Amazon Reports Small Loss as It Focuses on Investments

But with revenue up 22 percent, Amazon showed that it could still deliver the sales growth demanded by investors, who have lifted the company’s stock 21 percent this year. So far, those demands do not include an insistence on big profits.

Until it does, Amazon seems content to pour money into initiatives aimed at gobbling up an increasing share of spending by consumers.

For the quarter that ended June 30, Amazon said it had a net loss of $7 million, or 2 cents a share, compared with net income of $7 million, or a penny a share, in the same period a year earlier. Amazon’s revenue was $15.7 billion, up from $12.83 billion the year before.

The results were slightly below the estimates of analysts surveyed by Thomson Reuters, who expected Amazon to report earnings of 5 cents a share and revenue of $15.73 billion.

The miss did not seem to trouble investors too much. The company’s stock dropped less than 2 percent in after-hours trading after the release of its earnings report.

A good illustration of Amazon’s long-term bets is online video. The company is spending hundreds of millions of dollars on licensing rights to build a large library of video that its customers can watch through their Kindle tablets and other devices. These agreements are critical as movies, music and other media — which account for 28 percent of Amazon’s total sales — shift from physical to digital form.

The company recently cut its biggest such deal ever, with a multiyear agreement to license television shows from Viacom, including children’s shows like “Dora the Explorer” and “SpongeBob SquarePants.”

As a result, Amazon spent almost 47 percent more on technology and content in the quarter, for a total of $1.59 billion — roughly 10 percent of its total revenue. Included in that spending is the company’s investment in Amazon Web Services, a lucrative business through which Amazon rents capacity in its data centers to independent companies.

“We’re investing for the large opportunities we have in front of us,” Tom Szkutak, the company’s chief financial officer, said in a conference call.

While Amazon is feared as a seller of physical goods, it faces several formidable rivals in the digital content business, including Netflix, Apple, Hulu, Microsoft and Google.

Still, Amazon is also spending aggressively on the warehouses it needs to deliver physical goods, building them in locations that have been inching ever closer to big cities with the goal of offering next-day, or even same-day, deliveries to shoppers. This year, Amazon began selling groceries in the Los Angeles area, using its own trucks to shuttle fruit, meat and boxes of cereal from a new warehouse in the city to customers’ doorsteps.

The effort is expensive and risky, though Amazon would not say whether or how much money it was losing on it. The grocery business has killed Internet retailers before — Webvan was the most notable casualty — so Amazon chose not to expand the service beyond a test in Seattle until recently.

“The challenge we’ve had over the past several years is how to make it economically viable,” Mr. Szkutak said.

All the spending on warehouses and other projects has led to a surge in hiring at the company. Its head count swelled to 97,000, up more than 40 percent from 69,000 a year ago. The hiring earned the company a plum position as the backdrop for a speech on middle-class jobs that President Obama is expected to deliver on Tuesday at an Amazon warehouse in Chattanooga, Tenn.

A big part of Amazon’s allure for investors remains its pre-eminent position in e-commerce, which is expected to rise 14.8 percent to $248 billion in American sales this year, according to eMarketer. That is far better growth than the single-digit growth expected for retail sales over all in the United States this year.

Kerry Rice, an analyst at Needham & Company, said investors believed that Amazon could keep stealing market share from Walmart and other physical retailers, and that eventually its profits would improve.

“On some level, I think some people are buying the stock because they’re hoping for that investment cycle to begin to reduce,” Mr. Rice said. “If they pull back on spending, you’re going to see that operating margin tick up.”

Mr. Rice added: “I don’t think that’s going to happen for a long time.”

New Venture Focuses on Science of Deal, Not Art of the Deal

A friend calls a friend who knows a guy. A meeting is taken. Wine is drunk (at, say, Madera lounge in Menlo Park). A business plan? Sure, whatever. But how does it feel?

This is decidedly not how Google, that apotheosis of our data-driven economy, wants to approach the high-stakes business of investing in the next, well, Google. Unlike venture capitalists of old, the company’s rising V.C. arm focuses not on the art of the deal, but on the science of the deal. First, data is collected, collated, analyzed. Only then does the money start to flow.

Google Ventures and its take on investing represent a new formula for the venture capital business, and skeptics say it will never capture the chemistry — or, perhaps, the magic — of Silicon Valley. Would computer algorithms have bankrolled David Packard or Steve Jobs? Foreseen the folly of Pets.com?

The data provides one answer to those questions, at least for now: Since its founding in 2009, Google Ventures has stood out in an industry that, for all its star power, has been dealing its investors a bad hand. In recent years, an investor would have done better with a ho-hum mutual fund that tracks the stock market than with some splashy V.C. fund. Venture capital funds posted an annual average return of 6.9 percent from 2002 to 2012, trailing major stock indexes, according to Cambridge Associates.

Google Ventures, like all venture funds, does not publicly reveal returns. But its partners can count on one hand the number of its 170 investments that have failed, though it is too early to know how many will succeed, and it has missed investing in some superstar companies. Its successes include companies that have gone public, like HomeAway for vacation rentals and Silver Spring Networks for smart grid software, and start-ups sold to Google, Yahoo, Facebook and Twitter.

Whether Big Data — that label for technology and decision-making that is upending so many businesses — can truly transform the industry that helped spawn it remains to be seen. Few deny that crunching data is increasingly important. But some insist that those old intangibles, like instinct and luck, are still paramount.

“V.C.’s, just like all of our portfolio companies, need to be analytically intuitive in the modern era of data analytics,” said Matt McIlwain, managing director of Madrona Venture Group, which has invested in companies like Amazon.com and Redfin, the real estate site. “But the intuition part is ultimately the biggest factor. And even with all that, a little good luck goes a long way.”

Google Ventures was the first major firm to rely heavily on data. Since then, established funds like Kleiner Perkins Caufield & Byers, Sequoia Capital and Y Combinator have followed suit, and new firms like the Ironstone Group and Palo Alto Venture Science have been created to test the strategy.

Many venture capitalists agree that something needs to change. In the tech industry, where engineers believe any problem can be solved with data, the solution seemed obvious.

“If you can’t measure and quantify it, how can you hope to start working on a solution?” said Bill Maris, managing partner of Google Ventures. “We have access to the world’s largest data sets you can imagine, our cloud computer infrastructure is the biggest ever. It would be foolish to just go out and make gut investments.”

Google Ventures has $1.5 billion under management — a pittance in the wider world of Google, which made $50 billion in revenue last year. It employs seven people who gather data, analyze it and present the results to the investors. Jerome H. Friedman, a prominent statistician at Stanford who writes papers with names like “Data Mining, Inference and Prediction,” consults for a few hours a week.

The firm feeds its algorithms data gleaned from academic literature, past experience and due diligence about start-ups and their founders. Even college dropouts who have never started a company have a quantifiable track record, Mr. Maris said.

Google declined to reveal its secret sauce — the algorithms it uses to parse the data. But it has learned a few lessons.

News Analysis: Google Focuses on Privacy After Street View Settlement

This week, though, Google was told what to do. In the culmination of a two-year investigation into whether its Street View violated privacy protections, law-enforcement officials told the company to shape up. Again.

Google has repeatedly redefined how people communicate and acquire knowledge in the 21st century, and it has repeatedly been accused of breaking the rules in the process. The company says it has taken its mistakes in the case to heart and has already changed. Never again, it says, will a midlevel engineer be able to do anything like what one did in Street View: start a program to scoop up data secretly from potentially millions of unencrypted Wi-Fi networks around the world, without his bosses bothering to know.

To make sure of this, a coalition of 38 states has drawn up numerous specific steps for Google to take, ranging from educating its engineers to educating its lawyers. Whatever Google was doing before to improve its privacy controls was not enough, the states say.

“There is no reason to believe they are not going to comply with each and every term in this agreement,” said Matthew F. Fitzsimmons, the Connecticut assistant attorney general who worked on the settlement.

Jill Hazelbaker, a Google spokeswoman, said, “We’ve worked hard to improve our practices.”

Google’s internal compliance will not be directly monitored. But if states feel Google is not upholding its side of the deal, they can bring the matter up to the executive committee that brokered the deal, including the attorneys general of Illinois, Massachusetts and Texas.

Some privacy experts think the program has a fair chance of success.

“This gives me some glimmer of hope that going forward, the culture of Google will include more privacy by design,” said Joseph L. Hall, senior staff technologist at the Center for Democracy and Technology. “Then they could do things in an innovative way on the front end that won’t result in needing to beg for forgiveness later.”

Still, it is difficult to make changes in an extremely successful technology firm. Silicon Valley executives remember all too well the case of Microsoft, which owned the future in the mid-1990s in the way that Google, Facebook and Amazon seem to now. Then the government sued the company and came close to breaking it up. Microsoft’s image, and its momentum, never recovered.

“Google is just as concerned, if not more concerned, about public perception than it is about paying a few fines,” said Ryan Calo, a law professor at the University of Washington who studies privacy issues. “Lay people will take a settlement as being evidence of a mea culpa.”

Larry Page, Google’s co-founder and chief executive, has made it clear that he wants the 31,000-employee company to try to act like a start-up, which means taking risks and doing things quickly. That was the sort of attitude that led to the Street View violation.

“The states are trying to inculcate a culture of privacy, to make it part of the DNA of Google,” said Timothy J. Toohey, a privacy expert at the law firm Snell & Wilmer. “But regulators and attorneys general are not technologists, and it becomes very difficult to follow through.”

Inside Google, the Street View breach was viewed more as a management problem than as a privacy one, according to people briefed on the investigation who were not authorized to speak publicly. The company realized, these people said, that it needed clearer control over what its engineers were doing and tighter restrictions on which engineers could gain access to certain data.

There has also been a realization among Google executives that these privacy penalties do matter, if only because of the reputational risks. They know the company can only sustain so many strikes against it in the public’s point of view, and the problem becomes more acute with each one, said former Google executives who spoke anonymously to preserve business relationships.

Edward Wyatt contributed reporting from Washington.