Stephen’s Posterous

According to the company's website:

Nevis Networks was founded in 2002 by an ASIC engineer from Juniper Networks and a software engineering manger from Cisco Systems who shared a vision that the worlds of enterprise networking and LAN security were coming together. Their goal: to create a network infrastructure-based security solution that combines high-speed security processing at low latency - full LAN security with no compromise to performance.

 

Nevis Networks delivers a powerful breakthrough solution for LAN security. Using its own ASIC-based technology, Nevis builds LAN security systems from the ground up that forge a Personal DMZ™, which adds a new layer of security policies for each individual user. Nevis security solutions, operating at wirespeed, combine real-time, dynamic access control, in-depth threat detection and containment, and pervasive visibility to ensure data integrity, network availability and regulatory compliance.

The Wall Street Journal wrote that Microsoft Corp. acquired videogame start-up BigPark Inc., a Vancouver-based company with many staff that were former employees of Electronic Arts and Distinctive Software Inc.

BigPark Inc. is co-founded and partially owned by Don Mattric, a Microsoft executive who runs their videogame business. Mr. Mattic is also chairman of BigPark Inc. The company is known for such games as Need for Speed, NBA Street, and SSX.  BigPark was founded by Wil Mozell, Erik Kiss, Hanno Lemke and Don Mattrick

The acquisition will bring BigPark's developers into Microsoft Game Studios where the team will continue work on an exclusive Xbox 360 game as reported by TeamXbox.com.

Over the past year, Microsoft and BigPark have worked closely on this project, providing Microsoft with a clear view into the caliber of talent and innovation at BigPark.

Microsoft said that Mr. Mattrick disclosed his investment in BigPark to the company before they hired him to run Microsoft's videogame business two years ago. His position as chairman of BigPark was approved by the company pursuant to Microsoft's standard of business conduct, Microsoft said in a statement.

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.

View from the Top, Shantanu Narayen, Chief Executive of Adobe
By Chrystia Freeland and Paul Taylor, FT.com

Shantanu Narayen, aged 45, is modest about his personal accomplishments, which include holding five patents, but passionate about technology, Silicon Valley and Adobe, the $3.6bn-a-year desktop software pioneer he now leads as chief executive.

Before joining Adobe in 1998, Mr Narayen, an electronics engineer from Hyderabad, India, who loves golf and his two sandy-coloured Labrador dogs, worked at Silicon Graphics and Apple, and co-founded Pictra, an early pioneer of digital photo-sharing over the internet.

As Adobe's president and chief operating officer until he took over the chief executive's job in December 2007, he helped spearhead the $3.4bn acquisition of Macromedia, a deal that expanded Adobe's software portfolio and strengthened the company's presence in key markets ranging from enterprises and vertical industries to mobile devices and multimedia publishing.

In an interview with the Financial Times, Mr Narayen discussed the impact of the recession on Silicon Valley, Adobe's strategy for its Flash technology, and cloud computing.

What impact is the economic crisis having on Silicon Valley and on the technology sector? Do you worry about what impact it might have on innovation in the economy?

Most companies have certainly seen a reduction in revenue and that has had an impact. Most then have to think about what they want to focus on and what it means in terms of their long-term strategic thinking.

I hope the crisis won't affect innovation. From our perspective we look at this and say it is such a great opportunity because the strong companies are going to get stronger. It has been a great galvanising opportunity within the company to focus on what we think is really important.

What about the impact of belt tightening on Adobe's culture, which has always been known for taking care of its workers?

Yes, we had a painful task of doing a restructuring in November. We decided as a management team that we really wanted to be transparent with our employees, we wanted to be in front of them and we outlined the measures we were taking. But, more importantly, we talked about the vision we still had for ourselves as a company to get people focused on the future and the vision we had for ourselves. And people responded magnificently.

Will your ability to recruit the best and the brightest young people be improved by this crisis?

There is no question that the ability to recruit right now is at its best because the number of jobs that exist in the Valley [isn't] that high. We have also done a really good job of hiring straight out of college. We love to hire scary, smart young people who don't know what they don't know sometimes.

What about salaries? Can you pay people a little less than you did?

What we did at Adobe this year was to not do a salary increase. And that was pretty consistent with most companies in the Valley. But to us it's a little less about not paying people more salaries, it's really about attracting and retaining the best.

Do you think the iPhone and other cell phones have been quick enough to adopt Flash?

Well, we'd love to see the adoption quicker. We will ship more than 1bn devices that have Flash on them. But one thing we have done is really had a lot more focus on our strategy for smartphones.

What about the competition between Flash and Microsoft, in particular Microsoft's Silverlight?

Adobe has done a fantastic job of changing how video is viewed on the web. About 80 per cent of the video you see on the web today is actually in Flash. Our big customers include the NBA, the NFL - and Major League Baseball just moved to Flash in time for the opening season - and the BBC. So, we continue to think we're innovating at a pace that is greater than the competition and that is what we have to do.

What about cloud computing? How much of a challenge does that pose to you and to the space you work in?

We believe the real opportunity we have is what we call hybrid applications - applications that combine the power of the desktop and the connectivity of the web. And we have been talking about that. We have a great platform in Flash and Air that enables developers to build applications that take advantage of these trends.

And I think the entire industry is moving towards recognising that it is not just about having computing on the cloud, but it is also taking advantage of local resources. So we think cloud is an essential part of computing moving forward, but it's not the only part.

What are the most interesting new developments in the ways people use technology around the world? What is the most exciting thing on the horizon?

I just think it's ubiquitous computing. Wherever you are, you just want access to the information and [this] introduces a whole host of new possibilities. I would also highlight collaborative computing because computing has changed from a very individual activity to a very social activity.

What about pure technology developments? Is there a particular technology you're most excited about?

Video is still such a nascent opportunity in terms of how it can be viewed on the web, so that is an area we have been focused on a fair amount.

Source.

For the first time in its short history as a public company, revenues fell last quarter as advertising woes dented its cash cow search advertising business. But Google didn’t have to work very hard to boost its margins and keep earnings chugging along. Google has ample room to weather the downturn by varying its costs and increasing its dominance.

The search giant brought in $5.51bn of revenues last quarter, just shy of Wall Street’s expectations and a 3% decrease from the quarter before. That’s the first time Google’s top line has fallen in the four years since its initial public offering.

The drop-off comes as advertisers are spending less money online, especially in once-key segments like the automotive and financial industries. Indeed, Google’s Adsense advertising program saw its revenues fall 3% compared to the same period last year.

But the chinks in Google’s armour are still microscopic. Despite its slowing revenue base, the company became more efficient, bumping its operating margin by 1 percentage point to an impressive 34%. It did so while only losing 58 jobs out of more than 20,000 in what looks to have been one of the worst quarters for US employment in a generation. That led to an 8% annual increase in earnings despite the revenue slowdown.

And Google’s free cash flow last quarter was a whopping $2bn, boosted by its fourth straight quarter of lower capital expenditures. All of this underlines the variables Google has to insure stable profits without sacrificing its competitive position.

In fact, Google’s near-monopolistic search share keeps growing. Its share of US searches last month was almost 64%, its highest share yet and well above Yahoo and Microsoft’s shares of 21% and 8%, respectively, according to Comscore.

Google’s hefty cash flow and fat margins will allow it to continue reinvesting in its dominant search business. Of course times may get tougher yet. But Google has barely begun cutting the fat, which it could do if necessary. Google may not be the unstoppable money machine that investors valued it at a few years ago. But to its competitors, it probably still feels like one.

Source.

What’s the big deal with Twitter? The online instant update service has become a media sensation and a supposed target for the likes of Google and Facebook. But is it an over-hyped flash in the pan or a real business opportunity? The answer could be a bit of each.

Twitter lets people or organisations send messages to “followers”, fans, clients, employees or anyone who signs up. The updates, thoughts or reactions arrive instantly via cell phone or computer updates. They’re limited to 140 characters each, so pithiness is vital. All but one of the sentences in this article qualify.

Twitter’s 8m users run the gamut from lovelorn teenagers to celebrities like Britney Spears to the New York Times. The last of these has more than 500,000 followers receiving its story links and news updates. Some members of the US Congress use Twitter to fill in their constituents.

A few have even been spotted tapping away on their mobile phones in the middle of President Barack Obama’s speeches. The celebrity presence has drawn millions of users and driven media attention, but it can seem pretty inane. British actor Stephen Fry has 382,000 followers tracking updates of his peculiar daily minutiae. One example: “Me in a sarong. The freedom and ease ... Mmmm could get to like x”.

But scratch the surface, and Twitter does have potentially significant features. For a start, it’s a burgeoning social networking site. That means its membership or followership is both growing and sticky. It benefits from a network effect as more of people’s friends and colleagues sign up, their own incentive to join increases. Then it’s just a question of finding a way to make money from the traffic.

That may have eluded Twitter itself so far, but it could be what makes it interesting for potential acquirers. One key concept is real-time search, potentially a real technological advance. Google, Yahoo and Microsoft search engines work, generally speaking, with old material. A search of Twitter could be made to yield almost real-time information on news, events and users’ opinions.

A search could track reactions to a just-released G20 communiqué, or employees’ instant responses to a company announcement. Twitter could also theoretically be used to analyse trends, almost to create real-time opinion polls.

Twitter also has one other thing few companies except Google have achieved so quickly. It has become a verb. Twittering, the sending of “tweets”, has become second nature to its users. There’s already a “twitiquette” for using the service, and some people are trying their hand at “twiterature”, also known as “twitlit”.

That could all help explain why Google might consider paying more than $250m for Twitter, as technology blog Techcrunch suggested last week. A few months ago, news reports also suggested Facebook was interested. Either company could conceivably harness Twitter for profit by selling custom advertising based on a user’s current activities or location, for instance.

For now, though, Twitter is nothing but potential from a business perspective. The website’s unique visitors for February 2009 were up nearly fifteen-fold from a year earlier. But the service has only just started trying to bring in revenues, let alone earn money. Meanwhile, its investors have sunk $57m into the company, including a $35m injection which valued it at $250m just two months ago.

So Twitter seems poised right on the line between Silicon Valley pipe-dream and the Next Big Thing. Its fame isn’t yet accompanied by any level of financial success. And its big weakness is that, in theory, another group of Stanford engineers could easily make a competing or better service.

But its story thus far does eerily echo that of another Silicon Valley hotshot: Google. And that may be the most important reason why Twitter’s hype, while excessive, is worth…well, following.

Source.

The death of Opera Software has been predicted many times, but the Norwegian internet browser company continues to steadily grow its niche position in a market dominated by Microsoft's Internet Explorer. Outside technical circles, few people realise that Europe has a home-grown competitor to Microsoft and the smaller US browser companies. And those who do know Opera wonder how it can survive.

"Every time one of the big companies launches something, people say it must be the end of Opera," says Jon von Tetzchner, chief executive and co-founder of the company. The company is not just surviving, he insists, it is growing.

Last year, the company saw a 67 per cent increase in user numbers. After the high-profile launch of Google's Chrome browser in the third quarter of last year, Opera's user numbers jumped 20 per cent. Revenue rose 117 per cent in the last quarter of 2008.

"The biggest struggle we face is that people don't realise that they have a choice of browsers," says Mr Tetzchner.

Most people wanting to access the web simply use Internet Explorer, which comes installed on most PCs. But when Google entered the fray, it alerted people to the fact that they had a choice of products. Some tried Opera and seemingly liked it.

By some calculations, Opera is the world's third most popular web browser, after Internet Explorer and Mozilla's Firefox, with more than 35m users. It has 2.8 per cent of the global market, according to internet tracking company StatCounter, compared with 66 per cent for Microsoft's Internet Explorer and 26.8 per cent for Firefox.

Opera is just ahead of Apple's Safari browser, which has 2.7 per cent market share and Chrome, which has so far secured 1.2 per cent. Although it trails behind its larger competitors by some distance on a global level, it has a big presence in some regions, including eastern Europe and Indonesia. In the Ukraine, for example, it is the market leader with a 40 per cent share.

Opera Software is no newcomer and has proven resilient. It is the world's oldest browser company, dating back 15 years to its creation in 1994 by Mr von Tetzchner and Geir Ivarsoy, who were both researchers at the time at Telenor, the Norwegian telecoms.

The pair set up the company with just $5,000. It now has a market value of NKr2.74bn ($418m) and employs more than 675 people in 10 countries.

Opera gained a loyal following among tech-savvy users because it was highly innovative. Fans are so passionate about the software they volunteer to promote it for free, for example by installing it on university computers. As a small company, Mr von Tetzchner said Opera had been able to respond to user feedback and change quickly.

Now, as people begin to access the internet over their mobile phones, Opera has a real chance to take a leadership position.

It is an early entrant into the market and has deals with some of the world's biggest mobile operators, including the UK's Vodafone, Germany's T-Mobile, Telefónica of Spain, and Japan's KDDIto install a mobile version of its browser, called Opera Mini, on their phones.

The company recently signed a deal with Virgin Mobile USA, boosting its push into the US market, where its PC-based browsers have had difficulty gaining market share. In January, more than 20m people used Opera Mini to browse the web from their handsets, up 160 per cent from a year ago.

The Opera mobile browser is running neck-and-neck with Apple Safari browser, which is installed on the popular iPhone, with each holding a share of about 23 per cent. Opera has also put a browser on Nintendo's DS and Wii games consoles, several set-top boxes and on new Philips television sets.

This week, the company revealed that Ford, the US carmaker, would put Opera on to the computers it is building into the dashboard of some of its trucks and vans. The company reported strong financial results last year with revenues up 58 per cent to NKr497.1m and net income has jumped sevenfold to NKr89.9m. Most of this growth comes from the success of its mobile platform.

"The long term prospects for Opera are good," says Markus Bjerke, analyst at Arctic Securities in Norway. "It has the broadest offering for mobile phones and is likely to continue to have strong market share in this area despite growing competition."

Meanwhile, Opera is chipping away at Microsoft's dominance any way it can. "The internet is too important to be dominated by just one company," said Mr von Tetzchner. He is highly critical of many Microsoft practices. He says, for example, that Microsoft causes a headache for web developers by failing to follow agreed standards of internet development.

A complaint from Opera sparked off a European Commission antitrust investigation of Microsoft last year. Google and Mozilla have also joined the fight, and Brussels's initial findings went against Microsoft. Mr von Tetzchner still believes Opera can gain traction in the US, even in the PC market. He is planning a new marketing push as the "browser wars" hot up.

"I believe it is only a matter of time," he said. "When you compete against big companies you get stubborn. You never give up."

Source.

Facebook is gearing up to befriend investors. That, at least, is the chatter around Silicon Valley after the social networking darling booted its chief financial officer. But an IPO would be risky given Facebook’s business model is still unproven, unless it has a gun to its head.

And it just might. The company is keeping mum. But the talk is that the capital Facebook raised from Microsoft two years ago may have had strings attached that could force it to launch an IPO sometime soon. That would explain why Microsoft’s $240m investment seemed to give the group such a massive valuation, at $15bn.

It’s easy to see why Silicon Valley is awash in Facebook speculation. The firm’s CFO, Gideon Yu, left abruptly earlier this week. The company said it wanted someone with more public company experience and is now taking advice from Peter Currie, the finance chief who led Netscape into the defining IPO of the dotcom-boom.

But an offering would seem foolhardy in a market as volatile as today’s, especially given Facebook’s finances. It is thought to have only brought in some $265m in revenues last year, with negative cash flows of some $150m. Though the company says it won’t make money until next year, Facebook says it has sufficient capital to meet its needs.

So why would Facebook need a financial executive with public company experience? One theory is that it gave Microsoft the right to put its stock back to Facebook if the company didn’t launch an IPO by a certain date. Such rights aren’t uncommon in privately placed venture capital deals. That would explain the $15bn price tag, which is some $9bn above Facebook’s own internal valuation.

Such a deal looked more appealing two years ago. Markets were booming and the social networking craze was going gangbusters. Indeed, Facebook has grown its membership to nearly 200m from just 40m when Microsoft, alongside Hong Kong mogul Li Ka-Shing, invested in the group.

There could be other reasons to consider an IPO too. Employees may want liquidity on their stock options. The number of investors also may be growing to the point where the company can no longer be treated as a private concern, a factor that led Google to debut. Or there could be nothing to the idea circulating through Silicon Valley. But where there’s poke, there’s usually fire.

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.