If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. We have found that, on the Internet, “me too” strategies seem not to work very well.
–Jeff Bezos, November 2008 (or so)
I was pointed toward a very interesting piece of analysis (along with accompanying infographic and poll!) done by David K. Wolpert, the Founder & President of Swordfish Communications and published at an excellent blog called Software Advice. The piece’s title is “Who Will Amazon Buy Next?” Mr. Wolpert points out that Amazon has acquired 42 companies since 1998. Generally, based on the infographic, Mr. Bezos and crew have fared quite well in the M&A game, at least in terms of growing revenues and, I suppose, pleasing customers, though how precisely they define a customer these days must be quite interesting and very different depending on who in Seattle one asks…
But, as I observed in a post not long ago (along with most folks who blog), Amazon refuses to make a profit, instead riding a high market cap based, as ever, on future promise and growth of the customer base at any — and often all — costs.
But, no public company likes to sit on cash (Hi, Microsoft!). Generally, it’s a sign of directionless non-strategy or a successful but bygone past (Hi, Windows Division!). So, on what will Amazon spend its spoils? What are the most likely candidates to be Amazon’s next acquisitions?
In the Software Advice piece they ask for our opinion, which is very customer-focused of them. Here are the options provided.
- Staples
- RadioShack
- Best Buy
- Netflix
- Lion’s Gate
- Songza
- Peapod
- and, naturally, “other.”
I’m going with “other.” Mr. Wolpert makes some wonderful points in his analysis of each candidate. So wonderful that each potential takeover target sounded very viable. And, they are. But, I don’t think any of them are quite where Mr. Bezos wants to be in 5 years, which is about the time horizon he must think on. He’s certainly not worried about next quarter or the quarter after that…in terms of profit. His share price is soaring. Soaring! Despite a profit margin that is, literally, a joke when comped to Apple or Google or even Microsoft (poor MS) or, even, a humble publisher!
Recently I was chatting with friend who is happens to be in the position to hear such utterances as this: “We’re not in the eCommerce business anymore.” Said, of course, by someone in Seattle. I think he or she may have worked at Amazon. Not sure, but…I go back to this line from, yup, about 5 years ago…
If you’re competitor-focused, you have to wait until there is a competitor doing something.
Begs the question, who are Amazon’s competitors today? Alibaba is likely to crush them in the Far East but that’s for another post. Here in the States, Amazon’s stronghold, Staples is the #2 eCommerce player in the US. Primarily they are B2B and they are about half the size of Amazon but, hey, that’s not bad. But, Amazon could put them out of business in 6 months if they so chose, just as Amazon could have purchased (with primarily if not all cash) every one of those pesky, vexing New York publishers. So, no I don’t see bricks-to-clicks companies as particularly interesting to Amazon. They already get all of the benefits of “showrooming.” Why bother owning when you can rent. Mr. Bezos does not like real estate unless it serves to ships things or serves the purpose of keeping servers cool…
So, let’s see. In my admittedly from-the-hip analysis, I’m here:
StaplesRadioShackBest BuyNetflix- Lion’s Gate
- Songza
- Peapod
- and, naturally, “other.”
Lion’s Gate is interesting as Netflix and Amazon both try the “original programming” thing. My advice to them — as someone who has worked with the talent — is stay away. Not because there’s anything wrong with talent. It’s just that pleasing two masters is a tough gig even without one being, well, prone to irrationality… Just a mismatch of goals and styles. They may be able to make a run at it, as Amazon has with their own lines of books but in the end it’s just hard to compete with the suppliers, no matter how big you are. At a certain point a Disney can say, well, two words and leave. So, I cross them out. One studio wouldn’t hurt Prime. But, several backing out would. Then Amazon would be ceding the cloud-based future of the bigger screen to, well, one of those darned competitors!
Songza gets us closer. Cloud-based with a blend of humans ensuring that the AI is “right” about the music it will serve up to me on, say, a hot Thursday morning. But, wait. Humans. Hmmm…problem. I was once at a meeting with some folks on the Google ad team who informed me straight out that “Sergei and Larry see the existence of ad execs as a failure of software.” Google is clearly one of Amazon’s major competitors. And you can bet they’re doing something — lots of somethings, including stealing mobile device customers from Amazon. Yikes! C’mon Kindle Fire…So, I’d say Songza is a maybe and only as a toe-dipping exercise… I’d think that if Amazon were going to cloud-based and music, they’d go straight at one of their other competitors — those crazy kids in Cupertino and their i-everything and boatload of profits. Amazon would need to swing hard — Spotify, Rdio, Deezer…someone along those lines, as Google did with YouTube. Big or go home in the music space right now.
Peapod might be a yes just because Amazon seems determined to succeed where others have failed. So, they announce Fresh, a grocery delivery service, with a flat fee (leveraging Prime just a little?). Small beans though I suspect if they did buy Peapod. Just a buy instead of build move. Nothing really interesting. More like one M&A guy or gal’s deal for the year. A distraction but worth it somehow. “We satisfy every customer, regardless of their demands.”
Pinterest is a slight possibility as it has a direct correlation with driving transactions, which Google is now stealing rather than referring. Ah, competitors…And, Amazon is going social — at least a little and near the core businesses — (Hi, Goodreads.). The issue with Pinterest is that it doesn’t move Kindle Fires. And the store of the future is in our pockets with product “somewhere” (which is why Amazon is building out both a physical and digital “supply chain”). Amazon needs to start to win in mobile and cloud-based services or the retail lead evaporates. Then what?
So, I’m here:
StaplesRadioShackBest BuyNetflixLion’s GateSongzaPeapodPinterest- and, naturally, “other.”
Ah, other. For me, it’s easy but not as specific as I’d wish. They’re going to make for the cloud(s). Not media, not eCommerce, not mobile but the engine that sits beneath it all. Right now they are at once building the “retail infrastructure” and “supply chain” of the future and monetizing it via AWS at what I suspect are better margins than the rest of their business units. Again, though, those darned competitors are doing something. Microsoft, Oracle, Google, Apple (so far to spectacular failure) etc. Cloud, cloud, cloud. But it’s still a wide open race. One of the only ones at this point in the game. This chart is from 2012 and represents some great research and analysis by Ed Bott at ZD Net and a lovely visualization by visualign. Herewith:
Okay, we all pretty much knew this but perhaps not that it was so stark. Amazon is way “over-indexed” in retail. The war is being won. And retail margins are terrible (“Media” is also retail for Amazon; books, eBooks, movies, music, etc. Prime or at retail prices so they’re all retail as of 2012).
Okay, enough beating around the bush. I was there when Amazon started. Actually, I was in New York and they called to license a database I was fortunate enough to be working on. When I heard that they had hired away Walmart’s IT and Logistics staffers, I realized their play (I thought it would fail, for the record). Seamless service. Fast and cheap. To do that in the coming five years, one is going to need a lot of “real estate” and “horsepower” but it will be invisible to most of us. It will simply be the new logistics — and the new means by which Mr. Bezos satisfies every customer (B2B and B2C) and, in the process, endeavors to grow a diverse and — maybe — as profitable a business as Microsoft or, gasp, Apple or Google. I mean, who wants to be just a retailer when you can vertically integrate 100%?
Right, Mr. Jobs?
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