubious.

Although growing at a rapid rate with 405 millions registered users and a 44% boost in revenue to $551 million, the Skype's free calls between Skype users will limit revenue growth. Isn't the reason people use Skype is because it's free?

Analyst Jim Friedland at Cowen & Co. points out that the more people register to use Skype, the bigger the pool of people who can communicate for free by calling each other.

eBay may already know what a strategic buyer would pay. Its decision to announce a public offering for Skype, weeks after hinting it was willing to sell, suggests no one offered the price it wanted. Source.

Breakingviews.com thinks that while spinning off Skype is a good idea, why not also set PayPal free. The potential $2bn in cash from the Skype IPO would be nice for eBay shareholders who have suffered a 50% fall in the price of its stock price within the last year.

While Ebay’s auction business saw its revenues grow only 1% last year, Paypal’s jumped by 26%, and it expects Paypal’s revenues to double over the next three years to $5bn, with operating profit margins of 20%.

PayPal could be worth $15bn based on using rival payment processor Visa’s 2011 estimated earnings multiple. As an independent company, PayPal could be worth even more since it will no longer be part of a conglomerate discount and it get potentially more business from current eBay competitors like Google and Amazon since it would no longer be part of a rival. Source.

This may be a great time to add shares of Amazon.com to your shopping cart and proceed to checkout.

The stock makes sense because the retailer itself makes sense to smart shoppers. They don't waste valuable gas fighting for a parking space in a massive mall parking lot; they find prices that compete with Wal-Mart's and flirt with the Web's biggest bargains; and they can easily peruse a vast array of merchandise, ranging from gigantic TVs to Elmore Leonard novels to disposable razors. What's more, their purchases tend to get delivered as promised.

The many benefits of the e-tailer's business model are even more apparent in tough times. Amazon's highly automated and centralized operations run at a lower cost than those of traditional retailers, allowing the Seattle company to pass on significant savings to its customers. Rather than truck merchandise to thousands of stores from myriad distribution centers, Amazon picks and packs its items from computerized warehouses where they are shipped direct to a customer's house, just the way founder Jeff Bezos envisioned.

No stores means fewer layers of expense for real estate, employees, inventory and utilities. While traditional outfits like Circuit City and Linens 'N Things have gone belly up, and speculation mounts about the staying power of household names like Sears (ticker: SHLD), among many others, Amazon.com (AMZN) had a strong Christmas season and free cash flow that rose 16% for 2008.

"A lot of consumers are migrating to Amazon," says Walter Price, a veteran technology investor from Allianz Global Investors. "It simply has a better retail model, and it is only getting better," and Bezos has added a couple of kickers, which Price views as options on two nascent Amazon businesses that aren't reflected in the share price.

The e-commerce pioneer always has been pragmatic in finding ways to leverage its operations by running portions of other companies' businesses, from Website check-out services to logistics.

Now, Amazon is taking that a step further by providing Web services, better known these days as "cloud computing." What is cloud computing? It is the outsourcing of information-technology and data-center operations to third parties, mostly by small- and medium-sized companies that choose not to spend their resources to deal with these tasks themselves.

The name cloud derives from the remote ether-like computer space where the outsourced operations take place. Amazon, which has spent more than $2 billion on its systems in the last decade, has divided these services into several parts, including: Amazon Simple DB (databases), Amazon Elastic Compute Cloud (computing capacity) and Amazon Simple Storage (data storage).

Price believes these services could eventually generate hundreds of millions of dollars annually and investors are getting them for almost nothing.

The second kicker is Kindle, a digital-reading device. Its original version was generally well received, but its recently released 2.0 edition has become a hit with consumers. Wall Street analysts estimate the company has sold 350,000 of the devices, which got a plug from Oprah Winfrey last fall. A Kindle runs $359, and it not only generates revenue but protects and promotes Amazon's original business of selling books.

Of course, Amazon's financial performance hasn't gone unnoticed. With a forward-looking price/earnings ratio of 39, you may feel as though you are paying retail for the shares. But valuing them on a cash-flow basis is a more accurate gauge because it takes into account the company's unusually long float period, which allows it to use the cash as working capital.

At a price of 70 on Friday, March 27, 2009, the shares sell at roughly 20 times the company's free cash flow of $1.36 billion, or $3.18 per share, in 2008. That is less than Wal-Mart 's (WMT) free cash flow multiple of 22.6 and Costco 's (COST) 25.4.

Allianz's Price expects free cash flow to grow about 20% annually going forward, without taking potential revenue growth from Kindle or Web services into account. He believes the shares could crack 100 in two to three years, while Piper Jaffray research analyst Gene Munster has a more modest 12-month target of 81 for the stock.

Amazon's business model for billing, inventory and delivery gives the company some unique financial advantages over other retailers. It can carry customer payments on the balance sheet for up to 26 days before it must pay suppliers. The float on that money can help to lower pricing and gives Amazon still more power to grab market share.

"We have a negative operating cycle," Chief Financial Officer Tom Szkutak told investors at a recent Morgan Stanley conference. "So, as we grew, we generated cash from working capital. And we are all about maximizing profit dollars, not individual margins," he said.

"It isn't unreasonable to expect that revenue could double over the next three years," says Price, barring a complete collapse of the economy. Amazon reported 2008 profit of $1.49 a diluted share or $645 million, up 36% from the prior year on $19.17 billion in revenue for fiscal 2008, which was up 28% from 2007.

Because of its other advantages, the e-commerce company tends to follow others' prices without necessarily trying to beat them. "We really want to offer low prices every day...[but breadth of] selection is very key to growth," Szkutak told the conference. Not only does Amazon carry more product categories than ever either through its own e-tail operations or third-party retailers on the site, it also offers more brands and styles per category.

Amazon's strong balance sheet and wide selection stand out even more in this wretched retailing environment, where malls find themselves losing tenants, and tenants find themselves with less and less inventory. Retail sales generally stagnated in 2008 and have dropped nearly 10% for the period December 2008 through February 2009 over the same period a year earlier. With the exception of Wal-Mart, drugstores and warehouse clubs, just about every retail business is off.

That leaves Amazon to pick up the slack. More and more consumers turn to the Web for shopping, with Amazon often the first destination. After a decade of starting their online purchases by searching on Google (GOOG), cybershoppers now make Amazon their default page, knowing that its bots are crawling the Web to identify the lowest prices.

Even e-Bay (EBAY), which tried to compete, recently shifted its focus back toward selling used merchandise. And with less than 10% of all retail sales done over the Internet, there's loads of upside. Price contends that U.S. online sales will account for as much as 20% of total retail sales within the next 10 years.

On top of that, Amazon is grabbing a greater share of online commerce as consumers realize that it is routinely price-competitive, delivers in a timely fashion, and now has arguably the greatest selection of merchandise assembled in one place, albeit in cyberspace, including Wal-Mart.

"E-commerce now starts and ends with Amazon, and eventually it will show up with higher sales," Price says. "As they get more volume, their costs relative to their prices should come down, which should improve their profits over time," he says.

Amazon is also growing overseas. It now ships in six foreign countries, including Germany, Japan and China. For the fourth quarter, international sales of $3.07 billion were 46% of total revenue.

Lower shipping costs also improve the customer's experience. In the early days, Bezos would goose sales with free-shipping promotions. Now he has implemented a "Prime Program" designed to keep shipping costs down while spurring more sales.

For $79 a year, Amazon customers get guaranteed "all-you-can-eat" free shipping on two-day deliveries for most merchandise, excluding bulky items like furniture. Or they can pay $3.99 extra for one-day delivery. Only Amazon can afford to offer those terms and still make a profit because of its huge volume and efficient inventory and shipping operations." Amazon's logistics is its secret sauce," Price says.

One of the reasons Piper's Munster upgraded Amazon to a Buy in early March was a survey his firm conducted that showed 81% of Amazon's customers are satisfied with the retailer, compared to 71% for eBay.

More important, 94% of the respondents said they would recommend the e-tailer to a friend. That score, he says, is reminiscent of Apple 's (AAPL) tally earlier this decade before the iPod, as well as Netflix 's (NFLX) rating prior to its breakthrough. In both cases the scores presaged big runs in the stocks to record highs.

"It's a leading indicator," says Munster. Goldman Sachs analyst James Mitchell was impressed by Amazon's 15% increase in year-over-year gross profit and 9% jump year-over-year in operating profit. The fact that it could grow profitably during one of the worst holiday shopping seasons ever meant Amazon wasn't just "buying" revenue via discounted pricing, noted Mitchell.

Majestic Research predicts Amazon is on track to at least meet expectations on revenue for its first quarter ending March 31, 2009, adding that sales have begun to accelerate and could actually exceed Street estimates for the quarter.

After spending billions to build the technology that drives its retail operation, Amazon, at its heart, is a tech company. As a result, it is always looking for ways to leverage operations, which is why it is pioneering areas like cloud computing. Tech researcher Gartner Research forecasts that, industry wide, this category will reach $56.3 billion in revenue in 2009, a 21.3% gain over 2008. The market is projected to reach $150 billion in 2013.

The notion of trusting your entire enterprise-computing needs to someone else is controversial and meets with resistance by big corporations. But small- to medium-sized companies, especially start-up software developers, embrace the trend. Adam Selipsky, a vice president of Web Services at Amazon, told trade publication Intelligent Enterprise that there are three reasons for companies to switch to its cloud: efficiency, economics and performance.

Start-up software companies are among Amazon's biggest Web-services clients. They can develop code and deliver software using Amazon's delivery infrastructure, paying only for the computing power they use and leaving the data center headaches to Amazon. This allows start-ups to build their businesses without a lot of upfront cost, which is especially attractive during this period of tight capital.

Amazon isn't competing with Nordstrom (JWN) or Sears in this marketplace. It's going up against the likes of IBM (IBM), Google, and Microsoft (MSFT). But Price thinks Amazon has an edge over Google, because Amazon's systems use computer languages that are more open and flexible. Plus, the company is already geared toward handling outsourcing in other parts of its operations, so adding data-center services is just a natural extension, Price argues.

Tech Crunch, an online-technology publication, estimates that 60,000 corporate customers are using Amazon Web Services. Amazon wouldn't confirm that number.

Kindle is another example of Amazon's technology prowess. The electronic book reader is arguably superior to a similar gadget developed by Japanese consumer-electronics giant Sony (SNE). It even has prompted comparisons to Apple's iPod and iTunes. Kindle allows people to carry entire libraries of digital books on one device, and it focuses their selections on Amazon's list of offerings.

It also provides potential growth from the device itself. That won't provide a huge boost to sales in the short term, but the Kindle could improve margins, says JPMorgan Chase analyst Imran Khan. For the iPod, Apple has to pay for intellectual-property rights on songs and movies; and Amazon must pay book publishers for its digital content. But both "playback"devices are proprietary.

According to some analysts, it isn't a stretch to see Kindle's estimated 350,000 unit sales hitting one million this year. Goldman's Mitchell, for one, predicts Amazon may double or triple Kindle sales in 2009 based on demand built not only by the Oprah endorsement, but by an increasingly broad range of book titles, and sales to overseas markets such as Germany and Japan.

If Amazon can build a big Kindle user base, it could raise barriers to entry in the eBook market, lower per-book marketing costs, reduce fulfillment costs, and increase revenue , all of which would lead to higher margins, Khan argues.

Needless to say, fulfillment costs on a digital download are a lot lower than those on a book delivered via an overnight shipper. Fulfillment costs took an 8.3% bite out of Amazon's revenue last fiscal year, whereas the cost of delivering an eBook would account for about 2% to 3% of total revenue.

Khan more conservatively forecasts Amazon to sell another 500,000 Kindles in 2009, adding $63 million in fiscal 2009 revenue, or two cents earnings per share. He predicts Amazon will sell 12 million eBook downloads during the fiscal year. Every two million book downloads equals about a penny a share in annual earnings, Khan says.

There is more than a comparison with Apple; there is compatibility. The Kindle reader application is now available for the Apple iPhone, which will expand Kindle's reach beyond avid book readers. Another potential boon: schools and colleges, if Amazon successfully taps the textbook market.

Of course, there are risks. Just last week the company said it would close three distribution centers, laying off or transferring 210 workers, to fine-tune its business. And whenever investors pay up for growth, there is always the chance that revenue can disappoint.

Amazon is hardly immune from the crash in consumer spending. If it gets much worse, the company will surely suffer. As it becomes a more global entity, foreign-currency swings can have a negative impact on revenue, too.

During the dot-com boom, shopping over the Internet was an exotic experiment. Today, Bezos' Amazon has created an experience that is often more satisfying than shopping at an understaffed mall store with depleted inventories. With more selection, less hassle and faster checkout, and with competitive pricing thrown in, you have the world's best retailer, albeit one whose shares trade at a technology multiple.

Source.