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Amazon Strategy Teardown (cbinsights.com)
139 points by asanwal 92 days ago | hide | past | web | 98 comments | favorite



I continue to be bearish on Amazon long-term. The notion that shoppers will one day buy things simply with the push of a button or saying "Alexa, get me some paper towels" seems extremely far-fetched to me. Most shoppers are extremely price-sensitive and won't buy things before researching the price, save possibly for a few low-price staples like toilet paper or soap. So this idea that Amazon keeps suggesting where people are shopping with just their voices, seems DOA. But even if people do prefer convenience over price, there's no money in delivering groceries to people. Groceries are notoriously low-margin, one of the lowest margin businesses there is, so delivering groceries to people doesn't seem like it's going to make Amazon the trillion-dollar company some people think it will eventually become.

Looking forward, 10-20 years, maybe the delivery cost issue will be solved with self-driving vehicles and robotic deliveries. But then, why would Amazon be the sole beneficiary of that development and not every grocery store? Sure, they have distribution facilities, but so does every major grocery and retail chain.

As for AWS, I'm not real high on that side of the business, either. Despite being the runaway leader in cloud service, they make very little money in it so I'm not very confident that their margins will increase as competition from Microsoft and Google only intensifies.

I'm not at all suggesting that Amazon is going away, and what they've done to this point is nothing short of extraordinary. I just think long term that they will settle in as a large American retailer that reshaped the retail landscape for other stores that will eventually catch up.


> Despite being the runaway leader in cloud service, they make very little money in it

From a year ago: "The biggest source of the company’s profits is Amazon Web Services, the cloud computing business that started just over a decade ago and is now on track to bring in more than $10 billion a year in revenue."

"Cloud computing is also much more profitable than Amazon’s North American retail business, which runs on thinner margins, and its international retail business, which runs at a loss. The operating income for A.W.S. more than tripled in the quarter to $604 million."

https://www.nytimes.com/2016/04/29/technology/amazon-q1-earn...


That's neither here nor there.

Amazon has been running at a loss or close to 0 profit by design.

They could be profitable if they wanted but the choose to use the revenue to expand their expanding business (e.g. building warehouses, buying a fleet of planes etc.) or fund other businesses (e.g. successful Kindle tablets or failed Kindle phones, or Alexa or opening physical bookstores or opening physical grocery stores).

When they run out of warehouses to build (or crazy ideas to invest in) their costs will drop and that will turn into profit in an instant.

And there's not much competition there (Walmart, maybe) for the kind of ecommerce + physical commerce combination so we can assume that Amazon will grow in that space and other players will, collectively, shrink.


(disclosure: long amzn)

Walmart made a smart play with Jet.com, but I think they'll only ever do retail. They won't do AI which Amazon uses to drive more sales of Prime, etc... I also think they don't need to compete with them necessarily. Its good to have both Walmart and Amazon.

I think the closest competitor to AMZN is BABA. Souq purchase was huge to fend off that competition.

I'm long Amazon because they're the best company i see at figuring out a problem and solving to it for the long term with innovative, scalable, solutions.


Imagine a future where another tech giant buys Walmart, though. A Google-owned Walmart could certainly compete head-to-head with Amazon on retail.


What does "I'm long Amazon" mean?



Being long is a stock market term that means you are invested in a company and believe the stock price will increase. It's the opposite of being short.


The poster holds stock in Amazon and beliefs in its long term success.


> When they run out of warehouses to build (or crazy ideas to invest in) their costs will drop and that will turn into profit in an instant.

I don't think there's any evidence to back that up. There are two types of costs- fixed costs and variable costs. Costs associated with setting up new warehouses are variable in the short term, and sure, those will drop to zero when they choose to stop building them. But there are substantial fixed ongoing costs associated with operating warehouses and any change in market dynamics (high unemployment, lower consumer confidence, market crashes) can cause their costs to outstrip their revenue. Just because they are Amazon doesn't make them immune to the same P&L considerations that affect every other retailer.

I just don't see much evidence looking back at Amazon's history to suggest that they can suddenly become wildly profitable when they haven't been able to in 20+ years.


What you're essentially saying is 'when Amazon decides to stop investing in its 'moat' and milk the profits?

The problem is Bezos is on the record in his annual letter saying he doesn't ever intend to do that. That's 'Day 2' thinking to him.


Yes.

It doesn't really matter what Bezos says - if they keep growing their business, some day they will find themselves in the same position as Apple, Google and Microsoft: they generate so much revenue that they don't know how to invest it intelligently.

It'll take Amazon longer because their margins are lower and their expenses (warehouses, planes etc.) higher than very generous programmer salaries but there will be a time where it won't make sense for them to build another warehouse in, say, California.

My comment was also in context: some people apparently believe that AWS is the only business that matters in context of Amazon and ignore massive revenue and continuous growth of the ecommerce business. I believe that ecommerce business will ultimately be more profitable (as total profits, not profit margins) to Amazon than AWS. And yes, it might take a couple of decades.


Amazon captured the MAJORITY of ecommerce growth in 2016. http://www.cnbc.com/2017/02/01/amazon-captured-more-than-hal... They've made it rough for physical retailers and malls.

Not to mention half of all households in the US have a Prime membership at roughly $99/yr. Allows them to leverage in to video, music, etc with a different value/cost model than Netflix for example.


< half of all households in the US have a Prime membership at roughly $99/yr.

Back of the envelope - of 300 deliveries ~45 are prime (15%) and 2 are Amazon Fresh (0.7%)

The prime patrons are addicts of prime and online in general.

But still the most in one day I have ever seen is 25 parcels for one person. One is the norm. Two once in a while.

Imo cell carriers taught people "free" (free long distance) and Amazon was smart to use that already popular notion of "free" free shipping - you just have to pay once annually.


free after a curtain price threshold too without prime though not independent sellers of course.


> It doesn't really matter what Bezos says...

You can be certain that someday Bezos will no longer be in charge of Amazon, and if it is not already Day 2, then in short order it will be and Amazon will turn a profit.


Exactly- they made $604 million in profit in the quarter. Certainly nothing to sneeze at, but to put that into perspective, the company currently has a market cap of about $430 billion.


That's $604 million per quarter.

Annualized that's $2.4 billion.

In profit.

On a $10 billion business.

That's growing at a 59% annual rate.

With no competitor anywhere close.

And AWS is just 10% of Amazon's business.

Your claim that Amazon makes "very little" on AWS makes no sense.


Okay, no money was hyperbole. It makes some money. But in the large cap tech space, it's a pittance. Apple probably makes more money on sales of the iPhone 6S.

It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business? Any other company that operated with similar fundamentals would get skewered. But because it's Amazon, they get a pass.


> It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business?

It says that Amazon successfully found themselves a cash cow. So, they have a fantastic business sense. They are smart. They executed perfectly (mind you, MSFT and Google and many other companies are doing IT and public computing service long before Amazon).

I am not sure what you want to say here.

Google makes most revenue and profit on Ads. But Google does all kinds of things. Does that make Google stupid? Of cuz not.

Same here. I hope you ditch the thinking that everything should be the same. Diversity is not only useful in culture, it's useful in business too.


Google works on tons of different products but their only real business is the ad business and it is hugely profitable and has been so for a very long time. I have no doubt about Google's ability to make large profits because they've demonstrated that they can do so. People keep saying Amazon can make similar profits whenever they want but I see zero proof that that is true.

AWS isn't a cash cow. It hasn't been proven to be a hugely profitable business yet. It makes a decent amount of money but at this point it's peanuts compared to the valuation. That said, I see a lot more long term potential in the AWS business than the ecommerce business but AWS has to grow by leaps and bounds to justify the current valuation.


> AWS isn't a cash cow.

Wow... I thought HN does not have people who would make such statement. Did you see the quarterly report?... That's a 14B business on a 23.5% profit margin, and still under relentless price cutting, and are gaining market everyday from traditional IT service company...

> it's peanuts compared to the valuation.

I dont know what to say. It's started in 2006, and now is 14B. If this says anything, this just shows how strong Amazon's business is! AWS alone is worth 100B market cap, and it's just a peanut to Amazon.

I am not sure you are downplaying Amazon's success, or just trying to point out how impressive they really are.

[1] http://www.businessinsider.com/amazons-q1-2016-cloud-busines...


How do you get to a 100B valuation? They are set to earn just over 2B this year. So you're willing to pay 50x earnings?

Remember, this is IT, where margins should be some of the highest of any industry. Compared to software or traditional hardware companies, a 23% margin isn't very good. I actually buy into the idea that they are reinvesting in expansion which is hurting their profits, but I think it remains to be seen how profitable cloud computing actually is in the long run. It carries enormous expenses in hardware and maintenance and is becoming more competitive every day. Will AWS grow? No doubt. But by how much and at what profit level remains to be seen. If AWS was spun out as its own stock symbol separate from the ecommerce side of the house, I might even be willing to take a flier if I really felt like gambling, but at an overall valuation of $430B, it's just too expensive for me.


Keep in mind that they're putting up these numbers in the hosting space, which has traditionally been a "race to the bottom", low margin game. While they do cut prices, they still maintain healthy margins on the services up stack. Pretty impressive profit numbers when you take into account their hardware spend, which must be enormous.


I am surprised that this post was not downvoted. Several obviously wrong or weakly founded arguments:

> The notion that shoppers will one day buy things simply with the push of a button or saying "Alexa, get me some paper towels" seems extremely far-fetched to me.

This already happens. You probably means that most shoppers. But the problem or the concern is not if Amazon will provide such mechanism; rather, is if Amazon can continue to have strategic dominance over the primary portal to online shopping. If smart home becomes the primary portal, then Amazon is geared to achieve that. If it's some other form, Amazon has demonstrated necessary tech and business prowess to do that too.

If online shopping is doomed, OK, then Amazon is doomed.

> Most shoppers are extremely price-sensitive and won't buy things before researching the price, save possibly for a few low-price staples like toilet paper or soap.

This is simply wrong. In reality, price sensitivity is not that important. Otherwise, Walmart should already become the "everything" store, and Amazon should have not been possible.

> why would Amazon be the sole beneficiary of that development and not every grocery store?

The answer is already here. Why Amazon becomes the single biggest winner of online shopping, while other players did not catch up. Whatever the answer is, it can be applied in the future.

> Despite being the runaway leader in cloud service, they make very little money in it

This is plain wrong. Check out their quarterly report. Cloud's margin is very good. Take a look at MSFT, GOOGLE, Oracle, and more. If this market is not going to produce high profit, there is no way everyone is joining in the competition.

> I just think long term that they will settle in as a large American retailer that reshaped the retail landscape for other stores that will eventually catch up.

If you are not impressed by a company reshape the retail industry, then I am not sure there will be anything that would impress you...


> The notion that shoppers will one day buy things simply with the push of a button or saying "Alexa, get me some paper towels" seems extremely far-fetched to me.

Indeed, that's not "one day". That's now. I've actually purchased paper towels using voice. I have a Dash and have also bought staples with the push of a button.

I don't see what's so far-fetched about this. It's pretty simple. When I'm buying a staple consumable product like paper towels, I am not shopping in the sense of looking around to compare products or pick the lowest price. I'm repeating a purchase that I've made before, at a price I'm already happy with.

I can also buy most of what I need online and have it delivered to my home. Traveling out to a store, shopping, checking out, and getting home often takes an hour or more, so shopping online saves me a lot of time.

Some people might be luddites, and that's their choice. The rest of us can benefit from this technology today.


Do you typically down-vote posts that don't happen to agree with your world view? I don't see how your points are any more well-founded than mine as they are all based on conjecture and not facts. Arguments like "Cloud's margin is very good" may make sense to you, but typically a well-reasoned argument states a thesis followed by evidence supporting it and I'm not seeing that.

You are also making all sorts of erroneous assumptions about what I said. I never said that I wasn't "impressed" by Amazon, in fact I think I actually said that what they've done is extraordinary. I also never said that online shopping, or Amazon for that matter, were "doomed."

And to your point about Wal-Mart being the "everything" store- name all the retailers on Earth that are larger than Wal-Mart. I'd be interested to hear what you came up with because last time I checked, there weren't any. Wal-Mart is the everything store, and has been for a long time. Why do you suppose that is? Could it be that most shoppers are price-conscious? If your argument is simply that ecommerce hasn't overtaken brick-and-mortar yet, fine, but then why does Wal-Mart absolutely dominate every other brick-and-mortar? It's because they've always relentlessly focused on figuring out ways to lower prices for their customers. In fact despite what a lot of people think, Wal-Mart has one of the most sophisticated distribution and inventory management systems ever created. It wasn't so long ago that Wal-Mart was being cast as evil because of their tactics bullying product manufacturers, but now people are writing their eulogy. Sorry, but the idea that mass-market customers are highly price-sensitive is well-founded and beyond dispute.

If you can't come up with a single potential threat to a business, you should probably take a step back and ask yourself if you're really looking at the situation objectively.


I don't downvote posts with different view, but only posts with baseless claims.

So far, all your statements are either claims that have little fact support, or rather empty prediction that makes little current impact in the discussion, either true or false.


> Most shoppers are extremely price-sensitive

They are quite sensitive to the prices of things they buy regularly, but not as sensitive to the prices of things they buy rarely -- unless they are relatively expensive.

Otherwise, price is only one factor. You also have to consider delivery times, convenience, support and other factors. I buy things from Amazon partly because I can reliably get them the next day, and they'll take them back if there's a problem, even if it's my mistake.

> there's no money in delivering groceries to people. Groceries are notoriously low-margin, one of the lowest margin businesses there is, so delivering groceries to people doesn't seem like it's going to make Amazon the trillion-dollar company some people think it will eventually become.

I agree about groceries. It's going to be particularly tough in areas where major supermarkets are already delivering groceries, which they do where I live.


> The notion that shoppers will one day buy things simply with the push of a button or saying "Alexa, get me some paper towels" seems extremely far-fetched to me.

What year did you write this in?


I think he is aware of the fact that some people are doing this already. His point is they these people will be a very small minority, not enough to support Amazon's valuation.


I don't have an Alexa, so maybe this feature already exists, but will it tell you how much something is if u ask it? "Alexa how much is toothpaste". Also, I would buy in if I could set a price threshold for previously ordered items (aka, it would automatically warn me if toothpaste rose > 5% since my last purchase)


Voice purchasing is a major PITA. I've tried one or two times to order something through Echo and never really felt comfortable with it. It takes a long time to read the whole product name and description, it repeats elements (e.g. "Colgate SuperFresh Sparkling White-Blue Toothpaste Now Without Microbeads Per FDA Mandate is available for 5.55, would you like to buy it?" / "No" / "Crest MediumFresh Shiny Blue-White Toothpaste...") and to "compare", you have to remember multiple long strings like that, and know the difference between MediumFresh and SuperFresh without looking, etc. It's not a pleasant or desirable experience. You don't just say "Get me some Colgate for no more than $3" and be done with it.

The Echo is also much worse at voice recognition than people make it out to be here on HN, and it responds to a very limited set of questions/tasks. Android's voice recognition (and presumably Google Home) is much better and it will provide useful answers to a lot of questions/tasks automatically.

Despite Amazon's fancy overtures, the Echo seems to be mostly valued for its properties as a Bluetooth speaker. That's definitely the main value I get out of it. Streaming audio by a voice command is a nice convenience over tapping buttons on my phone to hook up the Bluetooth, but the core value is still in being a speaker.


I haven't had any problems with Alexa's voice recognition (and I have an accent), but I completely agree that voice purchasing is not a smooth experience at all. I tried to do that yesterday with Alexa, but it just gives you very limited options and it's optimized if you want to mostly reorder the same items over and over again. Also, it doesn't remember your cart if you interrupt the shopping conversation, go to an app and come back to order again. So you have repeat the whole process.

Alexa is handy if you want news, weather or sports update, but it really needs to step up its UX for voice purchasing.


Can you give it a list of "standard items" beforehand? As in, the exact type of Colgate toothpaste you normally buy?


I have a Google Personal Assistant. I like it for setting timers, alarms, and playing news & podcasts. And asking random questions to see if I get an answer. But for anything nuanced or important, I use a laptop or phone to get the job done. I'd never give that damn thing my credit card. Even if I could get it to order exactly what I want, that seems like a huge security flaw and/or financial liability to me.

Of course, 20 years ago I was the radical one for buying things on the Internet with a credit card. Maybe I'll feel differently down the road.


I have an Echo Dot and I couldn't tell you because the only things I've used it for are setting timers while I'm cooking and occasionally playing music when I'm too lazy to sync my phone to my Bluetooth speaker system. I actually shop on Amazon all the time and the thought to try and buy something with the Dot has never occurred to me despite being well aware of that feature and constantly seeing the ad with Reggie Miller.


I present to you an excellent analysis by Scott Galloway (NYU Prof) and owner of L2 that might change your mind.

Scott Galloway - How Amazon is Dismantling Retail

https://www.youtube.com/watch?v=3MOwRTTq1bY

He is worth the watch.


Thanks, I'll check it out. I'm always open to opposing views and don't have any personal problem with Amazon or reason to want them to not succeed. I just see all the hoopla for Amazon and a lot of it seems based on ignoring market dynamics that people seem to consider very important for their competitors.


I'm waiting for L2/Galloway/someone to assess the problem with fraud, counterfeits, etc.

I'm having a hard time imagining how Amazon avoids the authenticity trap eBay and Alibaba have fallen into.

Galloway observes that Amazon is destroying brands. Will Amazon side step counterfeiting by selling all their own stuff?


I don't know if you have much ecommerce experience. I can say I sell items every day on Amazon at twice the price they are going for at Walmart. Amazon customers are a lot less price sensitive on certain items than you think.


If that's true, why doesn't their e-commerce business make any money? I constantly hear this argument that they can turn on the profit spigot any time they want, they just haven't yet because, "strategy."

But if what you are saying were true, they'd be making more money than Wal-Mart. But they aren't. In fact they aren't even close.

They have essentially made a land-grab (very successfully) by subsidizing convenience, which is pretty much exactly what Uber did. The problem to me is that I don't see how they turn that into long term profitability. What got them to where they are is almost diametrically opposed to what will make them money.


I'm not saying they can do it on every or most items, I'm saying there are many items they can.

They make large profits on some items, and lose large amounts on other items to keep customers coming back. If they stopped selling losing items (part of the reason they closed quidsi), they'd grow slower but make more.

I can't find Walmart profit numbers for just the online part, or even revenue, but estimates I found say that Amazon is selling more than ten times as much than Walmart. (See http://www.cnbc.com/2016/12/23/amazon-grabbing-the-bulk-of-s...). Unless Walmart's margins are ten times better, Amazon made more from online.


Amazon's businesses are currently self sustaining and make tons of profit right now. Amazon then takes those profits and invests them in other businesses it thinks will make more profit later, removing their status as profit. That's why it's as easy as turning on the spigot, they can simply choose to stop expanding, everything else is proven.


> Most shoppers are extremely price-sensitive

I haven't observed this. In fact, even the poorest seem to be quite price-insensitive on occasion.


From the horse's mouth, this is their big bet in the long run:

> As our shareholders know, we have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. In fact, when we lower prices, we go against the math that we can do, which always says that the smart move is to raise prices. We have significant data related to price elasticity. With fair accuracy, we can predict that a price reduction of a certain percentage will result in an increase in units sold of a certain percentage. With rare exceptions, the volume increase in the short term is never enough to pay for the price decrease. However, our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more.

> Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com. We’ve made similar judgments around Free Super Saver Shipping and Amazon Prime, both of which are expensive in the short term and—we believe—important and valuable in the long term."

From the 2005 Letter to Shareholders: https://www.sec.gov/Archives/edgar/data/1018724/000119312506...


It depends on the specific product and its absolute cost and such. It is the "price elasticity of demand".

https://en.wikipedia.org/wiki/Price_elasticity_of_demand

If people buy something in about the same volume when its price fluctuates wildly, the price elasticity is low and vice versa.


Making poor purchasing decisions and being willing to spend more for something you could get for less are two different things though. The fact that most people buy flights based on price and time of the flight over the quality of the airline demonstrates this to an extent.

The grocery store chain Aldi's entire value proposition is that they cut out every modern convenience that costs money and pass that savings on to consumers. For example, you have to pay 0.25 if you want a cart, but you get it back if you return your cart, thus drastically reducing the need to have extra workers to go get carts and bring them back in from the parking lot. Also, they don't have bags for your groceries, rather they have empty cardboard boxes you can use if you want (similar to Costco or Sam's Club). You'd think that that would turn people off, but actually people are very easily swayed at the prospect of saving a few bucks.


Far from the spartan shopping experience turning me off, I preferentially shopped at Aldi and Lidl when living in the UK. I like that it's noticeably cheaper, but more than that, I like the feeling that I'm doing my small part to limit wasteful excess consumption by freeing up the resources that traditional grocers spend on pretty packaging and arranging cans and packages on shelves.


Looking forward, 10-20 years, maybe the delivery cost issue will be solved with self-driving vehicles and robotic deliveries. But then, why would Amazon be the sole beneficiary of that development and not every grocery store?

10-20 years, sure, but that's a big spread. What if it takes twenty years for grocery stores to get that stuff and Amazon has it in ten? Given the fragmentation of grocery stores and their focus on actual stores I imagine they will have a hard time catching up technologically, plus businesses with brick and mortar roots don't have a great track record at building ways for customers to bypass the brick and mortar. Imagine the time they'll waste on marketing, astroturf, and lobbying to try to stave off automated home delivery before they give up and actually try to make the technology work. That gives Amazon even more time make money and draw further ahead.


My thought is that the cost of delivery will eventually drop so much from technological shifts (self-driving vehicles, robotics, etc.) that all retailers will enjoy the same cost savings that people are predicting for Amazon.

In other words, I don't think the last-mile delivery problem is going to be solved by Amazon and then enjoyed by them exclusively. It seems far more likely to me that the entire segment of local transportation will be reinvented by independent companies and utilized by all retailers. Think people owning their own self-driving vehicles that can stop and pick up their groceries, or independent local delivery services that utilize self-driving vehicles instead of Amazon-branded delivery vans.

At current cost levels, there's no way that delivering goods can ever be more profitable than selling them in-store. Last mile delivery is simply too complicated and costly. It's pretty much the entire reason that the USPS loses so much money while UPS and FedEx make enormous profits. So the only way that the costs could be made similar is if the costs for last mile delivery dropped to an incremental cost of nearly zero.


There's more than last-mile delivery, though. Amazon is automating its warehouses right now. Managing fragile and perishable goods will be an extra twist for them, but grocery stories will be starting from scratch (unless they're already working on the problem, which would be the right thing but seems unlikely.) Automated hand-off between an automated warehouse and an automated delivery platform is going to be a hard standard for grocery stores to compete with, especially on timeliness.


I thought this "last mile problem" is what Amazon is trying to solve and why they never made a profit for all those years. They are the ones building the "robots" and reinvesting is all this tech to solve such a hard problem.


From what I've seen they've done two things. First, yes, they've basically spent huge amounts of what would otherwise be profits on subsidizing two day delivery. They have dabbled in various methods of last mile delivery, like using their own drivers or drones, but to this day 90+% of my Prime deliveries are delivered by UPS or FedEx. The rest are either Lasership or Amazon delivery both of which have a noticeable drop off in reliability.

The last mile cost is extremely complex and I see no evidence that Amazon will figure out zero cost two or single day deliveries. FedEx nor UPS has been able to, and that's their core business!

I do think that it will be solved one day, but it won't be by Amazon. It'll be due to an advancement of lots of outside technologies that will be enjoyed by all retailers. And if we're being honest, isn't that outcome better for consumers?

The second thing that Amazon has done is subsidize things like free Video, books, and now Thursday night NFL in addition to free two day shipping to create an overall value package that draws people into Prime.


re: Amazon and low cost Don't know how accurate this is, but this article claims that Amazon, and in a different way, Google are gaming your preferences to try and maximize their profit by offering different prices to everyone, at different times of the day. Or maybe a large percentage of people care about convenience more than price. Not able to tell from just this. Except people who are sensitive to price need to carefully shop with price comparisons.

https://www.theatlantic.com/magazine/archive/2017/05/how-onl...


Please continue to tell everyone that Amazon stock is overvalued. Everyone else, please listen to this person.


I always bought from Amazon because they were one of the few e-commerce companies that took customer service seriously. Lately that seems to have lapsed so they tend not to be my first choice anymore.


That's close to my view.

The article makes a big deal out of Amazon's work with AI: Okay, they do some applied statistics like companies have been supposed to do, and some companies have done, going back more or less 100 years. A lot of their analytical, AI work will have to be classic operations research -- optimization including under uncertainty. E.g., operations research is just awash in work for shipping, inventory, optimizing a supply chain under uncertainty, etc.

My view is that Amazon did well because of their Web site and there because of a biggie that came along just in time: Internet data rate that permitted sending lots and lots of nice pictures. So, apparently Amazon set up a nicely equipped group for taking good still images -- good in lighting and resolution -- that let customers do reasonably well informed shopping.

Then IMHO, the Amazon Web site now should be easy enough to borrow from by Wal-Mart, Sears if they weren't going out of business, Macys, Target, ..., Tiffany's, etc. along with companies around the world.

Then IMHO manufacturers in the US or anywhere in the world can also have such Web sites. E.g., want bed sheets, bath towels, shower curtains, bathroom looped rugs, etc., then just get these from the manufacturer, wherever.

Then for shipping, Amazon is trying to replace FedEx and UPS -- I fail to see that they will be successful there. FedEx and UPS are doing well providing shipping services; the needs of Amazon are not that different from the needs of many other happy companies shipping via FedEx and UPS; FedEx and UPS have economies of scale, ship by plane or truck, ship internationally, likely ship via chartered plane if appropriate, etc. I don't see Amazon doing better.

Then, net, each original supplier in the world that might sell via Amazon can have their own Web site and ship via FedEx or USP. But, what about a warehouse closer to the customer, do low cost trucking to the warehouse and then fast shipping to the customer once and order is placed? Gee, FedEx has been offering that variation for decades.

For Amazon Web Services (AWS), what do they have that Google, Facebook, Microsoft, or other operators of big server farms have? My guess is very little.

I'm failing to see that Amazon has any very significant long term advantages and, really, stands to be vulnerable to manufacturers running their own Web sites and shipping more or less directly to customers themselves.

E.g., at Amazon can buy parts for a computer, e.g., case, motherboard, processor, graphics card, hard disk drives, video display, main memory, keyboard, mouse, etc. So the processor comes from, say, AMD or Intel. So, why should AMD/Intel not just sell direct? Kingston memory does that now -- can buy from Amazon or direct from Kingston.

Brand? Well, the brands people want are Intel, Western Digital, Seagate, GE Force, Radeon, Asus, etc.

Yes, now Amazon is starting to have house brands. Okay. In that case, the Amazon advantage is their house brands, but I don't see that as a major advantage.

Amazon may deliver via self driving cars, drones, etc. Okay, but then so will others be able to do much the same. Indeed, as UPS discovered way back, there are biggie economies in one truck delivering in one area of customers packages from several sellers.

Delivering groceries? Come ON guys: Now pizza and Chinese home deliveries are common, but they have not stopped people picking up their own pizza or Chinese carryout.

Amazon has moved very quickly, much faster than Wal-Mart or Sears, but I fail to see that so far Amazon has a long term advantage.


This article mentions that AI as a service (aka machine learning, OK, let's be honest, Deep Learning) will be a major pillar of their business in the future. However, the chances that they will be able to beat Google seems vanishingly small.

EDIT: to justify why, let me make these points: Google has more machine learning relevant data.

It has a strong brand image as "THE company for AI "

It has (at this point in time at least) better machine learning hardware. This will change in the near future, but Google is far more likely to take a competitor in this area seriously and acquire them.

Google has not one, but two (Deep mind and brain) world class research labs.

Google's ML APIs are objectively better.


> However, the chances that they will be able to beat Google seems vanishingly small.

I'm not sure about that, for one main reason: Google's acquisitiveness regarding data is even more notorious than its habit of losing interest in products and dropping them suddenly. Both are major turnoffs for business customers, to put it mildly.

Amazon, while it does have a habit of vigorously competing with its own customers (in the retail "marketplace" space, and in others - I find the whole Amazon vs. Netflix dynamic absolutely fascinating) is at least reliable in provision of services and transparent about the exchange of cash for value.

In other words, Amazon is, at heart, a ruthless retailer, where Google is at heart an intelligence agency with occult motives. Google usually has the better tech, but Amazon's the company people are comfortable doing business with.

Edit: I should also say, this listicle of an article is mostly bunk. Lab126 is not a great hardware design shop. The Echo/Alexa "ecosystem" is mostly a bunch of (to be fair, well-considered) first-party integration deals to support popular home automation products - "skills" are a joke for discoverability and usability reasons, even if there were a market for them, which there isn't.

I do agree that logistics (and operations more generally) is an enormous strength. Probably the key one, because Amazon doesn't usually come with the firstest or the mostest - it just executes relentlessly at complex, labor intensive tasks. It is at its strongest in places where it is not primarily competing on tech or features but on consistent execution and the customer reputation that comes from that.


> where Google is at heart an intelligence agency with occult motives

That seems off to me. Google is, at heart, an advertiser. This leads to Amazon being more customer centric because most Google customers are actually the product Google is selling and most Google "products" are just the lures they use to attract their actual product. Google never loses interest in their products, but they frequently choose to switch their method of attracting the eyeballs they sell. No cloak and dagger explanations needed.


Google BECAME an advertiser. Some of us remember the pre-advertising, and later pre-Doubleclick-acquisition Google.

I'm not implying Google's motives are "cloak and dagger," just that they are not transparent beyond "index all the world's knowledge" (with all that implies.) This is the mission it started with, which isn't in and of itself a complete business model. It's the model of an intelligence agency, and that's what I meant by my statement. Right now, advertising brings in the money, but it'd be a breathtaking failure of imagination and intellect for that to be the "best and highest use" of Google's corpus.

An optimist would say "advertising subsidized google's mission which is essentially one of public service." A pessimist would say "who knows WHAT google will do (or may already be doing) with what it knows - but it's probably evil." I'm neither, valuing the services Google provides while distrusting the power it has based on its data and reach.


Ads is the business.

You need the tech to build it. And Gooogle is not an AI company. Google is definitely more of a computing company than anything else.

DeepMind will not reach its current stage without Google's computing capability, and Google's computing capability is literally no where else to be found.

Disclaimer: I work at Google.


What makes you say that? Google is 'better' at AI? OK, even if you believe that to be true, like every other market AI will be decided by lots of factors other than who has the 'best' tech. Think VHS vs Beta or Mac vs PC.

They include:

  1. Cost.
  2. Platform/Ecosystem development.
  3. Regulatory compliance (lots of rules if you want to handle health/gov data).
  4. Sales/Marketing (in this case, probably, marketing to enterprises).
I would argue that Amazon is a clear leader in 2-4, and has the history as a low-margin retailer to be competitive in 1.


+1

Google had the best data centers, yet Amazon won the data-center-as-a-service race.


What do you mean by best? In a car race, why would you want to build the best car? I just want my car to cross the finishing line first.

Besides, there is no race. This is continuous evolution. The race has barely started, let alone ended


If you're talking about the "best" datacenters...

Google hit upon the strategy of scale-out-commodity hardware a few years before Amazon did. Also, Google talks more about their infrastructure than Amazon does, so people often think it's "better" from the outside. Whether it is actually better or not is probably an unknowable question from the outside and even if you had all the data it might depend on how you trade off speed, power efficiency, cost etc.


Google is very secretive about its DCs... They appear open, just because they are much more advanced than you can imagine...


My impression is that GCE is relatively young and growing very fast. To say Amazon won seems premature to say the least. This is an active battle.


You could have made the same argument against AWS in the first place, how could a retailer possibly succeed against the likes of Google? Technical excellency isn't the only factor deciding success.


Yes, obsolescence (all aspects) has always been the bane of any leader and entrenched entity.

There are many factors that are in favor of AMZN and GOOG and the likes. Factors that are for you can also work against you.

Generational shift of competency and drive. People get older, a bit rounder around the waist, wealthier and are also getting more choices. All companies have to deal with this factor. And some will do that better than other.

You change the world and the world will change and change you. Are you able to adapt and account for all changes?


Why?

I imagine that data for ML is sort of a logistic curve of benefit, and that Amazon's assorted sources have them "on the plateau", even if not as high as Google.

There's good reason to expect that we'll see several major players in ML/AI, just like we do in pretty much every other market.


Why? Isn't the thing about AI that everyone in the field wants to publish? Doesn't that mean all of their competitors will benefit from their research?

It seems to me that Amazon will likely win because they're better at serving customers and willing to engage in price wars.


> However, the chances that they will be able to beat Google seems vanishingly small.

The respective track records of the two companies suggests otherwise.


Google doesn't know how to market and sell when there's competition. Not much sales expertise is required to make people buy into AdWords.

I've been in the room when they try to sell GCE. The sales pitch is roughly "you are not smart enough to figure this out on your own, so you need to buy this". That may be the case, but it's not the best pitch.

For the one where I was in the room, Amazon won out, even though they were clearly more expensive. They knew what buttons to push, and what buttons not to. And they knew how to at least fake a bit of humility when it mattered.


And how do you know that? The field is huge and mind boggling. I would think, considering the breadth of AMZN, they stand a better chance of being able to apply AI to for a wider impact


Amazon probably has more shopping data. More importantly, more credit card fraud data to train an AI fraud detection system.


They don't need to be doing cutting edge research to commoditize machine learning as a product.


I couldn't disagree more. The entirety of the internet runs on AWS. The rest is an inconsequential rounding error.

> Google has more machine learning relevant data

Subjective. Relevant to what?

______________

> It has a strong brand image as "THE company for AI "

AI is so early there's isn't a recognized brand yet. Maybe to the HN crowd, but that's astronomically small in the grand scheme of things.

______________

> It has (at this point in time at least) better machine learning hardware. This will change in the near future, but Google is far more likely to take a competitor in this area seriously and acquire them.

Competing on commodities? Doesn't seem likely.

______________

> Google has not one, but two (Deep mind and brain) world class research labs.

Again. Doesn't seem like much of an upper hand.

______________

> Google's ML APIs are objectively better.

AWS doesn't need better APIs or Developer UX. That's not what this is about.


> The entirety of the internet runs on AWS. The rest is an inconsequential rounding error.

None of the top 5 Alexa websites [1] (Google, YouTube, Facebook, Baidu and Wikipedia) run on AWS as far as I know. I'm not sure what rounding mode you're using.

[1] https://en.wikipedia.org/wiki/List_of_most_popular_websites


Ha. DL hardware != a commodity

Pretty sure having two of the premier DL labs is an upper hand in deep learning...

Well then what on earth does Amazon offer that's different from Google?


I can't see how Oracle and IBM can compete long-term against the breadth of IT infrastructure Amazon has built. I can't see how Walmart and Target can compete with the distribution network and frictionless transactional model Amazon has developed. I'm not sure any company has the same depth of real-world data for training AI systems... 300 million users "liking" with their wallets and not a simple mouse click for example.

Its been 127 years since the Sherman anti-trust act was passed. Its probably time for a serious re-think.


>Its been 127 years since the Sherman anti-trust act was passed. Its probably time for a serious re-think.

I don't know much about anti-trust law specifically, but I agree that as it pertains to technology, we need to seriously re-evaluate the way the law is applied and revise some of the imperfect analogies that have been used as guidelines in tech-related court cases.

Due to misapplied and woefully outdated IP and computer access laws, tech companies have protections that meatspace companies can only dream about.

Walmart would LOVE to be able to tell people associated with Target that entering their store was a felony, and that they weren't allowed to duplicate their latest seasonal display. I'm sure they would also love to be able to put anyone who walks out of their store with a cart full of groceries under strict contracts forbidding the use of the public courts of law and mandating any dispute be settled in binding arbitration.

Walmart doesn't get to use these types of protections (because they're ridiculous), but companies that exist in cyberspace do. They're unfair to everyone except the massive companies that are already entrenched players. Tech entrepreneurs would have a much easier time competing against the mostly-illusory "network effects" of cyberspace if there wasn't someone waiting on the edge with a sledgehammer to destroy your company via legal fees and/or handcuffs to literally put you in jail, as happened to Aaron Swartz.

Tech companies also have totally unparalleled access to private data about their users, extracted just by utilizing them. Parcel carriers including the USPS aren't allowed to open your mail, scan it, and store the contents in a database associated with your name -- but Google is.

Ironic that we were worried about someone reading our mail before the technology to collate more than a tiny portion was available, but now that every communication we've had over the last decade can be neatly arranged and instantly analyzed from anywhere in the world, we don't seem to mind at all.

Tech law has gotten by under the radar for a long time. We need to rein it in.


I wouldn't count out the likes of Walmart. They're making big strides and taking ecommerce and digital marketplaces ever-more seriously.

It seems like it will be much easier for Walmart to close the gap against Amazon than vice-versa; Walmart has already done the harder part of getting a warehouse within 10 miles of most populated areas.

Californians or people in other anti-Walmart areas may not realize the nexus that Walmart represents for many Americans. In most places that are not actively anti-Walmart, it is one of the most frequent touchpoints for virtually everyone.

Amazon's retail operation is being threatened from Prime-like shipping offerings (free 2 day) from lots of online stores, including Walmart. Walmart can also often allow same-day pickup at a local store, whereas the only hope of getting something similar on Amazon is living within Prime Now range.

Amazon is also hurting its reputation as a retailer by allowing so much counterfeit material through FBA.

When you take away the retail core of Amazon, I'm not sure what consumer-facing value you really have left. They have Echo, but that's pretty meh. They have a crappy Netflix ripoff, which may hold some attention, but without a reason to shop at Amazon, the reason to use Prime Video is diminished. Google has them nicked pretty good on web and mobile platforms. You sort of get stuck with a group of loose things that are kinda good, but not really enough to hold interest independently, IMO.

If Walmart et al go in for the kill, I think Amazon's prospects as a consumer brand are weak. I suspect the only thing that keeps Walmart from seriously weakening Amazon is a dissonance between corporate values that keep them from competing on the same wavelengths (see Clayton Christensen).

Of course, AWS will continue to make gobs and gobs of money for the foreseeable future, but there's nothing really inherent about that either. Google is laying the foundation to plow over them in cloud via Kubernetes. With the right marketing buzz, AWS can be cast as outmoded and overpriced and hurt significantly on that front too.


I think you're missing large parts of Amazon's consumer-facing value.

First and foremost, they have Kindle. To a first approximation this means that "everyone" who reads ebooks uses part of their ecosystem (even people who mostly read on other platforms use Kindle for exclusives, past purchases, etc.). And that fortress has only grown with Comixology and Audible. All of which are still DRMed, so the platform lock-in is huge.

Second, I think you've missed the unique selling point of Prime Video. It's not just a crappy Netflix ripoff or an iTunes ripoff, it is the only platform that seamlessly integrates subscribed videos and purchased videos. So, for example, done with the free Season 1, but Season 2 is in the middle of its initial broadcast? You can catch up by buying the episodes you missed. Grumpy that something dropped out of Prime Video lineup? You can buy that too. And so on. My understanding is that this partially extends to add-on cable channels, but I haven't actually tried that.

Third, they have the same seamless subscription and purchased mix with digital music. That isn't as special as Prime Video because Google and Apple have that mix too and the triumph of DRM-free music makes platform-switching much less painful. To the extent that Amazon has a special advantage here (AutoRip), that does depend on the retail core.

I think you dramatically underestimate the advantages Amazon has. If Walmart et al go in for the kill, I would not like their odds.


It's much easier (maybe too easy) for anyone to sell on Amazon compared to Walmart.com. This allows Amazon to alway have a huge selection with a bunch of sellers competing to offer the lower price. This is going to let Amazon stay in front until the other companies catch up but it might be too late by then.


Walmart has a third-party reselling program now too, and they recently acquired Jet.com, which also has one. Most big online retailers are getting one because it's very lucrative.

FBA is not unique, it's just the best known. Amazon's laxness is coming back to bite them, as more and more stories proliferate about the receipt of counterfeit Chinese goods from "official" Amazon inventory (due to commingling).

At some point, and they're already working on getting there with their opt-in brand controls, Amazon going to be as restricted as other retail outlets. Legal intricacies around trademarks, warranties, merchantability, and the meaning of a "New" product make it risky to allow any "unauthorized" distributors for anything that people would want to buy.


It worries me how easily you call for the government to take control of a multinational company and forcefully split it into pieces.


I said it was time to re-think anti-trust. You brought your own issues to the table and assumed I was calling for a breakup.


Can you give more details on what you are suggesting then?


There are hundreds of shop chains like wallmart that also have millions of customers coming to their shop and spend real money.

Warehouses and inventories have been counting the most successful and most profitable products for a very long time. Didn't wait for amazon.


I've written about this take, which I disagree with: https://www.inc.com/sonya-mann/aws-outage-centralization.htm...


Are you a Stratechery / Ben Thompson reader by any chance?


I'm wondering why Google doesn't extend the functionality of their "shop" button (it's right above the search bar), to compete directly with Amazon's 3rdparty retail strategy (?)


They tried that and even have a Google Shopping Express subscription that was intended to complement that. It's just Google being Google and not being focused in their efforts.


"Hey Alexa, compute my weekly food/things purchase with optimized cost alternatives"...

In my opinion, Amazon will be huge, and it is just starting. What worries me the most is that they will have no competition.

Amazon is "killing" many small (and big) businesses because their customer service is excellent. Times when the shop make you felt like a criminal when returning defective stuff are gone, for good. And now, those small (or big) business are improving customer service. So the customer win.


AI is the pillar for almost everything in the future. AI is the new Internet. I cannot get it why people are still analyzing that some big player is investing in AI...


MG Siegler wrote a more exciting version of this on Medium. I'd link to it but on mobile right now.




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