
Amazon’s New Customer - darwhy
https://stratechery.com/2017/amazons-new-customer/
======
bipson
I had to exit at this quote:

 _Apple’s goal was not to build a phone but to build an even more personal
computer; their strategy was not to add on functionality to a phone but to
reduce the phone to an app; and their tactics were not to duplicate the
carriers but to leverage their connection with customers to gain concessions
from them._

I disagree here, this is hindsight and speculative, and the provided link is
from 2013. The initial iPhone did not come with a market (the 'iTunes App
Store') and AFAIK we don't know for sure if it had been planned from the
beginning to pan out the way it did.

I am not trying to play down the success of the iPhone and how it has changed
the world. Yes, it was incredibly successful, yes it all panned out nicely. I
am just questioning if it was all planned to come out exactly this way from
the beginning, or maybe there were some decisions made after initial success
and someone came up with even better ideas.

~~~
TallGuyShort
I distinctly remember the way Steve Jobs presented it: "It's a phone, it's an
iPod, and it's an Internet communications device."

That just comes off to me as though even he didn't realize how ubiquitous
phones would become, and how integral to our lives they would become, even
replacing computers for so many tasks. It's my phone, my iPod, my work outside
of office hours, schedules and times my workouts, my alarm clock, my camera,
my GPS and mapbook, my library, my notebook, my flashlight, my scanner, my TV,
the way I look at cat pictures and the way I look up where to find an AED in
an emergency.

~~~
jimbokun
Read back the quote again to yourself.

Phone + iPod + Internet communications device...you are pretty much describing
a general purpose computer, no?

And if you go back to the keynote, that was kind of the joke. He started out
describing these as if they were separate products being introduced. The punch
line was it was just one device. In other words, subtly mocking the idea you
needed a separate device for each kind of functionality you wanted.

Lastly, Apple was a computer company from top to bottom. How else would they
envision a solution to the problem of crappy phones, but to turn them into
computers with really good software? That's just who Apple was.

So the idea of the Apple strategy being replacing the mobile phone with a
mobile computer is only obvious in hind sight just isn't true, it was obvious
as soon as the iPhone was introduced.

~~~
devdas
A general purpose computer, or a very locked down thin client. Like the world
of AOL users.

I would have suggested the latter, otherwise the system would have been a lot
more open.

General purpose computers give purchasers administrator/root access by
default. If you don't have that, you have a thin client run by someone else.

------
meredydd
This deal is Venmo for groceries. A tech company is filling an obvious hole in
an established industry - where in many other countries, the incumbents have
been flexible enough to do it themselves.

Amazon has reached the conclusion British supermarkets reached over a decade
ago: The sensible way to run a perishable goods supply chain is through an
existing network of grocery stores.

While WebVan was crashing and burning, Tesco (biggest supermarket) was
building out a home delivery service using their shops as "free" fulfilment
centres. Tesco Direct launched so early, their original client wasn't even a
website - it was a desktop Windows application!

This is another odd market where somehow the US incumbents seem unable to
implement an obvious feature that is common in other countries. Eventually a
middleman (Instacart for food, Venmo for money transfer) do it for them - and
take a cut on the way. I wonder why this happens?

~~~
dmix
> This is another odd market where somehow the US incumbents seem unable to
> implement an obvious feature that is common in other countries.

What other examples are there?

We have had online grocery delivery in Canada called Grocery Gateway [1] for a
decade or longer. It's run by our biggest grocery company as well. The
business seems to be doing fine but it's still very much niche and most people
don't know a lot about it.

I assumed the US had a few local companies doing the same there. The
difference is that these are not anywhere near the scale of what Amazon could
do with groceries at a national country wide scale.

Overall I don't think Tesco vs Amazon is a really accurate comparison. It
sounds more like all of those people who said "Nokia had smartphones way
before Apple! This isn't new." Or comparing a taxi company having a mobile app
to book a ride vs Uber. Or Couchsurfing vs Airbnb. Etc, etc. There are tons of
examples.

There is still a huge amount of potential to replace grocery stores with
ecommerce and so far only minor attempts have been made.

[1]
[https://www.grocerygateway.com/store/](https://www.grocerygateway.com/store/)

~~~
apeace
IMHO the three biggest challenges have been cost, accuracy, and quality.

We have a lot of options for this in NYC: PeaPod by Stop N' Shop, Instacart,
Fresh Direct, and Whole Foods has its own delivery service.

I've tried them all. I REALLY want to stop going to the grocery store. But
with all of them, I've found:

* The price is too high to justify it. Walking down the corner to the grocery store is not that big a deal.

* You don't always get everything you ask for. They run out of stock of things, or forget things. So you often end up missing that one crucial ingredient.

* Sometimes they don't give you the quality you're looking for. Maybe the bananas or avocados are either unripe or too ripe. A couple services ask you the preferred ripeness, but then they don't end up having that so they give you a different ripeness.

* Back on the pricing: I personally tend to buy only 2-3 days of food at a time, because I want it to be fresh. If I want baked cod on Friday night, I generally want to buy it Thursday or Friday. But since I'm paying a premium for my delivery, it makes more sense to batch it into bigger orders, which doesn't work for me.

~~~
jimbokun
You live in NYC, and you still want delivery?

I mean, when I lived in Manhattan, the nearest grocery store wasn't much
further than my refrigerator. Walking into the store and grabbing the thing
you want would have been a lot faster than ordering online and waiting for
someone to deliver.

~~~
benwilber0
Depends how much you value your time. If you want to shop at whole foods or
trader joes then you're going to stand in line. Standing in line is one of my
least favorite things to do. I would rather pay a delivery fee and have
someone else do my shopping and bring it to me while I spend the timing doing
something else that I enjoy.

~~~
jimbokun
Yeah, I was thinking more the little super markets and bodegas on every
corner, than whole foods or trader joe's.

~~~
urethrafranklin
Come on that's nowhere near grocery-store quality if they even have fresh
foods of any kind.

------
abalone
tl;dr: Amazon will "transform the Whole Foods supply chain into a service
architecture based on primitives," using the stores as customers that
guarantee a necessary level of scale.

I think this is basically true. Amazon will refactor Whole Foods' supply chain
into something that serves both Amazon Fresh and the retail stores. This will
allow Fresh to scale massively and dominate the category.

I would just emphasize that Amazon probably has more interest in Whole Foods
then merely a guaranteed "customer". Whole Foods is bringing a lot of local
supply chain relationships to the table.

But I agree 100% it's about the supply chain and not transforming retail
stores into delivery hubs or anything silly like that. It won't hurt that the
stores will freely promote Amazon Fresh and serve as great venues for sampling
new products. But Amazon's goal here is to take over the category by massively
scaling Fresh.

~~~
pavement

      refactor
    

Geeze, I hope it compiles okay.

------
moomin
This whole article seems predicated on a couple of misconceptions. To whit: 1)
getting bought out is losing 2) buying is winning.

The fact that Amazon has more money than Whole Foods is nothing to do with its
performance in the groceries market. The fact that Amazon has bought Whole
Foods suggests, in fact, that they think there's value to be had there that
isn't reflected in their current market capitalisation.

And none of this actually means that the Whole Foods acquisition will work. It
sounds like a good idea, and I wouldn't risk money betting against Jeff Bezos
but Amazon aren't a dominant player in the groceries market yet. They've just
bought one of the few successful insurgents.

In short, this is just a move in the game. Calling the match is pretty
premature.

~~~
dsjoerg
I don't see what in the article gave you the impression that Whole Foods lost.
Or that Amazon won.

~~~
jimbokun
He drew an analogy between the Whole Foods CEO about Amazon and the groceries
market and the Palm CEO about Apple and the phone market.

------
inthewoods
I generally like Stratechery articles - but I found this one stretching to
make everything fit into a nice, neat box - particularly the comparison of AWS
to the Grocery business. I found the graphics representing rather
incomprehensible (perhaps I'm simply not bright enough to get them) and it
feels like someone looking for a grand unifying theory of Amazon, as opposed
to something simple: the grocery business is huge ($900b/year), Amazon wants
to be a part of that channel.

It's basically doing the opposite of Walmart. If there is a grand unifying
theory of Amazon, I think it is also pretty simple: start with a specific
niche in a category, dominate that and then grow. But that is hardly a unique
approach in business. Amazon does, however, execute it extremely well.

~~~
Animats
_I found this one stretching to make everything fit into a nice, neat box._

Yes. It's entirely possible that Amazon found Whole Foods for sale at such a
low price that the stores don't matter much. It's the house brands which
Amazon can distribute through their existing supply chain. Most of Whole
Foods' house brands have reasonable shelf lives, so they can easily be slotted
into the Amazon system.

Using Amazon's package distribution system to fill the stores would be
inefficient. Stores get product by the pallet, not the box. Supermarket
distribution is semitrailers of pallets going direct from big refrigerated
warehouses to big stores. Amazon isn't set up for that.

It's not clear what Amazon will do with the stores. Probably put in Amazon
lockers and cut the prices on the house brands at first.

~~~
nickpsecurity
That's exactly how it works. They've already cost-cutted and streamlined it
all about as much as it will get. Yet, it all reduces down to people pulling
pallets from manufacturers off trucks, putting them somewhere, other people
making custom pallets for stores from those pallets, shipping them, and then
breaking those down at store for sale to customers. The only time I saw real
innovation in that was Costco and its predecessor's brilliant decision to
eliminate the store to just let people shop off the pallets and such in the
warehouse.

I think Amazon did try some stuff like having storage containers robotically
come toward workers. They might have some tricks up their sleeves. The
fundamental model is pretty basic and optimized, though, with competition
driving margins down making it harder to optimize over time.

~~~
Animats
_I think Amazon did try some stuff like having storage containers robotically
come toward workers._

They bought that technology from Kiva, then bought the company, and all their
current-generation distribution centers use it. (Amazon has distribution
center generations; they don't upgrade existing buildings while in operation,
but build new ones with newer technology. Some pre-Kiva centers are still
running.)

Automatic picking is still an R&D problem. Amazon has put some effort into
that; they have an annual competition where people can compete to win a few
thousand dollars solving a billion dollar problem.

Automatic mixed-case picking and palletizing can be automated. It isn't quite
fast enough, quite general enough, and quite cheap enough to take over.[1]
Except inside frozen food warehouses.[2] Humans are not very productive at
-23C, but special-purpose automation machinery is. Amazon has the scale to
push that gear into being cost-effective.

[1]
[https://www.youtube.com/watch?v=XO7fvrdTCgs](https://www.youtube.com/watch?v=XO7fvrdTCgs)
[2]
[https://www.youtube.com/watch?v=LuvrP1QKsdk](https://www.youtube.com/watch?v=LuvrP1QKsdk)

~~~
nickpsecurity
They're really neat tech videos. The first confirms how slow and expensive I'd
expect it to be. The second looks really complicated compared to humans
picking off pallets with PITS guiding other pallets or rollers. First vid I
found on YouTube:

[https://youtu.be/VOg4NE6M-_I?t=46s](https://youtu.be/VOg4NE6M-_I?t=46s)

So, they have pallets all over the place. The order pickers are driving
something automated to grab the stuff. They get a good amount at once. They
can stack it on new pallets or ship it as shown. Pretty straight-forward. I
could see some addition speeding up dealing with the vertical pallets. Those
self-driving forklifts from show Silicon Valley could be nice. Yet, the
automated versions are so expensive that some (all?) DC's in both Walmart and
Kroger got rid of the pallet-wrapping machines per conversations with
employees. It wasn't cost effective to maintain vs just having low-paid people
do it they said.

So, it will be interesting to see what happens with all this. I like the idea
of doing frozen first as people might be moving slower. I do also recall those
having boxes that are more similar to each other compared to other loads. I'd
start with pallet or roller optimization software that tells people to get the
stuff in the order that stacks or ships easiest. That might exist already. I
only have second-hand info from the DC's so don't know. Maybe have robots that
move things automatically dropping pallets or adding them as in the video with
the humans order picking off them. Maybe some lights or something on the dolly
to show where to drop the next box for ideal stacking. There's possibilities..

------
alextheparrot
I think this article hits the nail on the head. When I use a grocery app, I'm
usually shopping at Whole Foods. By modifying the structure so that delivery
is a feature (Much like Prime), instead of a separate good, they'll be able to
take most of the current players in the space to the cleaners.

------
golergka
> The cost to build AWS was justified because the first and best customer is
> Amazon’s e-commerce business

I've seen statements that AWS wasn't actually used for Amazon own needs (in
the beginning) and was developed by a different team at least a couple of
times, here on HN and elsewhere. Were these rumors false?

~~~
visakanv
History is always a little murkier than stated – it probably started out as
something and then found its 'product/market fit' serving Amazon.

Steve Yegge's famous essay covers it quite well, I think:
[https://plus.google.com/+RipRowan/posts/eVeouesvaVX](https://plus.google.com/+RipRowan/posts/eVeouesvaVX)

> So one day Jeff Bezos issued a mandate. He's doing that all the time, of
> course, and people scramble like ants being pounded with a rubber mallet
> whenever it happens. But on one occasion -- back around 2002 I think, plus
> or minus a year -- he issued a mandate that was so out there, so huge and
> eye-bulgingly ponderous, that it made all of his other mandates look like
> unsolicited peer bonuses.

His Big Mandate went something along these lines:

    
    
      1) All teams will henceforth expose their data and functionality through service interfaces.
    
      2) Teams must communicate with each other through these interfaces.
    
      3) There will be no other form of interprocess communication allowed:  no direct linking, no direct reads of another team's data store, no shared-memory model, no back-doors whatsoever.  The only communication allowed is via service interface calls over the network.
    
      4) It doesn't matter what technology they use.  HTTP, Corba, Pubsub, custom protocols -- doesn't matter.  Bezos doesn't care.
    
      5) All service interfaces, without exception, must be designed from the ground up to be externalizable.  That is to say, the team must plan and design to be able to expose the interface to developers in the outside world.  No exceptions.
    
      6) Anyone who doesn't do this will be fired.
    
      7) Thank you; have a nice day!

~~~
iamwil
You missed the best part, where he says something along the lines of 'haha,
just kidding about #7. Jeff Bezos definitely does not care about your day'.

------
petra
I'm not from the US so i have never been to whole foods, but isn't the point
of whole foods is that you get a totally different selection than other
retailers ? and if so, how could it be a customer for regular grocery products
?

~~~
jvagner
Many of the brands that are dominant in Whole Foods are also available, to
some degree or another, in other grocery stores.

But Whole Foods has a more targeted sourcing strategy for fresh veggies, fruit
and meats. They carry more of those organic brands than the usual grocery
store.

It's not entirely a "whole 'nother thing" but it is a pretty deep curation of
food, food types, brands, and some of the more eclectic, local and smaller
food brands.

You get used to Whole Foods but when I visit a Safeway or Raley's, I'm pretty
shocked what a more traditional, mainstream grocery store looks like.

That said, and on an unrelated point... though I buy more from Whole Foods
than any other grocery chain, the degree to which all the stores have started
to be more like each other and less local-driven has been a little
disappointing. The Whole Foods in Flagstaff is much the same as the Whole
Foods in Roseville.

~~~
jonnathanson
The local-produce movement has some surprisingly harsh downsides, and I'd
guess that Whole Foods reassessed its strategy after battling them for years.

The first big problem is that the macroeconomics of local tend to suck. The
opportunity cost associated with keeping supply constrained in a small market
grows in proportion with our ability to reduce transportation costs and
integrate national and international markets. Meanwhile, a fragmented
patchwork of smaller farms and companies serving local markets tends toward
waste: farms invest in the high-end produce they think will maximize yield per
acre in the local market. Unit costs per item are higher, and nobody has
incentives to produce the essential, but low-margin items that the market
still needs.

The second big problem is that consumers don't actually know what local means.
Not really, at any rate. Enjoying blueberries in Southern California in the
summer? Those aren't local. Oh, but we still want them? And we want them year
round? So...I guess we're back at some combination of local + (inter)national,
in which case we're still supporting factory farms, giant monocultures, and
seed conglomerates -- we've just conveniently pushed these things out of our
minds. But they still exist, and we haven't really solved the problems we've
set out to fix. The point is, consumers want their goddamn blueberries. And
their bananas, which, don't even get me started how much _actual blood has
been spilled_ over the international banana trade. (Seriously. Look up
Chiquita on Wikipedia. You'll be tempted to use the phrase 'conflict bananas'
after reading up. Don't use that phrase. But, like, still. Wow.)

There is probably some sort of ideal market, combining the economic
efficiencies of concentration with the variety and quality of specialization.
I think we'd all love to get there. But this is the kind of problem Jeff Bezos
seems precisely better equipped to solve than John Mackey did.

------
yodon
I was surprised Stratechery didn't talk more about the warehousing side of the
grocery industry, which is a huge business unto itself.

Given the huge scale of Amazon's fulfillment centers, those are the businesses
I would think should be the most afraid of this news.

------
rmason
My biggest take away is that Amazon will use these stores to take on the
restaurant supply business. I'm willing to bet the CEO of Gordon Food Service,
which covers eastern US, is clueless on how his company's fortunes are
imperiled.

------
inthewoods
I'm wondering if Amazon will attempt to buy something like Costco or Bestbuy.
Then they'd have both ends of the market and also have the ability to connect
the big box to the relatively smaller box.

------
taylorhou
interesting quote regarding amazon's updated mission statement to be earth's
most consumer-centric company where folks can discover things to buy. I wonder
what buying a house/home on Amazon would be like.

------
adreamingsoul
IMO, any blog or news article that was written AFTER Amazon has been in the
news are simply trying to ride the press wave.

I especially find it tickling when most of the authors have no prior work
experience or affiliation with any business of Amazon.

