Sunday, 2 August 2020

Amazon, NOT Just An E-Commerce Company. Growth is Boundary-less?

Tech giants like Apple, Amazon, Alphabet and Facebook have all reported quarterly figures end last week and there is a big Tech rally due to the higher than expected earnings.

Amazon reported net income USD5.2B, compared to USD2.6B in the last quarter. This is on the back of 40% revenue increase to USD88.9B compare to last quarter. Operational CashFlow increased 42% to USD51.2B for the ttm compared to USD36.0B ended June 30, 2019.

At the time of writing this post, Amazon is the second largest company in the world by market capitalization (i.e. USD1.58T) behind Apple (i.e. USD1.84T). For more about Amazon’s financials, refer to Yahoo finance here.

In this article, I am not going to focus on the financial analysis of Amazon, but instead tell you more about Amazon’s business aside from E-commerce. Frankly, if we are to go in depth into all of Amazon’s businesses, it will be an extremely long article. Therefore, in this article I will try to optimise writings (to below 2500 words) and yet cover most of Amazon’s businesses.  

Disclaimer: Most of the information reported here is gathered from Amazon’s annual reports, websites, Wikipedia, news articles such as Yahoo News, CNBC news, Forbes news etc. The author cannot guarantee the accuracy of the information contained herein the blog and its contents. You should independently research and verify, any information that you find on this website.

NOT JUST AN E-COMMERCE COMPANY

Recently, I have asked many people about how much they know about the business of Amazon? Most answered that it is an E-commerce company. When I asked further, what else? The answers will be Errr….logistics? What else? Then there is a silence…

Brief
Amazon is founded in 1994, 5 July by Jeff Bezos, and named after the largest river of the world. The logo, “a” arrow to “z” means that the company wanted to cover everything from A to Z. Amazon started as an online book seller. Most people will also remember Kindle E-book.


Today, it has the world's largest online marketplace, AI assistant provider, live-streaming platform and cloud computing platform as measured by revenue and market capitalisation.

Products and Services
·    Customer offerings via website:  Mobile apps, Alexa, devices, streaming and physical shops.
·     Manufacture and sell electronic products: Kindle, Fire Table, Fire TV, Echo, Ring
·    Produce Media Content: Amazon Prime: a membership program with free shipping, unlimited access to thousands of movies, TV, etc
·     Offers sellers to sell in Amazon platform with fees.
·     Amazon Web Services (AWS) offers global computing, storage, database etc
·     Content creator : Kindle Direct Publishing, allows author, musicians, film-makers, skills, app developers to create, publish and sell.
·     Acquisition: Ring, Twitch, Whole Foods Market, and IMDb etc

AMAZON WEB SERVICES (AWS)

AWS is one of the unstoppable growth businesses of Amazon. It is just so powerful and will create an incredible big impact to how business is conducted in the world in the future.

AWS has the largest public cloud infrastructure platform, comprising 41.5% of application workloads in the public cloud. Microsoft Azure follows behind with 29.4% of the installed base, measured by application workloads. Google Cloud Platform trails with 3.0% of application workloads followed by IBM SoftLayer 2.6%, Rackspace 2.9%, and a long tail of providers that comprise another 20.7% of the market. The scope of long tail provider usage is surprising and may indicate the market is still at an early stage of maturity.

You might not know, but Netflix is the top client of AWS. According to Amazon, Netflix uses more than 100,000 server instances on AWS for nearly all its computing and storage needs, including databases, analytics, recommendation engines, video transcoding, and more—hundreds of functions that in total use more than 100,000 server instances on AWS.

According to Intricately, the top ten AWS users based on EC2 monthly spend are: Netflix: $19 million, Twitch: $15 million, LinkedIn: $13 million, Facebook: $11 million, Turner Broadcasting: $10 million, BBC: $9 million.

The All AWS Case Studies is the best place to get some idea as to who its big customers are. Below are partial list of AWS’s customers.
Adobe Systems, Airbnb, Alcatel-Lucent, Aon, Autodesk, BMW, Bristol-Myers Squibb, Canon,  Capital One, Comcast, Docker, Disney, Expedia, GE, Hearst Corporation, Hitachi, HTC, Intuit, Johnson & Johnson, Kellogg Company -SAP ERP Migration, Lafarge, Lyft, NASA, Netflix, News Corp, Nokia, Nordstrom, Novartis, NTT Docomo, Pfizer, Philips, Pitney Bowes, Qantas, Qlik, Ricoh Company, Ltd., Samsung, SAP, Schneider Electric, Scholastic, Siemens, Slack, Spotify, Tata Motors, The Kellogg Company, Time Inc., Unilever, Vodafone, Xiaomi, Yelp, Zillow, Zynga, etc

DATA CENTERS

Amazon also owned or leased data centres.

Source: Wikipedia AWS: As of 2019, AWS operates in 22 geographical "regions": 7 in North America, 1 in South America, 6 in Europe, 1 in the Middle-East, 1 in Africa and 8 in Asia Pacific. Each region is wholly contained within a single country and all of its data and services stay within the designated region. Each region has multiple "Availability Zones",  which consist of one or more discrete data centers, each with redundant power, networking and connectivity, housed in separate facilities. As of Dec 2014, AWS operated ~1.4 million servers across 28 availability zones.

Source: Annual Report 2019 Amazon: AWS is also inherently more efficient than the traditional in-house data center, using a more efficient evaporative cooling in certain data centers instead of traditional air conditioning. A study by 451 Research found that AWS’s infrastructure is 3.6 times more energy efficient than the median U.S. enterprise data center surveyed.

OTHER BUSINESSES

Transport and Logisitics, Warehousing - Amazon Maritime, Inc. holds a license to operate as a non-vessel-owning common carrier (NVOCC), which enables the company to manage its own shipments from China into the United States.

Amazon is also building out its logistics in trucking and air freight to potentially compete with UPS and FedEx. By 2021, Amazon Air (airplane logistics) will have at least 70 cargo aircraft operating out of over 20 air gateways in the United States. This is bigger than many national airlines of developing countries.

Prime Air which is Amazon drone delivery services will also be soon become operational. Amazon also runs more than 60,000 of its own delivery trucks, not to count the more than 100,000 on order. In a Forbes report Sep last year, Amazon now delivers 60 percent of its own packages through its own drivers.



Across the globe, Amazon also own or lease warehouses called fulfilment centres with high technology robotics (i.e. Amazon Robotics), and automation technology. From its website, it states that it has more than 175 operating fulfilment centres and more than 150 million sqft of space.

Supermarket - Whole Foods Market, a physical retailer acquired in 2017 for USD13.4B. It is an American supermarket chain exclusively featuring foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats.

Media – TV, Music Radios - Amazon Studios is a film and television studio. Prime Video: Amazon distributes downloads and streaming of video, music, and audiobooks through its Prime Video, Amazon Music, Twitch, and Audible subsidiaries. Audible.com sells digital audiobooks, radio and TV programs and audio versions of magazines and newspapers. Brilliance Audio, an audiobook publisher founded in 1984 was purchased by Amazon in 2007 for an undisclosed amount.

Healthcare - Health Navigator develops APIs (application program interface)  for online health services. It forms part of Amazon Care, which is the company's employee healthcare service. In 2018, Amazon acquired PillPack, an online pharmacy, for $750 million. PillPack has an in-network pharmacy with all major pharmacy benefit managers, including CVS Caremark, Express Scripts, Optum Rx, Prime Therapeutics, Humana Pharmacy Solutions, Cigna, Aetna, MedImpact, EnvisionRx, and CastiaRX. It is estimated that U.S. prescription sales totaled $476.2 billion in 2018.

Alexa (virtual AI assistant) health team built an experience that lets U.S. customers check their risk level for COVID-19 at home. Customers can ask, “Alexa, what do I do if I think I have COVID-19?” or “Alexa, what do I do if I think I have coronavirus?” Alexa then asks a series of questions about the person’s symptoms and possible exposure. Based on those responses, Alexa then provides CDC-sourced guidance. Amazon also have similar health service in Japan. The UK government awarded Amazon a contract that gives the company free access to information about healthcare published by the UK's National Health Service, so that Alexa can answer medical questions.

Aside from Medical, Alexa is also used in speakers, music playback, making to-do lists, set alarms, streaming podcasts, play audiobooks, provide weather and traffic info, and other real-time news. Alexa can also control several smart devices using home automation system. As of November 2018, Amazon had more than 10,000 employees working on Alexa and related products. In January 2019, Amazon's devices team announced that they had sold over 100 million Alexa-enabled devices.

Education - Academic institutions around the world are transitioning from in-person to virtual classrooms and are running on AWS to help ensure continuity of learning. And governments are leveraging AWS as a secure platform to build out new capabilities in their efforts to end this pandemic.

E-Books - Shelfari - a social cataloging website for books that allows users to build virtual bookshelves of the titles which they owned or had read and they could rate, review, tag and discuss their books. Goodreads, founded in Dec 2006 allows individuals to freely search it’s database of books, annotations, and reviews. CreateSpace offers self-publishing services for independent content creators, publishers, film studios, and music labels, became a subsidiary in 2009.

 

E-Comics - ComiXology, a cloud-based digital comics platform with over 200 million comic downloads as of September 2013. Amazon bought the company in April 2014.

Gaming - Twitch is a live streaming platform for video, primarily oriented towards video gaming content. In August 2014, Twitch was acquired by Amazon for $970 million. Through Twitch, Amazon also owns Curse, Inc., an operator of video gaming communities and a provider of VoIP services for gaming. Since the acquisition, Twitch began to sell games directly through the platform, and began offering special features for Amazon Prime subscribers.

Consumer Electronics - Amazon produces consumer electronics including Kindle e-readers, Fire tablets, Fire TV, and Echo devices. Lab126, developers of integrated consumer electronics such as the Kindle, became a subsidiary in 2004. Annapurna Labs - In January 2015, Amazon Web Services acquired Annapurna Labs, an Israel-based microelectronics company reputedly for US$350–370M. Eero - manufactures mesh-capable routers. The company was founded in 2015 and is based in San Francisco. Amazon announced it would buy Eero in 2019.

Automation – Ring Inc is a home automation company founded by Jamie Siminoff in 2013. It is primarily known for its WiFi powered smart doorbells, but manufactures other devices such as security cameras. Amazon bought Ring for US$1 billion in 2018.

Robots - Amazon Robotics, formerly Kiva Systems, is a company that manufactures mobile robotic fulfilment systems. Its automated storage and retrieval systems were previously used by companies including: The Gap, Walgreens, Staples, Gilt Groupe, Office Depot, Crate & Barrel, and Saks 5th Avenue. After those contracts ran out, Amazon did not renew them and Kiva's assets now work only for Amazon's warehouse.

Satellites - Kuiper Systems. Amazon announced in April 2019 that they would fund and deploy a large broadband satellite internet constellation called "Project Kuiper". It is expected to take up to a decade to fully deploy all 3,236 satellites planned for the full constellation in order to provide internet to "tens of millions of people who lack basic access to broadband internet. "Amazon has not announced if they intend to sell broadband service directly to consumers, but they will "offer broadband service through partnerships with other companies."

R & D - A9.coma company focused on researching and building innovative technology, since 2003.

SALES BY SEGMENT

From Annual Report,


SALES BY COUNTRIES




CONCLUSION

Based on 2019 Annual report, North Americas’ business comprise of USD170B out of company total revenue of 280B i.e. 60%. 

International’s net sales is only 27% of the overall business net sales. Hence,  there is big room to grow, especially in India where online sales only account for 1.6% of the total country’s retail sales. Retail sales in China is 15% and globally is 14%.

AWS’s sales still only comprises of 13% of the business. After Covid crisis, the importance of online or digital services is unquestionable. Cloud usage all over the world will only see far-reaching increase in future.

Of course, like any other business, there are also risks. Aside from many competition catching up, the laws of countries may change affecting adversely Amazon’s businesses. For example, Tax changes, data collected by the company under close regulator surveillance, EU anti-trust charges etc can adversely affect Amazon’s businesses. There is also possibility that acquisition is not integrated properly. 

Still, in my opinion, Amazon’s growth has no boundary. And the company is constantly innovating and spend a whole lot of its earnings on R&D. The “Day One” manifesto (refer here 1998 letter to shareholder) means that Amazon will always act like a startup. To act like a startup, Bezos requires Amazon employees to do these four things:

·       Be obsessed with the customer
·       Focus on results over process
·       Make high quality decisions quickly
·       Embrace external trends quickly

Furthermore, Bezos believes that "Day Two" is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day One at Amazon." 

Below is a video of Amazon city of the future.





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