Network Infrastructure Investment - It's a Jungle Out There

Infrastructure Peering

Network Infrastructure Investment - It's a Jungle Out There

By Hunter Newby, CEO  |  September 30, 2014 (News - Alert) Inc. has continued to innovate, inspire, and invest in the future of not only retail commerce, but also the entire outsourced cloud computing universe. It is not without risk though.

The company’s public market investors have recently learned that this is a long-term investment as the company just announced that it is forecasting a loss of up to $810 million for the third quarter that ended in September. As if the shock of that kind of loss in a single quarter is not enough, consider the loss of sales tax revenue being experienced by the various counties and states in the U.S. to Amazon and other online retail sales where no sales tax is generated. Not only are the states losing revenue to fund local services, such as police departments, but the primary entity they are losing that revenue to is also losing money. That does not sound like a good recipe, or is it? To change one must be willing to completely depart from the past and discover the future. Doubt and uncertainty loom in the time of transition.

There are many dimensions and facets to this from an investor perspective, but the key point is that there is a major change occurring in the way that commerce itself is conducted – it is all moving to a network-based interaction with the consumer. While Amazon continues to dominate in online retail sales in a seemingly virtual world, it has begun building large fulfillment centers in various states to compete against foes such as Walmart. This is a step back in to the brick-and-mortar direction, which seems odd for a .com business, particularly considering it opens up the company to local tax regulation based on having a “physical presence” in those states. Apparently physically being somewhere is a necessity to do business though.

This is a curiosity for many that believe everything is just on the web or in the cloud these days. The physical world still exists, and it costs a lot of money to build it. The investment Amazon is making is huge, but as its Chief Financial Officer Tom Szkutak recently said, Amazon has a "tremendous amount of opportunities" and its investments were "certainly impacting short-term results." He added: "We're going to continue to invest on behalf of customers with the understanding that long-term has to come.”

Just as an investment was made in Lewis and Clark to explore the West, discover and develop a new world without any immediate return on that initial investment being calculated other than knowledge and the sheer benefit of just taking that first step, the new retail economy is being created by Amazon, and it is based on a similar, long-term view. This flies in the face of many with the mindset of short-term investment horizons with high yields, as if the equity values of hard assets would be suppressed forever, or there would never again be a need to build any new, physical assets.

Amazon is the canary in the coalmine for that mentality. It has signaled that the time for new investment in infrastructure for online retail sales as well as outsourced cloud computing, at the sake of short-term profits, has come. Thanks Amazon! Hopefully there will be a book available online soon that accurately chronicles the amazing time we are living in right now.

Hunter Newby (News - Alert) is CEO of Allied Fiber LLC

Edited by Maurice Nagle