amazon | Paul Wallbank - Communications Professional

Monopolies and innovation

Monopolies are coalescing across the global economy. That isn’t good for consumer or innovation.

An interview with Media scholar Jonathan Taplin, author of the new book Move Fast and Break Things, on the Pro-Market website poses some interesting questions about the direction of the digital economy and innovation as market power coalesces around the big four internet giants.

This power is particularly marked in online media with Facebook and Google pocketing most of the global advertising spend which leaves little for content creators.

I kept coming back to these three—Google, Facebook, and Amazon. All have extraordinary market shares. Google has an 88 percent market share in search advertising and an 80-plus percent market share in Android. Amazon has a 74 percent market share in e-books, and Facebook controls 70-plus percent of mobile social media when you add Instagram, Messenger, and WhatsApp. What more empirical evidence does one need to prove concentration?

Over the past decade we’ve seen the power of the big four online gatekeepers growing although ironically Apple’s light seems to be dimming as the company’s innovative vision fades following Steve Jobs’ passing.

The monopoly problem is broader than just the tech industry though, as The Atlantic pointed out last year, market dominating corporations are suppressing innovation throughout the US. The problem is even greater in Australia and some other countries.

The rise of the monopolies shouldn’t be a surprise as the neo-liberal policies of the United States and most of the western world for the last 40 years have been largely focused on increasing the wealth and power of corporations and their managers. It’s fair to say those policies have been successful.

Where we go next is the big question. An economy dominated, and suffocated, by a handful of well connected and powerful corporations is not going to drive wealth creation, particularly in a world where more businesses functions are being automated.

One short term step may be to break up the monopolies, something that Taplin himself suggests.

This just goes to show how quickly the ground is shifting. I now have a piece coming out in the New York Times that explores the idea of breaking them up, but when writing the book, I tried to be reasonable. I thought no one would buy the idea of breaking them up. And now people are raising that idea.

While that’s a start there’s vastly more that needs to be done from bankruptcy reform – the last 40 years have seen governments make it harder for small businesses and households to seek financial protection – through to intellectual property reform.

Generational change may turn out to be the solution though as the lucky generation of business and government leaders – those born between 1935 and 55 – responsible for the ideology and policy that allowed such an accumulation of corporate power move on.

Surviving Amazon’s onslaught

Some believe Amazon will crush Australian retail, but it’s likely most smart business will survive.

The long awaited launch of Amazon in Australia seems to be finally happening with reports the giant is scouting locations for logistics centres for a late 2018 launch.

While some are predicting a retail apocalypse, not all are convinced Amazon will do well. Australia doesn’t have a catalog culture buying culture like the United States and, as german supermarket chain Aldi found, the nation’s high property prices and restrictive zoning rules makes acquiring sites difficult.

A further impediment for Amazon in Australia is the last mile with Australia Post dominating the delivery business, despite its mediocre service, and the dominance of incumbent retailers in the suburbs where most Australians live means the US giant isn’t guaranteed success.

Whether Amazon’s entry into a market does mean a retail apocalypse is also another question, while its clear the mall era is drawing to close there are plenty of success stores with chains like Ulta Beauty, Sephora and Kiehls – not to mention the Apple Store – thriving despite Amazon’s growth over the past twenty years.

In the Australian context, a bigger question should be around why local equivalents haven’t thrived with Billabong, Pumpkin Patch and Kathmandu all failing while the established majors have barely glanced at overseas markets – Harvey Norman and Westfield being the stand out exceptions, although the former hasn’t been a great success.

Even in Amazon’s original market of bookselling, big chains like Borders have fallen victim but local independent bookshops have survived and grown despite the online threats. So local retailers can weather an Amazon onslaught.

Another benefit of Amazon starting in Australia is to encourage new business, particularly given the US giant is rumoured to be focusing on groceries as it gives new entrants to the market an opportunity to enter without having to deal with the stultifying duopoly that dominates the market.

One thing is clear though, Australian retailers have been slow in moving into online and international markets, probably due to the luxury of catering to consumers in an economy that hasn’t been troubled by recession for a generation.

The year’s warning that Amazon will be opening shop is a warning for Australian business to lift their game and compete. Those who don’t won’t have any excuses.

Uber’s grand experiment

Uber’s losses raise questions of how far the loss making business model pioneered by Amazon can be pushed

Yesterday reports emerged that the icon of the disruptive economy, ride sharing service Uber, lost 1.2 billion dollars in first six months of this year.

Those losses show disruption doesn’t come cheap, although settling the damaging and costly battle with China’s Didi Chuxing will help the company’s cash burn.

Despite on track to lose at least two billion dollars this year, the company still has a substantial war chest having raised $8.7 billion dollars in debt and equity raisings over the last eighteen months.

While impressive, that war chest will only last four year at current rates and, given Uber’s already sky high 60 billion dollar valuation and the increasingly hostile Silicon Valley fund raising environment, it will be a relief to investors that the China battle appears settled.

There remains though an ongoing weakness in Uber’s business however with the company reportedly spending hundreds of millions a year in subsidies to drivers in key markets. How sustainable their business is remains to be seen.

In many respects Uber is following the Amazon example of beating down competitors by selling products at deep losses thanks to its access to capital and investors’ tolerance for building marketshare.

As we’ve seen with Amazon, that tactic has been wonderfully effective both in retail and in providing cloud services. For customers and the economy though, the reduced choices in the marketplace may end up not being in their interests.

Uber is an interesting experiment in how far the Amazon model can be pushed, for cities and states dealing with a deeply disrupted taxi and city transport network the results of that experiment may be telling.

How cloud computing is making innovation a commodity

Cloud computing services make innovation a commodity says Xero’s Rod Drury but there is a risk in giving AWS a monopoly

Being on the public cloud is a competitive advantage believes Xero CEO Rod Drury.

Over the past few weeks I’ve been writing a lot about cloud computing. One of the themes being pushed by many incumbent IT companies – such as Dell and EMC recently at their Las Vegas conference – is that a hybrid model of computing is developing where certain functions are given to public cloud providers while others are bought back in house.

Rod Drury, the CEO and founder of Xero, has been one of the greatest critics of this ‘hybrid’ model of computing and during an interview with him yesterday I asked him about this view that companies are bring IT services back in house.

“I completely disagree with that,” says Drury. “We’ve been on a two year journey moving from our own hosted environment to AWS. The reason for that is important.”

“We have a trillion dollars worth of transactions for the last twelve months sitting on our servers, the next stage is to apply some of the Big Data, machine learning and artificial intelligence type services. If you’re sitting there with your own private cloud, you have to invest in those technologies.”

“The benefit of being on the Amazon cloud – and this is part of the big battle between Amazon, Microsoft and Google – is you really have to be on that platform to take advantage of the commodity innovation that is in those platforms.”

“Our understanding is our incumbent competitors are still working on migrating their desktop platforms and their own data centres to cloud and haven’t made that investment where they get access to the next generation of technology.”

“So we think we’ve built a sustainable competitive advantage by being on AWS, we see Salesforce have announced they are getting on AWS, and you really have get in there because of what’s happening.”

That’s a clear view from Rod Drury and one that most ‘cloud native’ businesses will endorse. Despite the risks of vendor lock-in, companies like Xero are choosing the cloud vendors because of the access to tools and services.

For Amazon’s competitors, from the small services to the major providers such as Microsoft Azure and Google, the challenge is going to be developing and offering services that can compete with AWS.

In many respects the cloud computing world is beginning to resemble the desktop marketplace 25 years ago where Microsoft dominated and controlled the sector. Whether Amazon dominating today is in the interests of today’s cloud native companies remains to be seen, certainly though Xero’s Rod Drury seems to be happy about it.

Drury’s point though about innovation as a commodity is important though and key for businesses like his that have to adapt to changing markets quickly. Maybe that increased flexibility is the key tradeoff when dealing with the AWS juggernaut.

Getting academics onto the cloud

Discount and free software programs are good for educational programs but they do risk industry wide vendor lock in.

Offering free products to students and academics has long been a tactic used by software companies to build their market presence. The current fight for dominance in the cloud is seeing the same tactics being used.

Last week I had the opportunity to talk to Amazon Web Services’ Glenn Gore about his company’s academic support program.

Part of that conversation ended up in a story for The Australian about how researchers are now using cloud computing services and it’s worthwhile looking at how AWS are using this program to cement their products’ market positions.

“We work with the majority of universities across Australia,” Gore said. “It’s part of an international focus around how we support the education sector in general.”

In some respects AWS’s behaviour isn’t new, for years Microsoft, Autodesk and Adobe have had programs offering free or deeply discounted products for academic or student use. The success of those schemes in becoming defacto industry standards is no small reason why these companies have dominated many sectors.

Microsoft themselves have the similar Bizspark program for tech startups and it’s easy to see how that initiative is helping push Azure’s adoption into a field that has been dominated by AWS.

One of the drawbacks though with cloud computing services is the risk of ‘sticker shock’ where customers end up with big bills. One of the universities I spoke to in researching the story recounted how 0ne of their faculties was presented with a huge AWS invoice because their engineers didn’t provision the services correctly.

This is where AWS’s team steps in with advice for researchers, “in the case of Koala Genome Project use the on-demand model, the standing pricing model for the cloud,” recounts Gore in pointing out the nature of their work could use spot-pricing to take advantage of cheaper prices in off-peak times. “As a result of making that one change they were able to do eighty percent more research.”

Getting more research time is always attractive for researchers and Dr Rebecca Johnson who leads the Australian Museum’s part of the koala consortium was particularly effusive about the support from AWS staff,

“What we have been able to access via this partnership with AWS is compute time and compute capacity that we just would not have had access too,” Dr Johnson said in a media release. “It would have cost us thousands and thousands of dollars to create and we just would not build such a computer system these days. You would not create your own computer infrastructure as we would only use a fraction of it anyway. So, it is great for us to piggy back off these already built systems.”

Being a relatively small institution, the Australian Museum is a good example of how cloud computing can work for those without the resources of big universities or corporations in the same way small businesses and startups can access resources formerly only available to enterprises.

Amazon’s programs though show the Microsoft model of getting students and startups onto their systems early pays dividends. It’s good for academic institutions but one wonders whether it’s also another form of vendor lock in.

Amazon and the customer focus

The old model of seeing your customer as being a milk cow is dying. Today’s business needs a lot more focus on treating the customer with respect.

I’m currently attending the Amazon Web Service Re:Invent conference in Las Vegas.

One of the constant themes in writings about Amazon is founder Jeff Bezos’ focus on delivering the best service and cheapest prices to the customer, even if it does sometimes rely on some less savoury tactics to chase out smaller competitors.

That ethos is on show at this convention with AWS Senior Vice President, Andy Jassy saying at the post opening keynote press conference, “our strategy is to be customer focused, not only do all of our strategies and tactics work backwards from what our customers want but ninety percent of our roadmap is driven by what customers tell us matters to them.”

He did however fall for the temptation of dissing some of his competitors in the IT market saying, “most technology companies, particularly old guard companies, have lost their will and the DNA to invent. They acquire most of their invention that’s expensive and it really doesn’t fit that well together.”

“We’re extremely long term orientated,” Jassy continued. “We don’t call you on the last day of the quarter and say ‘boy, have we got a deal for you’. You won’t see us auditing our customers and fining them. We’re trying to build relationships with our customers that will outlast everyone in this room.”

Jassy’s points are pertinent to the current business world, the old model of seeing your customer as being a milk cow – something the older software companies were terribly guilty of – is dying. The future needs a lot more focus on treating the customer with respect.

Dashing to the shops with the internet of things

The Amazon Dash Button gives us a hint of how the Internet of Things will change shopping.

Amazon this week showed off their Dash Button, a device that lets brands set up a one press ordering system for customers.

The idea is that a brand, say a laundry detergent, gives out buttons that when pressed will automatically deliver washing powder or whatever product is preprogrammed into the device.

While its safe to say Amazon’s Dash button is a gimmick, it’s not hard to see washing machines, coffee makers or industrial equipment that comes preprogrammed to automatically order supplies when it detects reserves are running low.

So the Dash Button could be showing us how the Internet of Things will help us shop with smart devices automatically organising deliveries for us.

On it’s own the Amazon Dash Button won’t be changing the way we shop but the future of retail is going to be very different as the IoT rolls out.

Links of the day – redesigning the car and South China Mall.

Interesting links include Mercedes’ vision of a driverless car, an analysis of the ill fated South China Mall’s flaws and how Amazon is reorganising its R&D efforts after the failure of the Amazon Fire.

The CES extravaganza continues in Las Vegas with a wave of announcement, most of which I’m ignoring, however the motor industry continues to show off new developments with Mercedes displaying their vision of how a driverless car will look.

Other interesting links today include an analysis of the ill fated South China Mall’s flaws and how Amazon is reorganising its R&D efforts after the failure of the Amazon Fire.

Mercedes redesigns the car

A little while back I suggested that we could do better in redesigning the driverless car – Mercedes have gone ahead and done it.

Mercedes’ redesign of the driverless car indicates just what can be done when we rethink what passengers will need in the vehicles of the future.

Ford recalls a vehicle for a UI upgrade

Ford has recalled its Lincoln MKC SUV models for a software upgrade after discovering drivers were shutting down the cars by accident.

What’s notable with this story is how software changes are now one of the main reasons for recalling vehicles and how design flaws in an automobile’s computer programs are relatively quickly discovered and resolved.

We will probably find in the near future car manufacturers will carry out the upgrades remotely rather than ask owners to bring their vehicles into dealerships.

A long running security flaw is exposed

In August 2013 a security researcher warned UK online greeting card vendor Moonpig that its system exposed up to six million users’ account and financial details. Until Monday the company had ignored him. This is a tale of classic management disregard for customer security and one area where business culture needs to dramatically change.

Rumours of an AOL – Verizon merger

It’s a speculative story but if a merger between US telco Verizon and former internet giant AOL goes ahead it may mark another wave of telcos moving into content services, although it’s hard not to think that Verizon could spend its money more wisely.

After a flop, Amazon restructures its R&D

The Amazon Fire was by all measures a miserable flop as a smartphone however it seems the company learned some important lessons from the device’s market failures. Instead of abandoning its research efforts, the online behemoth is increasing it’s R&D budget and reorganising its development division.

Design fails of the South China Mall

South China Mall just south of Guangzhou has been the poster child of Chinese malinvestment during the nation’s current boom. In a blog post from 2011, a shopping mall expert visits the development and points out the major design faults in the complex which may well have doomed the project from the beginning.

Amazon solves its labour problems with robots

It looks like Amazon has found a solution to their distribution centre labour problems — replace the staff with robots.

A wired magazine article features the e-commerce giant’s new distribution centre east of San Francisco that is run largely by robots.

With its employment practice being an ongoing PR sore for Amazon, it looks like Jeff Bezos has found the solution to that problem.

For the moment the warehouse in Tracy, California still employs 4,000 workers during peak periods but it’s not hard to see how Amazon is working towards dramatically reducing that head count.

A non toxic form of midlife crisis — Audible CEO and founder Don Katz

In an interview with Decoding The New Economy, Katz describes a startup journey that covers all the bases.

“I had what my wife describes as non toxic form of midlife crisis,” says Don Katz of Audible, the company he founded in 1994 and remains CEO of today. In an interview with Decoding The New Economy, Katz describes a startup journey that covers all the bases.

As Rolling Stone’s European correspondent Katz was engaged to write a book in the early 1990s about how digital technologies were changing music and what he realised was the industry was about to go through a fundamental change.

“I had a wonderful career as a writer, I was a long form magazine writer in the glory days of ten thousand word articles,” Katz says of his life in journalism. A book commission lead him to research the future of digital distribution of written works.

Survival in the digital economy

One of the driving ideas was how creators can sustain themselves in the digital economy, “my content was already being ripped off on the Unix internet and I thought ‘how will the profession creative class sustain themselves if there’s no ability to control the distribution?'”

Having founded Audible in 1995 at a time when few people were downloading or even using the net, Katz was in the box seat of the first tech boom and subsequent tech wreck in 2001.

At the peak of the dot com boom Audible was floated on the NASDAQ stock market, “In 1999 good companies that were leading categories went public and got massive amounts of free capital.” Katz recalls, “It was one of those weird moments, there were 1500 publicly listed internet companies at the beginning of 2000 and there were 140 by 2003.”

Surviving the dot com bust

Katz puts the company’s survival during that period to a conservative attitude towards capital and the alliances he had created with the industry’s major players — at one stage Microsoft held a 37% share in the company and Katz was one of Steve Jobs’ confidants during the early development of the iPod.

Eventually one of those alliances became critical when Katz became bored with running a listed company, “it was an amazing adventure being a public company CEO for nine and a half years. It was very exciting and an honour to serve shareholders.”

Katz’s patience ran out with being a public company CEO when automated trading came to dominate the daily operations of management, “suddenly you had this metaphysical sense of ‘who are you working for if someone wants volatility?’ That suddenly got old.”

Audible already had a relationship with Amazon who had taken five percent of the business in 2000 in return for bundling audio book links on the ecommerce giant’s book pages. Katz also found Amazon founder Jeff Bezo’s long term view towards investment and returns a much more satisfying business model than the day to day grind of meeting short term shareholder demands.

In early 2008 Amazon bought Audible for $300 million and retained Katz as the company’s CEO.

Building new startups

For new startups, Katz advises “make an absolutely fearless inventory of what you know is true about this idea and what you’re good at and what you’re not good at.”

“You need to have people you can trust and believe in. Beyond that, be very sober about business models that are sustainable. There’s a lot mistakes that people make where you’re solving a problem in a piece of a value chain that isn’t sustainable. It’s easy to get confused about who the customer is.”

“Figure out who the real customer is. Sometime people overplay the fact that the customer is the capital, the capital will come if people have the innovation and the passion.”

Amazon learns that profits matter

One of the leaders of the disruptive economy, Amazon, feeling the heat as other deep pocketed rivals put pressure on its businesses.

It’s typical for a new businesses to go several years making losses but Amazon has barely made a profit over the last twenty years despite being valued at $150 billion by the stockmarket.

That luck could be running out though as the Amazon’s stock fell nearly 10% last week after the company announced it had slipped back into losses last quarter.

Amazon’s losses are largely due to Google starting a price war on web services which is a warning that other deep pocketed web giants are now lining up for the company.

Google’s actions in crippling Amazon are somewhat ironic given how Amazon disrupted the publishing industry by using its deep pockets to subsidise its loss making bookselling business.

Amazon’s problem is it operates in commoditised industries where deep pocketed players are prepared to challenge the company’s market position.

Companies like Google and Apple have incredibly profitable products like Adwords and the iPhone while Amazon relies on the largesse of investors hoping to turn a future profit, that is a clear weakness against strong, well funded businesses.

For a tech company, twenty years is clearly the future and now Amazon has to define exactly where the profits are in its business.

Sometimes, just being a disruptor isn’t enough.