
How Amazon Can Blow Up Asset Management - T-A
https://jirisancapital.com/amazon-can-blow-up-asset-management/
======
thisisit
Amazon has a serious problem with counterfeit goods and fake reviews. One
might think that with the rise of AI/ML catching fake reviews and counterfeits
will be much easier but Amazon doesn't seem to be doing any thing. In which
case, allowing them to handle money seems like a recipe for disaster.

As for the Ant Financial comparison, I find it hard to believe that Amazon is
not utilizing the reserves it gathers by selling gift cards on its platform.
Those too are excess reserves to be paid to suppliers once customers utilizes
and buys something from a supplier.

~~~
deanCommie
> but Amazon doesn't seem to be doing any thing.

I would have thought that on Hackernews of all places people would recognize
the scale that is involved with a site like Amazon and recognize that fixing
this problem is far from trivial.

I'm sure Amazon is taking it very seriously - when have they ever shown
anything but "obsession" about positive customer experiences. But it is hard,
and it will take time to do it effectively without completely blocking all 3rd
party sellers on the site.

~~~
jraby3
I disagree. There seems to be so much low hanging fruit to at least reduce the
problem but they haven't taken even the smallest steps. This is because
they're prioritizing revenue, volume, and selection over fraud prevention.

~~~
TheBeardKing
Not true, they banned incentivized reviews. That's a big step towards getting
more accurate reviews.

~~~
sct202
I'm not sure how they're enforcing the ban because I still see tons of reviews
that are openly declaring that they were incentivized with the boiler plate "I
received this item at a discount in exchange for my honest review." tag at the
end of their review.

------
obblekk
If Robinhood, a start up with very few resources, can offer commission free
trading, I'd bet Amazon could offer approximately 0 cost S&P500 funds.

If the partnership with JP Morgan works, people could direct deposit money
into their Amazon account, auto-invest into Amazon funds, and then spend on
Amazon ecommerce. In this model, Amazon immediately saves ~2% on credit card
transaction fees, a small portion of which could be used to subsidize cheap or
0 cost investments.

Essentially Amazon could vertically integrate the money that will be spent on
their products in the future...

~~~
compsciphd
vanguard and fidelity offer approximately 0 cost S&P500 funds already today.

you're talking .03% in fees. On a $1Mil investment that's $300 a year.

~~~
anonu
3bps is certainly dirt cheap - but thats purely explicit cost. You have to
look at how the fund is managed. If the fund manager is an idiot and forgets
to rebalance or makes some other error - that 3bps can pale in comparison to
missing the benchmark.

~~~
ceejayoz
Is there any reason to believe that cheaper fund managers like Vanguard forget
to rebalance?

~~~
anonu
Ah - no - I wouldn't think someone like Vanguard would forget. I was just
highlighting that the "headline cost" number isn't the only cost you should
consider.

Guys like Vanguard actually make money on their rebalances because they are so
big. And they keep it in-house - avoiding the costs (both explicit and
implicit) of outsourcing their flows to other firms. So being large brings
economies of scale as well.

EDIT: By "make money" I mean they use their cost-savings to make or beat the
benchmark

------
arsenico
I am amazed, how much people underestimate the whole complexity of setting up
a _successful_ fintech. Basically, you don't have to work for the clients -
you need to work for regulators, and also for risk and compliance, and also
for duty of care, and much much more, on the thinnest possible margin, if you
want to be competitive. Setting up AI to help people make investment decisions
is a nightmare due to the number of dimensions you need to take into account
while validating data.

I really hope Amazon doesn't start the investment service in the way described
in the article.

------
zitterbewegung
I don't think this would be a good idea for Amazon. I don't trust it right now
to provide me things that aren't counterfit unless its sold by the actual
supplier. Allowing funds to be on its platform without proper vetting seems
strange. If Amazon actually wanted to go into the Asset Management space I
would actually see it buying something like Robinhood. The problem in Asset
management is all of the people who would regularly be retail investors are
too smart to be peddled a bunch of random mutual funds and instead try to use
index funds. The margins for those are already cut to the bone. I don't see
how they could compete with something like Schwab intelligent portfolio
either.

~~~
virgilp
> I don't trust it right now to provide me things that aren't counterfit

That might be true for a small percent of HackerNews readers that are also
Daringfireball readers - but the world at large still trusts Amazon; that's
the whole point of the article, really.

As anecdotal evidence, an Amazon Investment might be the only way to convince
me to become a Prime member (if that'd be a required precondition). I'd almost
certainly use it, if allowed.

~~~
stormbeta
I don't know, I've seen a lot of trust erosion in the last few years even just
among people I know (many of whom don't even work in tech), largely driven by
them getting burned by problems with sketchy third-party re-sellers.

Unless you're paying close attention, it's not obvious to the average consumer
that so many products are being sold by independent resellers vs Amazon
themselves, so people aren't as careful as they might be on, say, eBay.

~~~
sct202
Amazon's reputation is starting to converge with Walmart imo.

------
WingH
In addition to ETFs, why not go 1 step further? Offer hedge funds too. Amazon
has a ton of data on which consumer brands are overperforming every quarter.
Use that data to make investment decisions.

~~~
noway421
Now that's a competitive edge...

------
mabbo
Why does it _have_ to be Amazon? Look, Amazon's strategy isn't complicated.

Find a market where margins are large ("your margin is my opportunity"). Bring
a simple, easy competitor to the market and aim for zero profit. Grow wildly.
Build related products that either your customers want (and go elsewhere for)
or else you are currently spending money on. Repeat until billionaire.

Anyone with some capital, industry-specific knowledge and a bit of courage can
try this strategy. It won't always succeed. But the point is that waiting for
Bezos or Musk or some other behemoth to solve all the world's problems rather
than doing it ourselves is a very poor way to live.

~~~
anoncoward111
If a VC or an angel investor would just give me $10,000 a year as salary, I
would work on any idea full time for them, 90 hours a week, fighting fires,
everything.

The issue is that the labor demand in this country (VCs, corporations, angels,
basically anyone with money) would much rather prefer to spend $120,000 on one
"really good" programmer than say $30,000 total on a team of 3 young and
hungry programmers.

Something something, "adding programmers = adding delays and complexity to a
project". And maybe it's true.

But the result is that the one amazing programmer lives lavishly, and the
other 3 starve.

And what is worse, there's no guarantee the project will succeed, no matter
who you hire.

~~~
baumy
This comment is so odd I'm not sure where to begin.

You would work more than 2x full time hours on any idea proposed by some VC
for ~$2.25/hour? And you think there is an availability of competent "young
and hungry" programmers who would do the same? And the lack of availability of
this arrangement is causing these young hungry programmers to starve?

Is this entire comment some kind of joke or satire that went over my head?

~~~
anoncoward111
No, I promise it isn't satire. There are a lot of us out here who are trying
hard to get jobs but can't.

I would rather work for $10,000 with a chance at more responsibility and
future promotions than not work at all.

Additionally, where I am currently, $10,000 would more than pay for food and
rent and internet!

~~~
jannyfer
What are some reasons you can’t find a job? I’d love to be able to tell my AVP
that I can hire someone for $2.50/hour. We’ve paid $20/hour for data entry
clerks just as a stop-gap measure before we automate things. At such a price
we’d stop all our investment in automation and just massively hire people.

~~~
anoncoward111
Perfect! Then we should be able to get to work together right now. Let me tell
you my history, and why the $10,000 year number makes sense to me.

I graduated from a "top ranked" university, UNC Chapel Hill, with a degree in
History. Because I knew a thing or two about computers, I got a job as a sales
engineer (demonstrate and configure a hw/sw product for a customer) at one of
the traditional IT corporations (HP, Dell, Cisco, Oracle, etc).

After 4 years, I was laid off due to extremely political management taking
ownership of my manager's organization. This is common knowledge.

I was making about $55,000 a year, with some commission and bonuses. This
again is typical for the industry.

I tried quite hard to get a job right back in the same line of work, but was
unable to. If you look at unemployment statistics, unemployment is actually
growing in the IT industry. Perhaps I am just bad at interviewing, or don't
have good connections to get around this process.

The only other work I am qualified to do is retail management at about $45,000
a year. After taxes and living expenses in the North East USA, this is not
exactly a profitable undertaking.

However! If I am able to do data entry, or basic web/game programming (think
things that don't require "Senior" or "MA/PHD preferred), for $10,000 a year,
remotely from my rural property, then I would be more than happy to do this.
If I could have a small portion of equity, then great. My expenses would be
more than covered, because I wouldn't have to pay city rent or commuting or
etc.

------
fergie
Isn't the virtual distribution shelf for investment funds already a pretty
established thing? When I log into my online bank there is an online market
place for funds, allowing you to place money in funds with maximum trust and
minimum effort. How would Amazon improve on this?

(That said, I like the idea of always selecting the top 1% of fund customers
and allowing them to offer their own funds)

~~~
strgcmc
Because that existing "online market place for funds" is gibberish to most
retail customers.

You go to Amazon, you type in "best AA batteries", and what you get back is
not a raw list of battery serial numbers or technical specifications about
battery performance (which is basically what you get in the existing brokerage
experience, describing funds and their performance). What you get on Amazon is
plain-english descriptions, reviews and ratings, and a sorted order of
relevance or price or whatever. All these things smooth out the buying
experience, reducing any possible source of friction for your purchase
decision (hell, you can subscribe-and-save for new batteries every 6 months,
thereby precluding ever having to make a purchase decision ever again); they
want to make it as easy and natural and automatic as possible, for you to
click Buy. But for investments, customers face a huge upfront barrier in terms
of lack of knowledge and uncertainty, before they can make a purchasing
decision; sure, all the raw information is there, but only highly motivated
customers (relatively speaking) are going to dig through it or overcome it
before transacting.

Now, I'm not saying that Amazon should add customer reviews of ETFs or funds
or whatever ("5 stars: I bought VTSAX and made $43.26, and you can too!"), but
it can certainly do a whole heck of a lot to reduce the friction of making a
transaction. The point is, the customer shouldn't have to do any work (or as
little as humanly possible), before clicking the Buy/Sell button.

And sure, the existing financial institutions can work on this same problem,
but this is a actually not their biggest problem. Their biggest problem, is
convincing customers to even think about them and take a look at their
offerings, in the first place. 70+% of American households have Prime; how
many have brokerage accounts? Some Googling around puts this at ~14% ([1] DOL
2015 report says 17 million households had brokerage accounts in 2013, DOWN
from 19 million in 2001; total there's roughly 120 million total households in
America). Also remember, this 14% of households is split amongst all the
competing brokerage firms, while the 70% of households is ALL Amazon's.

All the brokerage ads I see, are targeted towards traders or people who want
to become traders; this makes sense for those firms, because why would someone
who has no interest in trading, ever use their brokerage? But this is narrow-
minded and ultimately self-limiting thinking, and this is not at all how
Amazon thinks. EVERYONE is an Amazon customer (or potential customer); once
you're on the platform, figuring out exactly what to sell and how to sell it
to you is easy. Prime is a huge economic engine/pool of consumers, at which
Amazon could throw just about any product at, at any time. Some will stick,
some will fail, but even those that fail can be recycled and improved and
retried.

Everyone else is fighting over their shares of gold, while Amazon is working
to create/feed the golden goose instead. Strategy over tactics.

\---

[1]
[https://www.dol.gov/sites/default/files/ebsa/researchers/ana...](https://www.dol.gov/sites/default/files/ebsa/researchers/analysis/retirement/brokerageaccountsintheus.pdf)

------
vinceguidry
Don't financial firms have to isolate their business models? Banks
traditionally couldn't offer brokerage services for instance. I can't imagine
the government granting Amazon a license to operate a retail trading desk,
particularly if anyone can offer products on it.

------
anonu
Great thought piece. Read this carefully and certainly written by someone
knowledgeable about the industry (I would hope so if he's running a hedge
fund!)

I see some comments view this as a far-fetched idea. Maybe that's why its a
good one....

RobinHood, the stock trading app, didn't exist 5 years ago. Now you trade for
free - challenging a dozen well-known incumbent platforms like Schwab,
Fidelity, etc... Luckily, these big guys offer more than just stock-trading.
Imagine, zero fee trading with a fund-management platform as described by OP -
I think it would crush the competition.

------
monkeydust
So here is a pitch you could make for the tech companies to get into finance.
Simply replace <x> with either Amazon or Google

1\. <x> Advisor: Retail investors are moving rapidly to passive tracking
instruments such as ETFs, <x> can help educate investors on how to allocate
their funds to this asset class based on individual risk/reward profiles. <x>
can make better sense of all the data available and become the 'ultimate'
robo-advisor.

2\. <x> One View: <x> is in position to own account aggregation and build up
an incredible view into the spending/saving habits of the general population
in the developed world. Initiatives such as PSD2 in Europe will help fuel the
growth in aggregation in the next few years. Going forward beyond simple read-
only aggregation,combined with <x> Advisor and write-APIs to to financial
institutions, <x> can allocate my funds to the best products across multiple
different institutions in real-time.

3.<x> Bank: With my investments taken care of through <x> Advisor and One View
whats left is a utilitarian bank account to manage my free cash flow on a
daily basis. Something practical and highly functional without the fuss that
offers features such as peer-to-peer FX swapping at mid rates when I go on
holiday. This is where <x> could create the challenger bank people have been
anticipating.

------
cavisne
Maybe they should offer an Amazon weighted fund, that invests based in your
personal consumption, ie if you buy a lot of Gillette razers then buy some
Gillette shares.

~~~
bvm
I think I'd by the 3x leveraged inverse of my consumption habits.

------
thinkling
Article:

> Jeff Bezos’ disdain for Wall Street is well known

Is it? Bezos got his business education on Wall Street at D.E. Shaw. What is
known about his having "disdain" for that industry? Is this just a botched
reference to his strategy of ploughing profits back into company growth?

------
BatFastard
Lots of FicTech in my city. From friends who work for these companies. They
are a mess. Amazon needs to come in revolutionize the market place. But if
they did, they would get broken up.

Short term question is whether Walmart will survive, I hope they do much as I
despise the company. Amazon needs competitors. Longer term is will it be
Alibaba vs Amazon worldwide? Interesting times...

~~~
daxorid
> Short term question is whether Walmart will survive

Why do you think they wouldn't survive? $15B in free cash flow versus $46B in
debt makes bankruptcy a virtual impossibility.

------
908087
> Amazon is rich with the most important resource in asset management: trust.

I'm sorry, but what? I don't even trust Amazon to deliver eclipse glasses that
aren't counterfeit, and I know most of my friends/family feel the same way at
this point.

The only thing I trust them to deliver is streaming video at this point.

------
hodgesrm
Given the level of counterfeiting and gamed reviews this seems like a quick
route to financial dystopia.

------
inthewoods
If Amazon wanted to move into Asset Management, I think they'd have to show
financial experience/competence first for the trust to be there. Wouldn't it
make more sense for them to open a bank first?

------
avoutthere
How long before we see Amazon break themselves up as Google did into Alphabet?
This seems like a solid approach to prevent government anti-monopoly action.

------
jeffreyrogers
If you want average returns and low fees just use Vanguard. You can't scale
above average returns to Amazon scale.

------
sroussey
I see them lending before doing funds. Buy x for y per month, etc. Also,
possibly lending to suppliers.

------
dalbasal
The fact that an article like this about Amazon (or any of the tech "giants")
is in some way credibe (I think it is) is curious. IE, a company that does
retail, sells media & tech infratructure could also go into financial
products...

I think it's several things are going on. First, this new breed of companies
_is_ highly eutrepreneurial and competant. Maybe it's youth. Maybe it's the
fact that they emerged recently as winners from a high competition dynamic...
If Google or Amazon declare they will now be running schools, I'd be a lot
more interested than if Unilever or Shell did the same. I know we're concerned
about their power, size, monopoly power & vested intertest in the anti-privacy
camp, but credit is still due... I think.

Second is the power of ....power. The modern economy is top heavy. Most
markets are structurally hard to break into. "Normal people" can't just start
company doing banking, insuring, medicines, transport, tobacco, energy,
gambling. There are upstart-hostile rules, locking out new and/or small
players or structural reasons preventing small players.

"Can't" is strong. Uber started a transport company. But, there are structural
and regulatory reasons that make most large markets much more closed than
search engines and online shopping. There is no chance for a thousand
entrants, with winners emerging from a wide field. This leaves the field open
almost exclusively to large companies running lower risk gambles.

Third.. third is financing. Financing has changed in ways that I don't
understand well enought to express concisely. There is a lot of financing
available these days, via "back-channels." The less formal sectors like VC and
(much bigger) corporate lending.

Think of what california's VC & angel complex does. It is, in many ways, the
heart of the startup ecosystem. Promising founders get to take big chances
without liability. This makes it possible to start a Google or an Uber.

How would SV look if founders had personal liability, like regular small
business people? How would it look if they were limited to bootstrapping?
Startup financing is an exception, and a relatively small one. Elsewhere on
earth, finance is a much more closed shop. You have to be an insider of some
sort.

Financing is (to quote Buffet) *resource allocation.

Take for example, "leveraged buyouts" and similar arrangements. Leveraged
buyout means that I get a loan from you to buy company X, which then owes you
repayment. Some form of this is how Russia's oligarch system came to be. It's
how a lot (most) private sales of comapnies happen. It's how infrastructure
companies happen. Mining.

I don't quite understand it. The big risks are go to the financer, but the
profits don't. Regardless, the structure exists and being big is a
prerequisite.

------
debt
This has an insane amount of detail. Is this a pitch?

------
powvans
I got my law degree at Costco.

This is the umpteenth thread where commenters are complaining about the sad
state of Amazon’s retail. I hear a constant stream of complaints about
counterfeit goods, fake reviews, less than great pricing, and shipping that
takes longer than promised. I’ve personally experienced all of the above and
cut way back on Amazon.

How many companies thrive while the quality of their core business withers?

Of course, maybe retail isn’t their core. Maybe the core is providing barely
acceptable products and services at razor thin margins. In that light asset
management makes perfect sense.

~~~
muddi900
Amazon's business model is built on predatory pricing. Their Cloud business is
wholly subsidizing there monopolistic grand plan.

