Dana Blankenhorn

Break Up Amazon? Why, Yes!

Last year, after accusing the corporate culture at Amazon.Com of having “a toxic vein running through it,” Tim Bray told The New York Times it should be broken up, its store separated from its cloud.

I want to second the motion. But I think it will make me (and Jeff Bezos) a ton of money.

As I write this, Amazon is valued at about 5 times sales. That’s rich for a retailer. Even Walmart and Costco aren’t worth their sales volume. But it’s super-low for a tech company.

During the first three quarters of this year Amazon had product sales of $145 billion. But it had service sales of about $115 billion. Product sales grew at an annual rate of 32%. Service sales were up 38%.

On January 14 Amazon’s market cap was about $1.58 trillion. How would the value of the pieces compare to the whole?

They wouldn’t not at first.

Resources and the New Era: What the Best Futurists Got Wrong

This coming year represents the start of a new era.

It’s an era defined by technology, as much as the previous era was defined by resources.

I’ve written here many times that the gating factor for technology is human capital. The more trained, empowered, and willing human minds you can bring to bear, the more you can grow. Contrast this to the resource era, where the key to growth was control, over the land and what lay on or beneath it.

The politics of 2020 were defined by the clash of these two economies. It was expressed throughout the culture. But the market made its verdict clear, and it was a true landslide.

The Greediest Generation

We are closer to the start of 2030 than we are to the heart of 2010.

In the year 2030 the average baby boomer (that’s me) turns 75. Millennials will be entering menopause.

More important, labor of all kinds will be in short supply.

I’ve talked before about the talent shortage. Programmers and scientists can name their price. Locking the door to emigrating talent is economic suicide.

But the same problem will also exist with ordinary labor.

Cash Flow Rules The World

The biggest financial discovery of the last decade is cash flow.

Cash flow created the Cloud Czars. Cash flow is why Amazon is worth $1.6 trillion while AT&T is worth one-eighth as much.

Cash flow has always existed. But it was something to spread around. It was profit. When calculating whether a company could afford its dividend, analysts would do it in terms of cash flow.

That’s because business accounting isn’t just about cash. It’s about all the kinds of money that flow through the business. It’s about loans and equity, about costs that are capitalized and those that are written off on taxes.

Dividends paid for with cash flow are the lifeblood of conservative investing. Financial planners make their money moving retired folks’ money into bonds or companies that pay a regular dividend. A company that pays fat, regular dividends has its stock bought by retirement funds who don’t make trouble for management.

Tech companies don’t like to pay dividends. The thinking goes, if I’m giving money to shareholders it’s because I don’t have any other use for it. Until the last few decades very few tech companies paid dividends. They saw capital gains, the rise in the stock price that comes with growth and profit, as the shareholders’ reward.

Kamala and the Cloud Czars

(Note: This was written October 25, for publication October 30. If November 3 doesn’t turn out as this column anticipates, learn Chinese.)

As I wrote back in February 2019, Kamala Harris is to tech as George H.W. Bush was to oil. I thought she’d be the nominee but, like Bush, she faltered and will become Vice President.

Bush used the Vice Presidency to cement oil’s place in power for a generation. Reagan was the front man, but Bush did the work, bringing in his friend James A. Baker as Treasury Secretary, then using him as chief of staff and Secretary of State. The Baker-Bush tandem secured our alliance with the Sauds, fighting their war to control it against Saddam Hussein in Kuwait. Their power was secure enough to get through the Clinton years, and make American knees jerk twice for Bush’s son, who finished off Iraq.

Kamala Harris’ job is to do the same thing with tech that Bush did with oil, cement a generational alliance that can dominate American politics and return America’s prominence in business.

As I wrote then:

She won’t break up Google, although she may regulate it, which is not that bad. The costs of regulation would cement the Cloud Czars’ positions on top of the business world, for a generation, until some other industry comes to take over.

Biden’s Solar Problem

Assuming Joe Biden wins Tuesday, he has a problem.

If he doesn’t win, America and the world have a bigger problem, one I don’t think we can overcome. So, let’s assume the world goes on for a moment.

Joe’s solar problem is something the computer industry faced around the time when I was becoming a reporter, in the late 1970s. Until then, computers were capital goods. They were either leased or purchased over time with loans. Even my first PC purchase, in 1982, was with a loan.

Loans and leases built a business model that was smashed by the PC era. Both loans and leases carry huge external costs and margins. My Massapequa neighbors had nice houses and cars. Their fat sales or engineering salaries were paid for by IBM customers, who compared the cost of having IBM handle their problems to the cost of doing things manually and signed their names to lines that were dotted.

In 1981 IBM didn’t just start selling a PC. It became a computer products company. It licensed the likeness of Charlie Chaplin, who had died in 1976, from his estate. It used the rose he offered his amour in City Lights, painting it a bright red. Then it distributed the PC through computer stores, who placed it on shelves alongside the printers and other peripherals. By the 1990s you wouldn’t think of hiring a “computer specialist” to sell you stuff, unless we were talking about a networking expert who got his own hands dirty.

The Phony Profession

Back when I was at Rice University in the mid-1970s I was told that journalism was a noble profession.

It may be noble, but it’s no profession.

Even at Northwestern’s Medill School, where I received a year of training before being tossed into the world in 1978, I knew different. It’s a trade, the teachers told me there. They insisted I not call them “professor.” Journalism is a job. It’s writing for someone who buys ink by the barrel.

The problem with the journalism business is that it’s still locked in that mindset. Even after the print business is long dead, journalism is still measured by advertising linked to dead trees. There’s a reason for this. The business refused to adapt.

When people began seeking information online, a quarter century ago, journalism did not come along for the ride. I feel the blame. I knew then, after a decade covering the Internet, just how we should move forward, and I wrote about it. I asked publishers, “How hungry are you,” suggesting they seek commission income from business partners rather than selling billboards.

No one listened.

Defending Facebook

Let’s start with something that should seem obvious.

Facebook is no longer a social network. It’s the global telecommunications company.

It became this by offering free services on a global scale. This came about thanks to its investment in cloud, beginning early in the last decade. While AT&T sat on its assets, along with all the companies once known as PTTs (Postal, Telegraph and Telephone services), Facebook put $1 billion/quarter and up into a network of cloud data centers.

Facebook did it the same way Amazon did, with cash flow. It made its services free, like Google.

The Cloud Crash of 2020

This fall represents the end of a full decade since I lost my last “tech reporting” gig at ZDNet and started focusing on finance.

I’ve made a lot of money. The value of my stock portfolio has tripled. I’ve found a good niche with InvestorPlace that has eased me toward retirement. I only work because I want to. Social Security would pay me more right now. But writing isn’t a job. It’s living, it’s breathing. If you can get paid for it, that means people are reading you and benefitting from it.

I’m very, very fortunate.

Most of my last decade has been spent following the clouds. Cloud computing, which combines distributed processing, virtualization, open source, and scale, has proven itself as the 21^st century’s first great technology revolution.

The Class War

The stock market is evidence of a sick economy. (Picture from Hedgeye via Twitter.) 

The fact that it’s up shouldn’t surprise anyone who has watched the Fed rain cash on the Hamptons like there’s no tomorrow.

Money with nowhere good to go will flood the richest cropland. The Cloud Czars – Apple, Microsoft, Amazon.Com, Alphabet and Facebook– didn’t need all this financial rain. Their growth rates and profit increases are good, but they don’t justify price to earnings ratios of 33, 35, 151, 30 and 32. When markets do that, it’s called a bubble. The Cloud Czars are tulips.

Meanwhile 12% of Americans are unemployed. This underestimates the pain, which is grossly uneven.