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.

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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