How Much Can Amazon Make Free?

The answer is: a lot, and still make money

Welcome back to the Amazon Chronicles, and thanks for your patience in getting this issue to you. A couple of things have happen since I wrote to you last: I went on what was supposed to be a working vacation, and I managed to dislocate my shoulder again. It turns out I am going to need shoulder replacement surgery, so I am typing what I can while I can. (Dictation will probably be the name of the game afterwards.) A lot’s been happening with Amazon while I’ve been out, so let’s get to it.

Amazon Might Add A Free, Ad-Supported Tier to Amazon Music

This is potentially a really powerful idea. The reporting comes from Billboard, which says the following:

Amazon has entered into discussions to launch a free, ad-supported music service, sources familiar with the plan tell Billboard -- intensifying its competitive threat to global streaming leader Spotify.

The world’s biggest e-retailer would market the free music service through its voice-activated Echo speakers, sources say, and would offer a limited catalog. It could become available as early as next week.

That actually tells us very little! It doesn’t tell us whether it’s radio or station-based, like Pandora, or album-and-artist based like Spotify. It’s not clear whether the free music tier would be Echo- or Alexa-only, or available via other devices or the web. All of these things affect the nature of the service, how robust it will be, what its actual competition is, and how successful it might become.

But: whatever! Let’s go back to general principles here, and the ultimate general principle is that a free, ad-supported media offering by Amazon could be supremely disruptive. Audio is probably the most natural market to give this a try, because, get this: Amazon already has a pretty successful music service, and some of the most successful audio-based hardware devices on the market. It’s also got a huge marketplace for ads and could use more portals for discovery. A free music tier feels like a no-brainer.

And if that works well, could you also expect to see ad-supported television from Amazon too? Why not? Keep those subscription costs low, and those sales margins and user numbers high. Makes sense to me!

Amazon Might Be Making Earbuds With Alexa In Them

This reporting comes from Bloomberg’s Mark Gurman, who writes:

The Seattle-based e-commerce giant is readying earbuds with built-in Alexa access for as early as the second half of this year, according to people with knowledge of the plans. The headphones will look and act similar to AirPods, but people working on the product inside Amazon are striving for better audio quality, the people said. Like the AirPods, the Amazon earbuds are designed to sit inside users’ ears without clips around the ear…

The headphones will let people use their voice to order goods, access music, weather and other information on the go. The Amazon digital assistant will be summoned by saying "Alexa." There will be physical gesture controls, such as tapping to pick up and end calls and switch between songs, the people said. Amazon declined to comment.

Oooooh is this going to be execution-dependent. I mean, we’re talking really tricky stuff. Half the success of Echo devices so far has been because you don’t have to wear or control anything to make them work. Earbuds might be the most complex wearable around. You’ve got comfort issues, audio quality, durability and resilience, etc., etc. There are reasons Apple hasn’t been able to make these things as popular as the other stuff they sell, even after buying Beats. It’s a tricky piece of hardware.

But if it can work, there’s a huge upside. You take Alexa outside the home, and it becomes an information layer for your life. At a minimum, you’ve got a killer product to sell music, audiobooks, podcasts, and whatever else you’ve got that you can squeeze in a speaker. You’ve got the foundation for multimodal interfaces you can build on later, with screens or projectors as well as audio. But Amazon has to come correct with this; it probably can’t launch with what it has and fix it later. It’s got to create a compelling product out of the gate.

SPACE INTERNET, via Project Kuiper

The ultimate limit on Amazon’s product line from e-retail to smart earbuds, is the penetration of the global internet. So it makes sense that Amazon is one of several companies pursuing a satellite-based solution.

Amazon’s effort is called Project Kuiper. The reporting here comes from Alan Boyle at GeekWire, who says Amazon is intent on putting 3,236 satellites in low earth orbit, all to provide internet access everywhere that doesn’t have it.

“Project Kuiper is a new initiative to launch a constellation of low Earth orbit satellites that will provide low-latency, high-speed broadband connectivity to unserved and underserved communities around the world,” an Amazon spokesperson said in an emailed statement. “This is a long-term project that envisions serving tens of millions of people who lack basic access to broadband internet. We look forward to partnering on this initiative with companies that share this common vision.”

Amazon said the satellites would provide data coverage for spots on Earth ranging in latitude from 56 degrees north to 56 degrees south. About 95 percent of the world’s population lives within that wide swath of the planet.

This is one of the rare cases where Amazon’s mundane terrestrial ambitions and Jeff Bezos’s fascination with building and owning the basic infrastructure of space (and building things to last generations, not just years or decades) come together. Amazon needs future customers and doesn’t want to have to rely on any state’s infrastructure to get them. This is years-out thinking, but it’s very shrewd, and frankly, quite realistic.

Amazon’s Future Also Needs A Healthy Planet, Maybe It Should Work On That

Amazon workers are pushing the company to get serious about taking action to stop climate change. More than 3500 employees signed a letter urging Jeff Bezos to create a comprehensive climate change plan for their company, transitioning away from fossil fuels rather than relying on carbon offsets, and making climate impact a priority when making business decisions.

Jason Del Rey at ReCode says it’s unusual for Amazon employees to go public with their names and faces when it comes to matters of internal dissent at the company. But Amazon had already been accused of backsliding on its publicly-stated environmental goals, and had publicly touted its partnership with fossil fuel companies, and generally had left itself open to this kind of criticism.

Humans Listen to Alexa Recordings

At its basic level, this is not especially controversial. Amazon’s Alexa group has a voice review team that “listens to voice recordings captured in Echo owners’ homes and offices. The recordings are transcribed, annotated and then fed back into the software as part of an effort to eliminate gaps in Alexa’s understanding of human speech and help it better respond to commands,” according to Bloomberg.

It gets tricky in the details. For example:

Sometimes they hear recordings they find upsetting, or possibly criminal. Two of the workers said they picked up what they believe was a sexual assault. When something like that happens, they may share the experience in the internal chat room as a way of relieving stress. Amazon says it has procedures in place for workers to follow when they hear something distressing, but two Romania-based employees said that, after requesting guidance for such cases, they were told it wasn’t Amazon’s job to interfere.

Amazon should probably also review their anonymization procedures, because this isn’t cutting it:

A screenshot reviewed by Bloomberg shows that the recordings sent to the Alexa reviewers don’t provide a user’s full name and address but are associated with an account number, as well as the user’s first name and the device’s serial number.

It needn’t be sinister on Amazon’s part; imagine a government requesting recordings of a user’s device. If Amazon’s going to be collecting this data and making it available to anyone, it needs to be properly anonymized.

Your Must-Read: Jeff Bezos’s 2018 Letter to Shareholders

This whole letter could use an annotation (and I still might do one), but let’s focus on this section for now:

As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

Development of the Fire phone and Echo was started around the same time. While the Fire phone was a failure, we were able to take our learnings (as well as the developers) and accelerate our efforts building Echo and Alexa. The vision for Echo and Alexa was inspired by the Star Trek computer. The idea also had origins in two other arenas where we’d been building and wandering for years: machine learning and the cloud. From Amazon’s early days, machine learning was an essential part of our product recommendations, and AWS gave us a front row seat to the capabilities of the cloud. After many years of development, Echo debuted in 2014, powered by Alexa, who lives in the AWS cloud.

No customer was asking for Echo. This was definitely us wandering. Market research doesn’t help. If you had gone to a customer in 2013 and said “Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music?” I guarantee you they’d have looked at you strangely and said “No, thank you.”

It’s unclear what’s being subtweeted (sublettered?) in this letter. Amazon-does-Pandora doesn’t seem to cut it. Project Kuiper probably counts. But there are a couple of lessons one can draw from it:

  1. Ideas for future Amazon products can come from anywhere;

  2. The me-too products aren’t always the most successful;

  3. That doesn’t mean Amazon’s going to stop doing them.

Like, okay, Amazon made an unsuccessful phone; Jeff Bezos’s lesson from this is MAKE MORE PHONES. Even if we don’t win in phones, we might win doing something else. That is an intriguing idea! It’s the kind of idea a company might come up with if they were going to launch some earbuds.

Bezos Watch

Jeff and MacKenzie Bezos announced their divorce settlement last week. Jeff Bezos retains 75 percent of the couple’s Amazon stock, voting rights over their full joint share, and full ownership of The Washington Post and Blue Origin, his spaceflight company. MacKenzie Bezos will now own about 4 percent of Amazon, a share worth about $36 billion, making her one of the wealthiest women in the world.

Keeping Myself From Embarrassing Myself

There’s plenty more to say about Amazon, but I promised I would not go all Moby Dick on this newsletter, and instead keep it relatively simple. All I can promise you is more next week.

Until then,

Tim Carmody

https://tim-carmody.glitch.me