How Amazon Rattles Other Companies

Amazon’s ambitions have few limits, and the mere specter of its entry into a particular industry can shape markets. When the company has appeared interested in expanding into a new business, it has spooked investors in potential competitors, leading to large sell-offs. The most recent example: Amazon, along with JPMorgan Chase and Berkshire Hathaway, announced the formation of a new health care company on Tuesday. The three companies provided few details about the new entity, other than saying it would initially focus on technology to provide simplified, high-quality health care for their employees and their families, and at a reasonable cost. But health care investors shuddered at the prospect, selling off shares of established players like UnitedHealth and Anthem plunging. Both stocks quickly fell by more than 5 percent.


One of the more notable examples of Amazon’s influence is in the pharmacy business. After reports that Amazon might soon enter the prescription drug market, shares in CVS Health and Walgreens, the two largest pharmacy chains, fell sharply in early October.

Then, in early December, CVS said it would pay $69 billion to buy Aetna, a deal that could reshape the health industry. Many analysts said that Amazon’s interest in selling prescription drugs was one reason why the two began talking. The idea is that the deal could help insulate the companies in case Amazon does make an ambitious move into selling drugs, as well as give the combined improved leverage in negotiations with drug companies.

With huge amounts of consumer spending and frustrating inefficiencies, prescription drug sales are the type of business that invariably attracts Amazon’s attention. And the likelihood of Amazon eventually getting into the pharmacy business is high, several analysts and a former employee have said. But it is not clear when it will make that move or how aggressive it intends to be.

In June, Amazon announced that it would buy Whole Foods for more than $13 billion, by far its biggest acquisition yet. The unexpected deal sent shares in several of the nation’s biggest grocers, including Walmart, and Safeway, down sharply. Kroger, another top grocer, lost about one-tenth of its value on the day of the announcement.

But the drop in stock prices wasn’t a one-time occurrence.

Shares in these companies fell again a couple of months later, when Amazon said it would sharply lower prices on numerous products at Whole Foods. Kroger, for example, fell 8.1 percent that day.

Amazon has put a lot of time and effort into improving its ability to deliver goods to customers, encroaching bit by bit on the country’s two giant delivery companies, FedEx and U.P.S. It has leased dozens of cargo jets to distribute inventory to warehouses around the country and is a building its own hub in Kentucky for a fleet of its own planes.

The key phrases here are “own hub” and its “own planes.”

When the news was reported in January that Amazon was building a cargo hub in Kentucky, where U.P.S. has its largest air cargo facility, stocks in both U.P.S. and FedEx plunged. In U.P.S.’s case, it would take the better part of the year for its shares to recover.

That wasn’t helped by the media event that Amazon held in July to show off its Prime Air fleet of planes, which it tested during its annual Prime Day promotional event. In October, the delivery companies took another hit after a report that Amazon was testing its own delivery service.

“We do the prep. You be the chef.” So read Amazon’s trademark application in early July for prepared food kits. Then, later in the month came reports that Amazon Meal Kits were available on the company’s website. The reports sent the stock price of Blue Apron, the newly public meal kit service, down as much as 11 percent.

One area of shopping that Amazon has not yet entered is the car business.

If you want a Ford F-150 or a Tesla Model 3, you still need to go elsewhere, and there is no sign that will change anytime soon.

But car parts are another matter, and Amazon’s aggressively pursued that business in 2017, reaching deals with some large parts distributors. The result has been falling share prices for some of the nation’s biggest parts retailers, including AutoZone and Advance Auto Parts.

  • NYTimes


Microsoft and Google Trying to Catch Amazon in the Cloud

It’s hard to think of a business Inc. dominates as convincingly as the market for cloud computing services. Andy Jassy, chief executive officer of the company’s cloud division, Amazon Web Services Inc., likes to brag that his outfit has several times as much business as the next 14 providers combined. Amazon’s next-largest cloud competitor, Microsoft Corp., is less than one-fifth Amazon’s size in terms of sales of infrastructure services, which store and run data and applications in the cloud, according to research firm Gartner Inc. Google, the No. 3 U.S. cloud services provider and the second-largest company in the world by market value, makes one-fifteenth of Amazon’s cloud revenue.

“AWS effectively defined the notion of cloud computing,” says Gartner analyst Ed Anderson. “It’s perceived as the cloud leader and pacesetter.” AWS generated $4.6 billion in sales in the most recent quarter. Every year, it introduces dozens of features and products to retain its edge.


But Amazon isn’t invincible, and the qualities that made the division so successful—the platform’s self-service nature and its deployment of software and services that Amazon had used for its enormous retail operation—can also be seen as vulnerabilities, at least as far as Microsoft and Google are concerned. Microsoft’s cloud unit, Azure, has managed to win over customers, including Bank of America Corp. and Chevron Corp. in recent weeks, by focusing on the sorts of salesmanship and relationship-building skills not always prized at Amazon’s Seattle headquarters. “There’s not one default choice,” says Kurt DelBene, Microsoft’s executive vice president for corporate strategy and planning. “We’re not going to get to a place where any one vendor is that default choice.”

“Microsoft is at the leading edge of today’s game-changing cloud-based technologies,” CEO Satya Nadella wrote in his autobiography, published in late September. “But just a few years ago that outcome seemed very doubtful.” As part of Nadella’s catch-up strategy, Microsoft has transformed its sales force into a roving R&D lab and management consultancy. Startups get introductions to potential investors and prospective partners and customers. Big companies get access to a sales team that helps market the cloud apps they build on Azure to their own customers so they can make a buck on the software they use in-house.

The sales team includes 3,000 dedicated software engineers who can build applications for prospective clients during sales calls, demonstrating on the spot what they can do for them. “I can’t send people to a customer anymore to give a PowerPoint presentation,” says Judson Althoff, executive vice president for Microsoft’s worldwide commercial business. Once a customer signs on, Microsoft engineers can be deployed to the client the next day.

Bill Braun, Chevron’s chief information officer, says Microsoft impressed him by showing off machine learning software that will allow his company to analyze volumes of data from oil production equipment to detect tiny changes in temperature or vibration, early signs of faulty equipment, or other problems. “They understand the enterprise,” he says.

Microsoft’s sales team made the pitch with the help of HoloLens, the company’s new augmented-reality headset. When paired with Microsoft’s cloud software, the headset allows Chevron’s senior engineers to virtually oversee the work of software technicians around the globe as they install equipment.

For years, Microsoft representatives have sold the company’s signature Windows and Office software that clients install on their computer networks. More recently, they’ve moved some of those clients to Office apps in the cloud. Clients accustomed to those cloud applications may be more likely to go with Microsoft when they decide to replace their own data centers and servers with public cloud infrastructure, says Gartner’s Anderson.

An existing relationship was why candymaker Mars Inc. chose Microsoft instead of AWS last year. “Our philosophy is to drive deeper relationships with partners we already have,” says Paul L’Estrange, Mars’s chief technology officer. “We didn’t have that same sort of relationship with AWS.” Google is trying to set itself apart with TensorFlow, software that makes it easier to build artificial intelligence apps, and with Kubernetes, a software system which helps companies better manage their data in the cloud.

Even Google, a company that has been generally allergic to using people for anything a machine can do, has seen the value of having a human sales force. In late 2015 it hired corporate software veteran Diane Greene, a Google board member and co-founder of VMware Inc., Dell Computer’s cloud computing subsidiary, to run its cloud business. She’s been building a cloud sales force from scratch. Google recently announced a partnership with Inc. to take advantage of the latter’s list of preferred cloud providers.

Both Google and Microsoft have sought to exploit another of Amazon’s perceived weaknesses: that other parts of its empire compete bitterly with prospective cloud customers. Amazon’s retail rivals, including Wal-Mart Stores Inc. and Bangalore-based Flipkart Ltd., don’t want to see their Amazon cloud payments lining the coffers of the retailer that could ultimately put them out of business, says Gartner’s Anderson. Flipkart signed up with Microsoft in February. According to a June report in the Wall Street Journal, Wal-Mart has been telling its tech suppliers not to use AWS. Wal-Mart didn’t respond to a request for comment. CEO Jassy says AWS treats all its cloud customers, including many Amazon retail rivals, equally.

After several years on AWS, Lush Ltd., the U.K.-based toiletries company, jumped to Google Cloud in November 2016. Lush has sued Amazon, claiming the company is using Lush’s trademarks to sell rival bath goods.

“We’re not particularly keen on Amazon as a company, so we’d prefer not to work with them,” says Jack Constantine, Lush’s chief digital officer. Amazon declined to comment on the lawsuit.

“It’s not a surprise to us that every large tech company in the world is interested in building a replica of what AWS has done,” says Jassy. Whether or not it’s feeling the pressure, the company is spending more time cultivating relationships with top executives and CIOs. It’s hosting dinners with prospective clients to address their concerns in more intimate settings and bringing more of a human touch to these relationships. “They’re making themselves accessible,” saysAdam Johnson, CEO of IOpipe, which provides monitoring and troubleshooting services to businesses running on AWS.

Its reputation as the market leader means those executives and chief technologists tend to lean toward AWS when all else is equal. Its early lead—AWS beat Microsoft to the market by four years—gives the company an automatic edge. And Amazon’s cloud services are seen as the safe bet, no small thing in an age of hacks and denial-of-service attacks. Sometimes even when a company thinks it can claim a win over AWS, it can’t broadcast the victory. In March, Google published a blog post announcing that Airbnb Inc., a longtime AWS client, had agreed to use a Google cloud service for AI. The following day, Airbnb’s name was scrubbed from the post. Airbnb and Google declined to comment.

So for the near future, at least, AWS looks like it will continue to rule a market that Gartner expects to generate $89 billion in sales by 2021, up from $35 billion today. “There’s a humongous amount of growth in front of us,” Jassy says. “This is the biggest technology shift of our lifetimes.”

  • Bloomberg


Amazon Is Now Getting Into Sportswear Inc. is tapping some of the biggest athletic-apparel suppliers to make a foray into private-label sportswear, according to people familiar with the matter, setting the stage for further upheaval in an already-tumultuous industry. Makalot Industrial Co., a Taiwanese vendor that produces clothing for Gap Inc., Uniqlo and Kohl’s Corp., is making apparel for the Amazon line, a person with knowledge of the arrangement said. Eclat Textile Co., another Taiwanese supplier, is contributing to the effort as well — a relationship first noted by SinoPac Securities Corp. analyst Silvia Chiu.


The project is new and long-term contracts haven’t been signed yet, according to people involved. The manufacturers are producing small amounts of products for Amazon as part of a trial, said the people, who asked not to be identified because the effort isn’t being promoted yet. Amazon has previously ventured into private-label fashion, offering office clothing, jackets and dresses under names like Goodthreads and Paris Sunday. But pushing into activewear would bring fresh competition to some of the world’s biggest athletic brands. Eclat’s involvement is especially noteworthy because it makes clothing for Nike Inc., Lululemon Athletica Inc. and Under Armour Inc. and has key expertise in making high-performance sportswear. Amazon, based in Seattle, didn’t immediately respond to a request for comment.

The move comes as unwelcome news for activewear companies already struggling to stand out in a sea of competition and discounts. Last month, Nike said it expects sales to decline again this quarter in North America. Under Armour, meanwhile, cut its annual sales forecast in August. Lululemon has fared better this year, but it too is facing steeper competition in the market for yoga pants and other sporty apparel. That cutthroat environment in North America has pushed it to look overseas for growth. Amazon also has been hiring staff with know-how in private-label athletic apparel. In January, Kirsten K. Harris joined the company as a senior brand manager for Amazon active apparel, according to her LinkedIn profile.

She previously headed up product development at Nordstrom Inc.’s activewear brand for women, Zella. Before that, she held leadership roles in product development for Eddie Bauer and Nike. Harris didn’t respond to a request for comment through LinkedIn. Amazon has developed its own brands in part because they fill gaps in its inventory. If customers are searching for a certain type of shoe or skirt, and don’t see much of a selection from established brands, Amazon wants to be able to offer its own options. Oftentimes, shoppers may not realize that the names — such as Scout + Ro and North Eleven — are owned by Amazon. This also sends a message to brands reluctant to sell their full inventory on Amazon. If shoppers can’t find your products on the site, Amazon will make its own substitutes and become your competitor. For suppliers like Eclat, forging alliances with e-commerce companies reflects shifting demand from consumers, Chiu said in a note.

“Online apparel sales accounted for 19 percent of all apparel sales in 2016, up from 11 percent in 2011,” Chiu said. “Online sales are primed for strong growth.” Eclat expects new clients to contribute as much as 12 percent of 2018 sales, she said. The shipments to Amazon began in August, according to Chiu. “The contribution this year will be small, but the potential is high,” she said.

– Bloomberg


The Genius of Jeff Bezos

Intelligent fanatics hit targets that no one else sees. Jeff Bezos was able to see differently than nearly everybody else in the early 2000’s, and continues today, largely in part to his fanatical preparation. In Jeff Bezos’ biography The Everything Store: Jeff Bezos and the Age of Amazon, childhood friend Joshua Weinstein recalled, “He was excruciatingly focused. Not like mad-scientist focused, but he was capable of really focusing, in a crazy way, on certain things. He was extremely disciplined, which is how he is able to do all these things.” Part of that focus and discipline was vacuuming up details from history. This vast storehouse of details has given Bezos the ability to frame his present situation with the best historical examples. In other words, by looking at the past he has been able to throw out all of the useless noise and draw accurate conclusions to how the future might unfold based on the past.

jeff bezos

This phenomenon is perfectly observed in 2003 and is repeating again today.

Seeing Differently in 2003

First, lets look back to 2003 right after the dot com bubble had burst. Jeff Bezos did a Ted Talk on the proper analogy for the internet (found below).

When you think like everybody else thinks, don’t be surprised when you get what everybody else gets. Divergent thinking, and action, pays in business and investing. Jeff Bezos clearly demonstrated his early divergent thinking in this presentation. While others viewed the early internet’s boom and bust as akin to the gold rush, Bezos saw the evolution of the electric industry as a better analogy. This mental model provided him the proper framework to be “incredibly optimistic” about the internet’s, and his, future while everyone else was depressed.

As Bill Hewlitt and Dave Packard said, “The biggest competitive advantage is doing the right thing at the worst time.” Bezos was doing the right thing at the worst time, being incredibly optimistic of the internet’s future and investing accordingly.

Since we are now fourteen years into the future, we can observe with hindsight how correct Jeff Bezos was in his analogy. The internet, like the light bulb, connected the world. Both have been “thin horizontal enabling layers that go across lots of different industries.” Those who automatically believed the gold rush was the best analogy of the dot com bubble was sorely mistaken. 2003 was the very, very early days of the internet.

History rhymes. Bezos was only 39 when he did this presentation, however, his knowledge of both the gold rush and the electric industry’s evolution was as good, or better, than if he had personally lived through both time periods. Everyone else who followed the commonly believed gold rush analogy, had neither lived through the gold rush, nor possessed the requisite detail of that time or the subsequent evolution of the electrical industry. Simply, they didn’t properly prepare.

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