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

Weekly reading – 1st May 2021

What I wrote last week

Olo, a SaaS company specializing in services for restaurants

The year the Earth changed

Business

Match’s Winning Formula for Online Dating in Japan Gives Women Control, Makes Men Pay. It’s amazing that an app available only in Taiwan, Korea and Japan is the 3rd highest ranked dating app. The ability to infuse a local culture and etiquette into an online dating app is a strength not to be discounted. Also, tucked in this article is IAC’s expertise in identifying hidden gems and turning them into diamonds

Florida is the latest state to create e-commerce tax. This development will be a boon to tax applications. The complexity of handling state taxes will spur SMBs or corporations to adopt these applications

Amazon lets advertisers send targeted messages for first time

Hey Google, Who Has the Best Capital Allocation in the Internet Sector? Google/Alphabet definitely has a shot at being the best capital allocator with their acquisition of YouTube, DoubleClick and Admob. There are various smaller acquisitions that we probably don’t know about

iOS 14.5: A Guide to Apple’s New App-Tracking Controls. I already opted out of all the apps

Music Streaming Royalties 101

What I find interesting

Newark cops, with reform, didn’t fire a single shot in 2020. It’s baffling to me that we put a lot of regulations in place for doctors, nurses or bankers, but we somehow find it impossible to keep the police in check and accountable. What happens in Newark is proof that we can reduce police brutality AND crimes. It’s socially and economically great for our society. It happens in a big city in New York. So what’s the excuse again for not trying?

Why the U.S. Still Can’t Donate COVID-19 Vaccines to Countries in Need. I understand that these drugmakers want to protect themselves from liabilities. But seeing Indians die by the thousands while the US has a lot of unused AstraZeneca doses just doesn’t make any sense. Contract or not, I am confident all parties can come to agreeable conclusions on how to save a nation. In fact, nations for that matter.

Exclusive Photos Inside the Chernobyl Nuclear Power Plant. If you haven’t watched the mini series Chernobyl on HBO, I really recommend it.

A working study by University of Chicago suggested that length domestic travel bans might lead to higher Covid infections

Stats that may interest you

Apple has 27 registered developers and rejects around 40% of the submitted apps

In FY 2019, developers earned almost $11 billion in total revenue from the App Store

Apple TV+ has the highest ratings among streamers. Walmart vs Amazon. Netflix recorded slower growth but saw 2x growth in FCF

Apple TV+ has the highest IMDB ratings for content

According to a new study, content on Apple TV+, Apple’s exclusive streaming service, receives the highest average ratings on IMDB. There are a couple of caveats here: 1/ this is on average. One size cannot fit all in this streaming area. The study reveals that Apple TV+’s content ranks pretty low in some genres. Hence, if you are a connoisseur of Crime or Fantasy content, the streamer may not be your cup of tea. 2/ Apple TV+ has a significantly smaller library than other streams. As a result, the smaller sample may favor Apple’s streamer.

Focusing on content quality is a smart move from Apple. The likes of Disney+ or Netflix already have a lot of titles to offer viewers. It would take Apple either a long time or plenty off money to acquire the rights to stream titles from other producers. Even then, they still likely wouldn’t come out on top because the other heavyweights aren’t standing still to lose their market share. Plus, I don’t imagine Apple TV+ is a profit center for Apple. At $5/month and restricted to Apple devices or Roku, I don’t think Apple TV+ reaches the scale that enables them to raise prices yet. It is an auxiliary service that makes their bundle Apple One or their devices more attractive and sticky to consumers. Services like Apple Care or iCloud, and their hardware are the drivers of margin and profit. It doesn’t make sense for Apple to try to compete with Netflix on the number of titles while diluting investments on quality. The prospect of Apple TV+, with its much smaller subscriber base, beating Netflix on their own game doesn’t seem likely. Plus, focusing more on quality resonates more with the Apple brand.

Walmart vs Amazon

The battle of these two retail titans is exciting to watch. While Walmart has been trying to improve its 3rd party marketplace & ads platform and grow its fintech segment, Amazon has also had some developments on its own:

Walmart has the advantage of low-cost grocery, a category that is near and dear to every shopper, and a network of stores scattered around the country that can act as their fulfillment centers in addition to the actual dedicated ones. On the other hand, Amazon has a more mature online presence, 3rd party marketplace and ads business. It also has 200 million loyal and, in my opinion, profitable customers in their Prime program. For the past months, each company has tried to close the gap to the other. Walmart launched a Walmart+ service, their answer to Prime, while ramping up their marketplace, including the partnership with Shopify, and ads business. Meanwhile, Amazonzz has invested heavily in last-mile delivery and cashierless stores. Even though it’s tough to match the scale of Walmart in groceries, having smaller stores and no headcount expenses will definitely help Amazon drive down the prices.

Which retailer will come out on top remains to be seen. It’s exhilarating, though, to see each iconic firm expand its capabilities and go out of its comfort zone to stay competitive. If I were a business or strategy professor, this would be one of the cases I bring to classes.

Netflix recorded slower growth but saw 2x growth in FCF

The results of Netflix’s first quarter FY2021 were out today. Revenue stood at $7.2 billion, a 18% YoY growth, while operating income was almost $1.9 billion, up 44% YoY. The quarter closed with almost 208 million paid subscriptions, including 4 million in net additions compared to almost 16 million subscribers in net add a year ago. The company attributed the slow growth in subscribers to the pandemic and a weak slate of titles. While Netflix is still confident in the 2nd half of the fiscal year, it does forecast a relatively flat weekly global net adds till the end of the 2nd quarter.

Netflix's flat forecast in net subscriber adds till Q2 FY2021
Source: Netflix

While a slower subscriber growth isn’t good news to Netflix investors, it doesn’t tell the whole story. First of all, they may actually be right that the pandemic and having no hits this quarter had adverse effects. Second of all, Netflix raised their subscription prices a few months ago; which may also be another contributing factor, especially given the intense competition from other streaming services. HBO premiered two blockbusters: Godzilla vs Kong and The Snyder Cut. Disney Plus had their exclusive Wanda Vision and The Falcon & The Winter Soldier, among other titles.

Additionally and very importantly, Netflix increased its free cash flow by 200%, despite a stunted subscriber growth. The company’s free cash flow in Q1 2021 was $692 million, up from $162 from the same quarter a year ago. In the shareholder letter, Netflix was confident that they would be FCF neutral for FY2021 and that they had no plan to raise debt in the near future. More excitingly, they are beginning to buy back shares this quarter. For the Netflix bulls out there, it’s great news. The company spends $20 billion a year on content, yet it is on track to become FCF positive; which almost no other streamer can replicate. That’s the beauty of operating at the scale that Netflix does. Their content investment is a fixed cost. The more paid subscribers there are, the lower the unit cost for each subscriber will be and the higher margin Netflix can extract. However, for other streamers, they have to invest a lot in content to grow their subscriber base. Since their current pool isn’t big enough, they are likely operating in the red with negative cash flow like Netflix used to. The question then becomes: how long can those streamers sustain that loss while trying to match those billions that Netflix pours in content annually?

Yes, seeing their growth stunted this quarter isn’t great, but it’s just one piece of the puzzle. The FCF piece that Netflix announced today is, in my opinion, equally important. One quick look at notable news outlets that covered Netflix earnings showed one common theme: Netflix’s growth. I mean, it’s not wrong, but I don’t think their headlines tell the whole story

Coverage of Netflix's Q1 FY2021 earnings without mentioning the cash flow story

Weekly reading – 17th April 2021

What I wrote last week

Hydrogen fuel cells vs Batteries

Uber may deliver marijuana in the future. Update on Credit Karma and Square

Business

Business Insider has a story on Larry Page, especially when he was determined to fire all Project Managers. Even a genius like him made a mistake, it seems. Don’t be too hard on yourself.

Why Delaware is the sexiest place in America to incorporate a company

Vimeo CEO talks about how the company reinvented itself from a video platform, another Youtube competitor to a B2B SaaS company. To be honest, as a consumer, I didn’t know that Vimeo transformed itself into a B2B SaaS player.

TikTok says that it has 100 million monthly active users in the US and is planning to bring new eCommerce-focused ads products

How the pandemic helped Walmart battle Amazon Marketplace for sellers. It’s exciting to see these two behemoths go at it in the near future. While Walmart has the luxury of stores scattered across the country, Amazon is a bigger and more experienced marketplace player.

Why It’s Misleading to Say ‘Apple Music Pays Twice as Much Per Stream as Spotify’. The best article on this particular subject that I have seen this week.

Amazon Plans Furniture Assembly Service to Catch Wayfair. I look forward to reading more about this initiative. While it sounds great as first, the reality may offer some questions that Amazon has to answer. For instance, Amazon is known for pushing its drivers to complete deliveries as quickly as possible. Asking drivers to take time to assemble products goes against that mantra. Hence, how much would Amazon be willing to slow down deliveries? How much would the premium fee offset the cost of such slowed deliveries?

What I found interesting

French lawmakers approve a ban on short domestic flights. If there is a great network of trains; which I believe there is in France, this is a totally sensible decision.

Cloudflare Pages is now Generally Available

How to Create an Interactive AR Business Card Without Code

The vanishing billionaire: how Jack Ma fell foul of Xi Jinping. Jack Ma is one of the richest people on Earth and among the most influential business people. Yet, he has fallen from grace after what he said angered Xi Jinping. Another billionaire tried to lower his net worth to avoid trouble with the Chinese government. I am from that part of the world. I can tell you that no matter how rich a person or how big a Western corporation is, you don’t take your disagreement with the ruling party public. That’s one mistake you usually don’t come back from

Stats that you may find interesting

According to a new survey by National Restaurant Association, only 18% of delivery customers preferred to order from a 3rd-party app

Amazon Prime has 200 million members. 28% of purchases on Amazon were made in 3 minutes or less while 50% were made in 15 minutes or less.

Almost 20% of retailers’ sales in 2020 came from private labels

My experience with Amazon Shopper Panel

I wrote about Amazon Shopper Panel before. The program is on an invite-only basis. Essentially, participants upload 10 non-Amazon receipts (Whole Foods transactions aren’t counted either) every month to earn $10 in Amazon balance and have an opportunity to earn more by completing surveys. In my post, I wrote about the immense applications that can come from this initiative. This time, I want to update you with more details on the program. I myself received an invitation back in February 2021. If you are selected, you will receive an email like this

Amazon Shopper Panel Invitation
Figure 1 – Amazon Shopper Panel Invitation

The app is fairly simple. The first tab gives the user an overview of how much in rewards he or she has earned so far every month. The second tab is where receipts can be uploaded while the third tab houses all the surveys that Amazon wants you to complete. There are other routine sections such as FAQ, Contact Us, Legal Information and Sign Out that are tucked in a window that will open once you touch the three-dot symbol.

How Amazon Shopper Panel App Looks
Figure 2 – How Amazon Shopper Panel App Looks

Receipts can be uploaded via a phone camera. Based on my experience so far, the app is fairly receptive towards even wrinkled receipts and those that have small tears. Email receipts are qualified, as long as they are sent to receipts@panel.amazon.com from the same email that a participant uses to register an account. I got a car wash voucher from a dealership a while back and used it at a random fuel station in Omaha. The receipt from the car wash was still accepted, much to my surprise, because it didn’t have any card information. Since February 2021, I completed two surveys and received 25 cents for each. The surveys featured only one question each time and it was pretty basic such as, I paraphrase here, “where did you get information for your online purchases?”.

 Email receipts are accepted
Figure 3 – Email receipts are accepted
Even a car wash receipt without payment is accepted
Figure 4 – Even a car wash receipt without payment is accepted

Since starting to use the app, I have paid attention to how receipts differ from one another in terms of structure and layout. The computational process used to digest these receipt images will have to be pretty sophisticated to handle the intricacies and variety in how receipts are printed and captured. If Amazon can gain this ability to read images, it can be applied to other parts of their retail business.

Even if receipts are input by humans, the intelligence that Amazon may gain from this initiative will open up a lot of opportunities:

  • Design new private label products
  • Court other retail partners with unprecedented and reliable data
  • Support their ads business
  • Upsell current customers by understanding them better

My expectation is that Amazon will select enough folks from different backgrounds to join this effort. The participants have to be representative of consumers in America in terms of age, race, income and gender. Plus, the pool has to be big enough and the time period should be long enough so that the data can be statistically significant. As a result, at $10/participant/month, this initiative can reach 6 figures pretty fast. If the time and resources dedicated to the analysis task are factored, the expense will rise even higher. To other smaller retailers, the technical and financial barriers are not easy to overcome. To other retail giants like Walmart, I am surprised not to see a similar effort from them. This is the type of initiative where if your rival gains the first mover advantage, it will be a tall order to claw it back.

In life, there are skillsets which are very difficult to gain, but once mastered, can offer long-term leverage in various aspects of our life. Think: sales, writing, coding, human languages, cooking, fitness. In my opinion, this initiative belongs to the same category. If it proves to be successful, Amazon Shopper Panel can arm Amazon with intelligence and capabilities that are going to lift the company to even greater heights.

Disclosure: I have a position on Amazon and Walmart in my personal portfolio.

Weekly reading – 27th March 2021

What I wrote last week

Great reminders for clustered and busy minds

Business

Amazon Keeps Getting Sued for Paying Drivers Less Than Minimum Wage. It baffles me to see that minimum wages can be such a polarizing issue or that it doesn’t garner more public support. In my mind, the US retail market is too big for any company like Amazon to abandon. Hence, if all the states and the federal government enacted a minimum wage law, what would Amazon do? Leaving the US retail market? Moving their operations to California or Mexico while paying import taxes and incurring more transportation expenses?

An interesting read on the e-signature market. All the companies that sell software to companies should really beware Microsoft. If Microsoft decides to invest in its own e-signature product and embed it for free in Microsoft 365, it will be a huge threat to the likes of Docusign.

Case study: How Akamai weathered a surge in capacity growth

How Nike is using DTC and data to expand its empire. For a legendary brand that has always been technologically competent like Nike, the pandemic is perhaps a blessing in disguise as it spurred consumers towards shopping online and exploring what the company has to offer.

Even God Couldn’t Beat Dollar-Cost Averaging. An interesting look at Dollar Cost Averaging vs Buy The Dips.

What I found interesting

Google and the Age of Privacy Theater. It seems that the new privacy approach that Google announced a short while ago may just be for show and won’t improve user privacy much.

Facebook’s ‘Red Team X’ Hunts Bugs Beyond the Social Network’s Walls

Hospitals Hide Pricing Data From Search Results. I really really hope that the Biden administration will look into this issue and impose a hefty fine on hospitals that actually did this.

A Brief History of Semiconductors: How The US Cut Costs and Lost the Leading Edge

Perseverance and redemption can be a wonderful combination, you know? Pierre Gasly is a young French F1 driver. Admittedly, I wasn’t a fan of his, but he grew on me. He got promoted to a top team in his 2nd or 3rd season in F1, only to get demoted half way to the season to an inferior team. He was brutally criticized and doubted in the media. And his best friend died in a tragic incident shortly before his demotion news. Yet, Pierre persevered and has shone brightly after his demotion. He had his maiden F1 win last year in Italy. Sweet sweet redemption. Here is what he wrote on the Players’ Tribune.

Stats that you may find interesting

42% of surveyed Americans reported an average weight gain of almost 30 lbs, according to the American Psychological Association

45% Bridge Millennials would switch grocers for access to contactless in-store payment

DOE aims to cut solar costs to 2 cents per kWh

Renewable energy met 97% of Scotland’s demand in 2020

Book Review: Working Backwards: Insights, Stories and Secrets From Inside Amazon

I always cherish a read that reports honestly on the culture of a company, pulling the curtain and providing details on what works, what processes the company used to forge the culture or the “tribe” that they have. Working Backwards is such a book. It was written by two insider Amazon veterans who lived the experience. From a small startup in Seattle that sold books online in the 1990s, Amazon has grown over time to become a household name in the world, a brand trusted by many and a competitor feared by rivals. It’s marching nicely towards generating $400+ billion in annual sales and currently employing over 1 million people. When a company consists of a small team of folks, management and the instillation of culture are straightforward. However, it’s another issue to manage more than 1 million people and still maintain the culture. How did Amazon do so?

“Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then, finally, taking professional pride in operational excellence.”

Excerpt From: Colin Bryar. “Working Backwards.”

When it comes to culture and corporate values, you may feel that a lot of companies just put together a list of sensible and sound-good sentences. That’s true. What makes one company different from another is how much the day-to-day operation is guided by its culture and how much the leaders exemplify it. From the very beginning, Jeff Bezos already showed the importance of customer obsession, setting the tone for the #1 value at Amazon for years to come. When employees see the CEO walk the walk, instead of just talking the talk, they believe in what he or she says and follows accordingly.

“From the tone of customer emails to the condition of the books and their packaging, Jeff had one simple rule: “It has to be perfect.” He’d remind his team that one bad customer experience would undo the goodwill of hundreds of perfect ones. When a coffee-table book arrived from the distributor with a scratch across the dust jacket, Jeff had customer service write to the customer to apologize and explain that, since coffee-table books are meant for display, a replacement copy was already on order, but shipment would be delayed—unless time was of the essence and they preferred the scratched copy right away. The customer loved the response, and decided to wait for the perfect copy while expressing their delight at receiving this surprise consideration.”

“Another of Jeff’s frequent exhortations to his small staff was that Amazon should always underpromise and overdeliver, to ensure that customer expectations were exceeded. One example of this principle was that the website clearly described standard shipping as U.S. Postal Service First-Class Mail. In actuality, all these shipments were sent by Priority Mail—a far more expensive option that guaranteed delivery within two to three business days anywhere in the United States. This was called out as a complimentary upgrade in the shipment-confirmation email. Thank-you emails for the upgrade included one that read, “You guys R going to make a billion dollars.” When Jeff saw it he roared with laughter, then printed a copy to take back to his office.”

Excerpt From: Colin Bryar. “Working Backwards.”

One of Amazon’s core values is Hire and Develop The Best. In the very beginning, staff was handpicked by Jeff Bezos, who has a notoriously high standard. As the hiring need grew substantially, Jeff couldn’t get involved in every hire any more. At one point, they ” had new people hiring new people hiring new people.” It became much more challenging to ensure the quality of every hire. Hence, The Bar Raiser program was created. The program’s purpose is to create a formal, scalable and repeatable process that can help with hiring the right people. Essentially, in addition to the normal practices such as having detailed Job Descriptions, phone screening and multi-team interviews, Amazon trains a team of interviewers whose goal is to identify in every new hire something that he or she can do better than a member of the existing team. The Bar Raiser cannot be the hiring manager or recruiter, but has the veto power to ultimately reject an applicant; though such a power is reportedly rarely exercised. It’s similar to having a new set of eyes that can review your work, whether it’s an essay or a code, and help remove the gut feelings out of the process as much as possible.

As Amazon’s business became increasingly multi-faceted and complex, how did the firm organize teams internally to be nimble, effective and innovative? The answers are: single-threaded leadership and two-pizza teams. The concept of single-threaded leadership is fairly simple: appoint someone to own a major initiative and remove all other responsibilities. Unburdened by other responsibilities, these single threaded leaders can devote all the time and energy to make their initiatives work and grow. More importantly, when a company wants to come up with new ideas, there is no way to gauge the results of the ideas without bringing them to real life and there is no point of doing so when there is nobody focused completely on that task alone. Andy Sassy, who will become the next CEO of Amazon in Q3 2021, used to be Jeff Bezos’ shadow and the single threaded leader for AWS. Other major successes at Amazon such as Prime, Kindle and Amazon Digital all resulted from having dedicated teams and leaders build them up from the ground.

“Amazon’s SVP of Devices, Dave Limp, summed up nicely what might happen next: “The best way to fail at inventing something is by making it somebody’s part-time job.”

And there is the two-pizza team. It’s normal in a working environment to depend on somebody else for your job. However, if there are too many dependencies, they will slow down the innovation process and reduce the efficiency of the whole company. To address that issue, Amazon came up with the two-pizza team concept. The idea is to have a small enough team that they can be fed with two pizzas. Each team is tasked with removing its dependencies and building out infrastructure and innovating. The sooner a team becomes unshackled by dependency on others, the sooner it can dedicate its resources to actual work and innovation. Each team functions like a small startup or a self-sustaining API that can work together if necessary, but doesn’t rely on others to be effective.

The next element of the Amazon Magic is my favorite: the importance of writing. At Amazon, Power Point is replaced by 6-page memos. The point is that writing a memo helps crystalize and sharpen ideas, as well as removes the limitations of a Power Point. Of course, Amazon still delivers presentations to partners, but internally, they rely on memos to ensure that the presenters think through the ideas/problems and don’t waste anybody’s time with half-baked thoughts. Another practice is to write a PR/FAQ for every new product/service idea. The idea is to envision the end result or customer experience that could come from a new idea, put it down to a one-page press release and work backwards to the details in an FAQ section.

I cannot tell you how many times I came up with an idea and after putting it to words on this blog, I realized how little I thought about it. Every time I write about something on this blog, it still may not be accurate, but the end product is much better than my original thought. At work, I also see it first hand. People have a lot of ideas in their head and shoot out ideas to everyone else. I am pretty confident that they didn’t take the time to work through the nuts and bolts, the logic, the challenges and ramifications of their ideas.

“The reason writing a good 4 page memo is harder than “writing” a 20 page powerpoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related. Powerpoint-style presentations somehow give permission to gloss over ideas, flatten out any sense of relative importance, and ignore the interconnectedness of ideas”

“Pressed against this functional ceiling, yet needing to convey the depth and breadth of their team’s underlying work, a presenter—having spent considerable time pruning away content until it fits the PP format—fills it back in, verbally. As a result, the public speaking skills of the presenter, and the graphics arts expertise behind their slide deck, have an undue—and highly variable—effect on how well their ideas are understood. No matter how much work a team invests in developing a proposal or business analysis, its ultimate success can therefore hinge upon factors irrelevant to the issue at hand.

We’ve all seen presenters interrupted and questioned mid-presentation, then struggle to regain their balance by saying things like, “We’ll address that in a few slides.” The flow becomes turbulent, the audience frustrated, the presenter flustered. We all want to deep dive on important points but have to wait through the whole presentation before being satisfied that our questions won’t be answered somewhere later on. In virtually every PP presentation, we have to take handwritten notes throughout in order to record the verbal give-and-take that actually supplies the bulk of the information we need.

“Pressed against this functional ceiling, yet needing to convey the depth and breadth of their team’s underlying work, a presenter—having spent considerable time pruning away content until it fits the PP format—fills it back in, verbally. As a result, the public speaking skills of the presenter, and the graphics arts expertise behind their slide deck, have an undue—and highly variable—effect on how well their ideas are understood. No matter how much work a team invests in developing a proposal or business analysis, its ultimate success can therefore hinge upon factors irrelevant to the issue at hand.

We’ve all seen presenters interrupted and questioned mid-presentation, then struggle to regain their balance by saying things like, “We’ll address that in a few slides.” The flow becomes turbulent, the audience frustrated, the presenter flustered. We all want to deep dive on important points but have to wait through the whole presentation before being satisfied that our questions won’t be answered somewhere later on. In virtually every PP presentation, we have to take handwritten notes throughout in order to record the verbal give-and-take that actually supplies the bulk of the information we need. “The slide deck alone is usually insufficient to convey or serve as a record of the complete argument at hand.”

There are more great points, examples and details about Amazon’s culture from the book, apart from some of my favorite above. The book also touches on the value of thinking long term, being patient, removing defections at every level or controlling the input variables. With what I think are sensible decisions and policies, there is little wonder why Amazon is a success that it is today. In my opinion, there is no greater competitive advantage than having a robust culture that can foster a company’s mission and vision. You can replicate parts of operations or strategy, but it’s much harder to replicate a culture. Amazon managed to put together a strong culture, evidenced by their financial success and brand name, and it’s something that rivals will find highly challenging, if not impossible, to mirror.

This is a great read for business students or any curious mind that wants to know more about one of the greatest companies on Earth. If you are looking for such a read, I highly recommend it.

Disclosure: I own a position on Amazon.

Weekly reading – 13th February 2021

What I wrote last week

I reviewed Exercised: Why Something We Never Evolved To Do Is Healthy And Rewarding, a book that talks about how important exercise is from a Human Evolution and Anthropology perspective

The importance of owning a relationship with your customers

I talked about Uber as a business and its acquisition of Drizly

Business

An interesting piece on the CEO of Adobe and his relationship with fellow CEOs

An interview with the richest man in Japan

A very interesting piece on the threat that Canva and Fima pose to Adobe

An interesting post on the culture of writing memos at Amazon

Bloomberg has a piece on how Tim Cook built his own version of Apple. Tim Cook’s version isn’t bad at all as the company is now worth $2.3 trillion

How Facebook is doubling down on Marketplace

What I found interesting

A story on Yuta Watanabe, a Japanese basketball player who is having a season in the NBA

According to a new study, Apple Watch can help identify Covid-19 symptoms

Interesting stats

Contactless payments are expected to grow by 6-8% after Covid

40% of consumers in the US that used a “Buy Now, Pay Later” service missed at least one payment

The App Store saw more than $10 billion in consumer spending in 2020

Apple Watch is reportedly worn on 100 million wrists

Weekly reading – 6th February 2021

What I wrote last week

My summary of Microsoft’s latest earnings, a giant with growth momentum

My estimate on Azure revenue

Bezos is stepping down (not really a shock), but Amazon is in a great shape

Business

I don’t always agree with all Ben’s takes, but his presentation here is pretty well-done

The NYTimes looked at the current infrastructure for electric vehicles which are becoming a force in the near future

It seems that Amazon’s struggles with its Game Studio come from the top

Apple in 2020: The Six Colors report card

A profile on Kaishou

The Facebook Oversight Board’s First Decisions: Ambitious, and Perhaps Impractical. A pretty good writeup on the first 5 decisions by the FOB. I think it’s great that the FOB came out swinging to prove at least up to now it’s not for show and it’s for business. It’s also great that it doesn’t put too much weight on the operationability of its decisions. That way, the decisions seem more dialogic and as a guide instead of being contaminated by expenses and profits.

Forbes’ writeup on Chegg, a subscription company that lets you solve your homework with the help of an army of experts from India. Every business needs to make money. That I can understand. But if somebody comes out and says that it encourages cheating, they also have a point.

A story on the implosion of Ample Hills, which was once Brooklyn’s hottest ice cream brand

The latest investment letter from RGA

What I found interesting

A professional photographer took incredible photos of the glaciers in Alaska, using iPhone 12 Pro Max

Have a look at an interesting mushroom farm in Vietnam

The ridiculous lack of understanding on Section 320 from lawmakers doesn’t seem limited to Republicans because Democrats have it too

An interesting piece on Arthur Hayes, the founder of BitMEX

Interesting stats

Another horrifying story about the US healthcare. I can’t believe what I read. A new parent had to deal with their newly born child being sick and the insurance company relied on red tape and the flaws of the system to exploit their customers. Imagine the horror of receiving a $270,000 bill.

US Distilleries made $31 billion in revenue in 2020, due to Covid-19. Premium liquor rose in popularity among consumers

In 2020, nearly 1 million Gen-Zers opened a trading account at Apex Clearing, most likely through a broker, with the average age of 19.

App downloads in January 2021 from Bank of America

Someone compiled data on customers for Fintech firms

Zelle processed more than $300 billion in 2020