Amazon’s share price rose 40% over a two-day period last week (its highest level since April 2000) after it released earnings. That’s a lot of volatility for a company which went public 11 years ago (May 1997). Volatility in the financial markets speaks to the degree of unpredictable change. Given the scale and apparent stability of Amazon’s core business, high levels of volatility are surprising. One explanation for the sudden price movement provided in the financial media has been the extent of shorts on the stock.
Those positions were naturally covered on news of positive earnings. But there’s a deeper issue at hand. Amazon is a highly innovative company in a highly innovation medium. It’s not lost on Jeff Bezos that e-tailing may not always be the biggest franchise opportunity for the company.

After Google and Yahoo, Amazon remains the most innovative big-company on the web. Consider facets of user experience design that the company has pioneered — product reviews, collaborative filtering (people who read this, also read that), tagging (works very well for books), search of physical media (”Search Inside”) — and successfully applied in its core competency of e-tailing. In the last two years, the company has launched standalone-like businesses that leverage operational infrastructure such as S3 (Simple Storage Service) and Amazon Web Services. These are neat ways of growing into new markets by leveraging the core. One wonders if we’ll wake-up one day and find Amazon competing more often with IBM than Walmart. Imagine the Amazon you know being spun-off under a different name, and a new digital-only business remaining behind. What business lines would comprise the new Amazon? Well, they may involve all the dirty work that make web businesses function behind the scenes (hosting, content delivery, analytics) as opposed to user-facing products (like maps, search, video). In any event, Amazon’s recent share price behavior is partially explained by difference of opinion on the future direction of the business. People just don’t know the implications of the company’s apparent moves toward the web applications/digital services side of the industry. Truth be told, Amazon probably doesn’t know either. The medium is still in very early stages. We’ll all just have to wait and see.

Filed under: People, Web Apps, Innovation

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Tags: Amazon, Jeff Bezos, S3, Volatility,