Company / division: Amazon
Last night’s Emmy awards once again provided an interesting set of insights into the winners and losers among both traditional and online streaming TV properties. HBO won the most overall awards with 29, while Netflix beat out the other streaming services with 20. Hulu did much better than in the past, almost entirely because of one show – The Handmaid’s Tale – which has been extremely well reviewed but may also have garnered additional favor by being deemed particularly relevant in today’s rather dystopian real-world political scene. That’s a huge coup for Hulu as Netflix has never won best drama, but it would be dangerous to read too much into it, given Hulu’s lack of past or broader success. Netflix won twice as many awards overall, including wins for multiple shows in different categories. Amazon, meanwhile, took away just two wins. In addition to HBO, NBC did well among the traditional TV companies, coming in third behind Netflix, while ABC, Fox, and CBS all took home single digit trophies. It still feels like HBO and Netflix are the real powerhouses when it comes to high-budget, high-quality TV, but the Hulu wins show that others in the streaming world aren’t being shut out entirely, which should be heartening to Apple and others coming into the game late but with big budgets and ambitions.
NBC News reports that Amazon has been talking to traditional TV companies about taking some of their lower-profile networks off their hands. Four specific examples cited in the article linked below are VH1 and CMT at Viacom and Adult Swim and Boomerang at Turner. Big TV companies have been shutting down cable networks over the last few years and focusing their efforts on a smaller number of successful channels with big audiences as cord cutting begins to really bite, so there are potentially quite a few channels with smaller audiences out there for the taking, and NBC says Amazon might buy “scores” of them, though that number might be a bit of a stretch. At any rate, the question becomes what Amazon would do with them, and the obvious answer is either bundling them into Prime or selling them as add-ons to Prime. But another really interesting angle to think about is advertising, where Amazon has been quietly building a big online business but with very little action so far on the video side. Owning lots of linear channels would allow it to build a much bigger video ad business as a complement to its online ad business, and potentially do cross-platform targeting across them. It’s also a fascinating alternative to spending ever more to commission and/or acquire original content for its streaming service – it could probably snap up some of these channels pretty cheaply and run them for less than it would cost to build up equivalent amounts of original content from scratch. Importantly, some of these networks have small audiences but lots of distribution – VH1 is in well over 80 million homes, for example. That would be pretty good relative to Amazon’s own domestic distribution through Prime.
via NBC News
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.
Amazon today announced that it’s initiating a formal search for a second North American headquarters city in addition to its current HQ in Seattle, and invited cities to make pitches to win its business with a formal RFP process. The approach here is reminiscent of Google Fiber’s strategy of inviting cities to pitch to host its early networks, a process that resulted in tax breaks and other concessions intended to lure Google to municipalities, and Amazon is clearly aiming for very much the same approach here, hoping to get big tax breaks and other incentives. The driver here is twofold. Firstly, this is a PR move intended to get lots of positive attention from cities around the US both during the process and once it’s completed and it starts creating jobs and other economic activity in an area.
Secondly, it’s a practical issue: Amazon has grown to over 40,000 employees in Seattle, a big coastal city with a high cost of living and doing business, and with another massive tech company – Microsoft – nearby and competing for potential employees. It’s also been criticized recently for being too dominant a force in Seattle. In addition to hiring tens of thousands of warehouse workers around the world each year, Amazon is beefing up its AWS and advertising sales forces, and there’s no particular reason why they need to sit in expensive Seattle office space. As such, hunting around for a lower-cost base with substantial financial incentives from the local government makes a ton of sense for practical as well as PR reasons. We’re going to see cities falling over themselves to win this business, which Amazon says will eventually provide 50,000 direct jobs and $5 billion in construction investment.
The challenge of running two headquarters will be a fairly unique one for a big tech company – others certainly have satellite offices, and big mergers sometimes result in dual headquarters arrangements, but this would be the first time that I’m aware of that a big tech company would deliberately choose to divide its HQ function between two locations in different stats. That’s going to create some unique challenges for managing the business, though Amazon’s highly balkanized management structure likely makes it a little easier. As with the recent acquisition of Whole Foods, this big process is going to be completed remarkably quickly: responses to the RFP are due by October 19th, and the announcement will be made next year, though the RFP talks about three distinct phases, with 500k square feet of office space required by 2019 and up to 8 million required “beyond 2027”, and mentions the “initial 15-17 years of the project”.
Update: two other things worth mentioning which have popped up since I published this: Amazon is also opening an R&D hub focused on machine learning in Barcelona, Spain; and Recode reports that there’s already political opposition to Amazon’s approach of seeking tax breaks for its new HQ.
★ Amazon and Microsoft Announce Cortana-Alexa Integration (Aug 30, 2017)
Microsoft and Amazon have officially announced that their respective assistants will begin working together later this year, news broken by the New York Times along with interviews with the companies’ CEOs. Of the four major voice assistants, these two are arguably the weakest, for all that the prevailing narrative is that Amazon is ahead in voice. As a reminder, Amazon has perhaps 15-20 million users of its Alexa assistant today, while Microsoft has 145 million regular Cortana users, Google has hundreds of millions of Android devices in the market with some form of its voice assistant technology, and Apple has nearly a billion Siri-enabled devices in use, with 375 million monthly active users as of June. More importantly, both Amazon and Microsoft are bound to a single category of devices today: home speakers for Amazon and PCs for Microsoft. Yes, both have smartphone apps too, but they’re very much second class citizens behind the built-in assistants available from the lock screen on the two major smartphone platforms. So the coming together here makes a certain amount of sense on that basis.
However, this doesn’t solve that fundamental problem of getting first party status on smartphones, and the integration the companies will offer will at least at first be both awkward and limited. Users of either assistant will have to invoke the other using double commands (“Cortana, open Alexa…” or vice versa) before even speaking their request. The integration itself will likely focus on smart home control from Cortana and personal information management through Microsoft’s apps from Alexa, filling an important gap in Amazon’s portfolio given that it lacks its own broadly-used calendar, contacts, reminders, or other PIM apps. In theory, the integration will get less awkward at some point down the line, with each assistant deciding on the fly which underlying AI to use to process a request, but in practice that seems challenging.
For today, it’s relatively straightforward given that the two assistants excel in different domains, but Microsoft’s partners are about to launch the first Cortana-powered speakers and other home devices that will compete more directly with the Amazon Echo, and the overlaps between their capabilities will only grow over time. So who will decide which AI handles which requests? Will this integration only live as long as the companies can agree on that? Or will the lead assistant in each case grab the tasks it wants and leave the dregs for the other? Meanwhile, both Google and Apple will make inroads into the home speaker space in the coming months, allowing them to provide more ubiquitous voice assistants and erode Amazon’s early lead in the home voice market. To summarize, though the logic behind a deal here is reasonably sound, it’s likely to be strained over time and less relevant as the two larger voice platforms expand in the home.
Note: for non-subscribers, I’ve temporarily opened access to the “Amazon is Ahead in Voice” narrative evaluation linked below, so you can go and read (or watch a video on) the broader context for this move and why I say above that Amazon is one of the weaker rather than stronger players in this market.
via New York Times