Amazon posted their quarterly financials. Lots of revenue growth, but lower net income. There were a variety of reasons for the disappointing net income figure. The most interesting reason to me was that Amazon is spending hugely on research and development. Why? Because Amazon faces stiff competition in every phase of its product offerings. Thus Amazon needs to distinguish itself from its competition on the Web. This means more and costly user features.

Also Amazon is still very much like a typical brick and mortar retailer in that it needs warehousing and other distribution services. These are costly in comparison to a business that sells products online that are mere digits (ones and zeros). For example Apple's iTunes requires software and lots of servers, but not much else. Unit revenue sales are tiny for Apple, but so are the infrastructure costs.

Apple too, though, faces another type of competition. The proliferation of music download subscription services might take the wind out of the iTunes model. Also it appears that a price war is looming in the download music space (the same is happening to Netflix in the DVD rental space).

The Internet allows well-financed competition with an evolutionary concept to offer "destructive" services very rapidly. The winner today in many fields can be seriously impacted in a matter of months or a few years. Take a look at Yahoo --- who would have thought that Google, born four years after Yahoo went public, could overtake and pass Yahoo in a few years?