Tag: amazon

• Market power in tech

  Benedict Evan’s latest post on Microsoft, IBM, and anti-trust is excellent. In it he argues (reminds us) that market power during one generation of tech, doesn’t necessarily guarantee market power in the next. And that anti-trust intervention isn’t actually responsible for Microsoft missing out on, among other things, mobile. The rules of engagement simply changed. The PC is now a smartphone accessory.

  Here is an excerpt:

  The tech industry loves to talk about ‘moats’ around a business – some mechanic of the product or market that forms a fundamental structural barrier to competition, so that just having a better product isn‘t enough to break in. But there are several ways that a moat can stop working. Sometimes the King orders you to fill in the moat and knock down the walls. This is the deus ex machina of state intervention – of anti-trust investigations and trials. But sometimes the river changes course, or the harbour silts up, or someone opens a new pass over the mountains, or the trade routes move, and the castle is still there and still impregnable but slowly stops being important. This is what happened to IBM and Microsoft. The competition isn’t another mainframe company or another PC operating system – it’s something that solves the same underlying user needs in very different ways, or creates new ones that matter more. The web didn’t bridge Microsoft’s moat – it went around, and made it irrelevant. Of course, this isn’t limited to tech – railway and ocean liner companies didn’t make the jump into airlines either. But those companies had a run of a century – IBM and Microsoft each only got 20 years.

  For the full post, click here.

  2020.01.03

• Project connected home

  This week it was announced that Amazon, Apple, Google, and the Zigbee Alliance are joining forces to develop a new royalty-free connectivity standard for smart home products. The working group is called Project Connected Home over IP and the goal is to develop a “USB-like plug-and-play protocol for the home.” If successful, this standard would get applied to all smart home systems, including the Amazon, Apple, Google, and other “assistants” that you may already have in your home.

  The thing about smart home devices is that most of them are exactly that: a device. They’re something you buy and append to your home, as opposed to something that gets built into the core of your home. This, of course, makes sense, given how difficult it is to innovate within the real estate space. If you’re in the business of creating smart home products, you ideally want everyone to be able to buy it and quickly add it to what they already have. And as a consumer, you don’t want your permanent fixtures to become quickly outdated.

  But if/when a standard emerges, I wonder if that doesn’t make it easier to develop a more holistic approach to smart home products. That could be really interesting. If you’d like to learn more about the project, click here.

  2019.12.19

• Pleasure and product discovery

  Benedict Evan’s most recent blog post, called “Amazon as experiment,” draws some interesting parallels between what Amazon is doing today (and experimenting with) and the beginning of mass retail, namely the invention of the department store. He also talks about some of the shortcomings of Amazon’s model, which isn’t at all focused on (or good at) things such as “pleasure” and product discovery. Here are a couple of excerpts:

  On the other hand, it’s interesting that Amazon seems to be doing as much experimentation as possible around the logistics model—from stores to drones to warehouse robots of every kind—but much less around the buying experience, other than small-scale tests of the Four-Star stores. After all, historically, department stores were about pleasure as much as they were about convenience or price. They changed what it meant to “go shopping” and helped turn retail into a leisure activity.

  This has always been the gap in the Amazon model. It’s ever more efficient at finding what you already know you want and shipping it to you, but bad at suggesting things you don’t already know about, and terrible whenever a product needs something specific—just try finding children’s shoes by size.

  This is probably inherent in the model. For Amazon to scale indefinitely to unlimited kinds of products, it needs to have more or less the same commodity logistics model for all of them. That’s the line it’s never been willing to cross. Amazon doesn’t do “unscalable.” And yet, while we now know there is nothing that people won’t happily buy online, not everything will fit that commodity model. So maybe that’s the real test of Amazon’s pride: can it work out how to let us shop, rather than just buy?

  2019.07.29

• The Information Age: Tech & the S&P 500

  The below chart from this morning’s Wall Street Journal is perhaps a good example of our ongoing transformation from an industrial economy to an information economy. Just four stocks — namely Microsoft, Apple, Amazon, and Facebook — have accounted for 19% of the S&P 500’s total return this year. All of them are “tech.”

  

  And this is not new to 2019. Similar contributions were made by tech last year and in 2018. I have been used to hearing about the 4 horsemen of tech. But apparently there’s even now something called the “FAANG stocks,” which refers to Facebook, Amazon, Apple, Netflix, and Google (Alphabet).

  This shift is, of course, one of the reasons why every city is trying to establish a strong tech ecosystem. I saw that first-hand in Lisbon this past week. And frankly I think the city has many of the same characteristics that made Berlin a great place for tech. It’s affordable. It’s filled with young and smart people. And it’s a fun place to be.

  There’s a reason that Lisbon now hosts the annual Web Summit, which is generally considered to be the largest tech conference in the world. (The North American offshoot, called Collision, relocated to Toronto this year in order to be in a more global city.)

  Portugal only has a population of about 10 million people. There are some 3 million people in the metropolitan area of Lisbon. But that doesn’t really matter because most startups today are immediately targeting a global customer base.

  I learned more about Portugal and Spain’s colonial pasts on this trip and I found it fascinating. In many ways, it was the start of globalization. But that was the Age of Discovery. Those centuries are over and done with. Our century is the Information Age. The above chart is part of that story.

  2019.07.21

• “We” is the language of leadership

  Kawhi Leonard doesn’t say very much, but when he does, he tends to focus the discussion less on himself and more on the achievements of the Toronto Raptors as a whole. He has said many times before in interviews that he doesn’t aspire to be the best player on the team; he aspires to win championships. It’s not about him. It’s about the team. And it’s hard not to respect that kind of humility.

  One the things that I try to be aware of in business and in life is how I use first-person singular pronouns (such as “I”) and first-person plural pronouns (such as “we”). The subtleties of language are important and there’s lots of research out there on this topic. Some have even tracked Jeff Bezos’ use of “I” and “we” in Amazon’s annual shareholder letters over time.

  Harvard Business Review also argued a few years ago that “we” is the language of leadership because it tells you where someone is focusing their attention. Studies suggest that when people are self-aware or insecure they naturally tend to use more first-person singular pronouns — they turn inward. Conversely, using pronouns such as “we”, “us”, or “you” suggest an outward focus or a focus on other people’s thoughts, opinions, and contributions.

  Of course, when you write a personal blog like this one, you naturally end up with a lot of “I.” But when I write about broader topics, such as city building or the housing market, I do try and shift the focus. These are our cities. These are our buildings, streets, and public spaces. We’re in this together. And I aspire to get even better at “we.”

  Oh, and go Raptors!

  2019.06.06

• Public perception of drone delivery

  

  Back in 2016, the United States Postal Service published a report on the public perception of drone delivery in the US. This was nearly 3 years after Jeff Bezos announced on 60 Minutes that Amazon was working on a drone delivery service and that it would arrive within the next 5 years (so by 2019). I think USPS was trying to figure out how to be, or appear, more innovative.

  Not surprisingly, the report found that Millennials were significantly more supportive of drone delivery (65%) compared to Baby Boomers (24%), who strongly dislike the idea. Generally, the report indicates that the percentage of people who think it’s a good idea declines with every preceding or older generation. Again, I don’t find this at all surprising.

  But what I did find interesting was that, irrespective of age, respondents were primarily concerned with some sort of “malfunction.” This was at the top of the list. Next in line were concerns around “intentional misuse,” such as drones being used to transport illicit goods or to spy on people and/or property.

  Closer to the bottom of the list was a concern that drone delivery “might make the sky less pleasant to look at.” My own view is that visual clutter and noise pollution are critical problems to address here. There’s talk of “drone highways in the sky”, but how do you really manage the sheer volume of drones that would be needed to service a dense urban environment?

  Photo by Goh Rhy Yan on Unsplash

  2019.06.02

• Experimenting at the right scale

  Jeff Bezos published his annual letter to shareowners this week. You can find it here. And as is his usual practice, he has attached his 1997 letter to shareholders at the bottom of it. This is his “Day 1” and he clearly likes the reminder.

  I was somewhat surprised to learn that 58% of physical gross merchandise sales on Amazon are now by independent third-party sellers. This number has been steadily increasing almost every year since 1999.

  And this is despite the fact that first party sales — products sold by Amazon — have grown at a compound annual growth rate (CAGR) of 25% during this same time period. Amazon excels at the fulfillment component and you can have them do that for you as a third-party seller.

  There are a number of other interesting facts sprinkled throughout the letter, but I particularly liked the bits on “intuition, curiosity, and the power of wandering.” Here is an excerpt on how Amazon is working to scale the size of its failures:

  As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

  A lot has already been said and written about accepting failure in life and business. Nobody wants to fail, but it can happen when you’re trying to “imagine the impossible.”

  The two nuances here are that failures should scale along with the company. And that “large-scale risk taking” can actually be construed as a service. It might mean that the impossible becomes possible.

  2019.04.12

• Is this just how the game is played?

  As I am sure you have all heard, there’s a lot of debate in New York right now (city and state) about whether they should reject Amazon’s decision to open up a new headquarters in Queens.

  Urbanist Richard Florida has been arguing that one of the richest companies in the world shouldn’t be receiving taxpayer subsidies and that Amazon should do the right thing here. They should open up in New York but without any inducements.

  As a counter argument, Kenneth Jackson, professor of history at Columbia University, recently opined that this is actually business as usual. American cities have a long history of competing for companies because the benefits outweigh the costs over the longer term.

  Here is an excerpt from his op-ed in the New York Times:

  They are right about one thing. It is absurd that any city would agree to such a deal. But this is how the game is played. Paying companies to relocate has been the American way since 1936, when Mississippi established the nation’s first state-sponsored economic development plan. Under that plan, since followed by many other jurisdictions, cities and states agreed to pay companies to relocate by promising them new factories and low or nonexistent taxes. With those inducements, numerous businesses relocated in the decades after World War II, usually from the union-dominated Northeast and Midwest to the business-friendly South.

  Perhaps this would make a good debate topic for Kialo.

  Update: Amazon just cancelled its plans for a corporate HQ in NYC.

  2019.02.14

• Amazon’s economies of density

  According to Amazon’s recent annual 10-K filing, the company leased and owned (most of their space is leased) about 288,419,000 square feet of space around the world at the end of 2018. Of this number, about 80% is used for “fulfillment, data centers, and other.” Amazon doesn’t break out this line item any further, but GeekWire reckons that a good 3/4 of their real estate is dedicated to their fulfillment warehouses.

  Here’s the full summary of their facilities (from the 10-K filing):

  

  Given that fulfillment is such a large share of their properties, I am most interested in understanding the geography of their warehouses and how that impacts their core value proposition, which is largely all about convenience.

  In April 2017, Jean-François Houde (of Cornell), Peter Newberry (of Penn State), and Katja Seim (of UPenn) published a paper on this very topic called, “Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network.” There’s also this Knowledge@Wharton podcast on the paper if you’re looking for a quicker listen or read.

  In the early days of online retail, the decision of where to warehouse had meaningful tax implications. Because (in most cases in the US?) you only had to collect sales tax if you had a physical presence in the same location as your purchasers.

  As that changed, it then made more sense to create a broader distribution network and minimize the distance between fulfillment center and purchaser. By 2016, Bloomberg estimated that nearly 78 million Americans lived in a zip code where Amazon offered free same-dame delivery. That number has obviously increased since.

  And in the paper “Economies of Density”, they discovered the following cost savings as a result of Amazon’s growing fulfillment network:

  We find that Amazon saves between $0.17 and $0.47 for every 100-mile reduction in the distance of shipping goods worth $30. In the context of its distribution network expansion, this estimate implies that Amazon has reduced its total shipping cost by over 50% and increased its profit margin by between 5 and 14% since 2006. Separately, we demonstrate that prices on Amazon have fallen by approximately 40% over the same period, suggesting that a significant share of the cost savings have been passed on to consumers.

  The interesting question for real estate people and city builders — which is brought up in the Knowledge@Wharton podcast but is difficult to answer — is whether there are diminishing returns to this “economies of density” phenomenon. In other words, how dense does Amazon’s fulfillment network want to be?

  2019.02.12

• And we’re back

  Welcome to 2019.

  I am currently in transit and catching up on some internet reading and email on my way back to Toronto.

  At this time of year it is, of course, common to reminisce (or lament) about what happened over the last year, as well prognosticate what may come.

  Over the last few years, I have done a bit of that on the blog. But I clearly didn’t do that this year while in Brazil (and away from any semblance of a workspace).

  So here’s what others have been writing and thinking about over the holidays:

  – 2018’s tech trends and tribulations in 14 charts. Recode. Link

  – 2018 was the year of the YIMBY. CityLab. Link

  – A cool girl’s guide to Toronto. Vogue. Link

  – Amazon’s annual Christmas press release. Link

  – Best travel posts of 2018. Design Milk. Link

  – Here’s (Almost) Everything Wall Street Expects in 2019. Bloomberg. Link

  – Here’s what to expect in cybersecurity in 2019. TechCrunch. Link

  – Naive to hope Toronto can change in 2019? That means we have work to do. Shawn Micallef. Link 

  – The 10 largest US venture rounds of 2019. TechCrunch. Link

  – What is going to happen in 2019. Fred Wilson. Link

  – Will a recession hit in 2019? Alan Murray. Link

  – Year in search 2018. Google. Link

  2019.01.02