Amazon to acquire Souq, a Middle East clone once valued at $1B, for $650M – TechCrunch (Mar 23, 2017)
This would be one of Amazon’s biggest acquisitions to date, ranking fourth behind Zappos ($1.2 billion), Twitch ($970m), and Kiva Systems ($775m) if it goes ahead at the price reported here. And given how Amazon is competing with local competitors such as Flipkart in India and Alibaba in China, it’s interesting to see it absorbing a smaller one in a region where Amazon itself has no presence. Local infrastructure is critical to Amazon’s success elsewhere, and an acquisition like this potentially gives Amazon a huge head start in the region. I could definitely see it taking out more second-tier e-commerce players in other regions like this over the next few years as a way to accelerate its international growth.
I’m not sure if it’s admirable restraint not to mention Amazon once in this article, or if it’s denial. The retail apocalypse described here is clearly driven by growing e-commerce spending, and indeed a number of the specific companies cited are closing physical retail stores while maintaining an online presence. Amazon is of course not the only online retailer, but it’s a major force in both the growth of e-commerce in the US and in the decline of physical retail stores and demise of certain physical retail brands (Sears looks to be the next – and one of the biggest candidates for that category). Of course, though Amazon’s success is one cause, retailers’ own inability to transform their businesses to compete more effectively is another major one.
via Business Insider
Instagram has had buy buttons and other e-commerce features for a while now, but it looks like it will be adding an appointment booking feature soon too, in another attempt to allow company accounts to turn viewing of pictures into actual business. It’s been fascinating to watch how Instagram has been able to turn something as simple as a photo stream into something much more like a shop window for brands, something that was inspired at least in part by how certain merchants in emerging markets were using the platform even before Instagram added these features formally. The headline here mentions Yelp as a target, but of course many of these businesses themselves compete with Amazon and other big online retailers, and so these features also enable smaller businesses to punch somewhat above their weight in that fight.
I joked on Twitter earlier that this is basically Content ID for the physical world – Amazon is now allowing brands to register their intellectual property in physical goods, so that Amazon can more easily identify and remove from its listings any counterfeit goods. That’s important because the company has been increasingly criticized in recent months for selling knockoff items from counterfeiters without doing much about it, and in some cases those goods have even been dangerous (for example fake iPhone chargers and cables). This feels like a step in the right direction, but to draw another Google analogy, this is a bit like Google policing videos on YouTube – the raw scale here is impossible for human employees to monitor alone. In this case, Amazon needs customers and brands to flag counterfeit items, but at least this registry makes it easier to match those items to copyrighted originals and therefore to take them down more quickly.
It’s interesting to see Walmart dialing this kind of thing up, while Target recently discontinued several efforts along similar lines. Walmart’s approach certainly makes a lot more sense – retailers absolutely have to be innovating around the in-store experience if they’re to preserve and build whatever advantages physical retail has, and technology is going to be central to that effort. That’s not to say Walmart will succeed – arguably most of its past innovations have been about merchandizing rather than technology, but it’s certainly got the resources to invest significantly in figuring things out.
eBay: Yes, speedy shipping really is a thing with us – CNET (Mar 20, 2017)
eBay is announcing that it now offers guaranteed 3-day shipping on 20 million items, compared to Amazon Prime’s two-day shipping for over 50 million items. The difference in the range and timing here highlights another big difference: whereas Amazon increasingly controls its logistics infrastructure, eBay has very little control at all, which is why it’s been reluctant in the past to commit to delivery dates even though it says almost two thirds of its sales already reach customers in three days. That’s because eBay buyers are responsible for shipping their own goods, while Prime and Fulfillment by Amazon leverage the company’s massive distribution infrastructure including an increasingly deep investment in its own shipping. Yes, eBay is making progress here, but it’s going to be hard for customers not to notice both the difference in the number of items and the speed of delivery and spend their money accordingly.
Documents reveal ‘AmazonFresh Pickup’ as the tech giant’s next physical retail concept – GeekWire (Mar 14, 2017)
The concept here isn’t new, either for Amazon or in general. With regard to Amazon, it was one of several physical retail concepts discussed in an article last year, and looks like it’s now coming to fruition. But the concept of ordering groceries online and picking them up outside a store isn’t new either – my local Smith’s grocery store (part of the Kroger company) does this today. The big difference will be that this AmazonFresh Pickup store won’t be a regular grocery store, but just that pickup experience. This would fill a gap in the current AmazonFresh service for those who won’t be home (or don’t know when they’ll be home) when groceries might be delivered, but can schedule a stop at a grocery store on their way home. I think we’re going to continue to see Amazon experimenting with lots of physical retail models until they get the right mix to complement their online presence.
Groceries and clothing are two categories where I and others might once have assumed Amazon would never be a serious force, because they appear to lend themselves so poorly to online purchases. On the grocery side, Amazon still is a minor presence, but in clothing it’s now starting to make real inroads, especially among younger age groups. Of course, this data says nothing about total online purchases as a percentage of clothing purchases, and it’s likely that physical retail still dominates, but within e-commerce Amazon is now the biggest retailer among millennials, which is quite the achievement. It continues to feel like Amazon is methodically looking at those retail segments where it’s underrepresented and methodically breaking down the barriers to growth. And of course even in the groceries category it’s doing some interesting things.
There are some interesting numbers in here – notably that at its current growth rate, Amazon’s North American retail business could double in size in the next three years, or put another way, that it could suck the same amount of value out of the US retail market in that period as in its entire history to date. Realistically, growth is going to slow a bit, so it’ll take a little longer than that, but the broader point remains: Amazon is vacuuming up tens of billions of dollars of additional retail spend each year, and that has to come from somewhere. Given how small a share e-commerce still has of total retail spend in the US, that means it’s largely going to come from brick and mortar retailers, who have been suffering as a result. Some retailers have been able to recover a little lately in sales growth, but largely at the expense of margins, while one or two retailers have managed to find niches that seem somewhat immune to Amazon’s encroachment. We’re not going to see brick and mortar retailers take this all lying down, though, and one of the most interesting things to watch in the next couple of years will be how effectively these companies can pare Amazon’s growth back if they’re willing to be aggressive enough on margins. I suspect we saw a little of this in Q4, when Amazon’s growth rate dropped a few percentage points, but we might see more of it going forward.
“Just like Alexa” is a bit of a stretch here, because the whole point of Alexa’s ordering is that you know the products will come from Amazon. Google Home, by contrast, will order from a range of different Google Express merchants, only some of which are available nationwide. And because most people don’t have a Google Express account set up yet, they’ll have to do that first before they order anything. Lastly, unlike items bought using a Prime subscription, shipping will be charged extra after a short promotional period. Despite all that, this is obviously an area where Alexa has had unique capabilities and where Google Home has now closed the gap a little. By far Home’s biggest disadvantage is still its lack of awareness and distribution.
Amazon just shared new numbers that give a clue about how many Prime members it has – Business Insider (Feb 15, 2017)
I had missed this earlier in the week, but we got some juicy new numbers from Amazon as part of its 10-K filing, and they’re quite illuminating when it comes to Prime. This article specifically talks about Prime subscriber numbers, but the same underlying figures from the 10-K can also be used to derive some other interesting conclusions about Prime revenues and so on. I put together an in-depth blog post just now on all this, which you might want to check out too (my subscriber numbers are a little different from Morgan Stanley’s).
via Business Insider
Amazon Reports Fourth Quarter 2016 Financial Results (Feb 2, 2017)
Amazon had a somewhat disappointing quarter relative to analyst estimates, as growth slowed in its core e-commerce business. Unit shipment growth, which had been above 25% for the last five quarters, dropped suddenly to 24%, which impacted overall growth rates, as those dropped for the second quarter in a row. The International business had significant losses for the second straight quarter as Amazon invests more heavily overseas in fulfillment, market entry, and extending services like Prime video globally. AWS grew at a healthy clip, though margins are flattening at around 26% lately. As usual, executives on the earnings call were not helpful in understanding or predicting the big swings in both growth rates and investment levels, though guidance for Q1 looks fairly light. The official explanations are the anniversary of a leap year in 2015, which added 150 basis points to growth, and currency headwinds, which are being mentioned more frequently again on earnings calls lately. But it looks as though Amazon may be expecting slightly slower growth in Q1 too. Dropping back down to the high teens and low twenties growth rates Amazon saw in 2014 and 2015 wouldn’t be the end of the world, but it would be a rather different trajectory from the one it’s been on for the past year and a half, and investors would react accordingly.
Walmart is going after Amazon Prime with free two-day shipping and no membership fee – Recode (Jan 31, 2017)
Walmart is making two changes to its free shipping program: eliminating the $49 annual fee, and lowering the minimum purchase amount that qualifies for free shipping from $50 to $35. This doesn’t give the impression of Walmart coming from a position of strength, but rather one of weakness, where it has to keep making concessions and changes to try to make its equivalents to Amazon’s Prime service look more enticing. Of course, there’s also an argument to be made that Amazon’s Prime service works so well psychologically precisely because it has a hefty annual fee – once you make that commitment, you’re more likely to purchase lots of things through the site to justify and make use of the money already spent. Removing the membership fee means that users have no special reason to prefer Walmart over Amazon for any given purchase. At this point, I don’t think many people are choosing Amazon for shipping alone – they likely just think of Amazon as the default option for online retail, and if they happen to be Prime members (which many American households are) that seals the deal. Short of going all-in on free shipping a la Zappos, I’m not sure that any changes Walmart makes to its shipping policies and prices will move the needle meaningfully.
This is a good overview of how the international part of Xiaomi’s business fared over the last several years, while Hugo Barra was in charge, and it argues that Xiaomi’s progress during that time was limited to some countries and mostly symbolic elsewhere – gaining mind share but not market share. And of course, it still hasn’t fully launched in the US, which can be considered the biggest failure of Barra’s leadership of the international business, with the company’s first big CES press conference one of his last official actions in the role.
This is an interesting but not unexpected development – PayPal already powers lots of payments for e-commerce purchases online, and the biggest past barrier to doing the same with Amazon was the close ties between PayPal and eBay. With that relationship now severed, PayPal is free to pursue this opportunity further, and with Amazon the largest e-commerce retailer in the US and a number of other markets, that could be a big boost. It’s less obvious that it will make a huge difference for Amazon, since it has credit cards on file for many of its regular customers, but it could well help reduce friction for occasional or first-time users, potentially providing a wider funnel for eventual Prime members. The other interesting wrinkle here, of course, is that even without the eBay angle, these two companies still compete with each other for web payments – Amazon has a much smaller third party payments platform which is used as an alternative to PayPal by some online retailers.
Amazon Expands Into Ocean Freight – WSJ (Jan 25, 2017)
Amazon seems to be treating building its own shipping infrastructure as a major strategic goal at present, from running its own planes to shipping its own sea freight. That’s partly about leverage over the traditional companies it has historically outsourced these jobs to, and partly about flexibility and control over the infrastructure it needs to get the job done. The further Amazon goes down this route, the harder it becomes for anyone to compete on a level playing field – Amazon’s logistics and distribution infrastructure is reaching a point where it’s becoming a massive competitive advantage.
Google Uses Its Search Engine to Hawk Its Products – WSJ (Jan 19, 2017)
This is a really fantastic bit of a analysis commissioned by the Wall Street Journal. It found that for 91% of searches relating to top consumer electronics categories, a Google or Nest product was in the top ad slot above the results, and in 43% it had the top two slots. This is Google competing with its own advertisers, and Google apparently was so taken aback by the analysis that it tweaked its strategy when the WSJ spoke to Google about it, and the numbers are now much lower. Google’s hardware push therefore not only puts it in conflict with its OEMs, but also with its biggest customers – advertisers. I’m intrigued to know how other big consumer electronics brands feel about this, but the challenge of course is that they have few alternatives – Google dominates search, and so it also has a dominant position in pitching its own products. There’s a close analogy here to Amazon’s hawking of its hardware on Amazon.com, but competitors know what they’re getting into there to a greater extent.
This is Target’s preliminary press release for fourth quarter sales, which provides November/December comparable sales data in percentage growth terms, and the picture isn’t great. Comparable store sales were down 3% year on year for the last two months, and even though digital (online) sales were up 30%, that couldn’t make up the difference, and total transactions were flat while fourth quarter revenue will be down. The reason is that digital sales still make up only a tiny minority of Target’s overall sales – 5% in the 2015 holiday season, so a lower share than e-commerce’s overall share of US retail sales. That number will certainly be higher for 2016, but it highlights the challenge all big brick and mortar retailers have to face in Amazon: even if they’re able to match its strong growth in online sales, their physical retail operations still take an even bigger hit.
Every story about Walmart (or any other brick and mortar retailer) rejigging its e-commerce arm is bound to be seen in the context of Amazon’s dominance of the space, and Walmart has famously struggled in e-commerce despite its massive scale. At least two of these moves are about consolidating leadership of online and offline retail domains, which is a logical step (and one that Apple, for example, took a couple of years ago). Others reflect ongoing hiring from outside Walmart to strengthen its leadership team, and it looks like Jet is also being further integrated into the company, which was inevitable. Walmart won’t report its December quarter earnings until February 21st, but it will be well worth watching what impact, if any, Jet is said to have had on its performance.
Amazon to Create More Than 100,000 New Jobs across the U.S. over the Next 18 Months – Amazon press release (Jan 12, 2017)
This is just the latest in a series of announcements from major tech companies (not to mention car companies and others) about job creation in the US in the run-up to the inauguration of Donald Trump as US President in a week’s time. It’s worth putting the numbers in context a bit – 100k new jobs in the US in 18 months compares to around 135k new jobs created globally over the last 18 months. 180k US employees at the end of 2016 would be 57% of my estimate of 315k jobs globally, so 100k new US jobs suggests only a slightly higher run rate and ratio of US to global jobs to the past 18 months. As with a lot of the announcements we’ve seen lately, this seems mostly about highlighting existing job creation plans rather than some new direction.