Weekly reading – 21st August 2021

What I wrote last week

I came across a couple of posts from Afghanistan veterans on their experience there

My notes from the 2021 Debit Issuer Study

My thoughts on recent developments from PayPal

Business

Inside HBO Max’s Scramble to Fix Its Glitchy App. In the streaming world, the user experience is critical in keeping customers engaged and the churn down. HBO Max fumbled the ball terribly with their confusing brands, products and messaging in the beginning. I don’t think I am a dumbass, but I didn’t even know the difference between HBO, HBO Max or HBO Now. Then, they out together an app that was littered with bugs as summarized in the article. The reason, as reported, is that they merged the two legacy apps that were built for different purposes. One was built to offer ad-free content while the other featured commercials. It is not a surprise that bugs happened. What is a surprise is that an institution like HBO or Warner Media let it happen in the first place.

Amazon Plans to Open Large Retail Locations Akin to Department Stores. This move may be Amazon’s attempt to copy what other retailers like Target do. They fulfill online orders from their network of stores. It takes a lot of stores to cover the country and logistics management to figure out the inventory and the actual shipping. We’ll see.

Walmart’s e-commerce business is set to hit $75B in sales this year

Paying With a Credit Card? That’s Going to Cost You. If this trend is legit and merchants continue with the surcharge (which is not an uncommon practice in Vietnam), it and the growing popularity of BNPL will have adverse effect on credit card spend. Remember: BNPL is mostly funded through debit cards

How the Apple lobbying machine took on Georgia, and won. Apple is my largest position. However, I found the whole lobbying issue troubling. It’s nothing different from companies writing bills and lawmakers enacting such bills.

What I found interesting

‘Likes’ and ‘shares’ teach people to express more outrage online

China Passes One of the World’s Strictest Data-Privacy Laws

Another excellent post by Morgan Housel. In light of what happened in Afghanistan today, I can’t help but think about what small events in the past could have prevented this war in the beginning and what would happen to the people of Afghanistan in the future after the U.S pulled out

One is to base your predictions on how people behave vs. specific events. Predicting what the world will look like in, say, 2050, is just impossible. But predicting that people will still respond to greed, fear, opportunity, exploitation, risk, uncertainty, tribal affiliations and social persuasion in the same way is a bet I’d take.

Another – made so starkly in the last year and a half – is that no matter what the world looks like today, and what seems obvious today, everything can change tomorrow because of some tiny accident no one’s thinking about. Events, like money, compound. And the central feature of compounding is that it’s never intuitive how big something can grow from a small beginning.

Source: Collaborative Fund

Stats that may interest you

50% of surveyed Americans have no problem with false information online

Target’s Circle Rewards Program reaches 100 million subscribers

Weekly reading – 14th August 2021

What I wrote last week

I wrote about Square’s acquisition of Afterpay

Business

In the Streaming Wars, Sony Stands on the Sidelines. I think for the short term, it makes sense for Sony to adopt a zig-when-everyone-else-zags strategy as building a streaming service is not Sony’s strength. Of course, no strategy is risk-free. If the big streamers can create content on their own and don’t need Sony any more, the iconic Japanese firm will be in deep trouble. It is a big bet from Sony, but as the market stands today, I don’t think the company has too many options left.

Rappi’s poor service opens the door for competition, but users aren’t leaving yet. Two things from this article struck me: 1/ even though they were horrible incidents with services and customer support, there hasn’t been a customer exodus from Rappi yet. 2/ RappiPay is the most profitable and fastest growing part of the company. If the challenging delivery gig doesn’t work out for the company, it can pivot to be a full blown fintech.

Amazon’s $1.5 billion air cargo hub starts operations. In the arms race to compete with other retailers or eCommerce platforms like Shopify, solidifying or even adding to their advantage in infrastructure and last-mile delivery is the right move for Amazon. Just look at the price tag of the cargo hub. If anyone wants to compete with Amazon on this front, that’s at least what they should expect to spend. And it’s a tall order for many companies. With that being said, having another cargo hub doesn’t guarantee success, so it will be interesting to follow this market in the near future.

Excerpt: How Google bought Android—according to folks in the room. The founders of Google, especially Larry, do seem to have excellent foresight in acquiring Android. I look forward to this book.

What I found interesting

John Gruber’s excellent post on Apple’s new “Child Safety” measures. The nuances and details laid out by John are very enlightening and important in understanding what Apple is doing here.

Reality has a surprising amount of detail. The devil is in the details

Archaeologists discover 4,000-year-old ancient city in Iraqi desert. Imagine you see now something that existed 4,000 years ago. That must be a surreal feeling.

Believing In Yourself is Overrated. This is Better. I am not really a fan of the “fake it till you make it” mentality. So I am very glad that Ryan Holiday wrote about it since he is far more eloquent than I can ever be. In short, the more effort you put in something, the more confident you are in yourself

Stats that may interest you

Momo has 60% of Vietnam’s mobile payments market

Amazon has 11% of the U.S ads market

Amazon spent $6.2 billion on video and music content in the first 6 months of 2021. To put it in perspective, Netflix spent a tad lower than $8 billion on content in the same period

Weekly reading – 7th August 2021

What I wrote last week

I wrote about why credit card issuers should try to get into consumer digital wallets

Business

Pearson bets on direct-to-student subscription shift. I am never a fan of publishers like Pearson for a simple reason: books are murderously expensive in the U.S. In addition to the sky-high tuition fees, students have to pay easily a few hundred dollars or a thousand dollars a semester for books alone. There are ways to go around that challenge, but sometimes these guys work with professors and students are left with no choice, but to make a big splash on books. Pearson seems to be aware of the unsustainability of their current model. By going straight to students, they can establish a direct relationship and avoid relying too much on educational institutions. $15/month means students can pay $75/semester for access to all the books required. However, there are other publishers on the market. If students must get books from multiple sources, it can dilute the appeal of this new service from Pearson. I really look forward to seeing how this strategic move will pan out in the future.

Apple Is Now an Antifragile Company. A nice article on how shrewd Apple is when it comes to securing its chip supply while other struggle. I feel that not enough has been said about what a great job Apple’s management team has been doing. It takes a great deal of discipline to use billions of cash wisely quarter after quarter. The executives also have the foresight to develop their own chip M1 to keep more control of their fate and avoid being in the mercy of Intel. Additionally, the decision to make forward orders in bulk in advance has proven to superior. While others cite the struggle with chip supply as the reason for their relative subdued performance, Apple still posted strong results.

Music labels split over Spotify’s push to promote songs for lower royalties. I haven’t used the Discovery Mode yet, so I don’t know what it is like. I did have a less than stellar experience with the Spotify app; which I haven’t used for a long time. It’s not user-friendly at all. And if what is reported in the article is true, as a shareholder, I’ll be very disappointed. Sacrificing the user experience and the integrity of an algorithm like that over lower royalties and higher margin isn’t in the long-term best interest for the company, in my view.

Disney, WarnerMedia and NBCUniversal wrestle with balancing the value of cable networks and streaming services. I don’t think streaming is the best place for a newcomer with one cash cow to enter. The likes of Apple can arrive late at the part and compete because they have enormous resources and streaming isn’t their top 5 or 7 revenue stream.

The Verge interview with YouTube Chief Product Officer.

5 charts show Amazon’s growing logistics network as it puts inventory closer to consumers. Some great data and information, but I don’t think Amazon is playing the same game as Walmart. Operating huge stores with a lot of SKUs is not Amazon’s strength, at least compared to Walmart, for now. I don’t think it’s wise for Amazon to get into that arena. What I think Amazon is plowing money into is the last mile delivery. If groceries are what needs delivering, they are building out Amazon Go shops and can leverage Whole Foods footprint. However, if we are talking about non-grocery items, then Amazon is taking a very different approach to Walmart and staying at what Amazon has been great at: an online store with great customer services and unrivaled last-mile delivery network

What I found interesting

U.S. generates more plastic trash than any other nation. The amount of plastic bags in supermarkets in the U.S such as Target or Walmart staggered me. I don’t understand why they don’t implement policies that encourage shoppers to bring their own bags or boxes like Aldi does. At Aldi, you have to bring your own bag unless you are willing to pay for one every single time. I don’t think shoppers are bothered by that. If the likes of Target and Walmart can join the fight against unnecessary use of plastic, it’ll be a huge step forward given the reach and size of these retailers.

London’s Crossrail Is a $21 Billion Test of Virtual Modeling. Technology is mind-blowing. So is human imagination

Stats that may interest you

Luggage sales are up more than 460% year over year (Q1 2021)  on Amazon while swimwear sales have more than doubled year over year as of March and April 2021

From 2006 to 2021 per-capita volume consumption of juice and nectars in the U.S. declined 36%

Weekly reading – 26th June 2021

What I wrote last week

A great podcast episode on Formula One as a business

Business

The World Relies on One Chip Maker in Taiwan, Leaving Everyone Vulnerable. The whole tech industry relies so much on TSMC and the story is likely to continue in the near future. It’s expensive and time-consuming for other countries to build anything that can compete with TSMC. On the other hand, this puts TSMC in an awkward position where it has to deftly navigate the complex political conflicts between superpowers.

Shop Pay available to all businesses on Facebook and Google. I think Shopify is trying to do two things here with this move: 1/ it’s trying to use Shop Pay as an acquisition tool. By making the checkout option available to even non-Shopify merchants on Facebook and Google, it is hoping that the tool can lure these merchants into selling on their platform. 2/ Obviously, this is going to also help Shopify increase revenue. Even though Shopify’s GMV has grown seriously in the last few years, GMV of non-Shopify merchants should be a lot bigger. Taking a slice of every non-Shopify transaction can be a lucrative business

Amazon labels millions of unsold products for destruction, new investigation finds. Lately there have been way too many articles that shed light on distasteful aspects of Amazon, from unbearable waste to unacceptable treatment of its worker. I have to admit that even though I am a fan of the business as I learned a lot from its story and I am a shareholder, I am strongly considering selling it as it’s just not comfortable any more.

A timeline of Google’s attempts at building a messaging app. The fact that you may be more familiar with Zoom, Teams or Slack should tell you a lot about how successful these attempts have been. Nonetheless, it doesn’t mean that they won’t succeed, ever.

Facebook officially launched audio rooms and podcasts in the U.S. Facebook is an extremely fast follower that is quite often deadly and effective at scaling what others made known. How they are going to make these new features will be interesting. I mean I am not an active Facebook user and neither are most of the people in my circle. Who will use these features to create content? Will celebrities and people that have a following choose to host their content on Facebook? Especially given that they should already have a home on either Twitter or Clubhouse? One big advantage that Facebook has over Twitter and especially Clubhouse is that it is much more famous and the network effect is easier to scale.

This one email explains Apple. The article does a good job of fleshing out a very interesting email exchange that could well be the foundation of the App Store

What I found interesting

Incredible 15th-Century Japanese Technique for Growing Ultra-Straight Cedar Trees. I love Japan and its culture. This is just one of the many many reasons.

Adobe launched tools to create 3D

Marc Andreessen just had a very interesting interview recently. In response to the question of what advice he would give to a 23-year-old, here is what he had to say

Don’t follow your passion. Seriously. Don’t follow your passion. Your passion is likely more dumb and useless than anything else. Your passion should be your hobby, not your work. Do it in your spare time.

Instead, at work, seek to contribute. Find the hottest, most vibrant part of the economy you can and figure out how you can contribute best and most. Make yourself of value to the people around you, to your customers and coworkers, and try to increase that value every day.

It can sometimes feel that all the exciting things have already happened, that the frontier is closed, that we’re at the end of technological history and there’s nothing left to do but maintain what already exists. This is just a failure of imagination. In fact, the opposite is true. We’re surrounding by rotting incumbents that will all need to be replaced by new technologies. Let’s get on it.

Source: Interview with Marc Andreessen by Noah Opinion

Stats that may interest you

The average age of vehicles in the U.S was 12.1 years in 2020

Shops, Facebook’s equivalent to Shopify, has 300 million monthly visitors and over 1.2 million monthly active Shops

DuckDuckGo has been downloaded 50 million times over the last 12 months and it has been profitable since 2014

Book Review – Amazon Unbound

Brad Stone followed his first book on Amazon “The Everything Store” with “Amazon Unbound” ten years apart. Similar to its predecessor, this book is the result of extensive research and journalism on the company that captures the imagination and admiration of the public and millions around the world. How much you like this book depends on how familiar you are with the company and its enigmatic and iconic founder, Jeff Bezos. Personally, having read quite a bit on both, I didn’t find some chapters very useful or interesting because I didn’t think it was necessary for me to know in details what happened internally. With that being said, I did find the book worth the time. If you are fond of business and Amazon, give it a try! Below are a few things that stood out for me

Bezos’ ability to think big and delegate

The chapters on the development of Alexa, Amazon Go, Indian market as well as the acquisition of Whole Foods is interesting. In these chapters, readers can see how Jeff’s ability to think big and push his team to think big resulted in unfathomable success. His vision and boldness led the team to enduring long working hours for years and challenges, both technically and from the market, to introduce services and products that have proven to be strategic assets to Amazon. His genius also lies in his willingness to delegate big & important projects to his team. His previous Technical Advisors led the charge on Alexa, AWS and India. In addition to opportunity and resources, Bezos also provides oversight and counsel, and often the push that his team needs to think big.

“By then, Amazon’s China bet was souring, so Bezos did not want to relinquish his shot at what seemed like the world’s next largest prize. In most OP1 sessions, he usually spoke last, not to sway the group with his formidable opinion. But this time, he interjected while Agarwal was still giving his presentation. “You guys are going to fail,” he bluntly told the Indian crew. “I don’t need computer scientists in India. I need cowboys.

“Don’t come to me with a plan that assumes I will only make a certain level of investment,” Bezos continued, according to the recollection of two executives who were there. “Tell me how to win. Then tell me how much it costs.” Another Indian executive at the meeting, Amit Deshpande, says the message was: “Go big and take risks. Make it happen. We have your backs.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Bezos and his employees riffed on the idea over email for a few days, but no further action was taken, and it could have ended there. Then a few weeks later, Hart met with Bezos in a sixth-floor conference room in Amazon’s headquarters, Day 1 North, to discuss his career options. His tenure as TA was wrapping up, so they discussed several possible opportunities to lead new initiatives at the company, including positions in Amazon’s video streaming and advertising groups. Bezos jotted their ideas down on a whiteboard, adding a few of his own, and then started to apply his usual criteria to assess their merit: If they work, will they grow to become big businesses? If the company didn’t pursue them aggressively now, would it miss an opportunity? Eventually Bezos and Hart crossed off all the items on the list except one—pursuing Bezos’s idea for a voice-activated cloud computer.

“Jeff, I don’t have any experience in hardware, and the largest software team I’ve led is only about forty people,” Hart recalled saying. “You’ll do fine,” Bezos replied.

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Even heroes aren’t perfect

Jeff Bezos is known for making his employees put their ideas into a PR FAQ, which is a single pager that summarizes key points on a new product/service, or a 6-page memo that includes analysis and rationale for an idea or a big initiative. I love this approach. I think it makes a lot of sense to ask folks to put thoughts to paper and strengthen their ideas. However, when it comes to Jeff’s own ideas, he sometimes didn’t meet the high standard. Furthermore, Jeff instills the philosophy of “single-threaded leaders” into Amazon. The thinking here is that when somebody is responsible for an initiative, they shouldn’t be distracted by anything else. Jeff’s focus was initially only on Amazon. Over the years, he became distracted by his new girlfriend and his investments in Blue Origin & Washington Post. The book detailed how he missed meetings and went for days without a visit to the office. He was still involved at Amazon, but that’s not the standard of focus that he demands from his employees.

What I took away from this is the reinforcement of the belief that even your heroes are far from perfect. They don’t always practice what they preach. It doesn’t mean they don’t have good ideas, but it also doesn’t mean that they are perfect either. We should look at people, or at least try to, with some grain of salt, instead of blind loyalty or admiration.

“The first, which Bezos proposed in a free-flowing brainstorm session in 2014, started as a notion he called “the steak truck.” Imagined as “an ice cream truck for adults,” the original suggestion was to stock a van or truck with steaks, drive into neighborhoods with lights flashing and horn blaring, and sell them to residents, as Doug Herrington remembered it. It would be convenient and a great deal for customers, since the meat was being sold in bulk. Eventually, the company might even predict demand and eliminate the inefficiencies and wasted food of supermarkets.”

“But the service was never as ubiquitous or as endearing as Jeff Bezos and Doug Herrington had hoped. Internet critics were baffled by the project and sneered at some of the more inexplicable deals (“bidet sprayers for $19.99, 33% off!”). One empty Treasure Truck burst into flames in a West Philadelphia parking lot at 1:30 a.m. Bezos briefly touted the initiative in his 2017 shareholder letter, but an executive on the finance team told me that it never performed particularly well or was close to profitable. If Amazon wanted to arouse excitement and loyalty for its fledgling grocery services, it needed something else entirely—like a unique product that customers were passionate about.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Well, Bezos had an idea for that as well and it was just as bizarre. In August 2015, the Washington Post published an unappetizing article about how a single hamburger might contain the meat of up to a hundred cows. Sourcing a burger from just a single cow could theoretically produce a superior-tasting patty but that “would be hard and expensive,” a meat distributor told the paper. That caught Bezos’s attention. He seemed to have increasingly adventurous tastes, later sampling an iguana, for example, at a meeting of New York City’s Explorers Club. In another brainstorming meeting with Herrington, he suggested they find a ranch to produce a “single cow burger” and make it a unique item that customers could only buy from Amazon. “I really think you should try this,” Bezos told Herrington, who recalled thinking at first it was a joke. “How hard can it be?”

“The project once again represented a different style of innovation within Amazon. Employees didn’t “work backwards” from their idealized customers, who had never asked for such a creation. They worked backwards from Bezos’s intuition and were catering to his sometimes eclectic tastes (literally). Bezos was right a lot, particularly when it came to cutting-edge technology. But in the end, the single cow burger and other culinary innovations introduced within Amazon Fresh generated little buzz or increased business.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Still, many Amazon execs and alums would have a hard time moving on so easily. Bezos had always demanded that Amazonians comport themselves with discretion and impeccable judgment. He ripped documents in half and walked out of rooms when employees fell short of expectations. By conducting an extramarital relationship so carelessly that it became fodder for a salacious spread in the National Enquirer and then a high-profile media free-for-all, he had failed to meet his own high standards. Dozens of current and former executives would later say that they were surprised and disappointed by Bezos’s affair. Their infallible and righteous leader was, after all, a flawed human.

The revelations also might have explained some of the more curious changes in his recent behavior. Bezos had been increasingly hard to find in the Seattle offices over the past year; OP1 meetings had been delayed or postponed, and longtime deputies were finding it difficult to get time on his calendar. He was spending more time traveling, colleagues had noticed, and that November had popped up with only a few hours’ notice in the Santa Monica offices of Ring, the connected doorbell startup Amazon had acquired in February 2018.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Dark side of Amazon

Amazon is not an angel. There is a dark side that involves using the practice of leveraging data from 3rd parties for their own advantage and sacrificing smaller merchants for their own profit. Are those practices cringe-worthy and distasteful? Yes. Are they illegal? It’s clearly in the grey right now as the government is still conducting its investigation and no charge has been announced on Amazon yet. Nonetheless, given the threat from the likes of Shopify, these practices can cause concern and fear from 3rd parties, which can ultimately lead to sizable losses and damage for Amazon.

“Wendell Morris largely agreed with that sentiment. The founder of the Santa Monica–based YogaRat was one of the first sellers on Amazon to hawk yoga mats and yoga towels; he later expanded into beach towels and microfiber blankets, all sourced from China. In 2014, he became one of the few Amazon sellers that Jeff Bezos touted by name in his widely read annual letters to shareholders. “The beauty of Amazon is that someone can say, ‘I want to start a business,’ and they can go on Amazon and really start a business,” Bezos had quoted Morris as saying that year. “You don’t have to get a lease on a building or even have any employees at first. You can just do it on your own. And that’s what I did.”

But by the time I talked to him, Morris, like Saunders, had changed his opinion. In 2016, when YogaRat employed seven people, he found that his listings were inexplicably disappearing from Amazon’s search results. He spent hours on the phone with an Amazon customer support staffer in India and wrote pleading emails to Bezos’s public email address. His listings were finally restored, though they never returned to their previous positions at the top of search results. A year later, his seller account was suspended altogether because some of the images on his listings violated Amazon’s guidelines against depicting groups of people in product photos. Morris conceded the error while bitterly showing me how countless other sellers violated the same rules without penalty. Someone—probably a competitor—had singled him out to Amazon’s enforcement team.”

“While Morris scrambled to reinstate his account, other sellers of the same merchandise replaced him atop search results. YogaRat never recovered. He now runs what’s left of his firm alone with his wife, and the challenges are daunting. He is constantly fighting overseas knockoffs of his designs and reviews of his products that mysteriously show up on rival listings. When he calls Amazon customer service, he suspects the reps’ primary metric for success is how quickly they can get off the phone. Once a devoted yogi, Morris can barely stand to look at a yoga mat anymore.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Aarstol tried to advertise on Amazon to boost his visibility but that gutted his profits. In the years after he was mentioned in Bezos’s letter, he went from employing ten people to three and from recording $4 million in annual sales to less than $1.5 million. “Amazon doesn’t give a shit about brands,” said Aarstol, who by 2020 was almost completely off Amazon and focusing on sales over his own website. “They don’t care whether you live or die.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Speaking on the condition of anonymity, several private-label managers admitted to exploiting a resource that was even more precious than product reviews—prominence in Amazon’s search results. When they introduced a new brand, like Mama Bear diapers, a practice called “search seeding” allowed the brand managers to pin the initial relevancy score for the new product to the score of an established product, such as Pampers, at least for the first few days. The Amazon product would then appear at the top of search results, rather than starting on the unseen last page with other new brands.

When I asked Doug Herrington whether Amazon changed search results for its private-label products, he flatly denied the practice occurred. “We don’t manipulate search results at all,” he said. He added that Amazon brands were sometimes given prominent advertising slots in search results when they were a “great deal for the customer,” and if customers didn’t respond, the Amazon products quickly vanished. He also compared Amazon’s tactics to those of competing physical retailers, who put generic products like painkillers right next to Tylenol and Advil, taking up limited shelf space. Amazon, on the other hand, had “infinite aisles,”

One who worked on a new lifestyle brand called Solimo said she originally assumed third-party data was off limits when she joined the company in 2016. A year into her job, her boss showed her how to access the sales data and told her to ask Amazon’s data analysts if she needed help. The employee, who asked that her name not be used, subsequently examined third-party sales to determine the fastest-selling vitamin supplements, how many units were sold, and the average selling price and profitability of each.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Other interesting anecdotes

“Logistics employees who worked on the California service said this hub-and-spoke model ended up being inefficient and unreliable; one said that Amazon was “basically stapling a $10 or $20 bill to every order.” The Fresh team also tracked a metric called “perfect deliveries”—when an order was promptly delivered and included every item. They found they were hitting that target less than 70 percent of the time. Grocery industry veterans belittled the effort from afar. “Amazon Fresh is their Waterloo,” John Mackey told me during our chat in 2014. “What’s the one thing people want? Convenience. You can’t do that with distribution centers and trucks.”

“Success in delivering online groceries relied on getting the logistics exactly right and amassing enough demand to make it profitable to send drivers into residential neighborhoods. Amazon had set up warehouses too far from customers, made it too expensive for them to sign up, and saddled them with bulky tote bags and sacks of dry ice after each delivery. Bezos had finally agreed with Doug Herrington that Amazon needed to reinvent its retail business, but they were going to have to find a different way to do it.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“For the next few quarters, Amazon avoided buying Google ads in Mexico and tried to compensate with billboards, radio, and TV ads, and shipping discounts. As Garcia had feared, it hobbled the site. The offline ads were more expensive and less effective. Google brought in $70 billion in annual advertising revenues because search ads worked and were a relatively inexpensive way for websites to attract visitors. “I wanted to see if we could get traction in a country launch without using Google,” Wilke later said, “and it turned out, the answer was no…. We weren’t reaching enough customers.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Internally the program was called AMPED. Amazon contracted with an Australian data collection firm, Appen, and went on the road with Alexa, in disguise. Appen rented homes and apartments, initially in Boston, and then Amazon littered several rooms with all kinds of “decoy” devices: pedestal microphones, Xbox gaming consoles, televisions, and tablets. There were also some twenty Alexa devices planted around the rooms at different heights, each shrouded in an acoustic fabric that hid them from view but allowed sound to pass through. Appen then contracted with a temp agency, and a stream of contract workers filtered through the properties, eight hours a day, six days a week, reading scripts from an iPad with canned lines and open-ended requests like “ask to play your favorite tune” and “ask anything you’d like an assistant to do.”

The speakers were turned off, so the Alexas didn’t make a peep, but the seven microphones on each device captured everything and streamed the audio to Amazon’s servers. Then another army of workers manually reviewed the recordings and annotated the transcripts, classifying queries that might stump a machine, like “turn on Hunger Games,” as a request to play the Jennifer Lawrence film, so that the next time, Alexa would know.

The Boston test showed promise, so Amazon expanded the program, renting more homes and apartments in Seattle and ten other cities over the next six months to capture the voices and speech patterns of thousands more paid volunteers. It was a mushroom-cloud explosion of data about device placement, acoustic environments, background noise, regional accents, and all the gloriously random ways a human being might phrase a simple request to hear the weather, for example, or play a Justin Timberlake hit.

The daylong flood of random people into homes and apartments repeatedly provoked suspicious neighbors to call the police. In one instance, a resident of a Boston condo complex suspected a drug-dealing or prostitution ring was next door and called the cops, who asked to enter the apartment. The nervous staff gave them an elusive explanation and a tour and afterward hastily shut down the site. Occasionally, temp workers would show up, consider the bizarre script and vagueness of the entire affair, and simply refuse to participate. One Amazon employee who was annotating transcripts later recalled hearing a temp worker interrupt a session and whisper to whoever he suspected was listening: “This is so dumb. The company behind this should be embarrassed!

But Amazon was anything but embarrassed. By 2014, it had increased its store of speech data by a factor of ten thousand and largely closed the data gap with rivals like Apple and Google. ”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.


Weekly reading – 22nd May 2021

What I wrote last week

I gave examples of how prices on Amazon can be much higher than what you can find at retailers

A couple of great clips about soy sauce and its history

A review of Disney’s Q2 FY2021 results

My thoughts on Paypal

Business

A Moneyball Experiment in English Soccer’s Second Tier. Although people are quick to point out that Billy didn’t win a title with his Money Ball method, his team did improve within his limited resources. Barnsley will unlikely win any title, especially the Premier League. However, as long as the team makes it to the top tier and earns more money by just showing up, it should be an astounding success itself.

Why former Google ads boss Sridhar Ramaswamy is building an ad-free search engine. A pretty interesting interview. I wonder what would make such a search engine attractive enough that people would pay to use it. I mean, DuckDuckGo is pretty great and it is privacy-focused. And it’s free.

Panera Bread’s new design transforms it into a neighborhood bakery in a bid to build loyalty. Retailers have to focus on delivering experience. The physical goods are a must, but it’s just part of the puzzle.

What I find interesting

Khmer Temple-Hopping Motorbike Loop | Tra Vinh. Vietnam has a lot to offer in terms of tourism. I’d say that instead of frustrating yourself in touristy places, you should head to destinations like Tra Vinh, which have their own charm, beauty and history. Personally, I prefer Tra Vinh to cities like Nha Trang or Mui Ne.

Hyundai Nexo breaks world record for longest distance travelled in a FCEV. Even though a long distance was achieved with one tank of hydrogen fuel, eventually these cars still need to refuel. Hence, the challenge of propping up fuel stations in popular areas still remains. Unless that is accomplished, there is still a long way to go for fuel-cell-electric vehicles. Though the way got a tiny bit shorter.

Censorship, Surveillance and Profits: A Hard Bargain for Apple in China. Not only is China a $50 billion market for Apple, but it also houses its main irreplaceable yet supply chain. Even a local billionaire hero like Jack Ma disappeared over night and lost his influence after angering the government and President Xi. What chance does Apple have to be anything different? If Apple still wants to do business in China, it has no choice but to do everything it can to balance between appeasing Xi and protecting its customers as well as principles. Some may say that Apple could have pulled out of the country like Google. Well, that’s Google principle. Tim Cook’s principle is to show up because “nothing changes from being on the sideline”. You can disagree with his or Apple’s principle, but you can’t just change it. Additionally, as a Vietnamese, I don’t think it would be much better to relocate all the supply chain to my country. The story would be more of the same. Well, in many countries, it would still be more of the same.

Google Workspace got a huge upgrade. At first glance, the upgrade looks so interesting.

The 1,400-year-old invention Peru is reviving. In the age of technology when our societies are more technologically advanced than ever, ancient techniques tested over the years continue to be effective.

Apple previews powerful software updates designed for people with disabilities

You may soon be able to buy pre-IPO stocks

Stats that may interest you

Ethereum will use at least ~99.95% less energy post merge

There are 3 billion active Android devices

The average age of bridges in America is 44 years

You may be ripped off on Amazon. Do yourself a favor and check other retailers’ prices

I noticed that there were a few products that were much more expensive on Amazon than from other retailers. Take Choc Zero chocolate and hazelnut spread as an example. This is a product I really like because 1/ it’s chocolate and 2/ it’s keto. While a 12oz jar is sold for $9 on Choc Zero’s website, you’ll have to pay $20.81 for the same jar on Amazon, whether you have a Prime membership or not. Sure enough, with Prime, you don’t have to meet a minimum order requirement from the manufacturer itself, but after including the shipping fee of $5 from Choc Zero, the whole order will still be much cheaper than what is available on Amazon.

A 12oz jar of Keto Chocolate Hazel Nut Spread
Figure 1 – A 12oz jar of Keto Chocolate Hazel Nut Spread on Choc Zero’s website. Source: Choc Zero
Figure 2 – The same jar on Amazon. Source: Amazon

Another product that has the same issue is Fromm Tunachovy Cat Dry Food. A 5lb bag of Fromm Tunachovy Grain Free Salmon Dry Food costs around $20-$21 at normal retailers. The same product is running at $35.49 on Amazon with or without Prime.

Fromm Tunachovy Cat Dry Food at retailers
Figure 3 – A 5lb bag of Fromm Tunachovy Cat Dry Food costs around $21 at retailers
Fromm Tunachovy Salmon Cat Dry Food on Amazon
Figure 4 – The same bag costs $35.5 on Amazon. Source: Amazon

The difference in price likely results from multiple fees and commissions that retailers have to pay for the privilege of being on Amazon. To keep the same margin, retailers have no option but to raise prices. However, increased prices make their products look less competitive and friendly to consumers. How many consumers wanted to buy the two products above on Amazon but abandoned the plan because they look too pricey? I mean, how many are not deterred by a jar of chocolate spread costing $20? I sure was. Much as I like the convenience of shopping with Amazon, I’d rather buy more in quantity than what I actually need at the moment to save me quite a bit of money.

The lesson here is that: check the prices of what you are about to buy with other retailers before hitting that “Order” button on Amazon.

Weekly reading – 8th May 2021

What I wrote last week

Amazon continues to impress with another blow-out quarter

Uber & Gopuff. Amazon Prime Video streams NFL games in 2022

Uber’s Delivery is on fire despite $600 million expense set aside for the driver dispute in the UK

Business

How Apple does M&A: Small and quiet, with no bankers. Information is extremely valuable in business. Apple’s known culture of secrecy is meant to keep competitors from knowing what it has in the pipeline. We don’t often see Apple make huge purchases. Instead of buying companies to grow the top line, they focus on the people, especially technical engineers. That’s a smart move.

A great Business Breakdown episode on Twilio. If you don’t know about the business, have a listen.

What Is a Business Model? 54 Successful Types of Business Models You Need to Know. This type of content renders expensive MBAs obsolete.

Clubhouse’s downloads plummeted in April. I have been on Clubhouse for 2 months, and yet I haven’t made it to the end of one single chat. Plus, it’s not appealing to the end users that there is no recording. Not everyone has enough time in a day to wait for talks to come and listen to everything. Not so surprising to see the app’s popularity take a huge blow. I just wonder what a16z saw in it.

Amazon Expanding Garage Grocery Delivery to more than 5,000 cities

A great podcast episode on Visa. This company probably has one of the strongest moats out there. Its market cap is higher than those of big banks.

How Shopify’s network of sellers can take on Amazon

What Is an Entertainment Company in 2021 and Why Does the Answer Matter?

What I found interesting

Green gold: Avocado farming on the rise in Africa

Playlists and podcasts? Netflix is exploring developing ‘N-Plus’

Stats that may interest you

60% of Instagram users eligible to link up with their Messenger account did use the feature

20% of electric vehicle owners in California switched back to gas because charging is a hassle. This is indeed not great news for EV as well as hydrogen cells. But I believe that the great potential of green energy cars is here to stay and we’ll overcome this challenge somehow.

Facebook Workplace reaches 7 million paid subscribers. I do wonder how far Facebook’s push into the corporate world will go. I don’t see how they can overcome the disconnect between their own brand and the seriousness that the 9-5 world carries

95% of iOS 14.5 users disabled App Tracking. There are two sides of this debate. Proponents of privacy applaud this move by Apple because it aids consumer privacy and stops cross-app tracking. Critics say that Apple’s motive isn’t altruistic. Instead, they argue that Apple wants to harm the advertising industry, to inadvertently strengthen the position of Google & Facebook and to boost Apple’s own advertising business. Well, when two parties have conflicting interests (advertisers and consumers), Apple must choose one to side with and in this case, whatever their motive is, they side with consumers.

Social commerce made up 40% of Southeast Asia’s $109 billion e-Commerce in 2020

Uber & GoPuff. Amazon streams NFL games on Prime Video in 2022

Uber boosts its grocery delivery with GoPuff

Per Bloomberg:

Uber Technologies Inc. will vastly expand grocery delivery in the U.S. this summer through a partnership with GoPuff, a fast-growing delivery startup and the owner of the liquor store chain BevMo!, the companies plan to announce Tuesday.

GoPuff will make inventory of convenience store and grocery items available to Uber customers in 95 cities starting next month and nationwide by the end of the summer, the companies said. GoPuff will handle logistics and delivery for the orders, and Uber will take a percentage of each transaction made through its app.

GoPuff, which was founded in 2013, is a delivery startup that focuses on “essential items” such as snacks, pet products, beauty products or liquor. The model on which GoPuff operates is a bit different from other delivery services. Instead of having their drivers pick up items from the stores, GoPuff distributes orders from their micro-fulfillment centers strategically located in markets across the US. According to the startup, it is now operating 250+ fulfillment centers and serving more than 650 cities.

In terms of unit economics, every order on GoPuff has to be at least $10.95. The company charges users a flat delivery fee of $1.95 for every order and claims that there is no surge price. For orders that contain alcohol, there is an additional $2 to cover extra efforts to verify identifications and meet legal compliance. To avoid the flat delivery fee, users can enroll in their rewards program called GoPuff Fam for $5.95/month.

By partnering with Uber, GoPuff is hoping to use Uber’s popularity to drive more traffic and business. Once orders and revenue increase, it will make other aspects of the business easier to manage such as acquiring drivers or pleasing investors. The risk here is that the startup is sharing the customer relationship to Uber. Handling the delivery of every order from this partnership, GoPuff still interacts with the end customers. Nonetheless, at the top of the funnel, customers will still place orders within Uber. Plus, a portion of the sales goes to Uber for the privilege to be in their app. I really hope that GoPuff will structure the deal that enables them to have a marketing communication customers at the end of every order such as a coupon or discount for direct orders.

For Uber, this partnership will boost their Delivery service. While Covid-19 has (still) greatly damaged Uber’s Mobility business, it has been a game changer for the company’s Delivery business (UberEats). In Q4 FY2020, Delivery generated more than $10 billion in Gross Bookings, up from $4.7 billion just a year before. The acquisition of Drizly and Postmates highlights the importance of Delivery to Uber and the company’s ambition to be a Superapp.

The partnership with GoPuff gives Uber extra bodies. Even with drivers under the startup’s brand, Uber can still satisfy their customers with properly filled orders. But I think this partnership may be an audition or a test for what may come next. I won’t be surprised if Uber makes an offer to acquire GoPuff. There will be a lot of synergies in case of an acquisition: similarity in services, savings in marketing and personnel. More importantly, in GoPuff, Uber would acquire a network of micro-fulfillment centers and a new delivery model.

Excited to see what comes next from this partnership and space.

With 15 NFL games a year starting 2022, Amazon is making Prime Video a strategic advantage

Per WSJ

Amazon will take over exclusive video rights for “Thursday Night Football” starting in the 2022-23 season, a year earlier than anticipated, the company and the National Football League said Monday. Initially, Amazon’s deal with the NFL called for the tech giant to begin streaming games in the 2023-24 season. Current rights holder Fox Corp. agreed to exit its existing deal for the package a season early.

Terms, including the cost of acquiring the additional year of rights, weren’t disclosed. In March, Amazon signed a 10-year deal with the NFL to stream 15 games per season on its Prime Video platform. The average annual rights fee is around $1.2 billion and that is the price tag for the additional season, people familiar with the matter said.

At $1.2 billion for 15 games a year, that works out to $80 million per game. A significant price tag. But Amazon can afford to pay it. Not because of their financial strength, but also because of their Prime base. In the latest earnings call, Amazon revealed that there were 200 million Prime members, 170 million of which watched Prime Video in the past year. American football is very popular in the US, but is not everyone’s cup of tea. Let’s say if only about 20 million US subscribers watch NFL games on Prime Video, the content cost will sit around $4 per member per game. If 40 million US subscribers (12.5% of US population, not a wild guess), the content cost will go down to $2 per member per game. The more people Amazon can get to watch games, the lower that number will be. The scale of their Prime base makes Amazon one of a handful of companies in the US that can afford to invest that much in NFL games. Also, this benefit doesn’t include additional new Prime members that are on the fence and decide to subscribe to the service because of the NFL games.

Yes. Just in terms of strategy, I think there’s probably nothing new or surprising, but just to reiterate it, we look at Prime Video as a component of the broader Prime membership and making sure it’s driving adoption and retention as it is. It’s a significant acquisition channel in Prime countries. And that we look at it and see that members who watch video have higher free trial conversion rates, higher renewal rates, higher overall engagement. And there’s great examples of places like Brazil, where you launch a video-only subscription, for example, that preceded the broader Prime membership with shipping components, and that was, as an example, a great way to expose people to Amazon.

By Dave Fildes, Amazon’s Director of Investor Relations in Q1 FY2021 Earnings Call

As an end user myself since 2017, Prime Video has gotten so much better over the last few years with a bigger content library and more originals that I actually enjoy such as Jack Ryan or sports documentaries. My friends, both in the US and Germany, also have good things to say about the service. It’s no longer a peripheral service. As Dave Fildes said, it is an important component of the Prime membership to acquire and retain customers. In the fight against Walmart and their membership program Walmart+, Prime Video will prove a key advantage for Amazon. Walmart may be able to match Amazon in a lot of things, but it doesn’t have yet an equivalent to Prime Video. Plus, it’s not cheap for Walmart to catch up with its rival. Amazon spent $3 billion in video and music content alone in Q1 FY2021, up from $2.4 billion a year ago. That’s an annualized $12 billion in content, putting it up there among the biggest spenders. If Walmart wants to enrich Walmart+ and offers an equivalent to Prime Video, they are looking at a very expensive game. Even with an increase in content and shipping costs, Amazon has still generated more than $25 billion in Free Cash Flow Trailing Twelve Months in the last four quarters. As their other businesses grow and continue to pump cash into their coffer, we may see Amazon spend $20 billion a year in video and music very soon.

Amazon's Free Cash Flow Trailing Twelve Months
Amazon’s FCF TTM

Disclaimer: I have a position on Amazon, Walmart and Uber

The Amaz(on)-ing story continues

A few days ago, Amazon released the results of their Q1 FY2021 and did not disappoint. You can find their results here. Below are some of my takeaways and charts for illustration purposes

A growing giant

This is the first quarter where Amazon’s average 4-quarter rolling net sales exceeded $100 billion. Think about the scale for a month. In other words, for the past 365 days, Amazon generated more than $1 billion per day on average. What’s more impressive is that their YoY growth has been on an upward trajectory for the past few quarters, hitting 44% in the recently reported one. That’s the kind of growth you often see at companies at a much smaller scale, not a company that is well on track to produce half a trillion dollars in sales a year.

Amazon's YoY growth in revenue

I don’t know where their next growth will come from and that may be the scary thing about this behemoth

Among the three main segments, North America is the biggest in net sales, almost double the combined figures from AWS and International. Bewilderingly, it has been growing at a higher clip than AWS in the past four quarters, lacking behind International, whose YoY growth just hit an astounding 60% in this quarter. If you look at the segments’ size, their growth figures and growth trajectory, it’s not straightforward to say which one will drive Amazon’s growth in the future. If Amazon can crack the Grocery and Last-Mile code in the US, it will be huge for their North America numbers. In terms of International, there is still a lot more to gain. Take Vietnam as an example. My country’s retail market is huge and growing fast. Yet, there is no such equivalent of Amazon. There are indeed big players such as Shopee, Tiki or Lazada, but they are eCommerce players and the breadth of their offerings isn’t as extensive as what Amazon can offer. Plus, if you ever try the apps of these companies, you’ll chuckle and say to yourself: if somebody can offer a better shopping experience, there is a lot of money to be made here. Lastly, global companies are going through digital transformation, a trend that is accelerated by Covid. It’ll be a boon to AWS’ business.

There are bull cases to make for each of these segments. I honestly cannot tell where the next growth will come from. Not because there isn’t. But because there are more than one obvious answer. For good measure, all three are now profitable. International used to be the black sheep, but it has been profitable for the past four quarters.

Amazon's North America, International and AWS YoY growth in revenue

Amazon's North America, International and AWS 4-quarter revenue rolling average
Amazon's North America, International and AWS Operating Margin

Advertising and 3rd party are growing fast, but don’t sleep on physical stores

Among the business lines, 3rd party and advertising, both high-margin, were the fastest growing with the former growing at 64% YoY and the latter at 70% in this quarter. At $80 billion annual run-rate, 3rd party is highly impressive, growing at 64% YoY. Amazon doesn’t break down 3rd party for domestic and international markets, but it’s not strange to think that as Amazon gains foothold in more overseas markets, more merchants will want to get on the platform. Meanwhile, advertising almost reaches a run rate of $25 billion, growing 4x in the last 3 years. Impressive as it is, there is still plenty of room to grow, both domestically and internationally. As Amazon’s online stores attract millions of buyers, advertisers will be interested in promoting their products or services on a platform where the intention to buy is high.

Amazon's business lines' revenue growth

Even though physical stores’ growth doesn’t look particularly great, don’t sleep on them. Physical stores were first reported by Amazon in 2017. They are relatively new and I consider them strategic investments from the company. Amazon will not be able to compete with Walmart in groceries’ scale and the network of stores as well as fulfillment centers across the country. Hence, they will likely use technology and efficiency in delivery as competitive advantages. Hard to pull off, cashierless stores will save Amazon on personnel costs and provide a differentiated shopping experience for customers. They may also play a role in Amazon’s network of middle and last mile delivery. Eventually, customers may still receive cheaper groceries from Walmart, but some may be more interested in a different shopping experience and expedited delivery from Amazon.

In the United States, we’re delivering out of our Whole Foods stores, and we’ve engaged — we’ll be allowed to pick up a greater expansion of pickup at Whole Foods stores. Amazon Fresh became a free Prime benefit, as you know, in the late part of 2019. And customers really adopted it and continue to see strong growth. So I think on the fresh stores, it’s a little too early. The stores themselves, we’re confident that the Just Walk Out technology that will be a boon, a benefit to customers.

Source: Amazon’s CFO from Q1 FY 2021 Earnings Call