Tag: amazon

• Stubborn flexibility

  I’ve been having more coffee meetings over the last few weeks. And one of the things they are doing — besides making me jittery — is reminding me that at least two things happen during bear markets:

  1. Conviction gets tested.
  2. People get really creative.

  Let’s start with number one. It’s easy to have conviction in something when it’s obviously working and lots of other people are doing it. But what about when that is no longer the case?

  Take the example of Amazon. In this 2018 post by Fred Wilson, he reminds us that at the peak of the internet bubble in 1999, Amazing was trading at around $90 per share. Two years later it was somewhere around $6 per share. And it was not until 2007 that Amazon would start trading above its peak again.

  In hindsight, holding on was very obviously the right thing to do. But to do that from 1999 to 2007, you would have needed patience. And to have patience, you would have needed a high degree of conviction in Amazon as a company and in the internet as the harbinger of an important societal shift. That wouldn’t have been easy — just like many things today are not easy.

  At the same time, bear markets force people to get really creative — we’re now onto thing number two. In this case, it’s not a question of patience. It’s, “the thing I was doing before no longer works and I don’t know if/when it will work again, so I’m going to get creative and try something new.” Bear markets give you this wonderful opportunity because the opportunity cost of not doing the status quo disappears (or greatly reduces).

  On some level, though, these are two contradictory things: are we sticking to our guns or are we trying something new? But in my mind, you want both. This is not about saying, “lots of people used to want to buy cryptocurrencies and condominiums, but now a lot of people don’t, so I’m going to move onto the next hot thing.” It’s something more calculated than this.

  To return to Amazon, I think it’s akin to Jeff Bezos’ old mantra that you want to be stubborn on vision, but flexible on the details. Right now, lots of people are being forced to be flexible. But the vision part is what you still need conviction around. Otherwise, how will you get to where you want to go?

  2024.07.31

• Writing business memos

  One of the important things that I remember them drilling into our heads in business school was about how to write a business memo. This might not seem like a big deal, but it is. Emails, decks, and recommendations are ubiquitous in business.

  I remember three main points.

  One, use clear and concise writing. If you can use fewer words, do that. Two, be decisive. In fact, they used to tell us that being decisively wrong was always better than being vaguely correct. And three, be as quantitative as possible.

  If you can replace words with numbers, you should do that. For example, instead of saying that something recently increased significantly, it is far more effective to say that something increased by 27% over the last 18 days.

  I was reminded of this earlier today when I came across this:

  

  Supposedly, it is what Amazon used to tell its employees back in 2018. I don’t know the source, but the tips sound right and make sense. Be concise. Use data. Eliminate weasel words. And make sure you’re communicating a “what”. In other words, be decisive.

  2024.05.27

• What might happen in 2024

  Yesterday we looked in the rear-view mirror. Today we’re looking forward:

  • The market consensus right now is that this cycle of interest rate increases has come to an end, and that we should see rates start to come down next year. Having confidence that rates won’t go any higher in the near future is what markets need in order to start making more decisions. So this is, of course, positive. At the same time, I don’t think anyone should expect a return to ultra-low rates. Rates today are still low when viewed historically.
  • Lower rates are good for levered assets such as real estate, but I don’t think that our industry has fully felt and processed the impacts of higher rates. Unfortunately, I think that things will get worse (in 2024) before they get better (maybe toward the end of 2024 or perhaps in 2025). This is when a “risk-on” approach will return in commercial real estate. A year ago today, I thought 2023 would be the year for this, but as I said yesterday, I was overly optimistic in terms of my timing.
  • On the residential resale side, I think we will see greater optimism sooner, certainly for the most in-demand cities and areas. There is pent up demand waiting on the sidelines and, once we can get past the current bid-ask spreads and deadlock, I believe we’ll return to a more balanced market in 2024. To be clear, I’m not expecting bidding wars and the like. And because of our housing affordability crisis, I also think the Bank of Canada will be more resistant to lowering rates compared to other central banks. This will help the Canadian dollar.
  • If you’re a buyer of real estate, I generally believe that 2024 will turn out to be a pivotal year for you. Roughly speaking, you win acquisitions in one of two ways: either (1) you pay the most or (2) you believe in something that most other people in the market don’t. This second approach is harder to achieve in bull markets. But in slower markets, the door is open and history has taught us that it can be the foundation in which great fortunes are made.
  • As I mentioned yesterday, I agree with the prognostications that hard costs will soften further next year (perhaps even more than 5% on average). Obviously every market is different. But here in Toronto, I just don’t see us returning to the level of construction starts that we have seen over the last number of years.
  • Since 2021, I have used my hyper scientific Jimmy the Greek Reopening Index to keep tabs on office utilization and the overall return to office. And based on this, 2023 was a positive year. Initially, souvlaki consumption appeared dramatically lower on days like Monday. But I noticed discernible increases as the year went on. However, if you look at actual data, such as what we have from swipe cards, the great return to office seems to have stalled out at around 50%. I don’t think this will hold, though. I continue to believe that of the people who work in offices, most will spend > 50% of each week there. And we will see that in 2024.
  • 2023 was the year of AI. But Fred Wilson makes an excellent point, here. AI is 40+ years in the making. Last year only became the year of AI because a consumer-facing app — ChatGPT — was revealed that captured everyone’s attention. Crypto will eventually have this moment, but it will likely need to marinate a bit longer. Instead, I think 2024 will be the year of augmented reality (AR) and a further blurring of our offline and online worlds. Think digital art, fashion, and other collectibles (such as NFTs).
  • Right now, autonomous vehicles feel like they’re in the trough of disillusionment (within the hype cycle). There were moments last year where it felt like we were finally moving beyond this phase. But then some very suboptimal things happened. I think AVs are our reality in the next 5+ years, which means that for next year we likely want to be focused on the inputs: vision/LIDAR, battery tech, etc.
  • Zooming out, we should be thinking about the above two trends in the context of a broader shift toward greater automation. I think it will feel more insidious than immediate (certainly in 2024), but the longer-term impacts are going to be profound for our society. The so-called gig economy is likely to be impacted first. Eventually the overall economy will create new jobs, but we are still going to need to manage this transition toward more automation.
  • TikTok Shop is where to look for the future of shopping. I think the platform will continue to see strong adoption and ultimately prove to be a dominant e-commerce platform throughout 2024. Amazon, Meta, and others will see this, and try their best to catch up and copy it.
  • At the time of writing this post, the total crypto market capitalization is about $1.74 trillion. This is down from nearly $3 trillion at the peak of the market in 2021. The recent gains suggest that the so-called “crypto winter” might be over, and so combined with lower interest rates and more real-world use cases, I think that 2024 will be another strong year for crypto. Total crypto market cap at the end of the year will exceed its 2021 peak.

  And there you have it. My current thoughts for this upcoming year. I should note that I’m not an economist, analyst, or an expert on souvlaki demand for that matter. But I enjoy writing this post as an annual discipline. It forces me to think critically about the topics that interest me. And in the paraphrased words of Howard Lindzon, it gives me an archive that I can go back to and either cringe at or think to myself, “hey, I could have been a somebody!”

  And with that, a big thanks to everyone who has read this daily blog over the last year. This year marked its 10th anniversary. I wish you much success and happiness in 2024. Happy new year!

  2023.12.31

• Over 15% of retail sales in the US are now happening online

  

  Amazon was founded in 1994 and went public in 1997. By 1999, some 5 years after the company was started, only about 1% of total retail sales were being done online in the US. So you have to give it to Bezos, he saw what was coming and he got in early to help create it. This was not so obvious back in the mid 90s. The internet as a whole was still being viewed with skepticism, especially after the dot-com bubble.

  Today, online shopping represents over 15% of total retail sales. (See above chart from Charlie Bilello.) The pandemic pop is over, but it looks like we’ve returned to a pretty clear trendline — up and to the right. I guess the questions now are: When and where does this start to flatline? It doesn’t seem likely that this goes to 100% in the foreseeable future, especially if you include grocery. But it’s going to go a lot higher.

  For myself, if I were to exclude food/grocery, I would say that the vast majority (80-90%) of my retail purchases are done online. Even if I’m in a physical store, I’ll often pull out my phone to price compare. If it’s cheaper on Amazon, I’ll just order it there.

  Here’s another example.

  This past summer when I was in Park City, I discovered the brand Vuori. I had heard of them before, but I had never actually seen or touched their clothes. It’s great stuff. But instead of the store convincing me to buy something, it convinced me that I like the brand and that I should probably shop on their website at some point in the near future. And that’s exactly what I ended up doing. (Sorry Lululemon. You’re still my favorite.)

  All of this is perhaps obvious in a world where 15% of total retail sales are happening online. But I would imagine that the retail landscape and our cities will look very different when this number goes even higher. Our cities were different at 1% compared to today at 15%; so imagine what 50% or 80% might be like.

  2023.08.22

• Amazon Fresh raises its threshold for free grocery delivery

  Amazon Fresh has just announced that, effective February 28, it will be raising the threshold for free grocery delivery. Orders under $50 will be charged a $9.95 fee. Orders between $50 and $100 will be charged a $6.95 fee. And orders between $100 and $150 will be charged a $3.95 fee. Orders above $150 will be free. Previously, the threshold for free delivery was $35.

  This is likely an indication of two things. It speaks to our current tech headwinds (see “The Four Horsemen of the Tech Recession“) and it speaks to the fact that grocery is unique. It requires a whole separate logistics chain, compared to all of the other things that Amazon will deliver to you. Food goes bad. It bruises. And it may require refrigeration.

  This makes online grocery delivery more challenging and more costly.

  2023.02.07

• TikTok wants to open warehouses

  Last week, Axios revealed that TikTok is looking to hire a bunch of people that can help the company build out fulfillment warehouses and an entire e-commerce supply chain system for its users. All of this was discovered through various job listings that the company has posted to LinkedIn.

  Broadly speaking, this is I think interesting for two reasons. Firstly, it is an atypical approach compared to other social networks. Instagram allows people to sell stuff via its platform, but it’s done through an asset-light approach. What TikTok is doing is more Amazon meets social. (Though this is not my area of expertise and I’m going to need someone like Ben Thompson to do a deep dive into TikTok’s business model.)

  Secondly, I like to think about the physical spaces that service our online activities and what any changes might mean for our cities. Today if you order something from UberEats, it may come to you from a ghost kitchen that is servicing multiple restaurant brands and various food apps, and has no front-of-house operations. Tomorrow if you order something you see on TikTok, it may come to you from one of their warehouses.

  This is not any different than how Amazon works today, except for the fact that TikTok has this incredibly powerful and sticky social layer. If you take this to an extreme, it’s almost as if our physical spaces are slowly becoming back-of-house providers to front-of-house spaces that only exist somewhere online. Who needs Zuck’s metaverse, we may already be living in one.

  2022.10.16

• Multiple paths to a quick yes

  I have heard a number of people describe this blog as covering all that is new. That wasn’t my explicit goal when I started writing it. My goal was simply to focus on cities and all the wonderful things that shape them. But it turns that new ideas form a big part of that and that I am very interested in new ideas. Change is what moves the world forward.

  Of course, there is no shortage of new ideas. We all have brilliant ideas. Maybe you’re looking at Toronto’s public garbage bins right now and thinking to yourself, “You know what, I have some terrific ideas for how these could be greatly improved.” And chances are, your ideas are good ones. The problem, however, is that ideas are fleeting. The real challenge is bringing them to fruition before they die.

  So here are a few thoughts that came to mind this morning:

  • There is a difference between incremental improvements and directional/fundamental change. Generally speaking, we tend to be naturally better at ideas related to the former than the latter. When we look at a Toronto garbage bin on the street and see it overflowing with rubbish and see all its side panels swung open, we intuitively see the problems. But it is less common to think about, oh I don’t know, subterranean garbage networks for moving refuse around or networked robots that come out at night and tidy our streets with purple brooms. This is also why when we come up with something new like a horseless carriage or an iPhone, we often name them after the thing we already know and are familiar with, even though it probably undersells how meaningful the change is. It helps our minds make the leap.
  • Many organizations have separate decision making processes that depend on the above. Amazon, for example, likes to ensure that incremental improvements have “multiple paths to yes” within the company. Again, these are the more intuitive kind of changes and so you don’t want some brilliant, yet fragile, idea to get killed by some naysayer along the way. You want as many of them being implemented as possible. On the other hand, ideas that might change the direction of the company are typically slowed down and carefully deliberated. This is a common split. “Major decisions” go up to some greater governance body; whereas all other day-to-day decisions just get made on the fly by those “in the field”. This is one way to keep things moving quickly.
  • On a related note, venture capitalist Fred Wilson wrote today about the virtues of small and flat partnerships when it comes to early-stage investing (but I don’t think the lesson only applies to this sector). In his view, the biggest venture winners — at least when it comes to early-stage companies — often come from the most “controversial and out there” ideas. And to make these sorts of bets it is helpful to have a small and flat team with a lot of trust. I found this particular insight really interesting because it implies that when you have the opposite — big and hierarchical organizations — you naturally start to lose your ability to experiment with non-consensus ideas. And so what you’re likely left with is just the intuitive and incremental stuff.
  • Recently, we also spoke about the argument that generations view change differently. Young people are often more open to new ideas, at least partially because they view it as a way for them to make their mark on the world. Older generations, on the other hand, often view change as a threat to their current position in the world. None of this is universally true, but think about how this often plays out with new housing. Young people view housing supply as a way for them to buy or rent something new and form their own household. Whereas already established households can view it as a threat to their community and their existing way of life.

  These are a broad set of thoughts. But if there are any lessons to extract from these bullet points it is perhaps these: One, consider the kind of decision that needs to be made. Is it something incremental and intuitive? Is it an obviously sound infill housing project? Because if so, you want multiple paths to a quick yes. And two, consider who gets a say and who controls the decision. Because the wrong group dynamic can kill even the best new ideas.

  2022.06.12

• State of Crypto

  Everybody wishes that they bought companies like Amazon way back when they first went public, and then held them until today. If you did that, you would of course now be rich. But what would you have had to deal with along the way?

  Well, for one, you would have had to stomach an 80% decline in its share price when the dot-com bubble burst. And so while hindsight is always 20-20, do you really think that, faced with this cliff, you would have held on, not freaked out, and not sold? Yeah, who knows.

  Moving to today and the crypto space, the price of Ether is down 51% over the last 6 months. That’s not quite 80%, but 51% is still a big number, especially if you dumped all of your savings into it and/or borrowed money to do so.

  But does this decline really mean that crypto is rat poison?

  Last year when the market cap of crypto was rising, I believed that crypto had the potential to become the next big thing for the internet. And I still believe that today, which is why I continue to dollar cost average and why I continue to collect NFTs that I like.

  I may be wrong with the conviction I have (and this post will serve as permanent evidence of it), but it’s what I believe. And my conviction doesn’t depend on today’s price. It depends on what I think it could happen with crypto in the next 10 years.

  So with that, here is an interesting “State of Crypto” report that venture firm a16z just published. I think the key message here is that this is a longtime coming. And while it is still early days, momentum continues to grow. But of course, you should decide for yourself what you believe.

  2022.05.17

• Amazon’s supply chain moat is turning out to be useful

  Today, Amazon ships approximately 72% of its own packages. This is up from about 47% in 2019. Ben Thompson of Stratechery recently published an excellent article talking about why this is important and how the company’s investments in logistics are, yet again, paying dividends.

  The foundation of Amazon’s “moat”, Ben argues, is aggregating customer demand. When most people buy something on Amazon from a third party merchant, they think and feel as if they’re buying directly from Amazon. Some people probably don’t even appreciate the difference and in most cases it probably doesn’t matter. It comes in a box with Amazon’s logo on it and that’s that.

  But it’s an important distinction because if you’re a third party merchant, Amazon pretty much “owns” your customers. They are the ones aggregating demand. They have the brand equity and loyalty. And if you left the platform, your customers would be unlikely to follow you.

  This is kind of the opposite of how Shopify’s ecommerce platform works. When you operate a Shopify store you are using their platform, but you are bringing your own brand, web domain, and other assets to it, such that you can now establish a more direct relationship with your customers. This doesn’t mean that Shopify doesn’t have a moat, it’s just something different.

  All things being equal, most businesses would rather “own” their customers than not. The problem right now is that shipping and supply chains are no joke, and so there are real advantages to being on Amazon and having them handle your fulfillment. It could mean the difference between getting your products out for Christmas, or not.

  So all things are not equal.

  2021.12.12

• From mail-order catalogues and e-commerce to brick-and-mortar retailing

  It was recently announced that Amazon plans to start opening large brick-and-mortar retail stores that are akin to department stores. They won’t be quite as big. Supposedly they will be around 30,000 square feet. But this is still a meaningful commitment to physical retailing. The first stores of this type are expected to be in California and Ohio.

  On the one hand, this move probably appears counterintuitive. I mean, Amazon is a machine built around e-commerce (though it does already have other physical stores). But on the other hand, you could argue that they are simply following a retailing playbook that was developed over a century ago by companies like Montgomery Ward and Sears.

  Both of these companies disrupted traditional retailing in the late 19th century through mail-order catalogues. Why pay for physical space when you can just mail people catalogues? (Your margin is my opportunity, right?)

  But as we know, eventually these mail-order catalogue businesses turned into brick-and-mortar stores, and they then thrived this way for many years. If you consider e-commerce to just be the 21st century equivalent of the mail-order catalogue, then perhaps this next move by Amazon was always destined to happen.

  2021.08.24