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Amazon (AMZN) founder Jeff Bezos has a history of getting big trends right and executing well. His investment in Internet streaming and transport logistics are big ideas. Now he’s ready to execute.
Executing big ideas at scale is not easy. When Netflix (NFLX) came to Amazon Web Services to host its video-streaming business as a paid subscription service, it had never been done before. Getting it right at scale in the marketplace took time, money and a lot of trial and error.
When Bezos later launched a competing service, Amazon Prime Video, he had the luxury of fiddling with the details inside the house account. Initially, he offered streaming as an add-on to the company’s popular Prime shopping and fulfillment service.
Bezos took the same approach with logistics. For a flat rate, Amazon Prime subscribers got two-day shipping. As the service grew, the company made strategic investments and fiddled with details based on feedback from Prime customers. And that is Bezos’ secret: He builds services for Amazon using its scale, perfects them based on results, then offers the refined products to others. Â
There is good precedent. Web Services is the intricate network of data centers strung all over the globe. It began as the necessary technical backbone of the Amazon online store. Later, Bezos would offer it as a standalone product. Now it is on track to do $10 billion in sales and is throwing off more than $500 million a quarter in profits.
Fulfillment by Amazon follows that template. It’s a business-to-business service that provides warehousing, fulfillment and customer service to small businesses. FBA takes all of the services Amazon perfected for its own store and offers them to smaller enterprises looking to scale up.
And leasing 20 wide-body cargo jets, starting an overseas container-shipping business and working on autonomous delivery vehicles and aerial drones are all part of a bigger plan. It’s a fully formed small-business logistics service inside Amazon with big ambitions. That should worry FedEx (FDX) and United Parcel Service (UPS).
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| Amazon has secured a fleet of cargo jets that are on course to make the retailer FedEx’s worst nightmare. |
Last year, Amazon purchased Twitch, an online video-streaming site for gamers. While the nearly $1 billion price tag raised eyebrows, Amazon has quietly doubled the size of the business to more than 100 million monthly users. And it is expanding the appeal with Cooking and other how-to channels.
You don’t have to squint to see what Amazon is up to. It’s a critical piece of a new-era streaming network that dovetails nicely with Amazon’s plan to split Prime Video from the standard Prime membership. For $8.99 per month buyers get a polished service with an impressive library of licensed and original content. The addition of live channels from Twitch adds a new dimension and makes it a formidable competitor to the much larger Netflix.
Bezos has a penchant for fostering new businesses inside Amazon and for growing shareholder value. Piper Jaffrey analyst Gene Munster writes: “Twitch could be worth $5 billion to $20 billion in five years.”
Amazon shares may consolidate their recent gains, but any substantial weakness in coming months should be seen as a buying opportunity. Bezos is, incredibly, just getting started.
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TECH UPDATE
*Alphabet (GOOGL) is slowly breaking corporate ties with Uber. It’s resigning a board seat and launching a ride-sharing mobile application built on its Waze crowdsourcing technology. This looks a lot like Apple (AAPL) and Google (GOOGL) parting ways over mobile back in the days before Android…
*Private company Dell is going to bet big on the private cloud. It wants big corporations to eschew the public cloud dominated by Amazon Web Services and Microsoft (MSFT) and build their own with Dell gear. Good luck with that strategy…
*This is what you should expect at the Apple (AAPL) September 7 product launch – besides an iPhone without a headphone jack, look for revamped Macs and upgraded iPads…
*A Tesla (TSLA) owner put 100,000 miles on his car in a year in a test of durability and operational costs. Spoiler alert, Teslas run well and efficiently versus gas burners…
Best wishes,
Jon Markman
{ 9 comments }
The Academy of Ethnomeducal Sciences is registered with White House Faith-based…and US Department of Education in Washington DC US. Medical Botany: Original industrial biotechnological research for discovery of new biodrugs. The medical plants shall be shipped from Johannesburg SA to Washington DC US. I want to know for a starter; can I prepare some boxes with medical plant dried granules for a freight from Johannesburg SA, to Washington DC US?. I am a Federal Government Contractor.
The “last mile of delivery” will eat Amazons’ lunch. UPS drops packages off at Postal Service offices for that last mile. Amazon assumes all is normal and that is not the case. Amazon is losing money as we type, on many of it’s offers and by sheer volume (like McDonalds) expects to make money long term. Markets are fickle and once you have infrastructure in place, the company has to maintain it’s cost. Best Wishes to those climbing the bean stalk.
Randy, that is exactly the point that I would make. Is copying the Postal Service really going to turn Amazon into a profit machine or to just bankrupt other companies like FedEx? One of these days Amazon has got to figure out how to start making some real profit instead of just making other companies go bust.
With the bankruptcy of Hanjin Shipping I would rather know what Amazon is doing at the supply side for us to receive Santa’s knock off items in time for our Christmas stockings. If Amazon does not receive their stocking stuffing items in time then the Hanjin affair could turn into the black swan that just landed last week. I hope that Dr Weiss included Korea on his itinerary in his current travels; that would be some timing to watch a black swan land.
Amazon will fail with every logistics endeavor. Train, plane, and truck firms are lucky
to make a 9% return on capital. Less than 5% is the norm. Wake up as this is
not the internet and streaming whatevers. As for Tesla, if a market actually
develops to any scale, the auto makers already have better engineered product
waiting in the wings–Musk is the flavor-of-the-day as one need only go to a nearby
overpass and count the Teslas.
I have no interest in the Tesla Corporation but other auto makers just don’t get it. While 110 years ago you could stand on an overpass (if they had them) and count the horseless carriages these other auto makers that succeeded then remain in the past. Tesla may or may not remain viable but they see the future correctly in terms of product.
Amazon is the very best logistics company out there. UPS and FedEx can duplicate the Amazon model, yet without their own products to deliver like Amazon, there is zero incentive for either to do so. … In addition, it stands to reason that if Amazon adds cargo jets and trucks to their logistics plan, there eventually will be economies of scale through eliminating the middle man not to mention improved customer service. UPS, FedEx and the US postal service have never had the customer focus required by the likes of Amazon.
Jon, with all due respect, I think Amazon should fear the bankruptcy of Hanjin Shipping happening at a critical time for delivery of goods for Christmas from Asian suppliers. FedEx could even benefit from this if shipments turn to rush delivery in time for the holidays. I read where some container costs have gone from $700 to $2,000 as a result; which I would imagine could affect Amazon and very likely the price of people’s Christmas shopping, and thus sales volumes. The Fed could even see the inflation they need; and we could see it too. I feel this Black Swan has landed. Cheers, Will
Martin always produces such excellent videos for the site. Jon always produces excellant newsletters too. The educational videos from Weiss Research are excellant too.
Saw the first Amazon delivery van in our neighborhood 2 weeks ago. We are Prime members and use it a great deal.