Facebook has announced that it’s now offering an option to order food through its app, as a result of integration with a range of delivery partners and individual restaurant chains. The “Order Food” option is so far buried deep in the “Explore” tab where few people are likely to find it, though I’m guessing users who make use of it frequently may see it move into their core navigation over time. The integration is basic, mostly launching an in-app browser aimed at the website for either a delivery service or the restaurant chain, with the user having to fill in all relevant information such as credit card, address, and other contact information if they don’t have an existing account. As such, this integration feels like it adds little value over and above the minimal utility of shopping for food within the Facebook app rather than a separate one. It’s a good reminder that, for all Facebook’s reach and power, its new feature launches are often pretty lacking and unlikely to gain much traction, at least in their original form.
Target and Google have announced a nationwide launch of their partnership to offer voice shopping from Target through Google Home (and eventually the Google Assistant on smartphones too). This follows on from Google’s earlier announcement with Walmart, and these partnerships feel very much like a new front in the escalating war between Google and Amazon. This also opens up potential new revenue streams for Google around voice, a medium far harder to monetize through advertising than its traditional businesses, and which Amazon is certainly going to leverage for e-commerce sales. On the other hand, an indirect relationship will make this a little more complex than a single-company solution – customers will have to train the Google Assistant to know which retailer to use for which items if they have several integrations set up. And of course for now shopping is still a minority use case for voice speakers, well down the list of actions people use regularly, though that may change over time.
Chinese e-commerce giant Alibaba has announced that it will double its R&D spending over the next few years, with the main focus of its $15 billion investment in three areas: AI, the Internet of Things, and quantum computing. Though the Bloomberg piece here suggests this is another front in its competition with Amazon, the reality is that the two compete for very little business, mostly competing against other western and Chinese companies respectively in their major markets, with Alibaba dominant in China but negligible in the US. Rather, this is part of a much broader competition between big tech companies in aiming for leadership in several key new research categories, AI chief among them. That’s a competitive dynamic that has now taken on geopolitical overtones, with the US and China emerging as the likeliest leaders in AI, itself considered critical to future competitiveness in not just business but cyber warfare and other areas. Alibaba is, of course, already growing dramatically as a company, and the increase in planned R&D spending is therefore not wildly out of whack with its overall growth, but it makes for a great press release as the company seeks to burnish its innovation credentials.
Amazon has just announced a way for teenagers to buy items from its site through parent accounts, with either an item-by-item approval process or pre-set spending limits. Parents will receive summary text notifications when their teens have placed an order and have the option to reply with a simple “Y” via SMS to approve the order, or to see full details on Amazon’s site. This feels like yet another example of both Amazon’s maturity in the e-commerce space and the way it continues to evolve its offerings even as other retailers continue to play catchup on its core services, and of its need to continually expand its addressable market for its e-commerce services to new potential customers. We’ve already seen this with its attempts to serve cash-centric customers, and we’re now seeing it with this move into serving teenagers more directly rather than through their parents. This will, of course, also train those teens to buy from Amazon from an early age, bypassing other potential sites, while leveraging the benefits of Prime. Feels pretty smart all around.
CNBC reports that Amazon is working on two new forms of delivery which would leverage technology to enable packages to be left for recipients in cars and homes. The main focus of the piece is a potential partnership with Phrame, which acts as a smart locker for cars and is backed by Bosch, but it also talks about Amazon working on what it calls a smart doorbell but would in reality have to incorporate a smart lock to work properly. Walmart recently announced a trial of in-home delivery with August in Silicon Valley, but Amazon has more incentive than anyone else to solve the problem of deliveries to customers who aren’t present given that its retail business is today almost entirely dependent on such deliveries. The big question I have around all this is the business model – both Phrame and existing smart lock products from companies like August are priced from $150 to $300, which is a large amount for Amazon to subsidize entirely, so I’d guess that it might offer some kind of partial subsidy of these products for heavy Amazon users.
Costco has launched a new online grocery shopping service, which will offer two-day delivery nationwide. There’s only a small delivery fee, but that’s a little misleading because the list prices for the items ordered in this way will be 15-17% higher than prices customers would encounter in stores. The irony here is that Costco’s stores are in some ways very much like warehouses, and therefore offer many of the same cost benefits as actual warehouses, meaning that e-commerce doesn’t provide many savings in that department, while shipping for the bulk items Costco typically sells would be disproportionately expensive. It would certainly be more transparent for Costco to be explicit about shipping while keeping the prices the same, but it’s likely banking on consumers making the same assumptions they make in its stores, namely that buying in bulk is always cheaper, without actually checking prices. That’s a tougher sell online, though, where comparison shopping is only a browser tab away. In other words, all this feels like a box-checking exercise against Amazon rather than a serious attempt to actually sell many groceries this way, which makes you wonder whether it’s worthwhile at all. Meanwhile, Amazon’s massive logistics advantage just continues to grow.
Bloomberg reports that Amazon is making yet another shift deeper into the logistics value chain, specifically with regard to third party sellers. It will now look to take control of the delivery process for items stored at sellers’ facilities as well as its own warehouses in a program it calls Seller Flex. That doesn’t necessarily mean it’ll make those deliveries itself – it may well still use UPS and FedEx – but sellers will no longer be responsible for making those decisions; Amazon will. Amazon has slowly been taking over more control of seller shipping in recent months, including changes that sellers haven’t liked, though this one seems likely to be somewhat more neutral in its impact. UPS and FedEx share prices have both taken a knock, since they might end up being squeezed out of some functions here, but the immediate impact seems likely to be fairly subtle, given that Amazon simply doesn’t have its own matching infrastructure yet for may of the deliveries those companies make.
Walmart is buying New York same-day delivery specialist Parcel, which currently performs that function for a variety of smaller e-commerce companies and will continue to do so alongside becoming Walmart’s in-house vehicle for doing so. This acquisition echoes that made a while back by Target, when it bought Grand Junction, another company specializing in delivery in New York City. New York continues to be something of a unique market – I’m visiting this week, and have seen ads for almost nothing but delivery services on the subway trains I’ve been on, while the products being delivered range from groceries to food from restaurants to other essentials. The population and residential density in NYC is unmatched in pretty much any other locale in the US, and so it lends itself uniquely well to good economics for rapid delivery. None of this feels particularly scalable across the US, but as Amazon has long demonstrated, that’s not to say it doesn’t make for a multi-tiered approach to delivery in various places across the country, with ever faster deliveries in the biggest and most densely populated urban areas.
Amazon Begins Selling Apple TV Hardware Again (Sep 26, 2017)
Amazon has quietly begun selling Apple TV hardware again, as part of the thawing in relations between the two companies. Apple has already announced that an Amazon video app is coming to the Apple TV shortly, so this is the first half of that two-part move, suggesting that the other shoe should drop soon. As I said a few months back, though some have suggested there was some tit-for-tat in Apple and Amazon’s frosty relations, the reality is that the barriers to playing nicely were all on Amazon’s side – the company could have built an app for the Apple TV as soon as the platform launched an App Store, but chose not to. I assume that was because of the App Store cut, but that’s been a feature on iOS too, and hasn’t stopped Amazon from launching video apps for that platform. Regardless, it’s likely that Apple has made some concessions on the App Store cut, and that that’s finally got Amazon on board as one of the last holdouts from the Apple TV, which should further increase the appeal of that hardware platform for those willing to pay the Apple premium to get their Transparent or Man in the High Castle fix.
Amazon Runs Big Kindle Sale on Rival Alibaba’s Site in China (Sep 22, 2017)
Amazon is running a big sale of its Kindle hardware on rival Alibaba’s site in China, a concession that it’s way behind its domestic competitors and needs to leverage their platforms in the country to achieve meaningful hardware sales. It’s a useful reminder that, for all Amazon’s dominance in e-commerce in the US and a handful of other markets around the world, it’s largely failed to break into China in a meaningful way. One big reason is the same of localization that’s plagued other big US tech companies in China, something that Apple has recently been trying to fix. Amazon has arguably done much better with localization in India, which this Recode piece suggests is going rather better for Amazon at this point than its foray into China. It certainly isn’t giving up on China just yet, but does seem to be more willing to acknowledge its failures there and pursue other strategies to achieve at least some of its objectives there.
Reuters reports that Amazon is making arrangements to build a million-square-foot distribution center just outside of Mexico City as part of a ramp up in investment south of the border. As of right now, as far as I can tell, Amazon has one 400,000 square foot distribution center in Mexico, and the million square foot size is typical of Amazon’s larger centers in the US, so this would be a pretty big expansion. The Reuters article quotes Amazon’s revenues in Mexico last year as being around a quarter of a billion dollars, which would be 2% of its revenues generated outside its four largest countries (the US, Germany, Japan, and the UK), which in turn generate 92% of total revenues. So it’s a fraction of a fraction of Amazon’s global business today, despite being a neighbor to by far its largest market, the US. The Reuters article does a good job talking through some of the challenges for Amazon in operating in Mexico but also some of its early successes. Amazon has been able to become truly dominant in e-commerce in just a handful of markets globally, and it seems as through Mexico is in the mold of other countries where it’s been able to do so, rather than more like India or China, where it’s faced more obstacles. As such, Mexico could grow nicely in the coming years, but is never likely to become one of the biggest markets for Amazon.