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Amazon Will Beat Apple to $1,000

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In June, I questioned fund manager David Einhorn's hipster-like contention that Apple (AAPL) is a software company, not a hardware company.

I call it "hipster-like" because the uber-cool, pseudo-philosophical rhetorical tone of the argument blocks its wholly nonsensical nature. It's the type of lofty -- albeit interesting -- thought that has roughly zero practical application.

Apple generates the vast majority of its revenue from hardware sales, not software. If the next piece of hardware bombs, Apple takes a hit. If the piece of hardware after that bombs, Apple takes another hit and we might have a trend. And so on.

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Without useful and beautiful hardware that people want to mix business and pleasure with, Apple dies. Or maybe the devices remain useful and beautiful, but, for one reason or another, people no longer want to buy them. Same outcome: a fall from greatness.

Software, services, apps, media -- it's all a dime a dozen. The only thing that matters in this life, other than getting them to sign on the line that is dotted (pat on the back to whoever names that movie), is tying it all together into an ecosystem that works better than everybody else's. Hardware drives Apple's superior ecosystem. Without hardware, it's pretty much useless.

At both Apple and Amazon (AMZN), success results from how they're able to merge the ingredients. But the soft stuff, namely platforms and services, powers Amazon.com's e-commerce ecosystem. Without it, Amazon falls even harder than Apple would. While a nice driver, at day's end, hardware at Amazon is just one means to an end.

Amazon just disrupted the competitive landscape. In fact, it provided an Apple succession plan: Amazon unseats Apple as the dominant force in tech and related spaces.

At several points over the last year, Apple stopped dictating the rules of engagement. As a result, Amazon will unseat Apple this decade as America's premier company, without being No. 1 in market share for any device. It doesn't even have to make money on hardware sales.

CEO Jeff Bezos made the business plan clear last week in Santa Monica: Amazon is not a gadget company; it's a services company. It doesn't want to make money when people buy devices; it makes money when they use them.

Later, Bezos said something to Nick Bilton of the New York Times that the entire tech world, including Cupertino and Apple bulls to the north and south, should pay close attention to.

Bilton asked whether we should expect a smartphone or television from Amazon, and Bezos said: "We'll have to wait and see. We won't do something unless we think we have some interesting new way to do it."

Amazon devices serve a core strategy: To drive e-commerce revenue and lock people into the company's ecosystem. It's all about engagement and loyalty.

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