Tag: Amazon

The Three Rings of Amazon (AMZN)

The Three Rings of Amazon (AMZN)

AMZN 1st Ring
Amazon’s 1st Ring

Amazon’s 1st Ring

Amazon’s Core Services Portfolio drives the company’s macro strategy. AMZN’s more recent product and service offerings (both organic and acquired offerings) are covered in the “2nd Ring” and “3rd Ring” sections and serve to strengthen the Core portfolio. 

Amazon Revenue Breakdown: Full Year 2015, 2016, 2017

Amazon.com: Amazon’s crown jewel. The world’s broadest and deepest ecommerce platform. 

Amazon Web Services (AWS): The dominant cloud services platform. 2017 revenue of $17.5 billion, a 43% Y-O-Y increase. AWS is a sleeping CyberSecurity giant. The AMZN business unit had 62% market share as of Q4’17 and likely has a similar if not greater share of the technology startup community as customers. Thus, if tomorrow’s tech giants are built on top of AWS, it stands to reason that AWS ought to be well positioned to lead the CyberSecurity effort in instances where it owns the customer relationship. If one company is to become the dominant CyberSecurity vendor over the next decade we expect it to be AWS. Amazon’s more recent initiatives (Amazon Key, Amazon Ring, its AI effort, original video content production and music to name a few) all feed the cloud, creating new hooks into it while enhancing its utility and value.  

Amazon Prime: a multi-billion dollar recurring revenue stream that provides long-term visibility and helps the company place long-term multi-decade strategic bets. Consumers were originally lured to prime via shipping discounts. Amazon has since extended those benefits to include various forms of digital content, its August 2017 Whole Foods acquisition and may be offered as an incentive to any Amazon service. Prime’s year-over-year subscriber growth and modest price increases helped contribute to Amazon’s subscription services revenue of $9.7 billion – 52% growth over 2016 revenue of $6.4 Billion. The takeaway here is that as AMZN’s recurring revenue base continues to scale and become a greater percentage of the revenue pie, it enables Amazon to outflank competitors across various industries. For this reason we would expect Amazon to win the day in the original content business when the dust settles. Not Netflix or Disney (too small in both cases), not YouTube/Google (not sure of where they want to play in terms of original content), not Apple (too slow, thanks in part to a CEO who made his chops in the supply chain, not as an entrepreneur) and not Facebook (too green in the Enterprise arena). 

Amazon Alexa (AI)Google and Amazon lead the global machine-learning (“ML”)/ Artificial Intelligence (“AI”) effort in that order. Apple’s Siri is a clear laggard from a speed and accuracy standpoint (what matters). Alexa-powered Echo devices are market leaders. This is important as the more Echo devices, presumably the more Alexa-based queries. The greater the number of voice queries, the smarter Alexa becomes. We believe that Amazon’s integrated retail portfolio will help the company solidify a smart-speaker leadership position. By integrated we are referring to the fact that an entire transaction may occur on Amazon’s supply chain beginning with Alexa-powered devices to the Amazon goods and services available for sale to the Amazon warehouse where they are stored to potentially the Amazon truck (autonomous?) or drone that will deliver orders. Google on the other hand has a similar front-end experience but begins to differ on the purchase side. Google doesn’t have its own global warehouse/ inventory management/distribution system and instead partners with Wal-Mart and other retailers in what is known as Google Express. Amazon has essentially become the defacto product search engine, taking share from Google in search. The ancillary effect is that this search traffic makes Amazon’s search algorithms and Alexa smarter. 


AMZN 2nd Ring
Amazon’s 2nd Ring

Amazon’s 2nd Ring

Amazon’s 2nd Ring consists of products and services that strengthen Amazon’s core product and services portfolio. This is largely achieved by removing friction from both ecommerce and brick-and-mortar transactions. Further, 2nd Ring products and services create “hooks” that enhance customer loyalty and drive additional purchases.  

Amazon EchoWe touched on Echo in the 1st Ring section. The important item to note is that the more products and services that Amazon attaches to Alexa, the greater the probability that Alexa’s usage will increase. The more Alexa is used, the smarter it becomes. This is important as we expect for AI to be as commonplace as electricity in the not too distant future. At present Google is the undisputed ML and AI leader as a result of it being the dominant search provider. However, cracks have appeared in Google’s armour. Amazon has become the default “product” search destination and social media platforms such as Facebook, Instagram, Quora and Twitter have carved out their own search niches around friend reviews, photo search, expert opinions and news. Further, Alexa-based queries are stored in Amazon’s cloud which helps Amazon become smarter about you and your family’s behaviour and shopping preferences – predicting demand before you hit the re-order button or voice command. What will it be sir, Minority Report or 1984?

Amazon GoAmazon Go is another add-on service that removes friction from the retail experience. The intellectual property deployed in Amazon Go stores allows for a cashierless retail experience as “purchased” items are accounted for the moment customers remove them from shelves. We do not expect for Amazon to license this technology but rather to keep in-house as a sustainable competitive advantage. Over time we expect for this technology to be rolled out widely across Whole Foods and any other “brick and mortar” retail operations that Amazon may acquire.  

Amazon Key & Ring: launched in October 2017 for Prime members, AMZN Key is a service that allows couriers and other individuals whom you permission (friends and family members for example) to unlock your door and access the home. Amazon cameras record visitors while they are in the home (more intelligent data for the cloud). Amazon’s acquisition of Ring last week is another piece to the home delivery/ home security ecosystem. Key and Ring help close the retail circuit by extending AMZN’s footprint into the last mile of the retail transaction – home delivery. 

Amazon Video: Amazon is investing both in original content production, live sports (NFL, UFC) and offering “channels” in conjunction with networks such as HBO. Prime members enjoy exclusive content for “free”. The company is expected to invest approximately $5 billion during 2018 in video content. We believe that in the end whomever owns Disney and its content libraries will be the clear global content leader. We advocate a position where Amazon, Apple, Facebook, Google and Microsoft all make a run at Disney. Apple has the edge in our view given that Disney CEO Bob Iger has a history with Apple that dates back to his friendship with the late great Steve Jobs. 

Whole Foods (acquired)/AmazonFresh: Amazon recently announced that it is merging its PrimeNow and AmazonFresh services. The Whole Foods acquisition will provide Amazon with a treasure trove of offline customer point-of-sale data. Further, expect Amazon to leverage Whole Foods to attract more Prime subscribers while putting the hurt to the grocery food store industry. From an operational standpoint Amazon is already leveraging some of the inventory management expertise it has developed over the years in its warehouse operations. 


AMZN 3rd Ring
Amazon’s 3rd Ring (click to expand).

Amazon’s 3rd Ring

The opportunity here is for AMZN to deliver goods and services to the home/consumer with increasing efficiency. “Efficiency” means at lower cost (drones/ Amazon Prime Air and self-service via Amazon Lockers) while increasing the number of customer touch points (Amazon Key couriers may leave Ads/coupons etc.). In terms of what may come – an Amazon rideshare service could make sense given Amazon’s entrenched customer relationships, built-in trust factor and focus on delivery. When autonomous vehicles are not deployed on deliveries they may be deployed in the field moving passengers from point A to B. Until then, Amazon will continue to swallow industries – until its inevitable break-up.

It’s People! It’s People!

It’s People! It’s People!

Human Capital is Key

“It’s people! Soylent Green is people!” shouted Charlton Heston’s Robert Thorn in 1973’s Soylent Green. Fast forward 45 years and people remain central to the process. Although the process we refer to isn’t recycled human foodstuff but rather the global economy where Intellectual Capital provides economic sustenance and Human Capital is the key ingredient (Intellectual Capital = Human Capital + Structural Capital + Relationship Capital).

Grist for the Mill

It’s only a matter of time before Technology giants begin to reach into public schools in an effort to identify and recruit top-tier talent in an Intellectual Capital-driven global economy.

Technology’s Four Horsemen – Alphabet, Apple, Amazon and Facebook – hired 247,714 net new employees in 2017, up 89% from the previous year’s figure of 131,196. Amazon alone accounted for 91% of 2017’s total and 84% of 2016’s total (this makes sense given the nature of Amazon’s retail-centric, distribution-heavy business model).

Technology companies require an enormous amount of human capital and brainpower. This is especially true of large technology companies that work to define new market opportunities and use cases. Waiting for the U.S. K-12 public education and university systems to produce inadequately trained professionals is both a suboptimal outcome and supply chain bottleneck. Therefore, we expect for companies such as the Four Horsemen to become increasingly aggressive and systematic in their approach to training and recruiting young people.

Technology's Four Horsemen.png
Employee Counts: GOOG, AAPL, AMZN and FB for Years Ended 2015, 2016 and 2017 (click to expand)

We have experienced early green shoots of this phenomenon with Peter Thiel’s Thiel Fellowship a foundation that awards $100,000 grants to high potential young people. Those accepted (104 fellows and alumni, 2,800 application last year), to the two-year program learn how to write code and build companies. Young people skip or step out of college to become Thiel Fellows where in addition to grant proceeds, Fellows receive support from the foundation’s network of entrepreneurs, investors and operators.

Another example comes from my personal experience in China 2006-2011 where a number of the large China-based IT Services companies set up company-owned “universities” to train recent college graduates in an effort to better prepare them for the type of work that they would perform on behalf of clients. My view is that these companies will reach further back into the student supply chain and begin to recruit and train students during their junior high and high school years.

Reduce Time-to-Productivity

A misconception that many have is that an engineer fresh out of college can hit the ground running at optimal efficiency and drive massive value for companies. That’s hardly the case. Universities do a poor job of preparing students for life in the real world. It makes enormous sense for companies to actively invest in the U.S educational system both at the K-12 and university levels. Short-term operating profit margin dilution will pay dividends over the long-term in the form of new differentiated products and services. To ensure a worthwhile outcome it is paramount that companies take a systematic approach to execution. If nothing else Alphabet, Amazon, Apple and Facebook excel in measuring outcomes and re-calibrating where necessary.

No Teachers Required

Given what we have posited it would make sense for the Four Horsemen and others to get involved in public education early in students’ academic careers. Further, it would be logical for companies to seek to influence the academic experience as much as is necessary to maximize the probability of optimal outcomes for both students and companies. Therefore, it is not unreasonable to expect that the Four Horsemen and a few select others will eventually shape student curriculum — particularly in Math and Science. This may range from content creation to teaching methodologies to the act of teaching itself. Teachers’ Unions ought to be concerned. From a technology standpoint it would not be difficult to replace public school teachers nor college professors with machine learning platforms wrapped in friendly AI skins. AmazonGo is already doing this with retail checkout lines. It’s less a question of “how?” and more a question of public will.

Top Tech CEOs: Bezos Is Best as Measured by Total Stock Return

Top Tech CEOs: Bezos Is Best as Measured by Total Stock Return

Bezos is Top Tech CEO with a Total Stock Return of 83,639%

We recently queried our CEORater database to identify the Top Technology CEOs as measured by stock price performance during each CEO’s tenure. Amazon’s Jeff Bezos topped our list by a wide margin. For purposes of this exercise it helped to have been a CEO for an extended period of time. It is also interesting to note that 8 of the Top 10 and 14 of the Top 20 CEOs on our list are Founder CEOs. We define “Founder” CEOs as those CEOs who were present for the first dollar of revenue earned. Additional detail may be found at CEORater.com.  Contact sales@ceorater.com for Excel spreadsheet detail.

Top 20 CEOs TSR
Top Technology CEOs based upon Total Stock Return (“TSR”) as measured during the CEO’s tenure. BP = stock price on CEO start date or IPO date (if not public on CEO start date). EP = stock price on Feb. 16th 2018. Contact sales@ceorater.com for additional detail.
AMZN’s Jeff Bezos. Click on the image to expand.










AmazonGo for Healthcare?

AmazonGo for Healthcare?

A New Heavyweight Healthcare Entrant

The recently announced non-profit joint venture between Amazon, J.P Morgan and Berkshire Hathaway was notably scarce on detail. We previously wrote about how Apple is well-positioned to “consumerize” healthcare. The good news is that there is room for others to add value to the healthcare ecosystem.

Trust, Payments & Price Discovery

If we were to fast forward 5-10 years its easy to imagine that Amazon’s contribution to the “NewCo” healthcare joint-venture will borrow heavily from the company’s experience in online retail where three key elements may come into play: trust, price discovery and payments.

1.) Trust: Since its founding Amazon has developed a deep trust with consumers. Consumers trust Amazon to securely store payment-related information, to offer competitive pricing, to provide a wide variety of goods and services and to deliver goods and services in a secure and timely manner.

2.) Price Discovery: Transparent pricing is a key value-added element of Amazon’s platform as it enables consumers to quickly assess value. Further, Amazon has extended the visibility and reach of independent third-party sellers (3rd party sellers generated $32 billion on Amazon in 2017, a 39% increase over 2016), by allowing them to list their businesses.

AMZN 3rd Party Revs
Amazon Third-Party Revenue and Total Revenue

It is the “Price Discovery” category where we believe the NewCo venture can create the most value. It could on-board independent healthcare providers such as neighborhood urgent care centers – forcing them to disclose pricing as a pre-requisite for listing. This would be a “win-win” for providers and consumers. Healthcare providers would benefit from listing their businesses and consumers win by having greater choice and pricing transparency.

NewCo Similarities
NewCo JV could create value in a similar fashion as AMZN’s retail platform

3.) Payments: consumers and businesses have widely adopted and trust Amazon’s payment platform. This technology could easily be leveraged within NewCo’s platform to facilitate payment transactions between interested parties.

AmazonGo for Healthcare?

How far back in the healthcare stack will Amazon/ NewCo participate? The more information Amazon/ NewCo collects about consumers, the more friction can be removed from the process. One example is patient check-in. It is easy to imagine how Amazon/ NewCo could quickly become the industry standard for Electronic Medical Records (“EMRs”) enabling patient check-in to consist of a phone swipe on an electric reader. AmazonGo for healthcare?

Is Apple Disney’s End Game?<span class="badge-status" style="background:red">Premium</span> 

Is Apple Disney’s End Game?Premium 

Yes if You Ask Us While AT&T moving to acquire Time Warner and Disney (and Comcast?) moving to acquire Fox are interesting deals, it’s more interesting to us what the next chess move may be in a world that increasingly values content (live sports and premium original content in particular).  We recently wrote about and…

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What if Alphabet Were to Acquire Walmart in an Effort to Better Compete with Amazon?<span class="badge-status" style="background:red">Premium</span> 

What if Alphabet Were to Acquire Walmart in an Effort to Better Compete with Amazon?Premium 

It’s fun to speculate. What if Google parent company Alphabet were to acquire Walmart in an effort to better compete with Amazon? One of the advantages that Amazon has in an AI-driven world is a fully integrated retail experience. Amazon customers may speak buy orders into their Alexa-powered smart device – “re-order paper towels” -…

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Alphabet’s Chronicle Gets the Shine While AWS Is The Sleeping CyberSecurity Giant Nobody Talks About

Alphabet’s Chronicle Gets the Shine While AWS Is The Sleeping CyberSecurity Giant Nobody Talks About

Chronicle vs. AWS

One of Alphabet’s Moonshot projects was released into the world last week. The company is named Chronicle  – read more about it here. In short, Chronicle is a CyberSecurity company whose value proposition is to sell its machine learning-driven offering to large enterprises. We believe this could be a difficult sale for reasons articulated in our recent podcast episode.

Meanwhile, Amazon’s AWS unit is the company that’s best positioned to deliver a CyberSecurity offering to the market at scale. Why?  Many companies are built on top of AWS (start-ups like CEORater to Netflix) – thus AWS already has the installed customer base. The heavy lifting is done. Offering new turnkey services to the installed customer base is substantially easier than winning new customers.