AWS re:Invent: service innovations and partnerships

AWS re:Invent (191202-06): see https://press.aboutamazon.com/press-releases

Apart from a number of compute and storage innovations, orders, new renewable energy projects and new fulfillment centers, here are the main novelties.

Services

• Amazon Translate adds 22 languages (total 54; 2804 pairs)
• Amazon Transcribe Medical, ML-based: allows physicians to dictate clinical notes and speech into accurate text in real time
• AWS DeepComposer: AI music composer
• Amazon Braket: quantum computing services
• AWS Wavelength: to build applications that serve end-users with single-digit millisecond latencies over 5G
• AWS Outposts: managed & configurable compute and storage racks (and databases, analytics, ML) built with AWS-designed hardware that allow customers to run compute and storage on-premise (in hybrid cloud), brings native AWS services, infrastructure and operating models to virtually any datacenter, co-location space or on-premises facility
• AWS Local Zone in LA for single-digit latency; first customers: Netflix, FuseFX, Luma Pictures

Partnerships

• With Formula One Group (Formula 1) for Computational Fluid Dynamics (CFD) project to simulate the aerodynamics of cars while racing, for 2021 car design.
• With Fox to enable a new cloud-based media production and delivery platform, a single platform will be used to deliver both traditional broadcast and D2C streaming services.
• With Verizon, Vodafone Business, SKT, KDDI: to use AWS Wavelength for 5G edge computing.
• With Novartis on digital transformation: reimagine core pharmaceutical manufacturing, supply chain and delivery operations, create Insight Centers that provide real-time visibility across its network of manufacturing operations & distribution centers.
• With Slalom to build joint AWS | Slalom Launch Centers (Launch Centers): help customers migrate to cloud & modernize IT; first 3 centers in Seattle, Chicago, Atlanta.
• With National Football League (NFL) to advance player health and safety using cloud and AI.

Amazon break-down: e-commerce, web services, renewable energy, Kuiper Systems

Amazon really has only two platforms: e-commerce and web services (with some links between them, such as Prime).

On each, it is continually expanding, including wholesale services.

Renewable energy could be a third, esp. when it opens for third parties, turning Amazon into an energy provider.

Kuiper Systems seems a long shot, but potentially turning Amazon into a global ISP.

Platform

E-commerce

goods

ordering

distribution centers

delivery

shipping

physical stores

Web services

AWS

Media services

3rd Party services

Voice assistant

Amazon Chime

Amazon Pay

Renewable energy

Kuiper Systems

Amazon 18Q4 growth & margin analysis

In general, diversification supports growth and margins. Specifically: AWS, Prime, hardware, advertising. What's next?

Growth 18Q4

Take-aways: advertising driving a new round of growth. Physical stores (Whole Foods Market and Amazon stores) down on price reductions, footprint expansion seems inevitable.

• Overall +19.7%. Lowest level since 15Q1. Currency neutral +21%, lowest since 14Q4.
• Products +17.3%, Services +52.4%. Revenue contributions 61.8% and 38.2%.
• N-America +18.3%, International +15.5% (currency neutral +19%), AWS +45.3% (currency neutral +46%).
• Online stores +12.5% (currency neutral +14%), Physical stores -2.7%, 3rd Party sellers +27.2% (currency neutral +28%), Subscription services (Prime etc.) +24.6% (currency neutral +26%), AWS (see above), Other (advertising etc.) +95.3% (currency neutral +97%).

Growth 2018

Take-aways: highest growth in US and RoW.

• US +32.9%, Germany +17.3%, UK +27.7%, Japan +16.1%, RoW +42.9%.
• Growth acceleration in UK probably on growth of Prime.
• RoW growth down from previous years. Still high on e-commerce expansion and AWS.
• US contribution up to 68.8%, Germany down to 8.5%, UK down to 6.2%, Japan down to 5.9%, RoW up to 10.5%.

Margins

Take-aways: international still negative. AWS by far most profitable. In absolute terms, AWS contributes almost the same as N-America.

• Gross margin 38.1%. Up from 17Q4 but down from 18Q3.
• EBIT margin 5.2%.
• N-America 5.1%
• International -3.1%
• AWS 29.3%

The case against Amazon: decreasing edge innovation and regulatory shortcomings

Forbes has possible remedies to curb Amazon, based on the case brought against it by Williams-Sonoma over copying furniture.

The complaint

• Abuses dominant platform
• monopoly leveraging (vertical integration) aimed at profits in ancillary business (not fending off rival e-commerce platform)
• has user data, uses search to steer to Amazon products
• advertises on Google with same keywords driving up prices and getting higher ranking
• Trademark infringement
• decreases edge innovation (rather than driving up prices)
• unfair competition (Lanham Act)

Possible remedies

• Expand IP protection; problem:
• could harm innovation
• Expand antitrust enforcement
• structural relief/separation (define core and prohibit going outside); problems:
• how to define core
• no tangible consumer injury
• takes too long
• nondiscrimination regime; problems:
• only for merchants seeking access to Amazon (unlike Williams-Sonoma)
• complaint-driven process is expensive for small merchants
• Other protection

Amazon's growing CPE portfolio: what's next - smart TV, smart city?

Amazon's Echo/Alexa event, 20 September 2018

New Echo devices:

• Auto: invitation only, $25; control car's infotainment system
• Wall Clock: $30; Bluetooth for alarms & reminders
• Input: $35, add Alexa to existing speaker
• Sub: $130, subwoofer
• Link: $200, connect to home stereo
• Link Amp: $300, amplifier

Renewed Echo devices:

• Dot: $50
• Plus: $150
• Show: $230, 10 inch HD screen, works with Ring doorbells, Skype for calls, Silk browser, Firefox, accompanying stand $30

Other devices:

• AmazonBasics Microwave: $60, with Dash Replenishment Services
• Amazon Smart Plug: $25
• Fire TV Recast: DVR, connects to Fire TV devices, with antenna for FTA TV; $230 for 2-tuner 500 GB version, $280 for 4-tuner 1 TB version
• Ring Stick Up Cam: $180, with Ring Alarm, wired or battery

New Alexa features

• TIDAL & Amazon Music new release notifications
• Email management
• Step-by-step cooking
• Location-based routines
• Smart home and home monitoring: Alexa Guard (security), Hunches (experiments with emotional awareness), Local Voice Control
• FreeTime on Alexa features: Routines, podcasts, new skills
• Partners with Microsoft for Skype (voice & video, SkypeOut, Bing) and Alexa (on Xbox), integration of Alexa and Cortana

Other

• Launches Wi-Fi Simple Setup for smart home

Takeaways

• Growing CPE portfolio; next: TV? try the smartphone again?
• Focus on smart home (full vertical integration), first step to smart car; next: smart city?
• Intermediate devices to control legacy electronics
• Alexa to rule them all
• Microsoft (i.e. non-Google, non-Apple, non-Facebook) partnership for VoIP (Skype) and search (Bing)

Amazon's expanding CPE portfolio

Amazon's recent launch event brought the following.

Hardware

• Echo Spot (with circular screen, Alexa, front-facing camera, built-in speaker, Bluetooth, audio-out), $130 in US (Dec 17); 2018 in UK, Germany
• New Echo, $100 (with Alexa, Dolby)
• Echo Plus, $150.
• New Amazon Fire TV, $70 in US (dongle; HDMI, 4K, HDR, Alexa Voice Remote, 60 fps, Dolby Atmos)
• Echo Connect, $35 (Alexa accessory, turns Echo device into hands-free speakerphone for existing home phone line (PSTN or VoIP); connects to home phone jack or VoIP adapter & to Echo device over WiFi)
• Echo Buttons, $20 for 2 in US, UK, Germany: device for playing games via Alexa; push to answer; Trivial Pursuit from Hasbr; Sounds Fun with Mike Epps; Buzzer Beater Basketball Trivia with Karl-Anthony Towns; Fourth Down Football Trivia with Philip Rivers; Full Count Baseball Trivia with Buster Posey from Ground Control; Beat the Intro from Musicplode)
• Plans more Alexa Gadgets.
• For all Echo devices: microphone array with second generation far-field technology.

Software & services

• Fire OS 6.0 (based on Android Nougat), first in 4K Fire TV
• Smart Home hub, built into the Echo Plus
• Alexa Calling, in all Echo devices
• Alexa Routines (customisable actions using a single voice command)
• Free outbound calling in US, Canada, Mexico (excl 911)

Milestones

• Alexa reaches 25k 3rd party skills
• 5k employees work on Alexa

The total hardware (CPE) portfolio

• Kindle: e-readers (and a tablet)
• Fire: tablets
• Fire TV: casting devices (STB, console, dongle)
• Dash: ordering devices
• Echo (and Tap): smart speakers
• Alexa Gadgets: Echo Buttons

-->

Facebook's CPE efforts are coming none too soon

According to rumors, Facebook will launch a range of CPE/hardware at next month's developer conference in San Jose (April 18-19), through its hardware division Building 8 (established at last year's conference).

It makes sense in a number of ways

• Trend. All internet majors (Google, Amazon, Microsoft, Apple, Facebook) engage in hardware development. It's a new market, they are flush with cash and they know precisely what their users do.
• Cross-selling. With the exception of Apple, selling hardware is aimed at growing sales in an adjacent area.
• Vertical intergration. As such, it is a form of vertical integration, capturing a larger part of the value chain.
• Diversification. Facebook's revenues are 98.0% from ads (2.0% from payments & other fees). Diversification, in light of the inevitable growth slow-down, is coming none too soon. In fact, the other majors are way ahead of Facebook in this respect.

Amazon's innovations in 2013

The Amazon innvation factory is spinning at full speed. Just take a look at the sheer number of 2013 press releases. They can be ordered in this fashion:

• New stores:
• US: Entertainment Collectibles, 50+ Active and Healthy Living, Art, AmazonSmile (dedicated store where portion of purchase price goes to charity)
• Canada: Beauty, Health & Personal Care, Toys & Games, Groceries, Auto, 
• Delivery:
• Physical:
• opening several large fulfillment centers across the US (1 in NJ, 2 in Cal, 3 in Texas, 2 in Florida, 1 in Maryland, 1 in Wisconsin, 1 in Connecticut, 1 in Poland)
• AmazonFresh (grocery delivery) trial in the US; expands to San Francisco
• plans Prime Air (aerial 30 minute delivery by drone)
• pop-up stores in malls
• Sunday delivery in selected cities for Prime members
• Combining physical and digital delivery:
• AutoRip (free MP3 versions of CDs and LPs bought from Amazon)
• Kindle MatchBook (low-cost Kindle editions of books bought on Amazon)
• Payments:
• launches 1c shipping for wine in the US (direct-to-consumer)
• credit card patent
• expands Amazon Coins to UK, Germany
• Amazon Coins can now be gifted
• Fire tablets can now be paid in installments
• Membership, subscriptions:
• Prime adds 1m subs in 3rd week of December
• Print:
• licensing deals with Valiant
• own imprints (Jet City Comics, Kindle Singles Interview, StoryFront)
• Day One (weekly digital magazine, 20 $/yr)
• Streaming music:
• Cloud Player for Ford cars; and for BMW and Mini
• for iPad
• Streaming video:
• content deals for Prime Instant Video members (A+E, PBS, CBS, FX, Scripps, MGM, NBCUniversal, Viacom, Disney, Warner Bros, Oceanhouse, Houghton Mifflin Harcourt, A24)
• distribution deals (Nintendo Wii); Lovefilm for Xbox One
• original content production
• launches Prime Instant Video in Japan
• all original content to be shot in 4K from 2014
• launches Storybuilder (digital notecards and virtual corkboard for writers)
• Games:
• licensing deals with EA
• Devices (Kindle):
• Paperwhite (gen 6 r-reader)
• Fire HD and Fire HDX (tablets).
• OS: Fire OS 3.0 (Mojito); Fire OS 3.1 for tablets
• Other:
• Amazon Coins (virtual currency for apps, games, in-app purchases)
• Login with Amazon (single sign-in)
• Amazon Storyteller (turns script into storyboard)
• Second screen: X-Ray for Movies (based on IMDb)
• Kindle Worlds (UGC based on licensed characters and stories)
• Mayday Button (free live, on-device tech support for Kindle Fire users)
• Login and Pay with Amazon (for partners sites)
• Amazon Source (wholesale for book stores)
• Amazon Web Services (AWS):
• many developer services
• launches WorkSpaces (virtual desktop)
• expands to China
• Acquisitions:
• IVONA Software
• Goodreads (books social net)
• TenMarks (web-based math programs)
• Liquavista (screen tech)
• Evi (speech recognition)
• GoPago (partly: tech and team only)

The unsurprising conclusions:

• Innovation at break-neck speed. For physical and digital goods: print, music, video and games. Focus is on e-books and streaming video. So, expect more streaming audio (music subscription) and games?
• Infrastructure provider for its own but also wholesale (developers, 3rd-party sellers).
• Growing list of services and subscription-based services, many around Amazon Prime. On last count, there were 215 mln active Amazon customers and 10 mln Prime subs.
• Devices are limited now, possible additions: smartphone (project Smith), STB (code name Cinnamon), gaming console, etc.
• Expansion focuses on existing markets (Canada, Australia, Mexico). When will a new market be added?
• More acquisitions coming?
• Streaming audio service?
• Intel's connected STB unit Intel Media?
• Non-US e-commerce company?

WEB SERVICES://Amazon: een virtuele virtuele winkel

Amazon.com is de grootste ‘virtuele’ winkel ter wereld. De laatst gemeten kwartaalomzet was USD 2.3 miljard. Wal-Mart is de grootste van de ‘echte’ retailers en zet per kwartaal USD 84 miljard om.

Het verschil geeft vooral aan dat er nog ruimte genoeg is voor Amazon om te groeien. Voorlopig bevestigen de cijfers dit: het jongste omzetgroeicijfer was 24%. Sterker nog, de afgelopen vier kwartalen is er zelfs sprake van versnelling.

Weinig bedrijven kunnen een dergelijke groei aan zonder de kwaliteit van de dienstverlening eronder te laten lijden. Denk aan uw plaatselijke kabelbedrijf. Amazon daarentegen kreeg het voor elkaar eerder deze maand te worden uitgeroepen tot de nummer 1 in ‘Customer Service’ door de Amerikaanse branchevereniging van detailhandelaren.

En dat betekent maar één ding: Amazon.com heeft een superieure infrastructuur. Zo superieur zelfs, dat het bedrijf ruimte ziet voor het aanbieden van diensten aan derden.

Heb je rekenkracht of opslagcapaciteit nodig voor je nieuwe internetbedrijf? Schakel Amazon in.
Wil je een webwinkel bouwen? Schakel Amazon in.
Heb je al een webwinkel maar wil je de distributie uitbesteden? Schakel Amazon in.

In financiële termen zou je kunnen zeggen dat er ‘leverage’ plaatsvindt op de bestaande infrastructuur – de meerkosten zijn verwaarloosbaar maar het levert wel inkomsten op. Een nieuwe, zij het kleine, inkomstenbron dus. Daarnaast kan Amazon op deze manier vrienden maken, want de concurrentie neemt toe. Zo ontstaat een ‘ecosysteem’ van bedrijven die samenwerken.

Maar er is nog een mogelijkheid. Amazon zou op een goed moment zijn infrastructuur (gegroepeerd onder de noemer Amazon Web Services) en diensten kunnen splitsen. Denk aan de NS, waar Pro Rail het netwerk beheert en de NS de diensten levert. Daardoor zou Amazon.com een virtuele virtuele winkel worden, die gebruikmaakt van de infrastructuur van Amazon Web Services.

WEB SERVICES://De strategie van Amazon.com

Op BusinessWeek Online een uitstekend artikel over de Web Services van Amazon.com.
Ik heb er al verschillende keren aandacht aan besteed. De markt lijkt skeptisch (beleggingstechnisch is dat vaak interessant) omdat voorlopig de omzetbijdrage verwaarloosbaar is, terwijl er wel kosten zijn. Bovendien leidt het de aandacht van het management af, zo gaat de redenering. Er is geduld nodig.
Overigens wordt ook vaak gesteld dat Amazon.com veel te duur is; het is een retailer net als Wal-Mart. Echter, Wal-Mart heeft momenteel bijna geen omzetgroei, Amazon levert double-digit. En bij die expansie zijn ze ook nog in staat te worden uitgeroepen tot '#1 in Customer Service'.

Het gaat om het beschikbaar stellen van rekenkracht, data-opslagcapaciteit, software-codes, maar ook om retaildiensten zoals het maken van een website en het verzorgen van de verzending (fulfillment). Lees verder het artikel. Hoe moet je deze web services nu zien?

• Een potentiele nieuwe inkomstenbron.
• Leverage op bestaande infrastructuur.
• Een ecosysteem van partners creeren. In het artikel verschijnt de benaming 'army of allies', om gezamenlijk opkomende concurrentie het hoofd te bieden.
• Je zou op een goed moment kunnen verdedigen dat Amazon moet splitsen, vergelijkbaar met 'structural separation' in de telecom (of bij de NS!): een netwerkbedrijf (wholesale-diensten) en een services-tak (retail). Het netwerkbedrijf heeft de infrastructuur (distributiecentra) en het servicesbedrijf heeft de website met alle toeters en bellen. Dan zou de aandacht van het management (zie boven) uiteindelijk toch nog goed besteed zijn! In het artikel is sprake van een 'digital dominant utility' (netwerk) en dat combineert mooi met de topklasse dienstverlening (zie bovengenoemde prijs). Overigens heb ik eerder gewezen op Nicholas Carrs's suggestie in deze richting (14 maart!).

RESULTATEN://Vooruitblik Amazon.com

• Consensus 06Q3: Omzet $2254m (guidance 2170-2330); operationeel $33m (guidance 7-42), zonder optiekosten $71m (guidance 45-80); WPA 3 cent)
• Consensus 2006: Omzet $10387m (guidance 10150-10650); operationeel $363m (guidance 310-440), zonder optiekosten $483m (guidance 430-560), WPA 42 cent.
• Consensus koersdoel: $31.50, een neerwaarts potentieel van 3%.
• Focus: (1) De cijfers maar vooral de geactualiseerde targets. Let op: het kerstseizoen komt eraan. (2) Opmerkingen over Amazon Unbox, de video/tv download service. Kreeg aanvankelijk negatieve pers. (3) Is de capex uitgetopt? (4) Hoe doen de nieuwe winkels het (Toy & Baby, Groceries)?
• Marktperceptie: (1) Opkomende concurrentie, ook van eBay (Shopping.com, eBay Express). (2) Hoog investeringsniveau. De capex over de afgelopen 12 maanden stijgt al 13 kwartalen en bereikte in 06Q2 zijn voorlopige hoogtepunt van $235m. De FCF over de afgelopen 12 maanden daalde in 06Q2 naar $375m, na een top van $529m in 05Q4. (3) Dalende marges door free shipping, product mix verschuivingen (goedkope electronica) en nieuwe winkels met lage marges (groceries).
• Ontwikkelingen 06Q3: (1) Allereerst cijfers over Q2 onder verwachting. (2) Lancering van diverse nieuwe stores; CDs en DVDs on demand; Amazon Unbox; diverse nieuwe web apps. (3) Een terugval in retail spending in de VS in september. (4) Start van inkoop van eigen aandelen (voor $500m in 24 maanden). (4) Amazon is gestart met het plaatsen van advertenties van bedrijven die geen spullen op Amazon verkopen (o.a. Ford en Fidelity). Dat is de lucratieve Google/YouTube markt: het monetiseren van inventory. (5) Geruchten over een e-book reader (codenaam Kindle).
• Ontwikkelingen na 06Q3: (1) IBM heeft Amazon gedaagd wegens vermeend inbreuk op patentrecht. (2) Gisteren lanceerde Amazon.com (VS) een nieuwe winkel (auto-onderdelen).