Amazon (AMZN) was once considered the top online retailer; however, since Alibaba's (BABA) recording breaking IPO, Amazon has been overshadowed by the Chinese e-commerce giant. With naturally higher profit margins, revenue growth, and earnings growth, it’s not hard to see why Alibaba is suddenly a Wall Street darling, and why Amazon has been neglected. Nevertheless, investors mustn't forget why Amazon’s financial growth numbers are currently under scrutiny. The company has poured millions into research and development for future products; whether these investments pay off, and keep Amazon competitive, is yet to be seen. Regardless, investors now have their first glimpse into Amazon's future after the sudden release of the Amazon Echo.
The Amazon Echo is an "always-on" wireless speaker with built-in voice recognition; it's essentially Siri on steroids. Like Amazon's other mobile devices, such as Kindle tablets and the Fire smartphone, the Echo serves as an Amazon storefront. Users can either directly purchase from Amazon, or they can add items to a “shopping list.” The Echo also includes an array of practical features, including: an alarm clock, news and weather updates, and AI answers to your common questions (courtesy of Wikipedia). Moreover, Echo uniquely utilizes Amazon Web Services. By connecting to Amazon's cloud platform, the Echo is “always learning.” Whether it be voice recognition updates or an expanding vocabulary, the Echo is an evolutionary system. More importantly for investors, the Echo’s unlimited connectivity allows Amazon to collect extremely important customer and household data, such as consumer preferences and buying habits.
For most loyal Amazon customers, the Echo represents an online shopping revolution – now you can buy dress pants, cleaning products, and groceries from a single vendor. Unfortunately, at present, Echo will not make a dramatic contribution to Amazon’s bottom line. Instead, Amazon must sell Echo to non-members if the company wishes to generate sufficient revenues; all American consumers must use it. Fortunately for Amazon, American consumers are diligent, and they don't enjoy wasting their time shopping. In fact, most prefer to shop from home as often as possible. Thus the Amazon Echo is a perfect solution to this growing trend.
Conversely, Amazon's Echo may experience a trend akin to Apple's (AAPL) Siri, one in which consumers are initially excited by the prospect of artificial intelligence, but are quickly disappointed by real constraints. Moreover, Echo's "always-on" functionality may (rightfully) upset consumers; "always-on" is synonymous with "always-listening," a skill perfected by the NSA. Given the Snowden leaks, and the now apparent friendly relationships between tech firms and the U.S. Government, people are more aware than ever of Big Brother's shadow.
Although the Echo will not make or break Amazon, it underscores CEO Jeff Bezos' strategy. Like I mentioned in my last article, Bezos, who is not currently all too concerned with the company’s bottom line growth, has spent millions on everything from book publishing to video game streaming. Unfortunately for Amazon investors, most of Bezos' investments have yet to pay off. The Amazon Fire Phone was a complete flop, drone deliveries are nothing more than a PR stunt, and same-day grocery delivery services have yet to catch on. It has yet to be released how much Bezos spent on Echo's R&D, but it was most likely a very expensive project.
Let us not forget that during this period, a time in which Bezos' wishes for Amazon to become “the company of the future,” Alibaba is beating analyst expectations and shattering sales records. In doing so, Alibaba is placing immense pressure on Bezos and Amazon; don't expect Jack Ma to pump the brakes either. After Amazon's recent earnings fiasco, an Echo flop might represent the last straw for Wall Street investors, many of whom once adored, and capitalized on, Bezos' futuristic business plan.