March 28th: An Amazon Chronicles Event

In Philadelphia, hosted by Pilcrow House

Greetings friends,

This will be a quick update. I’m writing a long overdue note to tell you about an upcoming event, in Philadelphia, on Thursday, March 28th. It’s going to be a dinner party, basically, but with me as the guest of honor, talking about all things Amazon. Here are the details:

Thursday, March 28 2019

6:00 PM — 9:00 PM

Pilcrow House welcomes Tim Carmody, publisher of the Amazon Chronicles newsletter and former writer for WIRED and The Verge.

Join us for an intimate three-course dinner on the most important company of our lifetimes: Amazon. This event is an intimate private dinner featuring structured and unstructured conversation with one of the internet’s best thinkers on Amazon + technology and culture.

You WILL enjoy this event if any of these apply to you:

  • You want to better understand the complicated strategy of Amazon

  • You are concerned about how Amazon is reshaping our cities

  • You breathlessly followed the HQ2 sweepstakes

  • You want to spend a fun evening and lively conversation discussing an important issue

Tickets for the event cost $89; that includes dinner and drinks at The Twisted Tail, one of Philly’s best restaurants and bars, and that’s where most of the money’s going.

Those of you who know me know how special the city of Philadelphia is to me; it’s where I lived for nine years, and where both of my sons were born, and it’s an honor to be asked back to give a talk about the thing I’m thinking about these days as much as I’ve ever thought about anything. I can promise that for my part, everyone who can come will get their money’s worth.

It also sets up an exciting precedent of, maybe not this elaborate, but me coming to various cities around the country (around the world?) and doing talks on Amazon and meeting Amazon Chronicles readers. I think that’s very cool!

So please, if you’re in Philadelphia or adjacent to it, consider checking out this event. We’re going to have a great meal and a fun time. Sean Blanda from Pilcrow House is putting together a really exciting series of speakers and he’s trying all sorts of different formats to find the one that clicks best with audiences. This is the first full meal format, and I hope it’s a success.

See you next week with more Amazon news,

Tim Carmody

https://tim-carmody.glitch.me

Amazon Keeps Making Its Basics Better

And that's a problem for anyone who wants to partner with them

Kind of a chill week for Amazon. No lawsuits from top executives, no stunning legislative revolts in Arlington, no breakthrough product announcements. But that doesn’t mean Amazon wasn’t up to anything. Let’s start with the three press releases that all hit yesterday, March 20th, because they’re seemingly basic, but actually really interesting.

  1. MLB.TV now available on Prime Video channels

Sports TV gets you closer to “real TV.” It’s live, it’s exciting, it’s something that people are used to accessing on either network or cable television; it’s irreplaceable. Look at last week’s deal with the Yankees to buy the YES Network to stream regional baseball games in New York. I doubt Amazon is going to try to pull this in every market, but its interest in sports programming is obvious.

What’s more, Amazon’s proven that by surrounding a core digital video experience (Amazon Prime Video) with premium add-ons (like Major League Baseball and NBA League Pass, HBO and Showtime, and kids’ programming), you can create a meaningful alternative to the cable package with a straightforward business model (skim the subscription prices of the add-ons). It’s pretty much exactly what Apple is going to be introducing at their event on Monday, if Peter Kafka is to be believed (and I usually believe Peter because he’s so often right).

  1. All-new Kindle now with an adjustable front light for just $89.99

Amazon doesn’t really have any meaningful competition left in in e-readers or e-bookstores any more, much to the detriment of the overall market, but at least they’re still working on trying to make their flagship hardware product better. A front light adds a lot to an e-reader, enough that I would call it an essential feature of the product, and Amazon clearly agrees. This also solves a problem in that, provided the battery holds out, Kindles last essentially forever, so you need something to make people upgrade or update their devices. There are not as many new-to-e-reader buyers out there as there once were; almost everyone who is going to own a Kindle already owns a Kindle.

But note also that while the entry-level Kindle is cheap, it’s not that cheap. There was a future in which the price of the Kindle dwindled down to virtually nothing, as the device became a loss leader to sell e-books and other ancillary services. The Fire TV Stick is almost like this; it retails at $40, but over the holidays you can get them for almost nothing. The Kindle never became that, and it’s kind of a shame. The screens and devices are cheap; the money is in the books. But I think it may be worth more to Amazon to treat the e-reader and its contents as an object worth protecting and investing in. At any rate, that’s the path they’ve chosen, and they show no signs of deviating from it.

  1. Amazon kicks off spring with the launch of Belei, its first dedicated skincare line

This was one of those announcements you could feel coming, like rain on a March day. Coresight Research had delivered a report on March 11 on Amazon’s beauty line offerings, noting that Amazon was America’s second-most shopped retailer for beauty products (Walmart is first), that makeup and skincare were the largest categories by number of products, and generally that the market was primed to boom if more products hit the shelves. Meanwhile, Amazon had already put forward a skincare company from its brand accelerator program called Fast Beauty Company, and announced an Indie Beauty Shop for independent beauty brands. If third-party sellers aren’t going to rise to meet the demand, then Amazon surely will.

Belei, while branded to compete with bigger sellers, is definitely in the Amazon Basics mold; it’s inexpensive, with all products $40 and under, and (from what I understand, I confess this is not my most expert field) it’s hitting a broad range of sweet spots in everyday skin care.

“Our goal is to help customers spend less time and money searching for the right skincare solutions,” said Kara Trousdale, Head of Beauty for Private Brands on Amazon.com. “We took a simple, no-nonsense approach when creating Belei, developing products with ingredients that are both proven to deliver results and also offer customers great value for the quality.”

This is, however, the kind of move that sometimes gets Amazon in trouble; on the one hand, encouraging name brands to come and sell direct to customers in its third-party marketplace, while also selling and promoting its own products as a first-party seller. There’s a new study that suggests that third-party products actually do pretty well compared to Amazon-branded ones. Will skincare companies raise a stink if they feel Amazon is undercutting them? Is the whole thing actually an attempt to elevate the entire space? [Puts chin in hands] Let’s find out.

Your Must-Read

This is a fun one. Zack Kanter takes on a question I often ask here at Amazon Chronicles: What is Amazon? (It also doubles your money by answering the related question, “What is Walmart?)

Whereas a traditional retailer had to weigh tradeoffs within finite shelf space, an online retailer could display page after page of items with near-zero marginal cost for more items. Instead of choosing which items to stock, Amazon could let its customers do so – it would add all sorts of items to its catalog, measure web traffic for each item, and bring the items into stock that seemed most likely to sell.

Bezos, in other words, wanted to build an unbounded Walmart. By removing the constraint of geography – and therefore the local economy – and by adding search functionality, the new formula became simpler: the more SKUs it added, the more items would be discovered by customers; the more items that customers discovered, the more items they would buy. In this world of infinite shelf space, it wasn’t the quality of the selection that mattered – it was pure quantity. And with this insight, Amazon did not need to be nearly as good – let alone better – than Walmart at Walmart’s masterful game of vendor and SKU selection. Amazon just needed to be faster at aggregating SKUs – and therefore faster at onboarding vendors.

This innovation comes at a price though:

Platforms became Amazon’s answer to every growth obstacle it encountered. Platforms became part of the algorithm. Sellers are limited by access to capital? Launch Amazon Lending. Customers can only buy things when they are in front of their computer or phone? Build Echo. UPS and FedEx can only deliver within 24 hours? Launch Amazon Flex and Amazon Logistics.

Amazon assembled a massive machine to deploy its algorithm over and over, and the momentum was unstoppable. Every barrier in its path was solved with a platform – until one of these platforms led Amazon to a catastrophic mistake….

Instead of solving the root cause of the discovery problem, Amazon layered a solution on top: ads. This would normally be a reversible decision, but the extraordinary amount of ad revenue it is generating will likely prove impossibly addictive for a company with Amazon’s appetite for capital. One way of thinking about this is that the $8 billion generated by Amazon Advertising fuels roughly ⅓ of Amazon’s entire R&D budget.

This may seem like a minor footnote in the grand picture of Amazon, but it is an absolutely devastating misstep for Amazon’s retail business. This isn’t “just” search results; search results are the entire driver of Amazon’s retail engine. Remember that in the world of infinite shelf space, the ranking algorithm is practically the entire merchandising strategy. Organic, customer-centric product rankings – the strategy that brought Amazon to $250 billion in retail revenue – has been permanently distorted. And everyone is praising them for it.

Ads become the platform solution to the problem of an unbounded virtual store. But the problem is that advertising has its own logic, and that logic is not, strictly speaking, one of customer satisfaction. “The problem with Sponsored Products is that sponsored listings are not actually good for customers – they are good for sellers; more specifically, they are good for sellers who are good at advertising, and bad for everyone else,” Kanter writes.

Amazon’s other solution to the problem of an unbounded virtual store, with products of varying quality, is to offer its own product lines, using the only mechanism it has to promote them over products that aren’t running a profit: ads!

Meanwhile, Amazon has not so quietly turned into the third-largest advertiser on the web, and the fastest growing, even as its share of the online retail market has grown.

What’s so elegant about this argument is how Kanter both shows how product advertising has the possibility of eroding everything that Amazon has built, while also showing that advertising is a necessary conclusion to everything that Amazon has built. Like Oedipus being the very murderer he’s looking for, it’s both tragic and tidy.

The Future of the Cloud

AWS CEO Andy Jassy Drills Down On Cloud Adoption And Amazon’s Culture.

“Most applications in five to 10 years will be infused in some way with machine learning and artificial intelligence,” Jassy said. “Companies will work at different layers of a stack. You’ll have expert machine-learning practitioners that will build models for you on the frameworks. You’ll have everyday developers and data scientists that use this abstraction which we have that’s called SageMaker, which is really a managed service to build, train, tune and deploy machine-learning models. We have a lot of customers who will be able to do what they typically think of as AI services that closely mimic human cognition—so text to speech, speech to text, translation across a lot of languages, natural language processing—so you don’t have to read and figure out what’s in every piece of corpus text. You can kind of get meaning from something in a machine-learning fashion—the ability to recognize video and what’s in it, images and what’s in it.

“A second technology that we’re pretty excited about is what people call IoT, the Internet of Things or edge computing,” Jassy said. “When we think about 10 years from now and when we think about hybrid, we don’t think the on-premises part is going to be in data centers. We think the on-premises part will be billions of these devices that sit at the edge—in our houses, in our offices, in factories and oil fields and agricultural fields and planes and ships, and automobiles—everywhere. These devices have relatively little CPU and relatively little disc, and so the cloud becomes disproportionately important in implementing all of those devices.”

(A lot of other companies in the cloud are making a play that they’re going to be better than Amazon at one or both of these things, either AI or the edge. So Jassy’s ability to both reassure customers that yes, security is their number one priority, that they’ll be able to do the current things they do more efficiently in the cloud, as well as having a vision for where all this cloud and hybrid cloud computing is heading, is very necessary and powerful.)

Amazon Is Not A Great Place to Work

Here is a triptych in the never-ending series about how difficult it is to work at Amazon, and how few remedies Amazon workers have when something goes wrong.

KUOW also has an interview with GeekWire’s Taylor Soper about what it’s like to work as one of the casualized last-mile drivers for Amazon Fulfillment.

You don't know what you'll be delivering when you sign up for a shift. You don’t know until you get to Amazon’s facility. You just know where you’re going and the general area. Amazon tries to put all the deliveries into one area, so you’re not driving all over the place…

When you pour 41 packages in your car, you don’t know which one’s first and which one’s last, and then when you get to a house, you’re just kind of digging through and looking at the labels. I didn’t know what I was doing.

When you refresh the Flex app, Amazon is also changing the price of what the job is worth. It seems that Amazon's algorithm is calculating every few minutes what demand they need and how many drivers they'll need out delivering packages.

Very few companies continually remind us it is no longer the 20th century as much as Amazon does. We are dealing with a very different business in a very different world.

Don’t Miss These

I Didn’t Know That

This is one of those news items that you know is important, but you have a hard time explaining why? AWS is adopting chips from NVIDIA. Why does this matter? See Andy Jassy above, talking about AI in the cloud and at the edge. Then read this:

The NVIDIA Jetson platform offers AI at the edge with high-performance and power-efficient computing. Applications include autonomous machines and smart cameras for industries such as retail, manufacturing, agriculture and more.

AWS IoT Greengrass seamlessly extends AWS to edge devices, including machine learning inference, so they can act locally on the data they generate while still using the cloud for management, analytics and durable storage. Jetson-powered devices perform inference at the edge to take near real-time action using AWS IoT Greengrass. Data is then sent back to machine learning services such as Amazon SageMaker to improve model accuracy.

TL: DR — this is how all of that is going to work.

Bezos Watch

This week, Jeff Bezos again hosted the private (read: no press) MARS conference devoted to Machine learning, Automation, Robotics, and Space in Palm Springs, California. The only way we know what went down are from the tweets trickling out from attendees.

Pretty cool hobbies that wealthy, wealthy man has. When it comes to this one thing, I can’t say I’d be doing anything differently if I were in his place.

That’s it for this week at The Amazon Chronicles. If you liked it, please pass it on to a friend. If you loved it, please consider becoming a supporting member. Thanks for reading.

Tim Carmody

https://tim-carmody.glitch.me

There Are Only Two Amazon Stories That Matter

It's the monopoly and the marketplace

What exactly is Amazon?

Amazon is an online retailer (you might say the online retailer) and a logistics company built to support that retail business.

It’s many other things as well, but at its core, that’s what Amazon is.

In a different world, one that developed along the trajectory of the personal computer and the open web of the late 1990s, when Amazon was beginning to thrive, one might imagine that this would be all Amazon is. And by all likelihood, this would be a very successful company. Maybe as successful as Amazon is today.

We do not live in that world.

That was driven home by Elizabeth Warren, Senator of Massachusetts and Democratic candidate for the Presidency, in what was at least the second most consequential Medium post in Amazon’s history.

In “Here’s how we can break up Big Tech,” Warren singles out Amazon by name, along with Facebook and Google, as an example of a still-young web company that’s exercising monopoly power over the marketplace. Amazon needs to be regulated as a utility, Warren argues. And Amazon needs to be unwound, its recent mergers undone, parts of its company spun off or dissolved.

Here are Warren’s examples of where the tech giants have run afoul of the principles of antitrust law. I’m going to focus on the points where she names Amazon.

America’s big tech companies have achieved their level of dominance in part based on two strategies:

  • Using Mergers to Limit Competition… Amazon has used its immense market power to force smaller competitors like Diapers.com to sell at a discounted rate… Rather than blocking these transactions for their negative long-term effects on competition and innovation, government regulators have waved them through.

  • Using Proprietary Marketplaces to Limit Competition. Many big tech companies own a marketplace — where buyers and sellers transact — while also participating on the marketplace. This can create a conflict of interest that undermines competition. Amazon crushes small companies by copying the goods they sell on the Amazon Marketplace and then selling its own branded version…

Here is Warren’s proposed remedy:

[M]y administration would restore competition to the tech sector by taking two major steps:

First, by passing legislation that requires large tech platforms to be designated as “Platform Utilities” and broken apart from any participant on that platform.

Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”

These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties…

Amazon Marketplace, Google’s ad exchange, and Google Search would be platform utilities under this law. Therefore, Amazon Marketplace and Basics, and Google’s ad exchange and businesses on the exchange would be split apart.

And:

Current antitrust laws empower federal regulators to break up mergers that reduce competition. I will appoint regulators who are committed to using existing tools to unwind anti-competitive mergers, including:

  • Amazon: Whole Foods; Zappos

My first reaction to Warren’s post is this: any attempt to designate and regulate Amazon’s marketplace as a platform utility is much more serious and much more relevant to antitrust issues than any attempt to forcibly spin off Whole Foods, Zappos, or Amazon Basics. Whole Foods in particular is really at the periphery of where Amazon’s antitrust problems lie. It’s not clear to me how or why it’s included here other than that this is a political document and it’s pretty easy to make political hay out of the fact that Amazon owns Whole Foods. Relative to Amazon as a whole, Whole Foods is unpopular, Amazon’s acquisition of Whole Foods was unpopular, and therefore any attempt to unwind it makes the corresponding plan seem slightly more popular.

With Amazon Basics, Warren is on more solid ground, even if she is attacking something that is quite common practice among all retailers. Amazon really does sell its own goods on its extremely popular marketplace, and those goods arguably have an unfair advantage over their competitors. What’s more, Amazon can use its data on what’s been sold in its marketplace to create its own competing products, and/or buy the companies that are selling well. There’s nothing particularly digital about this strategy, though; Wal-Mart and Kroger and Sears and Target have done the same thing for years. You have to cast a wider net and do something other than call something a platform utility in order to stop this anti-competitive practice; otherwise, you give the brick-and-mortar retailers a competitive advantage.

The weird cases are the ones that are in between. What about the Amazon products that Amazon offers on its marketplace that have no exact competitors, because the products offer unique access to Amazon’s digital marketplace? What about the Kindles, the Kindle Fires, the Kindle Fire TVs, and the Echos? Are these products spun off? Are they required to offer equal access to other digital marketplaces? Are their competitors required to do the same?

Here is really the original sin of digital marketplaces and monopolistic lock-in. And it’s a sin Amazon participates in but didn’t create.

It really starts in this generation with Apple and iTunes. Apple had a series of very popular post-PC devices, beginning with the iPod and culminating in the iPhone, iPad, and Apple TV. If you wanted to buy media for use on these devices, you had to use Apple’s marketplace, iTunes. If you wanted to sell software for use on these devices, you had to use Apple’s marketplace, the App Store.

Once that example was set, every other company hoping to sell digital media and software for this new generation of devices had to create their own line of devices, their own marketplaces, and in some cases, all new categories of devices and types of software, and all-new business models to entice customers to come along. That’s how you get the Kindle, the Kindle e-bookstore, the Echo, the Fire TV, Amazon Prime Video, the Kindle phone, the tablets, the Android app store, and every other Amazon product that’s come along. It’s an attempt to get around the fact that Apple and Samsung make all the hardware, Google handles all the searches, Google and Microsoft make all the rest of the software, and Facebook manages all the private social transactions.

Amazon devices like the Kindle or the Echo or the Fire TV are not really devices. Amazon devices are stores. They are points of entry for Amazon’s marketplace. In particular, they are points of entry for the sections of Amazon’s marketplace where it is the most dominant and faces the fewest competitors from traditional brick-and-mortar sellers: digital media goods.

You could imagine a world in which Apple, Samsung, Sony, Huawei, LG, Vizio and other hardware manufacturers were forced to give up control of their digital marketplaces and allow consumers to choose whichever retailer they wished to provide media and other marketplace services for their smartphone, smart television, PC, e-reader, and other devices.

That’s probably a world where Amazon is not in the hardware business at all. It’s a world where Amazon is happy to divest its marketplace from its retail goods division because Amazon would be the marketplace to the world. All Amazon wants to do is sell you everything on any device it can. You can’t convince me Amazon wouldn’t thrive in that universe.

You also can’t convince me that Amazon wouldn’t come under serious scrutiny for its dealings with vendors, its attempts to pressure them to sell to Amazon at the lowest possible price or forego access to the platform. You can’t convince me Amazon’s dominance in digital and printed books wouldn’t become an issue under a more robust anti-monopoly regime.

But that’s not what we’re talking about. We’re talking about USB cords and batteries. We’re talking about Whole Foods. And while these may be easier issues to grasp for primary and caucus voters, they don’t scratch the surface of the monopoly issues currently facing major tech companies.

So you can come to one of two conclusions:

  1. This isn’t serious; Warren’s plan is flawed.

  2. This is only the beginning; Warren’s plan is the foundation for something bigger.

A lot of people are coming down on the former. I come down on the latter. I think this is headed somewhere that I don’t think many of us will fully recognize when it’s done.

The best document here remains Lina M. Khan’s “Amazon’s Antitrust Paradox.” Here are some relevant excerpts:

My argument is that gauging real competition in the twenty-first century marketplace—especially in the case of online platforms—requires analyzing the underlying structure and dynamics of markets. Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive process itself. Animating this framework is the idea that a company’s power and the potential anticompetitive nature of that power cannot be fully understood without looking to the structure of a business and the structural role it plays in markets. Applying this idea involves, for example, assessing whether a company’s structure creates certain anticompetitive conflicts of interest; whether it can cross-leverage market advantages across distinct lines of business; and whether the structure of the market incentivizes and permits predatory conduct…

Focusing antitrust exclusively on consumer welfare is a mistake. For one, it betrays legislative intent, which makes clear that Congress passed antitrust laws to safeguard against excessive concentrations of economic power. This vision promotes a variety of aims, including the preservation of open markets, the protection of producers and consumers from monopoly abuse, and the dispersion of political and economic control. Secondly, focusing on consumer welfare disregards the host of other ways that excessive concentration can harm us—enabling firms to squeeze suppliers and producers, endangering system stability (for instance, by allowing companies to become too big to fail), or undermining media diversity, to name a few. Protecting this range of interests requires an approach to antitrust that focuses on the neutrality of the competitive process and the openness of market structures…

Amazon controls key critical infrastructure for the Internet economy—in ways that are difficult for new entrants to replicate or compete against. This gives the company a key advantage over its rivals: Amazon’s competitors have come to depend on it. Like its willingness to sustain losses, this feature of Amazon’s power largely confounds contemporary antitrust analysis, which assumes that rational firms seek to drive their rivals out of business. Amazon’s game is more sophisticated. By making itself indispensable to e-commerce, Amazon enjoys receiving business from its rivals, even as it competes with them. Moreover, Amazon gleans information from these competitors as a service provider that it may use to gain a further advantage over them as rivals—enabling it to further entrench its dominant position…

Given Amazon’s growing share of e-commerce as a whole, and the vast number of independent sellers and producers that now depend on it, applying some form of public utility regulation could make sense. Nondiscrimination principles seem especially apt, given that conflicts of interest are a primary hazard of Amazon’s vertical power. One approach would apply public utility regulations to all of Amazon’s businesses that serve other businesses. Another would require breaking up parts of Amazon and applying nondiscrimination principles separately; so, for example, to Amazon Marketplace and Amazon Web Services as distinct entities. That said, given the political challenges of ushering in such a regime, strengthening and reinforcing traditional antitrust principles may—in the short run—prove most feasible.

Once you open up Amazon’s marketplace and Amazon Web Services (which Warren does not talk much about) to being reframed as platform utilities, and capable of regulation as such, then you start to broach questions not just about the ways that Amazon competes for sales of discrete retail goods like batteries and USB cords, or freely delivered high-end groceries, but also for immaterial goods like data use and digital video. You start to map the full range of marketplaces in which Amazon is competing, and you begin to see that that range is enormous.

And all of this rests on the fact that Amazon is an online retailer, and Amazon is a logistics company built to support that retail business. In dominating the former, Amazon began to dominate the latter. And the latter is where the examples start to get a lot more difficult to explain, but also get a lot richer and more plentiful.

Again, you can draw two conclusions from this; Warren is naïve, or Warren is up to something. I think she’s up to something. Already, by holding Apple back from her initial example set, she’s shown that she has a bigger plan than she’s spelled out in that blog post. It’s up to her own willingness to elaborate on that plan and the politics that she’ll need to win in order to get there to determine just how far down the road she gets to go.

What if you broke off the retailer from the logistics company? What if you broke off the marketplace from physical goods from the marketplace for virtual goods? What if you put a robust regulatory regime charged with policing any and all attempts at predatory pricing? Any of these approaches would pose much more existential problems for Amazon than spinning off Whole Foods or Amazon Basics. And all of these approaches are in play once you open up the “Amazon and antitrust” box.

This is real; it’s not going away. I think there is political support across the spectrum for a hard look at Amazon, even though Amazon customers generally like what they’ve been getting from the company. I think Amazon is worried, Amazon is spending money, and Amazon is right in both of those things.

If you want to read “Elizabeth Warren is wrong to talk about breaking up these companies” takes, Mike Masnick has a pointed one at Techdirt, and Ben Thompson has a more nuanced one behind the paywall at Stratechery. From Thompson’s “Where Warren’s Wrong”:

Then again, perhaps it is best for Senator Warren’s argument that her article never does explain how these companies became so big, because the reason cuts at the core of her argument: Google, Facebook, Amazon, and Apple dominate because consumers like them [emphasis added]. Each of them leveraged technology to solve a unique user needs, acquired users, then leveraged those users to attract suppliers onto their platforms by choice, which attracted more users, creating a virtuous cycle that I have christened Aggregation Theory. Specifically…

Amazon leveraged the Internet to achieve a dominant strategy of offering superior selection and the lowest price, starting with books. This gained Amazon customers, which gave the company leverage to bring on first other media like CDs and DVDs, which gained them more users, and later goods of all types; Amazon then launched the Amazon Marketplace, through which suppliers could come onto Amazon directly. Why? Because that is where demand was.

Khan’s written persuasively about how antitrust regulators need to take a more comprehensive view on competition than whether it immediately benefits consumers, or whether consumers choose one platform or another, but there’s another element in play here.

I’ve written before about how customers love Amazon, in the same way that customers love Apple. This is the brake on anti-Amazon sentiment, whether it comes from the left or the right. Already with HQ2, that love has been put to the test; the antitrust push will put that love to the test again.

See, There’s the Marketplace, and Then There’s the Marketplace

The second story about Amazon that matters this week is the little three-step dance Amazon did with its vendors this week. First, Amazon declined to renew many of its vendors’ contracts, encouraging them to sell in Amazon’s third-party Seller Central marketplace instead. Then, Amazon reversed itself, renewing many of its contracts but asking its vendors to participate in its “brand registry” product authenticity program. Finally, Amazon ended its longstanding practice of asking for most-favored nation clauses from its vendors, which guaranteed that vendors could not sell their goods at a lower price at other retailers.

Let’s look at all three of these moves from the point of view of antitrust. First, access to Amazon’s retail marketplace is driven by a fundamental asymmetry. The relationship is not now nor does it have any reason to be at the discretion of the vendor. The relationship is at the discretion of Amazon. Amazon has tremendous purchasing power, and it is not loathe to use it.

Amazon can exert pressure in any direction it wishes. It can punish brands for selling to customers directly on the third-party marketplace, pushing them from Seller Central to Vendor Central, which it did in November. Or it can do the opposite, as it’s done this month. None of this would be possible if Amazon had either more transparent and consistent policies with its vendors, or if it did not offer access to such a huge marketplace of potential buyers. The message to vendors is not “you are cherished partners.” It is “we can do whatever we want with you.” It doesn’t feel like an open marketplace. It feels like a place where Amazon’s whims are law.

Now, if Amazon is going to take such a heavy hand with its vendors, it has to have a good reason. That reason has to resonate with brand partners and consumers alike. It has to cost the company something, and it has to offer the company a strategic advantage. Protection against counterfeit goods offers all of these things. It also outflanks potential competitors like StockX and other companies whose differentiating claim is offering authenticated goods. Amazon has to use its monopoly power for good, and if offering lower prices, whether through good retail practices or predatory pricing, is no longer good enough, offering value through another channel like authentication will have to do.

Finally, Amazon already stepped away from its price parity requirements in Europe after regulators raised issues with the practice. Here in the United States, Senator Richard Blumenthal of Connecticut had already asked the FTC and Justice Department to investigate Amazon’s use of price parity as well.

“Amazon’s wise and welcome decision comes only after aggressive advocacy and attention that compelled Amazon to abandon its abusive contract clause,” Blumenthal said Monday. “I remain deeply troubled that federal regulators responsible for cracking down on anti-competitive practices seem asleep at the wheel, at great cost to American innovation and consumers.”

Not everything Amazon does in part to keep prices low for consumers fits the description of competitive behavior. Antitrust regulation in the United States has, for the most part, assumed that lower prices equals good for consumers equals good competition. That is not necessarily true throughout the world, and it is no longer settled fact in the United States.

Everything Amazon does, just like Google, Facebook, Apple, Microsoft, and other online giants, is going to be subject to additional scrutiny from this point going forward. Many of the decisions the company makes will be done to avoid raising questions and inviting further inquiries about antitrust implications. It is already a very different world that Amazon is navigating, and no one in Iowa or New Hampshire has yet cast a vote.

More Things to Read

As always, there was lots of other Amazon news this week. I chose to focus on these two stories because I think they paired well and taken together, have the biggest impact on Amazon as a whole. For the rest, please enjoy these selected links, each of which could have merited a whole post or at least a healthy paragraph of their own:

That’s it for this week at The Amazon Chronicles. If you liked it, please pass it on to a friend. If you loved it, please consider becoming a supporting member. Thanks for reading.

Tim Carmody

https://tim-carmody.glitch.me

Amazon Is A Marketplace For Information

or, how disinformation and double-dealing ruin what makes Amazon work

Unlike previous weeks of this newsletter, there wasn’t a single dominant storyline about Amazon this week. Except maybe this one: an ongoing thread about disinformation. I like this story because it reminds us that despite all the heavy lifting Amazon does, despite the trucks and boats and shipping containers, despite its forays into groceries or robotics, it’s still fundamentally a purveyor of information, working in a marketplace where the primary currency is trust.

Here’s the problem. Amazon has a lot of anti-vaccination content on its site. A lot. Books, videos, and more. In search results, and in sponsored posts. Facebook and YouTube have already been through the wringer over this; this week, it was Amazon’s turn.

After CNN’s story, Congressman Adam Schiff wrote an open letter to Amazon on Friday asking the company to consider whether medically inaccurate information violated its terms of service. In response, Amazon pulled Vaxxed and other anti-vaccination documentaries from its Prime service for free streaming. At least five documentaries which had been available on Prime were not available to stream by the end of the day.

This doesn’t mean everything’s now hunky-dory. The Guardian’s Julia Carrie Wong reported that AmazonSmile, the company’s charity arm, allows shoppers to donate money to anti-vaccine groups. NBC’s Ben Collins noted that an anonymously written QAnon conspiracy book had climbed to the top 75 of all books sold on Amazon, including no. 9 in all books about politics and no. 1 in all books about censorship. (It seems like the QAnon book had actually gone to the top of the “Hot New Releases” category, where it’s currently #2.)

In “How Amazon’s Algorithms Curated A Dystopian Bookstore,” Renee DiResta writes:

Amazon shapes many of our consumption habits. It influences what millions of people buy, watch, read, and listen to each day. It’s the internet’s de facto product search engine—and because of the hundreds of millions of dollars that flow through the site daily, the incentive to game that search engine is high. Making it to the first page of results for a given product can be incredibly lucrative… Sometimes sellers outright buy or otherwise incentivize review fraud; that's a violation of Amazon’s terms of service, but enforcement is lax. Sometimes, as with the anti-vax movement and some alternative-health communities, large groups of true believers coordinate to catapult their preferred content into the first page of search results.

This problem might be especially egregious in books and movies, but it affects Amazon’s broader product sales, too. Jason Del Rey writes for recode:

What happens as Amazon gives more and more third parties access to its global store? The number of opportunities for bad actors to plot nefarious things multiplies. Trust from customers and merchants alike is at risk—and Amazon knows it. The biggest threat to Amazon’s future success isn’t some imaginary antitrust case; it’s Amazon itself…

But Amazon doesn’t want to be home to just a massive selection of goods. Nor will Amazon executives be satisfied if Amazon’s product catalogue is just larger than any competitor in the world.

Instead, Amazon wants to sell “every genuine product in the world,” according to [Dharmesh Mehta, Amazon’s vice president of worldwide customer trust and partner support]… “[O]ur general mental model... is actually quite simple: We want the vast selection of every genuine product in the world [and] we want it at the lowest prices.”

Amazon’s tried a mix of AI and human efforts to stop counterfeiting on the site, and now it’s turned control over to brands to try to police themselves. Project Zero provides a mix of automated protections, takedown notices, and serialization to help authenticate that a product is what it says it’s supposed to be.

But what do you do when a book, a movie, a supplement, or whatever, is 100% authentic, but still a fraud? How can you still aim to sell “every genuine product in the world… at the lowest prices” when what you’re selling is a lie?

Running a marketplace is a complicated business. In some countries, Amazon has to fight to even take down paid reviews. There are free speech and free market considerations here. Amazon’s light hand has worked well for the company so far.

But as Del Rey writes, “Customer trust does not erode overnight. It happens slowly, disappointing order by disappointing order—and then all at once.” And the more Amazon involves itself in product lines where people are not content to let a hundred flowers bloom and every idea have its say—for instance, in groceries—the less wiggle room Amazon has to play with customers’ trust.

Moving more of its vendors, especially its smaller vendors, to third-party, Amazon Marketplace status (which Amazon is aggressively doing) doesn’t really solve this problem so much as shift it, as customers move to the third-party marketplace as well. The trust relationship, the move that got everyone, customer and vendor alike, through the door, is still the dominant one.

I mean, people are talking about YouTube in glowing terms next to Amazon when it comes to fighting misinformation now. YouTube! Don’t be YouTube.

Amazon Is Entering the Grocery Business… Again

Let’s try to keep track. Amazon sells non-perishable groceries online, in many countries. It offers same day fresh grocery delivery in certain markets. It has a small number of cashless convenience stores. It owns Whole Foods, a full-service bricks-and-mortar grocery store. And now it’s starting a fifth (fifth? I swear I’m missing one) grocery venture, distinct from Whole Foods and Amazon Go, in cities across the United States.

Here’s what we think we know:

  • Amazon plans to open dozens of grocery stores;

  • The first will open in Los Angeles, and other sites include San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia;

  • Amazon may purchase regional grocery chains that operate at least a dozen stores;

  • The new stores are not intended to compete with Whole Foods;

  • That’s about it.

Here’s what we can wildly speculate:

"AMZN's Next Major Innovation Could Well Be In-Store Shopping," a team of analysts led by Brian Nowak, who has a bullish $2,200 price target on Amazon shares, wrote to clients.

"Expect AMZN to re-define what a 'store' is," the analysts said.

They added: "Just as they've innovated the digital experience via Amazon.com, the logistics experience via their fulfillment network, and computing / storage via AWS, and (early days) internet of things with Echo, we expect this push (if true) to change consumers' in-store shopping experiences and expectations."

The stores might see more of a no-line, no-checkout, "frictionless" payment-type format akin to Amazon Go stores, Morgan Stanley said. That could also come with the use of augmented reality and other "digital in-store experiences."

That does sound cool, although if I had a $2200 price target on Amazon shares, I’d want it to sound very cool also. (Remember, too, not everybody’s a fan of frictionless cashless shopping, including several of the cities where Amazon’s supposed to open some of these stores.)

More speculation, although this may have a nugget of truth:

At any rate, it’s clear that Amazon’s ambition in the grocery space was never going to be limited to what Whole Foods was able to do. Jeremy Bowman at The Motley Fool has a good analysis here; Amazon needs to be able to offer a lower price point, a wider selection of products, and to experiment more with customer data and other innovations than it was ever going to be able to do comfortably within the Whole Foods brand.

Amazon is learning from Whole Foods, it’s learning from Amazon Go, it’s learning from Amazon Fresh, and it’s learning from its sales of cereal and tuna fish online. The entire retail space including groceries is in upheaval; it’d be foolish not to put multiple irons in the fire if you have them available.

The important thing, though, especially if Amazon expands rapidly, is that it has to be able to maintain a high level of trust in its products and its customer service. It has to push past Costco and Trader Joe’s in customer satisfaction. Then it can let Whole Foods be Whole Foods, and let Amazon be Amazon.

This might be the best possible outcome. Or they could f— it up. Let’s wait and see.

More Things To Read

Your Must-Reads

I have two this week, and they’re very different. The first is by the EFF’s Shahid Buttar and Mitch Stoltz, and it’s called “Antitrust Enforcement Needs to Evolve for the 21st Century.”

At the same time that antitrust regulators and courts developed an unsustainable, myopic interpretation of consumer harm, they also sharply limited one of the strongest levers in antitrust law for guarding competition: the “essential facilities” doctrine. It has been applied in cases ensuring that railroads could access bridges over rivers even when their competitors owned the bridges and that advertisers could run ads in newspapers even when the newspaper might prefer to exclude them in retaliation for those advertisers also buying ads in other advertising mediums.

When a firm wielding monopoly power leverages a resource that other firms cannot duplicate by refusing to allow access, courts can apply the essential facilities doctrine. On the one hand, leveraging a firm’s unique infrastructure might seem like a normal way of doing business. Seen from another perspective, this kind of activity preys on consumers—and competition—by preventing competition from emerging and forcing users to settle for the first mover.

Treating Amazon’s cloud infrastructure or its retail marketplace as an essential facility is pretty exciting to me. However, I find this next to impossible to square with the sense (that I also feel quite keenly) that Amazon should keep medical misinformation and fraudulent products out of the public sphere. The EFF would probably land on the noncensorious side of this issue. We’ll see how it develops.

Related: Lina M. Khan, author of the Yale Law Review article that had me pumping my fist in the second issue, has a new job:

The Second Must-Read is a Quartz Obsession, which I am a sucker for. It’s all about pallets. If you want to know a little about how Amazon and other companies move goods all over the world, you have to know a little bit about pallets and how they work. And this article is the perfect chance to find out.

Amazon Is Already A Logistics Company

Shipping, Cloud, Payment, Marketplace: Amazon is already providing the infrastructure for virtual and physical goods all over the world. That doesn’t stop speculators from speculating that the company’s and its executives’ ambitions are even grander, that they aim to put FedEx, UPS, et al out of work.

[Amazon’s] network of ocean freight containers, trailers, fulfillment centers, cargo planes, and more is so large that not even Amazon could fill it, analysts say.

The more immediate goal of that logistics network is to find ways to work smarter, not harder; to make shipping more efficient, in terms of costs as well as energy consumed. That requires buy-in from the customer, which requires a direct relationship with the customer that Amazon, luckily has. Hence, Amazon Day:

This new delivery innovation enables Prime members to choose a day of the week to be their delivery day, which makes it easier to get purchases grouped and delivered together and, in many cases, in fewer packages. Members can also choose from Prime’s fast, free shipping options for any item they don’t want to include as part of their Amazon Day shipment. The program is one of many sustainability initiatives to help achieve Shipment Zero, the company’s vision to make all Amazon shipments net zero carbon, with 50% of all shipments net zero by 2030.

(Shipment Zero, Project Zero; Amazon likes its 0s lately.)

These numbers are not zero; Amazon Web Services’ Andy Jassy points out that the company’s cloud business has a $30 billion run rate in its early stages. RightScale’s State of the Cloud report shows that a full 61 percent of responding companies use AWS, more than any other company (although Microsoft Azure is gaining.) And somewhere short of a million merchants use Amazon Pay to handle payments. It’s tiny compared to PayPal, but growing, and offers Amazon key insights into marketplaces it can’t access in any other ways.

That’s infrastructure; that’s logistics. And Amazon is enclosing it all.

Bezos Watch

How David Pecker Built His Tabloid Empire AMI On Fear” is long and a little dated but enlightening, if you’re interested in the man with whom Jeff Bezos has picked a very public fight.

The New York Times and Vanity Fair went head-to-head with their deep dives into the Bezos-Sanchez affair and its fallout. Both are worth reading: “How Jeff Bezos Went To Hollywood and Lost Control” is a little more high-minded, while “‘We’re F--ked. Gavin Is Going to Get Jeff Back Together with MacKenzie’: Inside the Bezos Affair, a Tale of Love, Lust, Uncertainty, and Way More Complexifiers Than Previously Imagined” is, as the headline suggests, way more immersive.

Jeff Bezos: This is how I organize my time” is much more inspirational, yet impossible.

I try to organize my personal time so that I live mostly about 2 to 3 years out… We'll announce our Amazon quarterly results and [people will say], 'Great quarter, congratulations!' And then I say, 'Thank you,'… But what I really think about is [how] that quarter was kind of baked and done 2 or 3 years ago, and right now the senior executives at Amazon are working on a quarter that's going to happen in 2021, 2022.

I think what’s really striking about this is that Bezos doesn’t think of 2-3 years as a long time from now. In fact, it’s kind of a restriction on his vision: “mostly, your time should be spent on things that are happening today, this year, maybe in the next 2 or 3 years." So three years, not ten or twenty. Near horizon. These are the things you have to think about when you spend a lot of your time thinking about outer space.

Momazonians

It’s not only moms at Amazons who care about more and better day care options for their children, but the moms have a name, and that name is “Momazonians,” and frankly, I would be afraid of 1800 people calling themselves Momazonians. In particular, the Momazonians want backup day care options, an increasingly common benefit in the world of tech. At Vox, Chavie Lieber writes:

Snow days forcing schools to cancel, day care centers closing for maintenance, nannies calling out sick—there are all sorts of child care issues that working parents must navigate in addition to staying on top of their demanding workload…

Per Care@Work, an online service pairing families and caregivers, there are typically two types of backup care options that employers can offer: in-home care or in-center care. With the former, an employer selects a pool of at-home caregivers that it sends to employees’ homes during temporary disruptions in child care. For in-center care systems, employers typically reserve a number of spots at local day care centers and employees are able to drop off their kids when they need to. Backup care doesn’t only apply to children: The benefit is also for employees caring for spouses, partners, or family members recovering from an illness, or for aging family members.

Spencer Soper and Rebecca Greenfield at Bloomberg, who broke the story, write that Bezos has been a holdout on providing emergency and backup care benefits at Amazon:

If the Momazonians succeed, they will have helped engineer a major cultural shift at Amazon, where the needs of workers take a back seat to Bezos’s goal of satisfying the hallowed needs of the customer. Winning a backup day care benefit could theoretically help women move up in a company where only one woman is on an influential senior management team that reports directly to Bezos.

“Everyone wants to act really tough and pretend they don’t have human needs,” says Kristi Coulter, who worked in various roles at Amazon for almost 12 years and observed that many senior executives had stay-at-home wives. “You don’t want to be the one to step forward and say ‘I’m a mom with kids and I may not be as single-mindedly devoted to my career as everyone else.’ They're all trying to assimilate to this male-dominated culture.”

We Have Always Been At War With HQ2

Right as the news in New York and DC began to cool a little bit, someone high up at Amazon decided to stir things up with HQ1 in Seattle. (Or maybe it had been decided two to three years before; who knows?)

Amazon, which had put up a high-profile fight with the city over a headcount tax for the homeless population, then got its own way and killed that tax, decided to withdraw from a massive Seattle office building anyways. The company will sublet its enormous offices in Rainier Square, which had over 700,000 square feet of office space, room for as many as 5,000 employees. KOMO wondered if Amazon was souring on Seattle, noting that it had signed a 16-year lease on an office across Lake Washington, in Bellevue.

Meanwhile, while his budget director blamed the appointment of Sen. Michael Gianaris for Amazon-to-NYC all going wrong, Governor Andrew Cuomo begged Jeff Bezos to change his mind and come back to NYC again. There was even a full-page ad in The New York Times. On Friday, Cuomo told Brian Lehrer that none of this had gotten Amazon to reconsider its decision.

I am not an expert on New York state or city politics, but this feels a little like it’s less about actually getting Amazon to change its mind about New York, and more about getting New Yorkers to change their mind about Amazon. It’s taking something that was happening with soft support (but some ambivalence about the political process) and turning into a thing that if it had happened, would have been really great (with correspondingly warmer views for the politicians who would have supported it). This feels like theater.

As theater, the goals are very different. You do not have to persuade Jeff Bezos. You do not have to persuade skeptical politicians. All you have to do is change the feelings about a thing that didn’t happen. That might be an easier fight to win.

And it’s happening on the anti-Amazon side too; Alexandria Ocasio Cortez’s chief of staff Saikat Chakrabarti gave a generally noncommital, “we’d welcome having a community process” if Amazon were to decide to return. Everyone can have warmer feelings about the thing that is now looking increasingly like it’s never going to happen. I’m even writing things like “looking increasingly like” rather than just “never going to happen,” because I need to cover myself in case it all somehow comes together. (It’s not going to happen.)

Eugene Kim had a good postmortem on the whole thing with “Amazon's year-long publicity blitz for HQ2 has backfired.” What did he do? He asked PR experts.

Amazon could have avoided all the negative publicity if it had just run the bidding process quietly, instead of spinning up a year-long media cycle, according to public relations experts.

“To go out and create a ‘beauty contest,’ and turn it into a media circus—it was a dumb idea,” said Paul Argenti, a communications professor at Dartmouth College.

As it is, Amazon got a lot of cities that didn’t win the sweepstakes very riled up, and got the cities that did win (but have to pay the price of tax incentives and booming real estate) even more riled up. Now they’ve even got Seattle riled up. Particularly in New York City, it was a very public circus, and a very private process. That’s unbalanced. It could and should have been the other way around.

Don’t Miss These

That’s it for this week at The Amazon Chronicles. If you liked it, please pass it on to a friend. If you loved it, please consider becoming a supporting member. Thanks for reading.

Tim Carmody

https://tim-carmody.glitch.me

A Star Is (Not) Born

Or, why Amazon is retooling its strategy in movies, groceries, and the cloud

It’s been a month to the day since the first edition of The Amazon Chronicles, starting with my Statement of Purpose on January 27. Since then, Amazon released its quarterly earnings, we explored Amazon’s monopoly/monopsony status across the globe, we revised the “unlocking the commons” freemium incentive structure for the newsletter, Jeff Bezos went full Charles Foster Kane in publicly exposing a blackmail attempt against him, Amazon pulled out of its plans to locate part of its second headquarters in Queens, and this newsletter cracked 5000 subscribers. Pretty typical month when you’re talking about one of the biggest, most diversified, and most dynamic companies in the world.


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I can’t promise you a below-the-belt photograph or a massive win for neighborhood activists every week, but I can promise what I hope is compelling news and analysis about that company, with occasional tangents into both business theory and modern philosophy and literature. This week is no different. Let’s get to it.

Amazon Studios, Rebooted

Last week, we discussed Amazon Studios’ reboot under Jennifer Salke. In short, the studio is putting fewer of its eggs into one basket, without necessarily throwing eggs at every door in the neighborhood. (It’s an imperfect metaphor; roll with it.) The studio is looking to make more original movies than it has in the past (up to 30 a year), but trying to slide those movies into particular niches and focus less on getting those movies into a full Manchester By The Sea / Cold War three-month theatrical release, with more movies going direct to Amazon Prime. It’s a little less Hollywood, a little more HBO.

You'll see less of the three-month window, and you'll see different variations. Even through Sundance, I learned a lot about just how flexible we can be with those models, and they really vary. In some cases, it'll be important for us to get the movie quickly to the service, while still following through with a theatrical release that feels much shorter, two weeks even, two to eight weeks. And then in other cases, we'll allow, where it makes sense, a wider release strategy.

This was already the plan before the Oscars, but I wonder how much it might have been tweaked had Amazon Studios’ Cold War won the award in any of the Oscar categories it was nominated in. There was talk headed into the awards show that Alfonso Cuarón’s Roma might win Best Director or Best Picture, but lose Best Foreign Language Film to Cold War. As it was, Cold War was nominated for Best Foreign Language Film, Best Cinematography, and Best Director, and lost all three awards to Cuarón and Roma. Netflix drank Amazon’s milkshake.

Now, Cold War is a remarkable film, and a huge success for Amazon. As Guillermo del Toro said when introducing the Best Director Oscar, it remains exactly the same film it was before the awards were announced. Cold War won Best Director at Cannes, Best Foreign Language Film for the New York Critics’ Circle, and swept the European Film Awards. But the prestige of the Oscars matters, and it shapes film studios’ strategies about what kinds of movies they pursue and how they produce and promote them. If Cold War had won any of the Oscars it was nominated for, we’d be talking about the film and Amazon Studios quite differently.

We’d also be talking about Amazon Studios differently if Roma had won Best Picture instead of (barf) Green Book. Roma, like Cold War, was produced by a digitally-minded distributor rather than a traditional studio, and given an unusual combination of theatrical release and an early streaming window. This is a powerful model to disrupt the way Hollywood has traditionally done business. And its effects are probably not most keenly felt with Oscar bait like Roma and Cold War, but with mid-budget grown-up films that play well with home audiences but have sort of lost their way in the studio theatrical system. Here, I like Steven Soderbergh’s interview with The Atlantic’s David Sims:

Sims: Most of the studio movies you made were in the the mid-budget tier that Hollywood doesn’t make anymore. What happened to it?

Soderbergh: Look, I have a lot of crackpot theories about how moviegoing has changed and why.

Sims: I would like to hear your crackpot theories.

Soderbergh: One of the most extreme is, I really feel that why people go to the movies has changed since 9/11. My feeling is that what people want when they go to a movie shifted more toward escapist fare. And as a result, most of the more “serious” adult fare, what I would pejoratively refer to as “Oscar bait,” all gets pushed into October, November, December.

Sims: And people have become conditioned, in the fall, to go and see a couple of serious movies.

Soderbergh: Put on a heavy coat and go see something serious. What that creates is what you see now, which is this weird dichotomy of fantasy spectacle; low-budget genre, whether it’s horror or comedy; and the year-end awards movies. I guess that’s a trichotomy.

Sims: From January to March, you can have some cheap fun, then in March, here we go …

Soderbergh: The big shit’s coming.

(Soderbergh has all sorts of smart thoughts on windowing, too, and how changing digital distribution can save films that don’t get a fair shot at the box office. It’s great.) Now! Genre-wise, as it happens, The Soderbergh Niche is a decent example of exactly the type of movies Amazon Studios is targeting. Combine that with a mix of direct-to-streaming and variable-window releases, plus what Netflix is up to in the same sphere, and you have something that can genuinely transform how people watch cinema and what kinds of movies they see. It’s an exciting time, even if there is no red carpet for that.

Why Can’t Amazon Solve Groceries?

This subhed is a little unfair, insofar as it assumes that groceries are a problem to be solved, rather than an inherently complex retail business that is also a fundamental part of people’s lives. But we’re certainly well removed from that brief utopian moment when people thought Amazon buying Whole Foods was going to upend the entire industry and instantly transform everything about food and how we bought it.

It’s not that easy. Stratchery’s Ben Thompson does a good job of explaining why.

Walmart has worked for years to respond to Amazon’s threat; the problem, though, as I explained in 2016’s Walmart and the Multichannel Trap, is that an integration built around stores was fundamentally unsuited to offering the sort of selection and convenience that Amazon does. The company needed to build up an entirely new set of capabilities and integrations, even as Amazon was leveraging theirs to integrate forward into logistics, adding on a 3rd-party marketplace to expand selection even more, and integrating backwards into their own brands. The result is that Amazon has around 50% share in e-commerce while Walmart has less than 5%.

That, though, is precisely why groceries is worth examining: as I explained when Amazon bought Whole Foods, perishable goods are not well-suited to Amazon’s value chain. Superior selection has diminishing returns, quality varies on an item-by-item basis within a single SKU, and, most importantly, the quality of items degrades with time and transport. In other words, they are a great fit for stores, not distribution centers.

In this view, Amazon’s purchase of Whole Foods was an attempt to acquire a first best customer for its grocery delivery operation, one that would efficiently store and sell perishable goods that weren’t suitable for Amazon’s traditional e-commerce model. And, to be clear, this strategy may yet succeed, but only to the extent Amazon builds a completely new set of capabilities and integrations that will probably end up looking a lot like Walmart, which has a massive head start it is clearly taking advantage of.

Walmart is also not Amazon’s only competitor here, or even its most dangerous one, even if grocery sales are helping Walmart fend off Amazon’s threat. Amazon’s Customer Satisfaction Index is slipping, down to a still-high 83 percent. But Trader Joe’s and Costco are doing much better, with Costco pushing Amazon to second place in the e-retailer category for the first time since 2010. CostcoGrocery’s two-day delivery for shelf-stable products matches Amazon Prime’s two-day guarantee, and Costco’s same-day delivery for fresh groceries through Instacart hits more markets than Amazon’s Prime Now.

The last e-retail company to beat Amazon was Newegg. Suffice it to say, Newegg was a niche electronics retailer and was not a threat to Amazon. Costco is kind of a threat. And maybe a bigger one than Walmart. People shop at Walmart; they shop at Albertson’s, which is partnering up with Microsoft; but they love Costco, just as they love Trader Joe’s. Amazon is used to being loved, and in leveraging that love to drive more purchases. But Whole Foods’ customer satisfaction is slipping, too, post-Amazon purchase, down to 79 percent. People don’t love Whole Foods that much, especially if they don’t already shop there.

Meanwhile, Trader Joe’s customers are making scratch reselling TJ products on Amazon’s marketplace at a steep markup. We’ve talked before about retail arbitrage being a core part of Amazon’s business, but in this case, this is a problem.

One solution, possibly, are Amazon Go convenience stores. Amazon’s planning to open more than 3,000 cashierless stores across the United States by 2021. Here, much more so than with Whole Foods or online grocery delivery, is a chance for Amazon to apply a combination of its tech wizardry and frictionless consumer experience to actually create something that changes the game.

The problem, however, is that Amazon Go stores are getting HQ2 level pushback. The issue is the fact that Go stores don’t accept cash, and millions of people are unbanked. Philadelphia recently passed a law banning stores that don’t accept cash, and Amazon is in some trouble for its employees lobbying to try to reverse or exempt themselves from that decision without first registering as lobbyists with the city’s Board of Ethics. There’s an email trail between Amazon and city employees showing how Amazon attempted to influence this bill to carve out a space for Go stores.

Despite Amazon’s efforts, City Council ultimately passed legislation with language that Amazon believes could be “detrimental” as the company plans to open cashierless stores, emails show.

Amazon wanted language that would exclude retail locations that “collect payment from customers solely by a mobile device application or by charging a customer’s Internet-based account,” according to a copy of the proposal.

Instead, Council amended the measure to exclude retailers “selling consumer goods exclusively through a membership model that requires payment by means of an affiliated mobile device application.”

Greenlee has said that language should allow Amazon to open one of its stores in the city. But Amazon and its legal counsel don’t think that the language is applicable to their model, according to Cox, the Commerce Department spokesperson. In particular, Amazon has concerns with the word “membership” because the company’s “Prime” membership is not required to access Amazon Go stores, Cox said.

The New Jersey legislature has already passed a similar bill outlawing cashless stores, and New York City, Washington, San Francisco and Chicago are considering their own versions. (Amazon already has Go stores in San Francisco and Chicago.) Based on what’s happened in Philadelphia, you can bet that Amazon is working hard behind the scenes to influence those bills. Go is too important to Amazon’s brick-and-mortar future for the company to let itself get shut out of those markets.

But unfortunately, Amazon hasn’t done much to try to address the fundamental concern of these bills, that poorer people are getting shut out from retail establishments. Instead it’s focused on trying to carve out exemptions, so that it can appeal to a certain kind of Amazon customer in a certain kind of way.

There are ways around this: Amazon gift cards are available for cash at almost every pharmacy. That’s how most people who don’t have credit cards already shop at Amazon. But Amazon wants the credit card numbers, and it’s not invested in making a cashless experience available for everyone. That’s a shame.

This is actually a perfect time for former PepsiCo CEO Indra Nooyi to join Amazon’s board. Nooyi is probably best known to the internet for that time she said that women don’t dump entire bags of Doritos down their throats—which, well, not all women, I guess. But she’s a remarkably talented executive who helped change the culture at PepsiCo, pushed the company from an exclusive focus on junk food to a wider range of healthier items, and also had to navigate city taxes on soda and sugary drinks.

Nooyi ran a logistics and groceries company extraordinarily well for over a decade. She knows how to take a brand that’s taken some dents in its public perception and revitalize it. (Have you seen the “Is Pepsi OK?” commercials? They’re terrific.) She’s who Amazon needs right now.

Plus, her appointment continues to improve the company’s diversity at the top. Amazon now has five women on its board, of eleven directors total, including two women of color. It’s turned a weakness into a strength. (Now if they could only do the same thing with their top executives.)

Your Must-Read

The Australian Broadcasting Corporation’s “What it’s like to work in an Amazon Australia warehouse” is not breaking all-new ground, at least not for those of us who’ve read Mac McClelland’s “I Was A Warehouse Wage Slave,” or Hamilton Nolan’s series of “True Stories of Life As An Amazon Worker,” or Dave Jamieson’s “The Life and Death of an Amazon Warehouse Temp.” At this point, if you don’t know that warehouse work at Amazon and its peer companies is extraordinarily difficult, dangerous, often humiliating, and thoroughly casualized in its reliance on temporary workers without guarantees or benefits, you’re choosing not to know.

What I think is striking about what the ABC has done, which other stories have touched on but not delved into, is the psychological reality of working as a picker. It’s not just tough blue-collar work. There’s an ideology involved that you as a worker are required to buy into.

Teams huddle together on the warehouse floor at the start of their shift.

“I say Amazon, you say ‘efficiency’,” a supervisor chants.

“Amazon!”

“Efficiency.”

The supervisor asks someone to lead the daily team stretches. The workers are asked to share an Amazon ‘success story’. This is all designed to gear ‘Amazonians’ up for the high-pressure day ahead.

‘Work hard. Have fun. Make history.’ The company’s motto is woven into a huge rainbow-coloured mural at the front of the warehouse.

This ideology is reinforced through constant surveillance and measurement.

Each worker’s performance is calculated into ‘pick rates’. Amazonian 1 says that if you’re collecting ‘small items’ from the shelves, you’re expected to collect about 120 products an hour—two items every minute. The employees say they’re left physically and mentally exhausted at the end of each shift.

If staff don’t meet their rates, they say a supervisor will approach them and ask if something is wrong.

“A representative came to me and said, ‘your numbers are low, what happened?’,” Amazonian 3 says. “I said I was lifting large items, 15 or 20 kilograms. But when they come to us it makes me feel like we’re not working hard enough.”

“It’s hard, I can’t make the times in the scanner,” Amazonian 4 says. “It’s really fast. I get stressed. They [are] always looking for your rates. It’s about numbers at Amazon.”

Workers say it’s never explicitly said, but everyone understands that poor pick rates result in fewer shifts.

The ABC story reflects this inside-outside, Imaginary Amazon vs. Real Amazon divide very well through its juxtaposition of official Amazon footage and photographs with its uncensored stories from current and former workers.

The obvious connection here in terms of big tech stories this week is with Casey Newton and The Verge’s “The Trauma Floor: The secret lives of Facebook moderators in America.” In both cases, a high-tech veneer is pulled aside to reveal real people doing high-risk, demanding temporary work that damages them physically and psychologically, for little pay and no benefits, but without which the company’s core product couldn’t exist.

In both cases, too, we’re urged by the companies and their defenders to accept this bargain. Without the tireless work of these invisible employees, Amazon and Facebook couldn’t exist; and to give them the pay and support their jobs would seem to demand would only add great costs to customers.

On Twitter, I compared this bargain to the thought-experiment posed by Ivan Karamazov in The Brothers Karamazov. Ivan has been having a long argument about The Problem of Evil with his pious brother Alyosha. Ivan’s contention is that no salvation, no ultimate forgiveness, no paradise is worth the suffering of humanity on Earth, especially that of its innocents.

“I don’t want harmony. From love for humanity I don’t want it. I would rather be left with the unavenged suffering. I would rather remain with my unavenged suffering and unsatisfied indignation, even if I were wrong. Besides, too high a price is asked for harmony; it’s beyond our means to pay so much to enter on it. And so I hasten to give back my entrance ticket, and if I am an honest man I am bound to give it back as soon as possible. And that I am doing. It’s not God that I don’t accept, Alyosha, only I most respectfully return him the ticket.”

“That’s rebellion,” murmered Alyosha, looking down.

“Rebellion? I am sorry you call it that,” said Ivan earnestly. “One can hardly live in rebellion, and I want to live. Tell me yourself, I challenge your answer. Imagine that you are creating a fabric of human destiny with the object of making men happy in the end, giving them peace and rest at last, but that it was essential and inevitable to torture to death only one tiny creature—that baby beating its breast with its fist, for instance—and to found that edifice on its unavenged tears, would you consent to be the architect on those conditions? Tell me, and tell the truth.”

“No, I wouldn’t consent,” said Alyosha softly.

“And can you admit the idea that men for whom you are building it would agree to accept their happiness on the foundation of the unexpiated blood of a little victim? And accepting it would remain happy for ever?”

It’s not my position that you should stop using Amazon or Facebook. As Ivan says, “one can hardly live in rebellion, and I want to live.” But the people who have stopped using Amazon and Facebook on moral grounds have a case that cannot be ignored, just as vegetarians and people who boycott Chick-Fil-A and Walmart and companies that advertise on Fox News cannot be ignored.

Amazon, Facebook, and many other companies that have made a killing on the web while treating their workers with contempt need to change. Or something else does. It’s too high a price to pay.

More Things to Read

Bezos Watch

A few really interesting Jeff Bezos anecdotes this week!

  • Y Combinator’s Sam Altman said that Bezos told him that we don’t have enough human beings to fill all of the jobs that need filling, making robots and other AI necessary. “It'd be great for every student to have an individual teacher, it'd be great for every time you go into a doctor's office never to be waiting and there's plenty of doctors ready for you.”

  • At an internal all-hands meeting in March 2018, Bezos told Amazon employees that other companies should stop being so afraid that Amazon is going to dominate them and steal their business.

    Bezos responded that concerns [about Amazon stomping out competition] are raised “all the time” and often gets exaggerated because it's a “juicy” media story. He laughed at the fact that some company stocks even dropped on rumors of Amazon getting into a new field, shrugging off those effects as “very short term.”

    “In real life, there's room for lots of winners,” Bezos said, in a recording of the meeting that CNBC has heard. “In fact, the sky does not fall for these companies.”

    (This dovetails nicely into my “Amazon is a good partner” theory. Amazon does not want to be seen as the company that eats alone.)

  • At a private talk at the Yale Club, Bezos lightly trash-talked some of his spacefaring competitors and talked up his vision of humanity spread throughout the solar system, while raising the slightly frightening prospect of “a Mark Zuckerberg of space”:

    I've witnessed this incredible thing happen on the internet over the last two decades. I started Amazon in my garage 24 years ago—drove packages to the post office myself. Today we have 600,000-plus people, millions and millions of customers, a very large company.

    How did that happen in such a short period of time? It happened because we didn't have to do any of the heavy lifting. All of the heavy-lifting infrastructure was already in place for it. There was already a telecommunication network, which became the backbone of the internet. There was already a payment system—it was called the credit card. There was already a transportation network called the US Postal Service, and Royal Mail, and Deutsche Post, all over the world, that could deliver our packages. We didn't have to build any of that heavy infrastructure….

    How do you get that kind of entrepreneurial [advancement] in space? You need to lower the price of admission right now to do anything interesting in space because it requires so much heavy lifting and so much infrastructure development. The entry price point for doing interesting things is hundreds of millions of dollars. Nobody is going to do that in their dorm room. You can't have a Mark Zuckerberg of space today. It's impossible. Two kids in their dorm room can't start anything important in space today.

    I want to take the assets that I have from Amazon and translate that into the heavy-lifting infrastructure that will [help] the next generation to have dynamic entrepreneurialism in space—kind of build that transportation network. That's what's going on, that's what Blue Origin's mission is. If we can do that, then the whole thing will take off and there will be thousands of companies doing creative things.

Oh, That’s Right: The FTC Exists

This week, the Federal Trade Commission brought its first case against a company buying up fake paid reviews on a retail website—guess which website it was! Our pal Amazon!

The FTC alleges that the defendants paid a website, amazonverifiedreviews.com, to create and post Amazon reviews of their product. The FTC contends that Jacobowitz told the website’s operator that his product needed to have an average rating of 4.3 out of 5 stars in order to have sales and to, “Please make my product … stay a five star.”…

The FTC’s complaint also alleges that the defendants made false and unsubstantiated claims on their Amazon product page, including through the purchased reviews, that their garcinia cambogia product is a “powerful appetite suppressant,” “Literally BLOCKS FAT From Forming,” causes significant weight loss, including as much as twenty pounds, and causes rapid and substantial weight loss, including as much as two or more pounds per week.

This is like the bare minimum of what the FTC is supposed to do as part of its mission to protect consumers and fair trade, so it’s nice to see the commission break a sweat, I guess. It will really depend on how committed the FTC is to seeing these cases through in the future whether it actually makes a dent in the scourge of fake, bought, and otherwise fraudulent reviews on the site.

The same week, however, the FTC approved Staples’ offer to buy up one of the two wholesalers that sell office supplies to independent stores, giving Staples huge leverage over their local competition. This has implications for Amazon, as Stacy Mitchell writes for Washington Monthly:

A final risk, perhaps the most serious, is that this merger will accelerate Amazon’s push to dominate the office supply market, including its bid to capture the spending of thousands of cities and school districts, which my organization reported on last year. While Staples and Office Depot offer little to differentiate themselves from Amazon among these customers, independent dealers have distinct strengths that Amazon cannot match. Yet the FTC seems happy to weaken them as viable competitors.

If anything, Wired’s headline noting that “Critics Are Wary of the FTC’s New Tech Antitrust Task Force” is a huge understatement.

“I’m scornful of the new seating arrangements, because the FTC has consistently proven they do not want to wield power,” says Matt Stoller, a fellow at the Open Markets Institute, an antimonopoly think tank that has called for a breakup of Facebook. “They want to hold hearings. They want to get their friend economists and antitrust lawyers to fly into DC and talk to each other. They don’t want to do their No. 1 job, which is to police markets for unfair and anticompetitive behavior.”

Even with the Trump administration making itself an avowed enemy of Jeff Bezos and his companies, I don’t see the FTC doing anything to rein in Amazon. As I’ve written in this newsletter before, we just don’t think about monopoly power in the United States the way that we used to. And everything about how Amazon is built is designed to take advantage of the reigning pro-consumerist interpretation of antitrust law in the United States.

HQ2: Still Mad About It

  • New York governor Andrew Cuomo called Amazon’s withdrawal from the Queens deal “the greatest tragedy that I have seen since I have been in government.” I don’t want to list all the actual enormous tragedies since Andrew Cuomo became an assistant district attorney in 1984, but you can just imagine a few of them for yourself and play them back in your head if you want to.

  • James Patchett, president of the New York City Economic Development Corporation, blamed a misunderstanding of the $3 billion in tax subsidies New York City was offering Amazon to build its second headquarters in Queens, plus some misunderstandings on Amazon’s part. “They didn't perform particularly well at their public hearings. They never hired a single New Yorker to work for them, to talk to New Yorkers and never really connected with people in the city.” (Amazon did hire some NYC-based lobbyists, but one suspects that Patchett is suggesting the company hired the wrong set of people to get the deal done.)

  • Barry Ritholtz has a fine riposte to the continued debate over the $3 billion subsidy: “As a fire-breathing Wall Street working capitalist, my instinct is to say: Build your own fucking HQ on your own goddamned dime. I say that with no disrespect—it’s the same thing I have been saying to the corporate welfare queens who run Wal-Mart and McDonalds; to the wimpy Football team owners too poor to build their own stadiums; to the chicken-shit cowards who ran Wall Street banks pretending to be capitalists, but all the while turned out to be commie pinko bastards the moment the going got tough.” Ritholtz also observes that Bezos pulled out of the deal rather than get humiliated by New York State Senator Michael Gianaris, which seems plausible to me.

  • Gianaris has an interview with New York magazine and The City where he contrasts New York’s process with Virginia’s: “Starting at the end of 2017, I could not get a phone call returned (from state officials). Three or four times I tried. I was trying to get information and express myself as to what might be necessary to be part of this thing before it was too late, and there was no willingness to engage… Virginia, by contrast, had a very different process. It’s instructive to look at what they did. They established a committee that included members of the legislature, stakeholders; it wasn’t just the governor and the mayor. They were involved in creating the bid, in proposing the bid, and so there was a lot more buy-in with the relevant people in that state all along the way. That did not happen here. This was a deal done in secret that was then presented as take it or leave it.”

  • A number of Virginians aren’t happy with their HQ2 deal either. “For Us, Not Amazon” is a coalition of stakeholders concerned with gentrification, Amazon’s anti-union policies, the company’s work with ICE and other branches of the federal government, and the tax breaks the company is receiving as part of the deal. The problem northern Virginia faces is that its politicians don’t currently seem as frustrated or as motivated as the grassroots activists, which gives them less leverage to stop or change the deal.

I Didn’t Know That

Amazon Aurora is a relational database service built for the cloud and offered as part of AWS. Hacker News surfaced a blog post by Lu Pan that makes Aurora sound, well, awesome:

Now you can imagine you have a MySQL instance that would never run out of space. Huge efficiency wins can come from the compute storage decoupling. If your use case is space bound on MySQL today, you can imagine having ten times the storage nodes while keeping the database nodes the same.

Writes are faster because you only need to append the update to log before Aurora acknowledges the write. So, it strictly does less work up front comparing to MySQL. Besides, since the disaggregated storage itself is now replicated and distributed, the database has a better chance to avoid hitting performance outliers from disk or flash.

Voice Interface is the Future

For one thing, Engadget and The Wirecutter imagine that most households will have lots of voice-capable devices distributed throughout the home. Forget three screens and a cloud; this is a continuous microphone and the cloud.

What’s more, many of these microphones will be attached to screens. Skills will be multimodal, relying on speech, touch, and vision.

Voice will be a mechanism you can use to deploy code. This is some Star Trek Enterprise shit. State a command, and the computer (or the computer in the cloud) just goes.

Voice assistants will be integrated with wireless networks and wireless control routers. The obvious place this will happen will be between Alexa and eero, but Amazon is already integrating its Alexa technology with Qualcomm’s wi-fi tech and other third parties.

I said before that I thought Alexa integration with eero would probably take a while, because the product teams would need to be blended, the proper architecture would have to be sketched out, etc., and yeah, well, I might have been wrong about that. This could all happen very, very fast.

Amazon and its partners continue to invest in Alexa-based companies, whose only job is to think of the next, coolest voice-activated computer shit we might all find useful and/or fall in love with.

Cedars Sinai is putting Alexa devices in patient rooms. Now, while I am skeptical of Alexa in hotel rooms, for what I hope are obvious privacy-based reasons, Alexa in hospital rooms, assuming the proper HIPAA guidelines are being followed, could be very powerful. Having recently spent some time in a hospital, the ability to do computing by voice in that context could be liberating and transformative. Even just entertainment and information services delivered via Alexa could be a huge upgrade to most of the current systems now available. If you add the ability to do genuinely cool things with patient care, being able to access your own medical records, page a nurse or physician, etc., etc., things start getting very interesting.

A new Adobe report says that consumers find voice ads less intrusive than other kinds of ads. Which means the voice skills of the future might have a natural revenue stream.

All of this depends on the strong association of a human’s voice with their identity graph, and the ability of companies like Amazon to gather up enough data about you (what you buy, what music you like, what sports teams you prefer, everything that Echo machines are gobbling up every minute of every day) to uniquely identify you and present you with a relevant and compelling marketing experience. Look at what Amazon’s offering with its new Personalize service for AWS to offer individualized product and content recommendations in real time. It is wild.

This also means that we need to build guardrails in place to protect consumers and their data. We need what Stacey Higginbotham calls a consumer bill of rights for connected devices. The following should be explicitly known and agreed to in any home use of the internet of things:

Expiration date: When can I expect my device to stop updating?

Sensors, especially in cameras or microphones: Where are they, and how many of them are there?

What data is shared, and with whom: “Companies should disclose early on in the buying process what data gets sent to the device maker and to third parties. And those companies should know how it's used.”

How long that data is kept: “I've asked both Google and Amazon how long they keep our utterances data, and both said they keep it until the user deletes it. So, basically, we are back at square one on this issue.”

Two-factor authentication: Consumers need to be protected against themselves from reusing passwords and leaving themselves open to hackers and other abuse.

It’s going to be a difficult adjustment, but this is our new world. Whether or not Amazon and other companies take steps to secure their devices and our data will dictate whether it’s a paradise or a nightmare, or both at once.


Well, that should be plenty to tide you over for the week. Unless news breaks that can’t wait, we’ll see you again next Wednesday. If you liked the newsletter, please send it to a friend; if you loved it, please consider subscribing. If you have a tip or anything else to share, you can always reach me securely by email or Signal by following the link below.

With thanks,

Tim Carmody

https://tim-carmody.glitch.me

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