May 28, 2008 - Marquee companies from the dot.com era have largely faded into obscurity now. Most of those that remain may still generate profits but have little influence on the Web 2.0 landscape of today. Only a few have evolved effectively or built on their early dominance and are influential iterations of their original form.

Superlatives are one thing, numbers are another. Amazon is gigantic with sales expected to approach $20 billion this year, yet it's still growing at the astonishing rate of 30%+ on a revenue basis and 35%+ on an earnings basis. Return on Equity is an impressive 55.7%.

It's not cheap to own a piece of those numbers, though, so investors shouldn't expect to find the current economic distress or market meltdown sending shaky shareholders to the exits and unloading the stock for a bargain. While off its peak of just over $100 six months ago, AMZN is still commanding a respectable valuation at $81.30 currently. That's more than 50 times the consensus earnings estimate of $1.52 per share for 2008.

Why would buyers pay such a lofty premium even in times like this? In addition to the great numbers, Amazon has a great story. In fact it's more like a series of novels (think Harry Potter - we're talking books, movie deals, merchandise, the whole ball of wax!). The story is that Amazon doesn't think or behave like most companies.

For example, in an interview today at the Wall Street Journal D6 conference (D6: All Things Digital), CEO Jeff Bezos explained how Amazon bases its strategy on customer needs rather than the company's skill set. "If you only focus on your own skill set, you will ultimately be outmoded by competitors. You must consistently review and enhance your skill set according to customer needs."

That partly explains how an e-commerce company can jump into the hardware business (Kindle, Amazon's e-book reader) and not lose all credibility with investment analysts. The other part is that Amazon has proven it can morph and pursue new markets successfully, not out of desperation but out of vision.

Web Services is another area where Amazon is ambitious in its expansion. This is a fairly new, risky, yet potentially massive market in providing the behind-the-scenes technology platform for sophisticated business processes. Amazon Web Services offers infrastructure web services--virtual data centers often referred to as cloud computing--that let customers focus on software. That's very Web 2.0, and it's also an area with some heavyweight competition such as Google and IBM.

Still another intensely-competitive direction for growth is digital media/entertainment downloads. Amazon.com offers music, TV shows, and movies to consumers and CEO Bezos said today that it plans to launch pay-for-play streaming video in the next few weeks. Certainly Apple and Netflix might have something to say about Amazon's foray into this space, but given Amazon's track record and intelligent connection to its customer base, Amazon is a contender for this valuable prize, too.

The Amazon story has plenty of twists and turns like any good novel. A weak economy can't be good for a retailer, yet consumers are hanging up the car keys so the nesting trend and digital delivery of e-books, music, and movies ring a sweet harmony for Amazon. Business spending on IT may be at risk, but that's more of a threat to hardware and a thread to outsourced infrastructure service providers.

Web 2.0: it's not your father's Internet. One thing remains the same, though; Amazon.com is a retailing megaforce, a profit powerhouse, and a pivotal player in the shape of things to come.

- James Hale