The instant-on computer

A long time ago, when I was at Amazon, someone asked Jeff Bezos during an employee meeting what he thought would be the single thing that would most transform Amazon's business.

Bezos replied, "An instant-on computer." He went on to explain that he meant a computer that when you hit a button would instantly be ready to use. Desktops and laptops in those days, and still even today, had a really long bootup process. Even when I try to wake my Macbook Pro from sleep, the delay is bothersome.

Bezos imagined that people with computers which were on with the snap of a finger would cause people to use them more frequently, and the more people were online, the more they'd shop from Amazon. It's like the oft-cited Google strategy of just getting more people online since it's likely they'd run across an ad from Google somewhere given its vast reach.

We now live in that age, though it's not the desktops and laptops but our tablets and smart phones that are the instant-on computers. Whether it's transformed Amazon's business, I can't say; they have plenty going for them. But it's certainly changed our usage of computers generally. I only ever turn off my iPad or iPhone if something has gone wrong and I need to reboot them or if I'm low on battery power and need to speed up recharging.

In this next age, anything that cannot turn on instantly and isn't connected to the internet at all times will feel deficient.

Big data and price discrimination

Adam Ozimek speculates that Big Data might bring about more price discrimination.  First degree price discrimination has always been a sort of business holy grail, but it was too difficult to get enough information on the shape of the price-demand curve to make it so.

For some time now, though, this has no longer been the case for many companies, and in fact one company did try to capitalize on this: Amazon.com. I know because I was there, and the reason that was a short-lived experiment is a real world case study of how the internet both enables and then kneecaps this type of price discrimination.

Amazon, until then, had one price for all customers on books, CDs, DVDs (this was the age before those products had been digitized for retail sale). A test was undertaken to vary the discount on hot DVDs for each customer visiting the website. By varying the discount from 10% up to, say, 40%, then tracking purchase volume, you could theoretically draw the price-demand curve with beautiful empirical accuracy. 

Just one catch: some customers noticed. At that time, DVDs were immensely popular, selling like hotcakes, and the most dedicated of DVD shoppers perused all the online retail sites religiously for the best deals, posting links to hot deals on forums. One customer posted a great deal on a hot DVD on such a forum, and immediately some other respondents replied saying they weren't seeing the discount.

The internet giveth, the internet taketh away. The resulting PR firestorm resulted in the experiment being cancelled right away. Theoretically, the additional margin you could make over such price discrimination is attractive. But the idea that different customers would be charged different prices would cause such distrust in Amazon's low price promise that any such margin gains would more than offset by the volume of customers hesitating to hit the buy button.

Ozimek notes this: "The headwind leaning against this trend is fairness norms." What's key to this is that the internet is the world's most efficient transmitter of information, and while it enables a greater degree of measurement that might enable first degree price discrimination, it also enables consumers to more easily share prices with each other. This greater transparency rewards the single low price strategy.

It's not a coincidence, in my mind, that Apple fought for a standard $0.99 per track pricing scheme with the music labels while Amazon fought the publishers for a standard $9.99 pricing for Kindle ebooks. Neither Amazon or Apple was trying to profit on the actual ebooks or digital music retail sales (in fact many were likely sold at break-even or a loss), they were building businesses off of the sale of complementary goods. In the case of Amazon, which is always thinking of the very long game, there are plenty of products it does make a healthy profit off of when customers come to its site, and getting users to invest heavily into building a Kindle library acted as a mild form of system lock-in. In the case of Apple, it was profiting off of iPod sales.

In the meantime, second and third order price discrimination continues to exist and thrive even with the advent of the internet so it's not as if the pricing playbook has dried up.

A skeptic might counter: didn't Ron Johnson get fired from J. C. Penney for switching them over to an everyday low price model? Didn't their customers revolt against the switch from sales and coupons and deals you had to hunt down? 

Yes, but everyday low pricing isn't a one-size-fits-all pricing panacea (as I wrote about in reference to the Johnson pricing debate at J.C. Penney). For one thing, there is path dependence. Once you go with a regular discount/deal scheme, customers create a mental price anchor that centers on that discount percentage and absolute price. It's hard to lift an anchor.

J. C. Penney was trying to go from a heavy sale-driven pricing scheme to an everyday low pricing model, and that's an uphill, unmarked path. Only the reverse path is paved. It's not clear whether the switch would have worked in the long run. Johnson ran out of runway from his Board soon after he made the switch and revenues declined. 

Everyday low pricing tends to work best when you're selling commodities since those items are ones your customers can purchase many places online. At Amazon we were far more interested in dominating one crucial bit of mental math: what website do I load up first if I want to buy something? We were obsessed with being the site of first resort in a consumer's mind, it was the core reason we were obsessed with being the world's most customer-centric company. Anything that might stand in the way of someone making a purchase, whether it be prices, return policy, shipping fees, speed of delivery, was an obstacle we assaulted with a relentless focus. On each of those dimensions, I don't think you'll find a company that is as customer-friendly as Amazon.com.

Ultimately, customers have a hard time figuring out intrinsic value of products, they're constantly using cues to establish a sense of what fair value is. Companies can choose to play the pricing game any number of ways, but I highly doubt Netflix and Amazon will choose to make their stand on the first order price discrimination game. There are many other ways they can win that are more suited to their brand and temperament.

Still, the peanut gallery loves to speculate that Amazon's long term plan is to take out all of its competitors and then to start jacking up prices. A flurry of speculation that the price hikes had begun spun up in July this year after an article in the NYTimes: As Competition Wanes, Amazon Cuts Back Discounts. After the NYTimes article hit, many jumped on the bandwagon with articles with titles like  Monopoly Achieved: An invincible Amazon begins raising prices.

If you read the NYTimes article, however, the author admits "It is difficult to comprehensively track the movement of prices on Amazon, so the evidence is anecdotal and fragmentary." But the article proceeds onward anyhow using exactly such anecdotal and fragmentary evidence to support its much more certain headline. 

Even back when I was at Amazon years ago we had some longer tail items discounted less heavily than bestsellers. However, pricing the long tail of books efficiently is not as easy as it sounds, there are millions of book titles, and most of the bandwidth the team had for managing prices was spent on frontlist titles where there was the most competitive pressure. All the titles listed in the NYTimes article sound to me like examples of long tail titles that were discounted too aggressively for a long period due to limited pricing management bandwidth and are finally being priced based on the real market price of such books. Where in the real world can you find scholarly titles at much of a discount?

The irony is that the authors cited in the article complain their titles aren't discounted enough, while publishers ended up in court with Amazon over Amazon discounting Kindle titles too much. This is to say nothing of the bizarre nature of book pricing in general, in which books seem to be assigned retail prices all over the map, with the most tenuous ties to any intuitive intrinsic value. The publishers set the retail price, then Amazon sets a price off of the retail price. If the publishers wants the discount on their books to be greater they could just increase the retail price and voila! The discount would be larger.

To take another category of products, DVDs, soon after we first launched the DVD store, long tail title like Criterion Collection DVDs were reduced from a 30% discount to a 10% to 15% discount. But just now, I checked Amazon, and most of its Criterion DVDs are discounted 25% or more. If I'd taken just that sample set I could easily write an article saying Amazon had generously decided to discount more heavily as part of its continued drive to return value from its supply chain to customers.

Could the net prices on Amazon be increasing across the board? I suppose it's possible, but I highly doubt that Amazon would pursue such a strategy, and any article that wanted to convince me that Amazon was seeking to boost its gross margins through systematic price hikes would need to cite more than just a few anecdotes from authors of really long tail books. 

It will remain a tempting narrative, however, because most observers think it's the only way for Amazon to turn a profit in the long run.

However, that's not to say big data hasn't benefitted them both in extraordinary ways. Companies like Amazon and Netflix know far more about each of its customers than any traditional retailer, especially offline ones, because their customers transact with them on an authenticated basis, with credit cards. Based on their customers' purchase and viewing habits, both companies recommend, better than their competitors, products their customers will want.

Offline retailers now all want the same type of data on their customers, so everyone from your local drugstore or grocery store to clothing retailers and furniture stores try to get you to sign up for an account of some sort, often by offering discounts if you carry a free membership card of some sort.

Cyclone 4006

Via Maria Popova, this humorous review of the Cyclone 4006 - Ultra High Pressure Hard Surface Cleaner, 40,000 psi water with Full Recovery:

It used to take me 1 1/2 hours to get to work in the morning. It takes me less than 15 minutes now and that includes stopping to get an Egg McMuffin!

My secret? Easy. I bought a Cyclone 4006. Now, if there is anyone in front of me on the road, I beep my air horn once or twice. If they don't get out of my way, I turn on the "juice". If 40,000 psi water pressure (with full recovery) is strong enough to blast off concrete curing compound from asphalt, you won't believe what it does to a Toyota Corolla! Woo hoo! Beep beep! Wooooooosh!

OK, it's a little difficult to parallel park and it doesn't go faster than 30 mph. I'll give you that. But, trust me, when you are behind the wheel of a bright yellow Cyclone 4006, these things don't really matter.

PS. It comes with an "optional remote walk-behind head." If you figure out what this is, please let me know.

To really appreciate the review, you need to see a photo of one.

The Cyclone 4006 looks like a truck wearing a gas mask

The Cyclone 4006 looks like a truck wearing a gas mask

Sadly, the Cyclone 4006 is out of stock. Some days when I have to drive to work down the 101 I could really use one of these. I wonder how much it cost? I'm going to guess it wasn't available for free two-day shipping via Amazon Prime.

Amazon Prime Air

In a promo spot for tonight's episode of 60 Minutes, Jeff Bezos promised to drop a big surprise. Well, he delivered (according to Twitter since those of us here on the West Coast haven't seen the episode yet).

Announcing Amazon Prime Air, delivery by drone. 

We're excited to share Prime Air — something the team has been working on in our next generation R&D lab.

The goal of this new delivery system is to get packages into customers' hands in 30 minutes or less using unmanned aerial vehicles.

Putting Prime Air into commercial use will take some number of years as we advance the technology and wait for the necessary FAA rules and regulations.

Watch the video of a recent test flight.

I mean, really. Tacocopter was ahead of its time.

Give the gift of Amazon Prime

You can now give Amazon Prime as a gift. I can think of few greater ways for you to help the global economy, and I already plan to give out many of these to people I know who haven't gotten on the bandwagon yet. Every time they order a package from Amazon, they'll think of you with a smile, it's truly a gift that keeps on giving.

If you're not sure if it's for you, learn more here and sign up for a 30-day trial. 

Taking stock

My piece on Amazon last weekend elicited a lot of email and comments, many of which were about Amazon's stock price. People who are bullish on Amazon were reassured by my piece, but many more comments and emails were from Amazon bears who thought I was deluded. It's worth reiterating for new readers: nothing I ever write here should be read as investment advice on Amazon, whether pro or con. 

Amazon's stock price (or company stock prices in general) is a topic that doesn't really interest me, and I'm going to disappoint those hoping for me to come up with some long-term valuation model for Amazon. I believe Amazon's business model is often misunderstood, but as to whether it's current stock price is fair or not, I can't claim any more insight than the average armchair analyst. Honestly, I don't even know what Amazon's share price is right now. I could find out without moving my mouse cursor more than a few inches, but I decided long ago that I didn't find stock picking very fulfilling.

This might seem disingenuous coming from someone who still owns some Amazon stock, but I'm sure I'm not the only former employee of a company who kept a small equity stake. It's difficult to be more familiar with the people, processes,  and business of a company than the one you worked at for so many years, and there is not some small amount of sentimental value in my Amazon stake.

If you want my serious investment advice, though, buying individual stocks, especially those as volatile as technology stocks, is not a game the average investor should be playing. When people ask me for advice in playing individual stocks, I tell them to only invest with money they're comfortable losing entirely, the same advice I give to people wondering how much to take to the blackjack table in Vegas.

For most everyone I know, I recommend diversifying your portfolio across a set of low-cost index funds, rebalancing occasionally, and spending the time you save stressing about the stock market on doing something more enjoyable and productive. That's how I manage my own finances, with a small play fund set aside for a few individual stocks including Amazon.

I'm far more interested in the strategic questions surrounding Amazon, Apple, and other technology companies than what their stock prices are. For entrepreneurs, investors, or other people working in technology, there's more to learn from how those companies create value and defend their businesses than the vagaries of the stock market. In only a few cases does a company's stock price hold interest for me: when it impacts their ability to retain employees, when they can use stock to purchase other companies, or if I'm thinking of working there and I'm negotiating my compensation.

While my last two pieces on Amazon, spread across a year, highlight some strengths of their business model, I certainly don't think Amazon is perfect. I view companies as networks, and you can tell a lot about a company's strengths and weaknesses purely from their outputs. From the Amazon bears, I'd love to hear more analyses as to why Amazon's business might fail and fewer discussions of what the proper P/E ratio is. GAAP earnings may have a strict definition, but within that definition companies can willfully manipulate their earnings up or down, moving them in or out, depending on their strategic goals.

Amazon and the "profitless business model" fallacy

[DISCLOSURE: As always when I write about Amazon, I'll note I worked there from 1997-2004 and that I still own some shares in the company. I still have many friends who work there, though I have no more idea what Amazon is working on now than any of you in the public.] 

With every quarterly earnings call, my Twitter feed lights up with jokes about how Amazon continues to grow its revenue and make no profits and how trusting investors continue to rewards the company for it. The apotheosis of that line of thoughts is a quote from Slate's Matthew Yglesias earlier this year: "Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers."

It's a great quote, one that got so much play Amazon even featured it in its Annual Letter to Shareholders. But like much of the commentary about Amazon, it's a misreading of Amazon's business model.

Amazon is a classic fixed cost business model, it uses the internet to get maximum leverage out of its fixed assets, and once it achieves enough volume of sales, the sum total of profits from all those sales exceed its fixed cost base, and it turns a profit. It already has exceeded this hurdle in its past.

I'm fairly certain most of Amazon's retail businesses remain quite profitable. Some may not be, but they help to reinforce Amazon as the retail site of first resort. By the time I left Amazon in 2004 many of its retail businesses were already spinning off healthy profits. It is much harder to tell now from the outside because Amazon doesn't present a full P&L by business line to the outside world. You can see revenue by broad categories of the business, but most of its costs are lumped together in one giant blob on the income statement.

Very early in my career at Amazon, we could already easily model out and see when our revenue would give us enough income to exceed our fixed cost base. We could adjust when that would happen by choosing to invest more or less aggressively, but given our growth rates, it was always just felt like a matter of when, not if, we'd turn a profit.  Besides, we were most obsessed with free cash flow. Most armchair analysts love to dissect gross margin and net income because those are simpler to understand and easier to compute from public financial statements, but there are many problems with just looking at gross margin that any analyst worth their paycheck should understand.

Does Amazon lose money on sales of some individual items? For sure. The first Kindle ebooks that were priced at $9.99 when Amazon had to pay more than that per copy to publisher were one example. Giant, heavy electronics items that Amazon sometimes ships for free when the shipping cost is clearly non-trivial and cost more than the usual thin margins on such goods are another.

But while such exceptions in the catalog make for great copy (it's fun to link to such items in your story and let users see the evidence firsthand, especially when the item is some strange piece of machinery that maybe a handful of people in the world would ever order), but don't be mistaken. The vast vast majority of products Amazon sells it makes a profit on. Over time, more of these products that inadvertently sell at a loss will be corrected so that no longer happens, and what remains will be products Amazon intentionally uses as loss leaders.

The platform of Amazon is profitable, too. When other people sell products on Amazon Marketplace the gross margin is huge. I sell a used book on Amazon, it takes a cut of the transaction, I am the one packing and shipping that item to the buyer. You don't have to be a financial whiz to understand the cost of that transaction to Amazon is minimal. 

If Amazon has so many businesses that do make a profit, then why is it still showing quarterly losses, and why has even free cash flow decreased in recent years?

Because Amazon has boundless ambition. It wants to eat global retail. This is one area where the press and pundits accept Amazon's statements at face value.

Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford. Joey Chestnut doesn't just wake up one day and win the Coney Island hot dog eating contest every year, he has to spend months of training to prepare his digestive system for the feat. 

Amazon has seen that lowering its shipping costs and increasing the speed of shipping items to customers is like a shot of adrenaline to customer's propensity to buy from them, and so it has doubled down on building more and more fulfillment centers around the world. When I joined Amazon it had one fulfillment center. Today it has dozens just in the US alone, and I would not be surprised if it has more than 100 fulfillment centers worldwide now. 

That is a gargantuan investment, billions of dollars worth, and it takes a significant bite out of Amazon's free cash flow. Add in its investments in infrastructure to support a growing AWS client base, and Amazon has again hiked its fixed cost base to a higher plateau. But for Amazon this is nothing new, it's just the same typeface bolded. 

I'm convinced Amazon could easily turn a quarterly profit now. Many times in its history, it could have been content to stop investing in new product lines, new fulfillment centers, new countries. The fixed cost base would flatten out, its sales would continue growing for some period of time and then flatten out, and it would harvest some annuity of profits. Even the first year I joined Amazon in 1997, when it was just a domestic book business, it could have been content to rest on its laurels.

But Jeff is not wired that way. There are very few people in technology and business who are what I'd call apex predators. Jeff is one of them, the most patient and intelligent one I've met in my life. An apex predator doesn't wake up one day and decide it is done hunting. Right now I envision only one throttle to Jeff's ambitions and it is human mortality, but I would not be surprised if one day he announced he'd started another side project with Peter Thiel to work on a method of achieving immortality.

One popular thesis among Amazon profitability skeptics is that Amazon can't "flip a switch" and become profitable. The most common guess as to how Amazon flips the switch is that it will wait until it is the last retailer standing and then raise prices across the board, so Amazon skeptics argue against that narrative possibility.

But "flipping a switch" is the wrong analogy because Amazon's core business model does generate a profit with most every transaction at its current price level. The reason it isn't showing a profit is because it's undertaken a massive investment to support an even larger sales base. How does Amazon turn a profit? Not by flipping a switch but by waiting, once again, until its transaction volume grows and income exceeds its fixed cost base again. It can choose to reach that point faster or slower depending on how quickly it continues to grow its fixed cost base, but a simple way to accelerate that would be to stop investing in so many new fulfillment centers. 

One argument against Amazon is that it is investing for a revenue volume that will never come. That's a different argument, to me, than saying its business model isn't profitable. And even on that point, you can chart its quarterly revenue for yourself and tell me if it looks like it's flattening out.  Though it has not always been on an exact upward sloping curve (we can expect the curve's slope to adjust up or down as various lines of its retail business mature or accelerate depending on Amazon's market share and traction in each line), the long term arc bends up like the corner of a world-dominating smile.

Part of this problem comes from the limited visibility into the dynamics of its business finances. Why doesn't Amazon break out more detail in its financial reporting to help the external world understand all these intricacies? How many subscribers to Amazon Prime, how many Kindles have sold, what's the net income from different lines of business, how much of its asset base investment is for fulfillment centers versus technology infrastructure for AWS? Why doesn't Google break out its lines of business in more detail in its financials? Why doesn't Apple reveal more detail about exact sales of the various models of its iPads and iPhones?

Tech companies, in general, have dealt with the press, investors, and public long enough now to have decided that for the most part, disclosing less buys them the most strategic flexibility with the least amount of pain. Tech companies have an interesting ambivalence towards the public capital markets. They rebel against resource dependence theory because they don't believe their investors know how to run their businesses better than they do, but on the other hand, being public is a great boon to compensating knowledge workers who have a lot of job options.

Based on its stock price, more investors seem willing to buy Amazon's business story that they'll be able to replicate their historical playbook on a larger scale. 

You could argue that a business that has to invest so much of its free cash flow to grow is inherently a profitless business model. However, Amazon has known from its very earliest days that selling commodities, the core of Amazon's business, is inherently a low margin scale business. It won't ever approach the margins of, say, Apple's hardware business.

But to me, a profitless business model is one in which it costs you $2 to make a glass of lemonade but you have to sell it for $1 a glass at your lemonade stand. But if you sell a glass of lemonade for $2 and it only costs you $1 to make it, and you decide business is so great you're going to build a lemonade stand on every street corner in the world so you can eventually afford to move humanity into outer space or buy a newspaper in your spare time, and that requires you to invest all your profits in buying up some lemon fields and timber to set up lemonade franchises on every street corner, that sounds like a many things to me, but it doesn't sound like a charitable organization.

Some people get it.  When I had most of this post written, I started searching for articles analyzing Amazon's business model, and I found this fantastic post by Benedict Evans which already states much of what I've written above. He understands Amazon to be a portfolio of businesses of varied maturity. But Evans is the exception, and so you can continue to expect a torrent of jokes each time Amazon releases its earnings and shows revenue growth but a negative net income. I'd love to see more external analysis of Amazon begin to focus on trying to break down its various investments in more detail and less time spent arguing whether its basic business model is profitable. Does the world need another story marvelling at how much Jeff can invest in his business? Is it that difficult to fathom that investing to try to be the largest retailer in the history of the world takes billions of dollars in investment?

The irony of all this is that while Amazon's public financial statements make it extremely difficult to parse out its various businesses, it is extremely forthright and honest about its business plans and strategy. It's the reason Jeff continues to reprint its first ever letter to shareholders from 1997 in its annual report every year. The plan is right there before our eyes, but so many continue to refuse to take it at face value. As a reporter, it must be so boring to parrot the same thing from Jeff and his team year after year, so different narratives must be spun when the overall plan has not changed. 

Take this most recent article in The Atlantic, from Derek Thompson. It's a good read, comparing Amazon to Sears, but it's also a great example of how Amazon's basic strategy is always couched the same way, with a general veneer of skepticism.

At least, that’s the vision. Defenders say Amazon is trading the present for the future, spending all its revenue on a global scatter plot of warehouses that will make the company indomitable. Eventually, the theory goes, investors expect Amazon to complete its construction project and, having swayed enough customers and destroyed enough rivals, to “flip the switch,” raising prices and profits greatly. In the meantime, they’re happy to keep buying stock, offering an unqualified thumbs-up for heavy spending.

But this theory assumes a practically infinite life span for Amazon. The modern history of retail innovation suggests that even the behemoths can be overtaken suddenly. Sears was still America’s largest retailer in 1982, but just nine years later, its annual revenues were barely half those of Walmart. “The economic countryside is littered with the carcasses of companies that thought they had a [durable] competitive advantage,” says Alex Field, an economic historian at Santa Clara University. “Just look at BlackBerry or AOL.”

Amazon is not as insulated from its rivals as some think it is. Walmart, eBay, and a bounty of upstarts are all in the race to dominate online retail. Amazon’s furious spending on new buildings and equipment isn’t an elective measure; it’s a survival plan. The truth is that the company benefits from a beautiful but delicate tautology: Amazon has won investors’ trust with a reputation for spending everybody to death, and it can spend everybody to death because it has won investors’ trust. For now.

“Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers,” Slate’s Matthew Yglesias joked earlier this year.

It has every element of the classic Amazon coverage story. "Flip the switch." The faceless community of Amazon's naive and trusting investors.   The charitable organization quote, ™Yglesias 2013. And above all, a fairly clear and accurate statement of Amazon's actual business strategy. 

What a wonderful feeling, to be able to conceal a secret in plain sight. Laid bare before its competitors, its investors, the press, is the recipe and the blueprint, in plain language. I agree with Thompson and others that it is increasingly difficult to find real business moats or competitive advantages in the modern world, what with the internet eliminating many previous physical moats of time and space. What remains , though, is a footrace of beautiful simplicity, one in which Amazon is both tortoise and hare. It is patient, it plays for the long-term like no other company, it will take failure after failure and never lose heart, and yet it will sprint when it picks up a scent. And it will take the race to an arena with the thinnest of air.

If I were an Amazon competitor, I'd actually regard Amazon's current run of quarterly losses as a terrifying signal. It means Amazon is arming itself to take the contest to higher ground. The retail game is about to become more, not less, punishing.

One billion dollars

When Amazon bought Goodreads, BusinessWeek published an article with a headline reading "Amazon likely paid $1 billion for Goodreads".

This was Kyle Stock's reasoning on the $1 billion figure.

Here’s how the numbers play out. LinkedIn (LNKD) is the heavyweight champ in this category. Based on its current market valuation and 202 million active accounts, investors are valuing it at $95 per user. Instagram is at the bottom of the spectrum, despite the hysteria over its $1 billion sale to Facebook (FB). At the time of the deal, it had 35 million users, meaning Facebook paid just $29 per Instagrammer.

Much of the social market, however, has settled neatly in between those two points. Facebook has a running value of $58 per user, while Pinterest and Twitter are right around $50 a head, based on recent financing rounds and network statistics.

Working with that range, Goodreads’s 16 million users at $55 each would add up to a sticker price of $880 million.


Then Kara Swisher came out and reported that Amazon actually paid about $150 million for Goodreads.

BusinessWeek now has amended the headline of that article to read "Rampant Speculation: How Much Did Amazon Pay for Goodreads?" Look at the URL, though, and you'll see the original headline remains, even though BusinessWeek has not called out the edit anywhere else on the page.

The poor analysis doesn't need my commentary. All users are not created equal. What's equally poor form here is the bait and switch headline. So many media sites rely on the attention-grabbing headlines to attract eyeballs to serve up display ads, and so many of those headlines are skimmed on aggregator sites or Twitter or elsewhere without ever being clicked on. The level of misinformation being spread by stories like this plants them further down the road from journalism, somewhere closer to the county lines of sensationalism.