Amazon.com (AMZN)

Recently,"the amount of bandwidth used by Amazon Web Services, which includes cloud computing and server storage space, recently surpassed the bandwidth used for its retail business," says founder Jeff Bezos, in a recent Seattlepi article. Amazon has become much more than just a place to buy books: people sell shoes, cars, food, you name it. But even more significant is the fact that over 30% of units sold are 3rd party sellers, which would imply that these businesses are paying Amazon a hefty price for allowing them to store their data on Amazon.

In addition, the introduction of the Kindle Reader will continue to spark new interest in consumers, and more importantly stands to prove that Amazon isn't running out of new, techy, ideas anytime soon.

Growth opportunities abound -- the company continues to diversify into many new businesses, a homerun in any of which could have substantial unexpected impact on company financials

Not only does the company continue to gain market share against its brick-and-mortar competitors, its innovation and superior strategic execution continues unabated.

Our reasons for buying Amazon stock back in February turned out to be right on target: Amazon did release the mysterious-but-rumored encore to its successful Kindle, known, appropriately, as the Kindle 2, just one week after we beat them to the punch on their own announcement right here in this column. And a large amount of other new and improved technologies have been hitting the market lately, from multi-terabyte storage memory devices, to enhanced iPods, laptops and PCs. A step-up in technology is bringing with it another wave of upgrade fever.

Amazon’s “cloud-computing” initiative continues to make major progress, as well. The impact of this technology – like most new successful technologies – has been grossly understated at the onset, but it promises to gain massive momentum.

The reality is that Amazon is turning out to be a much better profit play than I anticipated. In fact, after I wrote that article, I bought a Kindle 2 for my youngest daughter’s 11th birthday.

I had been looking for a way to appease my daughter’s voracious reading appetites. But I also wanted to try the novel device for myself, and save the long and highly inconvenient morning walk through the snow, rain or cold up and down my long driveway to pick up The Wall Street Journal and the Financial Times print editions. I also wanted to experiment with other foreign newspaper subscriptions like the Shanghai Times. And lastly, but very importantly, I wanted to see for myself just what the upside for this device actually was.

The experiment proved to be an immediate success. In short, I was blown away by the Kindle’s simplicity and powerful capabilities. It can hold more than 1,500 books, the definitions for words a reader might not know appear at the bottom of the page, and you can make notes and cut and paste sections of the onscreen content.

When parents and teachers across America find out about these capabilities, the Kindle’s sales are going to take off exponentially. These functionalities make reading a book much easier and more useful in this electronic form than in the “hard-copy” formatf. The device also proved to be much more attractive and addictive than I expected and it’s remarkably easy to use.

Critics point to the devices hefty price tag, but the low cost of electronic publications versus paperback or hard cover books – as well as the aforementioned technological advantages – offsets the high cost of the Kindle.

With the Kindle’s free Whispernet wireless Internet access, I was able to quickly purchase and download the complete works of Charles Dickens (more than 200 works) for less than $5, a Bible (Old and New Testament) for $2, and other works for as little as 75 cents each.

I went on to buy Adam Smith’s “The Wealth of Nations,” Sun Tzu’s “The Art of War” and Baron Von Clausewitz’ “On War” for a pittance. Just buying the more than 200 Dickens books in physical form would have cost well in excess of $1,000. And the whole exercise took less than five minutes. Such convenience and value in buying can be very dangerous to people’s budgets and conversely good for Amazon.

And you don’t have to carry that weight. A student could conceivably carry all his or her school or university textbooks in the 10-ounce Kindle. Imagine having every book you ever read or studied readily at hand.

What’s more is that every book you buy is not just stored in your Kindle, but also in your Amazon account – a true testament to the huge value of cloud computing. So, if you ever lost your Kindle, you could re-download your previous purchases into your new device. And should you max the memory capacity of your Kindle, you can just delete it from the device and it appears as “archived,” reminding you that you can re-download it from Amazon’s servers whenever you please.

"March 28 (Bloomberg) -- Amazon.com Inc. may rise to $100 a share as the online retailer generates more revenue by selling computing services to other businesses and as the popularity of its Kindle book reader increases, Barron’s reported, citing Allianz’s Walter Price.

Price expects Amazon’s database, computing-capacity and data-storage businesses to eventually generate hundreds of millions of dollars annually as small- to medium-sized companies turn to the retailer for computing needs they don’t want to undertake themselves, Barron’s said."

http://www.bloomberg.com/apps/news?pid=20601103&sid=aURCIDzgIxpo

Following are the number of unique visitors (in millions) to each site in December 2008 and the percentage change from December 2007: Amazon.com, 74.62, up 20% Walmart.com, 49.90, up 15% Target.com, 43.29, up 16% BestBuy.com, 28.50, up 11% Sears.com, 23.23, up 29% JCP.com, 20.68, up 19% ToysRUs.com, 17.38, up 17% Macys.com, 13.94, up 28% Overstock.com, 12.86, down 7% Kohls.com, 9.63, up 10%

http://www.internetretailer.com/dailyNews.asp?id=29101

The weather in December has been cold, including snow which has resulted in 16% less shopping days. Add that to high gas prices and people are less likely to be going out to department stores and more likely to be shopping on amazon.

The Street and many others don't understand Amazon's business model going forward. In 3 years, they won't be generating the bulk of their revenue from book sales - they'll be generating it from selling their expertise in Web 2.0 business management. From pay-per-use server usage to flexible payment applications, the business of doing business on the Internet will increasingly take a front seat in Amazon's business model as their low-margin book retailing business fades into the background.

Amazon.com Inc. is venturing into private-label business. Their goal is to become a general retailer and diversify away from its online bookstore roots.

The latest evidence is their recently received U.S. design patent for a wooden chopping block. The $24.99 Pinzon bamboo cutting board is being sold as part of a line of Amazon's own kitchen products on its Web site.

Private labels are popular with many traditional retailers because they can provide higher profit margins by cutting out the middleman in the supply chain. ^[1].

1. ↑ "Amazon Is Selling Designs of Its Own" Article from Wall Street Journal

"Amazon snared an upgrade from Piper Jaffray Monday based on a customer service survey and e-commerce innovations such as the Kindle and its associated iPhone application. However, the reasoning behind the upgrade is debatable."

"Amazon's customer service: Piper Jaffray surveyed 300 online shoppers and found that 81 percent are satisfied with Amazon's customer service. That's down from 84 percent in December. Ninety-four percent of Amazon users would recommend it to a friend.

Munster finds that Amazon remains the premier e-commerce destination, a finding that's not surprising. And then he cites this Amazon poll on customer satisfaction. "

See the full article and a graph of Amazon's customer service rating here: http://news.cnet.com/8301-1023_3-10191867-93.html?part=rss&subj=news&tag=2547-1_3-0-20

"Analyst Imran Khan pointed out to investors in a research note that while U.S. retail sales grew just 2 percent in the first nine months of 2008, eCommerce grew by 8 percent and Amazon's retail revenue in North America shot up 31 percent from the same period a year ago."

http://finance.yahoo.com/news/Analyst-Amazon-eCommerce-grow-apf-13962193.html

Discount retailers and online retailers such as AMZN continue to pull market share from the established electronics leaders like Best Buy. Yet another example of the retail spending transformation we've been seeing in ChangeWave surveys all year.

Although Best Buy (BBY) (40%) remains the number one store respondents say they'll shop at over the next 90 days for home entertainment and networking products, it's showing a 3-pt decline from a year ago (Aug 2007).

Going forward, the stores with the most momentum in electronics are Costco (COST) (26%; up 5-pts Year-Over-Year), Amazon (AMZN) (20%; up 5-pts YOY), Wal-Mart (WMT) (17%; up 6-pts YOY) and Sam's Club (10%; up 3-pts YOY).

Amazon has seen tremendous growth in Amazon Prime memberships. The company is tight-lipped about its Prime membership numbers, but they wouldn't be expanding internationally if the program were not successful. During the second half of 2007, Amazon rolled out Prime to 3 international marketplaces (Japan, UK and Germany)

According to a research note by Jeetil Patel of Deutsche Bank,"Over the past year, services such as Amazon Prime have helped to shift consumer behavior, fuel cross-category shopping and consolidate wallet share into the hands of Amazon.com. This strategy has helped to accelerate user growth, purchase frequency and unit growth at the company in the past year, while the e-commerce market has deteriorated. Once again, we think Amazon Prime should fuel growth in 1Q 2008, based on shifting consumer behavior."

I've seen this growth first hand. I use Amazon's FBA program to fulfill my Amazon orders, which makes my items eligible for Super-Saver shipping and Prime members. In the 4th quarter of 07, 14% of my shipments were for Amazon Prime customers. So far in the first quarter of this year, 19% of my orders are going to Prime customers. Those are sales I would not be getting if I was self-fulfilling my orders.

Amazon has few major competitors and is well poised to profit from the long term trend of increasing share of wallet spent online

Aggressive sales growth show Amazon is successfully growing its revenues while simultaneously improving its profitability

Now, I'm not going to sit here and say that Amazon (AMZN) is a "valueplay" by any means. I am going to say Bezos is a one of a kind entrepreneur who has cost a lot of folks who bet against him a lot of money. He just keeps refreshing his company and continues to innovate.