
Conglomerates Didn’t Die, They Look Like Amazon - KKKKkkkk1
https://www.nytimes.com/2017/06/19/business/dealbook/amazon-conglomerate.html
======
stirlo
Ben Thompson has a great take on this...
[https://stratechery.com/2017/amazons-new-
customer/](https://stratechery.com/2017/amazons-new-customer/) Essentially
amazon develops services and buys the best customer for said services to
ensure they get used.

~~~
nitemice
This is a really amazing and clever idea on Amazon's part: Taking a system or
technology that you've already built and are maintaining, and make it
accessible to others as a platform. Then continue using that platform as if
you were a/the best customer.

They did it with AWS, they've done it with their retail business, and now
they're probably going to do it with AmazonFresh/WholeFoods. It makes a lot of
sense, and it offers them a lot more flexibility to use the platforms they
build in other ways too.

~~~
throwaway2048
This is a persistent myth that needs to die, AWS was not built to host their
websites, and indeed did not do so for many years after it was established.

AWS wasnt their "spare capacity" nor was it them exposing their internal
systems to the world so they could sell them off, It was developed from day
one as a public facing service.

~~~
supercanuck
I think it is you who is incorrect

[https://news.ycombinator.com/item?id=3161246](https://news.ycombinator.com/item?id=3161246)

~~~
Retric
Your misunderstanding that comment. It was built "in the same datacenters by
the same IT engineering team" but it was always it's own thing. "AWS services
were quickly adopted by many teams" _after_ it was built and a commercial
product.

Sure, the intent was Amazon IT would eventually move to that system. But, they
could let other companies work out the issues first vs. risking their main
website. Just consider the risk for them if AWS goes down and take their own
site outline while they are trying to sell high up time. That's simply a risk
they had no reason to take.

PS: Remember, well executed traditional large scale infrastructure has higher
up-time than AWS because AWS adds complexity.

------
arvidkahl
Amazon has found their way to cornering the one property that is not
influenced by fashions and whims: scarcity. Both in a logistical and
economical sense, they have been pushing the envelop on all corporate levels,
from AWS to fresh produce.

To me, most of the "new and more agile" companies are cargo-culting the
optimization paradigm, focussing on time-saving and convenience as if the more
basic needs were already met. In that case, they are fighting for customer
attention because the customer has attention to spare. Amazon however moved so
deeply into the consciousness of the household (and, on HN, our work
environments) that people are perfectly fine with Amazon being a conglomerate
- since they literally deliver. Heh.

~~~
TheSpiceIsLife
> _that people are perfectly fine with Amazon being a conglomerate_

What is this supposed to mean? Is there supposed to be something inherently
not-fine with a conglomerate? If conglomerates survive because they're better
able to deliver goods and services more efficiently then great.

As another comment pointed out[1], we are surrounded by conglomerates.[2]
Other conglomerates that have delivered things people love include, but
limited to, Toyota; Yamaha; Mitsubishi; Wesfarmers; 3M; Alhpabet; Honeywell;
Berkshire Hathaway. The list is expansive.

1\.
[https://news.ycombinator.com/item?id=14592612](https://news.ycombinator.com/item?id=14592612)
2\.
[https://en.wikipedia.org/wiki/List_of_conglomerates](https://en.wikipedia.org/wiki/List_of_conglomerates)

~~~
michaelt

      Is there supposed to be something inherently
      not-fine with a conglomerate?
    

Some people think they have a tendency to be inefficient, as high-performing
areas of the business waste money subsidising low-performing areas of the
business. And low-performing areas are insulated from free market feedback,
like going bankrupt or investors leaving.

Of course, some of this stuff is only obvious with hindsight. It was probably
inefficient that Google Ads wasted money subsidising Plus and Wave; but
probably efficient that Google Ads subsidises Gmail.

~~~
dragonwriter
It's not about individual cases, but that having the businesses combined
prevents _investors_ from allocating capital between them, which is viewed as,
in aggregate, less efficient as the allocation is a step removed from the
market.

~~~
TheSpiceIsLife
This assumes that _investors_ are efficient at allocating capital, or that
individual investors are more efficient than institutional investors.

As an obvious counterpoint: Birkshire Hathaway

A more local example, as an Australian, is Wesfarmers who have persistently
maintained strong brands in hugely diverse fields. As a welder by trade I'm
willing to bet that the people managing these two conglomerates are more
efficient at allocating capital than _I_ , at least.

~~~
dragonwriter
> This assumes that investors are efficient at allocating capital

Yes, in aggregate, it does. Phrased another way, it assumes that the market is
more efficient when different investments are unbundled and can be selected
independently than when they are bundled.

Note that I am not necessarily endorsing this charge against conglomerates,
just clarifying what I see to be its basis.

------
noobermin
While prices are low, another aim of governments should be to keep wages high
enough to maintain a standard of living. I think the fear around Amazon isn't
that it is going to all of a sudden raise the price of goods from Whole Foods,
but that they will reverse the employee friendly aspects of the company. When
prices are low but wages aren't high enough to guarantee that people can take
advantage of those lower prices, inequality is exacerbated.

~~~
indigochill
There is another side of that which I've noticed as an American expat. If one
country or industry decides to keep wages high, there are at least two
effects.

1\. The minimum required experience is also increased. You see this in
industries where it's very difficult for new blood to break into because the
minimum required experience/skill level is above an "entry level" position
because the pay expectations of the industry require a certain degree of skill
and experience going in.

2\. Companies outsource. They seek to maximize profits, which means reducing
costs, which means paying those with low demands for work that's good enough.

I actually moved out of the US for work because I found that I had better
opportunities outside the US than in it. Not higher-paying (those would be in
the US), but opportunities to build work experience from nothing, which I
didn't see an option for in the US as a fresh college grad with a journalism
degree looking to break into software engineering. I've been working outside
the US for ~3 years now and although there have been challenges it's changed
my life and career for the better. YMMV.

~~~
gedrap
>> industries where it's very difficult for new blood to break into

What are examples of such industries?

~~~
daemin
The canonical example is in Medicine: Doctors, Surgeons, Dentists. All of
these professions have strict professional bodies which limit the number of
people that can enter them, therefore be it intentionally or not, the wages
are kept high.

~~~
noobermin
I think when it comes to healthcare, it will always be the exception, give the
inelasticity of the demand for healthcare.

~~~
daemin
Actually the demand for healthcare will change when there is a change in
price. There will always be a base demand level, but if you change the price
of seeing a doctor then people would be more inclined to see them for minor
things - annoyances, rather than emergencies. Therefore if you allow for more
doctors to be created the salary should drop, and if all goes to plan the
price for healthcare should also drop.

Although my opinion is in the current US climate, the prices will remain the
same and someone else will just suck up the profit.

------
tpeo
>The conglomerate was supposed to be dead, a relic of a bygone of era of
corporate America.

That's not even _close_ to being true. How does someone get a job on a
supposedly reputable newspaper writing such daft shit?

[https://en.wikipedia.org/wiki/List_of_conglomerates](https://en.wikipedia.org/wiki/List_of_conglomerates)

~~~
TheSpiceIsLife
The first paragraph of the article states:

 _Investors, we have been repeatedly told, want smaller, nimbler, more focused
companies. "

Who's _we _? If, by_ investors _, they mean a fairly specific subset of
investors, namely_ Venture Capitalists* and _Angel Investors_ , then yes.

But otherwise, no. People aren't bailing out of established conglomerates. Not
that I'm aware of.

~~~
scatters
The conglomerate discount is real - about 10% on average in developed
countries. This applies to public companies, so is a revealed preference of
institutional and retail investors, not VCs and angels.

~~~
TheSpiceIsLife
Okay, well then, thanks for pointing that out.

I retract my previous statement and substitute it with something more like:

The discount investors apply to conglomerates is linked to perceived lower
risk.

So while it might not be accurate to say _investors want smaller, nimbler,
more focused companies_ without specifying which investors, it can be accurate
to say something like _investors looking for a higher rate of return (which
implies greater risk) want smaller, nimbler, more focused companies._

~~~
obastani
I don't understand your comment. Given the same rate of return, investors
prefer lower risk. So what you seem to be saying is conglomerates produce
lower returns.

But I don't think that's what the conglomerate discount is, which I believe
says that the components of a conglomerate are worth more than the
conglomerate itself. More precisely, "Conglomerate discount is calculated by
adding an estimation of the intrinsic value of each of the subsidiary
companies in a conglomerate and subtracting the conglomerate's market
capitalization from that value." [1]

[1]
[http://www.investopedia.com/terms/c/conglomeratediscount.asp...](http://www.investopedia.com/terms/c/conglomeratediscount.asp#ixzz4kXjb7Bsj)

~~~
sharemywin
Except for the top 5 tech companies because they have a free pass to become
monopolies in new industries and extract massive profits versus incumbent
companies.

------
smilbandit
[https://en.wikipedia.org/wiki/Megacorporation](https://en.wikipedia.org/wiki/Megacorporation)

------
Mathnerd314
(from the Yale note)

> switching costs are high

> Amazon’s platform lock-in

> users said they would be taking their business from Amazon and returning to
> Diapers.com—which, other users pointed out, was no longer possible

I have a hard time taking this seriously. "Lock-in" is just a sunk cost, it's
more about the psychology of switching than an actual problem. If they went
through all the pain of figuring out AWS's XML formats then they shouldn't
have any trouble with another cloud service...

~~~
dredmorbius
I'm increasingly wary of the "sunk cost fallacy" argument. For reasons which
are difficult to articulate clearly, but the upshot is that I don't think SCF
gives full weight to the issues involved, at least in some instances.

One aspect of this is risk. Whatever your _present_ course is, you've greately
reduced your uncertainty regarding it. A new course of action may involve a
great deal of unrealised and unrecognised risks. That is, your costs are
understated, and your benefits are overstated. Particularly with complex
situations.

~~~
Mathnerd314
Present courses often have a great deal of unrecognized uncertainty and risk
too: [https://blog.codecentric.de/en/2013/12/never-change-
running-...](https://blog.codecentric.de/en/2013/12/never-change-running-
system-wrong/)

Decision theory generally proceeds as follows: map out all possible outcomes,
all possible courses of action, estimate probabilities of each action leading
to each outcome, and choose the action with best outcome distribution.

So far I haven't seen anybody argue against it directly... the problem instead
is availability, most people aren't aware of it and can't or don't use it on a
daily basis.

------
wott
Well, when a company has various activities, the direction/management decides
that a company must focus on a single activity ("focus on a single trade and
be expert in it, delegate the rest" is then their motto).

Then when a company has a single activity and is an expert in it, the
direction/management decides that a company must have diverse activities, be
it vertical integration to decrease the costs, or horizontal integration to
reduce competition, or just invest/acquire in totally unrelated sectors to
eliminate risk.

And then back to step one, and so on.

The only constant goals in all this seem to be:

1\. to justify firing employees and lowering working conditions;

2\. to generate artificial activity for all the direction/business/finance
sector, so that they always feel both useful and powerful.

------
danvoell
I get that this is groundbreaking and different this time, but isn't this just
buying a vertical?

~~~
adventured
Yes, there's actually absolutely nothing special about what Amazon is doing.

It's GM buying Hughes or Perot. Or Berkshire buying company xyz. Or GE buying
its hundredth company. Or Walmart getting into xyz category. Or Google buying
Nest & Boston.

The sensationalism is courtesy of Bezos nearing the richest person on earth
status combined with Amazon's increasing pervasiveness in the US economy. It's
the hot new new story of the moment to write sensationalism around, spin up
some fear, whatever, gotta drive those clicks. It has so many angles to play
on, it has even got Trump courtesy of the Trump/Bezos feud, what more could
they ask for.

------
cmurf
Ship avocados green and they survive, but aren't ripe the day of delivery, or
until 2-3 days later. Ship them almost ripe so that they arrive ripe, and they
will be bruised and nasty, unless they pack them in an avocado sleeve that
keeps them from rolling around.

Done right, it has the potential to be a better avocado experience, because so
many morons molest avocados, digging their grubby fingers into them and
bruising the poor thing. And it's the next person who can't see this who buys
the bruised avocado. All those brown spots in an avocado? Those are finger
squeezes. Stop avocado rape!

There's a lot of problems with shipping produce direct to customer, sight
unseen, and maybe a few benefits. But I gotta say even 10 years ago Fresh
Direct in NYC was doing a genius job of it.

------
starstorm312
Interestingly, the article suggested that Amazon, in being both the
distributor and the cloud provider, may be able to increase their advantage by
exploiting information they hold on competitors.

~~~
frogfuzion
Certainly just the simple ability to see which accounts are scaling up or down
and spending metrics can provide a huge business edge right?

~~~
dokument
Maybe. Still wouldn't be as much as google knows. Via android phone locations,
apps installed, what people are saying in email/gchat/gvoice conversations,
google home histories, youtube, etc. Not mentioning their other services like
google cloud.

It would be very easy to use that data to know when and with who to invest.

------
ImaginaryIP
It's exciting to be an engineer at Amazon because of the broad range of
business problems it tackles and how easy it is to move among teams. If you
want to pivot into video streaming, cloud computing, data science, etc., you
can easily find a mentor. It makes me feel like personal ambition is my only
limit (which is both daunting and exciting).

------
cylinder
What are some other acquisitions Amazon might make to buy a customer?

Would they buy a large automotive dealership group? Or is that not analagous?

------
cakedoggie
They also look like Samsung. And Sony. And LG.

~~~
baybal2
>Conglomerates Didn’t Die, They Look Like Amazon (nytimes.com)

More like all Japanese conglomerates look these days (Marubeni, Mizuho, Mitsui
etc) Except, the topmost structure is not likely to be publicly traded.

------
appleiigs
I don't know what the fetish is with Amazon. The article is ridiculous in
suggesting Amazon putting Walmart out of business when it only started making
real money in 2016. Amazon made $2B in 2016 and $0.6B in 2015, lost $0.2B in
2014. Walmart made $13B last year... but the article says Amazon is the one
with the better mouse trap and "impervious to the natural life cycle of a
conglomerate"? huh?

With the toxic culture, Amazon is going to go Uber someday. The Whole Foods
acquisition is probably the start of Amazon taking a step too far.

~~~
icebraining
Amazon has made real money for years, they just have reinvested it. Comparing
Amazon to Uber is silly, they're an established business and leader in
multiple markets.

~~~
appleiigs
Reinvesting income doesn't give you negative income. Having the highest
marketshare doesn't mean they make money from it. Bezo is considered the
worlds worst boss and there have been many articles about its corporate
culture... that will catch up to Amazon.

~~~
icebraining
_Reinvesting income doesn 't give you negative income._

When you're running multiple new mostly-empty datacenters or fulfillment
warehouses that you built for future growth, the short term efficiency (and
hence income) will be pretty shitty, no? I'm not talking about the cost of
building them, but the cost of running them far from capacity.

