Weekly reading – 10th April 2021

What I wrote last week

Get back to what you love

My experience so far with Amazon Shopper Panel

Business

An interview with an Apple veteran who shed some light on the culture of secrecy

Supreme Court Sides With Google In Decade-Long Fight Over API Copyright; Google’s Copying Of Java API Is Fair Use. If you have time, look for the opinion written by Justice Breyer on API. It’s good!

Amazon Global Supply Chain and Fulfillment Center Network. Just look at the number of fulfillment centers and warehouses Amazon has!

How We Bootstrapped a $1M ARR Email Client

Shopify: The E-commerce On-Ram‪p‬. I may have found another favorite podcast. The first episode on Shopify doesn’t disappoint!

9.5 million customers traded cryptocurrencies on Robinhood in Q1 2021, compared to 1.7 million in Q4 2020

What I found interesting

A landmark study showed promising results that could help us produce a vaccine for HIV. A remarkable time to be alive. You gotta admire the work that scientists around the world put in.

Barrier Reef doomed as up to 99% of coral at risk, report finds. “The Great Barrier Reef is all but doomed, with between 70 and 99 per cent of corals set for destruction unless immediate “transformative action” is taken to reverse global warming, according to a new report. The Australian Academy of Science says the more ambitious target of the Paris Climate Agreement of keeping global warming to 1.5 degrees has now slipped out of reach and is “virtually impossible”.

What the U.S. Can Learn From China’s Infatuation With Infrastructure.

Apple has been granted a patent for Systems relating to a National ID Verification System

NYTimes’ profile of Katalin Kariko, the scientist whose work on mRNA helped save the world from Covid-19

Interesting stats

Lithium battery costs have fallen by 98% in three decades. If I have a kid, he or she will likely have electric vehicles as cheap as ones with a combustible engine.

7% of America’s population or more than 2.3 million Americans don’t use the Internet

Amazon reached 10% of the US advertising market

Plant-based food market grew to $7 billion in 2020, up 27% year over year

80% of Europe’s in-store transactions are now contactless, according to Mastercard

E-commerce Evolution in the US by Mastercard
Source: Mastercard

Weekly reading – 20th march 2021

What I wrote last week

The economics of a credit card

Business

Hy-vee CEO shared how Covid shaped the company’s operations moving forward

Why Amazon Fresh stores will likely rock a few boats. As its competitors do more shipping from their own stores, Amazon can get on level terms in that sense with having more stores of their own in strategic locations. Plus, if they can get these cashierless stores to run properly, they will be able to cut back a significant line item on the Income Statement, paid employees!

How Trader Joe’s $2 wine became a best-seller

Telegram App Is Booming but Needs Advertisers—and $700 Million Soon 

The new Google Pay repeats all the same mistakes of Google Allo

Apple brand loyalty hits all-time high as Samsung loyalty dives

Austin Rief: How Morning Brew went from college newsletter to $75 million in 5 years

She Came to the US to Study With Only $300 in Her Pocket — Now She’s a NASA Director For the Mars Rover

What I found interesting

Does Atlantic Canada have a blueprint for rural revival in the post-pandemic era?

Facebook’s GDPR bypass reaches Austrian Supreme Court

Stats you may find interesting

BNPL grew by 215% year over year in Jan and Feb 2021. Total eCommerce spending reached $121 billion so far

As of February 2021, 45% of Square sellers accept online payments, up from 30% a year ago

56% of the people surveyed by AirBnb preferred domestic travel post-pandemic

Owning the relationship with your customers. A look at the controversial case of Apple

Humans form relationships with one another. Between two people, a relationship is only strong when each side benefits from it and strives to strengthen the bond over time. If a friend betrays you or harms you, there likely won’t be a friendship any more, right? Once a relationship is formed, the stronger it is, the less it is less effected by others and the more trust there is. If a romantic relationship between you and your boyfriend/girlfriend is strong, you are less likely to be swayed by the opinion of your friends or family. And the people with whom you have the best relationship are the folks you trust the most.

Why do I need to state such an obvious observation? Because it is the same deal between companies and customers.

Relationship between companies and customers

When there is a transaction between a customer and a company, the two parties form a relationship. However and whether the relationship lasts depends on many factors: Is the customer happy? Is the company happy? Are there efforts involved to strengthen the relationship over time? Is there trust? A company like Amazon gains the trust of its customers through Prime & an increasing host of benefits, a variety of choices, quick delivery, easy return and consistency. From Amazon perspective, they have been investing a lot of time, effort and money into cultivating the relationship with its customers. In return, customers like and trust them. Millions of people shop at Amazon. Many, by default, head to the site to look for products. Such a relationship is so strong that it’s not much affected by 3rd parties or suppliers that depend on Amazon. They don’t form much of a bond with customers or the bond isn’t as strong as Amazon’s. The same goes with governments. Consumers, especially in America, don’t usually have the greatest of relationships with governments. Hence, it’s not a high bar to cross for Amazon in this regard. Additionally, because there is trust and a great relationship, Amazon customers stay loyal and locked in (intentionally or unintentionally through Prime), saving the company some trouble from competitors in the retail industry.

I picked Amazon because it’s a household name and an easy example. But the logic applies to every company. I drew a little diagram below. Inside the blue bubble that stands for a relationship, two parties work to build it over time. Outside the bubble, there are factors that can influence it. The stronger the relationship/bubble, the smaller the potential influence. Companies lose competitive advantages because the relationship isn’t as strong any more. Kodak didn’t offer consumers the benefits that digital cameras did; therefore, their relationship was strayed, paving the way for their demise. Nokia had nothing but inferior products and customer experience to offer. That’s why they lost the relationship to other phone manufacturers like Apple or Samsung. Barnes and Nobles lost the relationship to Amazon in the same way.

Imagine that your best friend or spouse is an executive at a company with an opening and an acquaintance reached out to your for help with an introduction. Under normal circumstances like (99% of the time!), however you make the introduction or whether you choose to make it at all is up to you. That is because within the relationship between you and the executive, the two parties determine the rules and whoever wants to leverage it has to respect and follow them. Think about it this way. Advertisers who want to reach Facebook users have to comply with Facebook guidelines. Apps that want to reach Apple users have to comply with Apple. Brands that want to sell to Walmart’s customers in Walmart’s stores, you guess it, have to comply with Walmart. The farther away from customers and the weaker a relationship, the less say a company has on its fate and the more it has to rely on others.

Which brings me to Apple. I want to talk about it using the relationship logic above because the debate is interesting and offer a lot of nuances.

Apple vs Facebook

Facebook’s main business is to sell ads. To be able to help advertisers sell personalized ads, Facebook needs to track users. In the past, Apple allowed Facebook as well as other apps to track users through Identifier for Advertisers (IDFA), which is unique for every device even though users’ identity isn’t disclosed. A few months ago, Apple announced its plan to stop the practice with the launch of iOS14. Specifically, advertisers now have to ask users’ permission to continue to track them across different apps and users have the choice to grant or decline that request. Facebook attacked Apple for being a monopolist and anti-competitive practices. Some said that Apple’s action was self-serving and hypocritical because it is building its own ads machine and it’s likely that Apple’s own ads engine isn’t subject to Apple’s rules as others. Apple critics piled on the criticisms by saying that Apple wields too much power and impedes the growth of the future Internet. Let’s unpack then by looking at the relationship between consumers, Apple, Facebook and other parties.

Facebook has a relationship with its users through its portfolio apps such as the Blue App, Whatsapp, Messenger or Instagram. Advertisers that want to reach the users on those platforms have to adhere to Facebook’s rules and guidelines because they are leveraging a relationship that is not theirs. Obviously, I don’t imagine Facebook would be happy if advertisers wanted to dictate how the relationship should be. After all, they own the closest relationship with their users.

Unfortunately for Facebook, in the case of Facebook users on iOS platforms, they aren’t necessarily the one that owns the closest relationship. Apple does. Hence, using the same logic laid out above, Facebook has to adhere to Apple’s rules and guidelines, in the same way that advertisers have to listen to Facebook. When Apple changed the rules to make cross-app tracking more challenging because they want to bolster their own relationship with their consumers, who is Facebook to say what Apple should or should not do? Would they be happy if advertisers wanted to dictate ads rates with them on their ads platforms?

The same goes with app developers who want to reach out to millions of iOS users. If Apple doesn’t want to have certain apps on their App Store (Overtly sexual or pornographic material/ Realistic portrayals of people or animals being killed, maimed, tortured, or abused, or content that encourages violence / Depictions that encourage illegal or reckless use of weapons and dangerous objects) or if they want to remove Parler in the aftermath of the insurrection on the 6th of Jan 2021 because that’s how they want the relationship to be (for good reasons), they should be within their rights to do so. If they want to charge commission on certain apps to be in the App Store, that’s their rights as well.

Companies love to lock in customers with exclusive service or products that grant them exclusive rights. That makes sense. If you spend money and resources to cultivate that relationship, you should reap your rewards. The same should for Apple. It spends money and resources on building and maintaining not only the App Store, but also hardware and software, why should it not be able to dictate their own relationship with iOS users?

But Apple wields too much power!

Indeed they do. There are currently more than 1.5 billion Apple devices in circulation, 1 billion of which are iPhones. In the US, about 60% of mobile devices are iPhones. That’s extraordinary power that one company possesses. It’s a legitimate concern that a company should not have that much power, especially given the tight grip that the company has on its proprietary hardware and software. However, it’s worth noting that Apple is in this position today because of their own efforts and the lack of competition. Which of its competitors can offer the same integration of services, hardware and software? Amazon is legendary in devotion to customer services, but they aren’t great at mobile production or software. Google owns Android, but they haven’t been great at hardware or customer services. Samsung manufactures phones, but they do not own Android. Hence, it’s not entirely fair to blame it all on Apple. If there is no challenger that can offer the same benefits to drive the end users from the relationship with Apple, it’s hardly 100% Apple’s fault that it happens, is it?

But Apple impedes innovation!

When we look at the fact that there are 1.5 billion Apple devices in circulation, the company can be bottleneck that impedes innovation. I am no app developer, but I can imagine the scenario that developers complain the tools Apple forces them to use aren’t advanced enough to let them do what they want. If that’s the case in reality, it’s a legitimate concern. But if Android were that much better at fostering innovation, why are we still in this situation, given that Android has a bigger market share than iOS globally? Why do we debate on the power of Apple, and not of Samsung or other phone manufacturers? As I imagine, if the operating system were so innovative that users would have no choice but to flock to Android devices, Apple wouldn’t have the power that they have today. In essence, while this can be a legit concern, there isn’t much proof of that.

Imagine that you are in a relationship and someone comes and tells you: well you know, the person you are dating with is what stops you from even better days and more happiness in the future. I mean, that can happen, but you kinda need some proof.

But their privacy policies are self-serving!

Which companies don’t act in their own interest? Even when companies try to uphold their corporate social responsibilities, they try to align them with their P&L and finance. If an environmentally-friendly initiative could make Apple look better, but present a $20 billion hit to their bottom line, I don’t think you would see them take it up. In this case, does it matter whether Apple implements the new privacy policy out of concern for their users or as groundwork for their ads business? Yes, it’s hypocritical if Apple wants to grow their ads business and claims the new policy is for the end users, but doesn’t every company do so? If Apple admitted to doing it for their ads business, would critics be happier? If any other company but Apple did this, would critics voice the same opinion?

But Apple doesn’t apply their own policies consistently and to their own apps!

I do agree that Apple can do better both in applying their rules consistently and in showing whether their own apps are subject to the same rules. With the regard to the first part, Apple does have a relationship with app developers, even though when it comes to shove, the relationship with the end users allows Apple to wield more bargaining power. Nonetheless, it is important for the company to foster the bond with developers. One way to do so is to be more transparent with the App Store guidelines, especially in its actions, and more consistent in their application of these guidelines.

Disclosing the extent to which their own apps are subject to the same App Store rules is a bit more nuanced in my opinion. I don’t think it would change anything if Apple told us Apple’s digital content or subscriptions were subject to the same 15%/30% commission rule. After all, Apple would pay that money back to themselves. If their overall business continues to grow and their margin stays flat like it has for the past few years, does it really matter if a few of their services are unprofitable or not? With that being said, I really think Apple should subject themselves to the guidelines that other apps are and show it to developers. It’s fair to do so and it will help build the relationship with developers. Indeed, pre-loading their own apps such as Apple Music gives it more advantage over Spotify. But as long as Apple doesn’t outright block Spotify or do anything that prevents their competitors’ apps from being downloaded for no reasons, it’s not an egregious abuse of power. That’s just Spotify being subject to the rules of Apple when leveraging the relationship with iOS users.

In sum, Apple is at the peak of their power and having the best relationship ever with users, a relationship that involves other parties such as app developers. The company invests a lot of resources into cultivating the relationship with both end users and app developers. As long as the former is strong (apparently it is now given its strong financial results), it gives Apple enormous bargaining power over anyone who wants to leverage such a relationship. To reduce Apple’s power, the most logical way is to weaken the bond they have with the end users by offering a better alternative, though it’s by no means an easy ask.

In my opinion, relationships with customers become more difficult to maintain over time. Customer preferences change. Old competitors compete harder. New competitors come in to disrupt. Regulations can be detrimental. Culture and leadership can weaken over time. Freak events like Covid-19 can happen. All sorts of problems to tackle. A strong position today doesn’t warrant a strong position in the future. The same applies to Apple. If they labor to maintain their competitive advantages in the future, kudos to them and we should be as generous in our appreciation for such an achievement as in our effort to criticize them and to keep them honest.

Disclosure: I own Apple, Facebook, Amazon and Spotify stocks in my portfolio.

What I like about Apple Fitness+

Apple Fitness+ is a new service from Apple that is dedicated to helping customers work out more. The service is paired exclusively with Apple Watch, meaning that you need at least an Apple Watch 3 to use it. You can read more about Apple Fitness+ here. The normal subscription is $10/month. Like every other subscription, there is a one-month trial for new users. There is also an option of buying the service through a bigger bundle Apple One. Here is my experience with the service.

I used my free month in December and got hooked. I like the service enough to pay $10 for this month, a move that I don’t do very often. As many of you can relate, I don’t enjoy getting changed, preparing my clothes & a towel, driving to a gym and driving back. Now that the cold and slipper winter is upon us and we’re still in the middle of a pandemic, I have even less motivation to jump through those hoops just for a workout, no matter how important regular exercising is. With Apple Fitness+, I can work out in my living room and even my bedroom whenever I feel like. So that’s a plus.

There are other ways to work out at home without Apple Fitness+ and $10/month. I even wrote about a channel called The Body Coach TV that I really like. What other benefits does Apple Fitness+ offer? Choices! In addition to different workouts, there are clips of different lengths; which adds to the variety that helps spice things up. There are days when I am in a mood for a 30-minute HIIT, and there are days when I only have energy for a 10-min yoga, a 10-min core and a 10-min stretching & breathing. Make no mistakes. Exercise is often repetitive and boring. Our energy level isn’t at a high level every; therefore, we need all the help that we can get to exercise regularly.

Apple Fitness+: New online exercise service for Apple Watch | Macworld
Source: MacWorld

Having different types of exercises under one app is also valuable. I used to finish a 20-min HIIT and spend several minutes on YouTube trying to find a breathing and stretching clip that I liked. With Apple Fitness+, it usually takes me about 5-10 seconds. What they call “mindful cooldown” lies in the app with different clips that last from 5 to 10 mins and different trainers. I do think that this is a subtle strength of Apple Fitness+. We measure how many clicks it takes for a customer to finish a banking application. The same mentality should be applied here. Apple Fitness+ brings down the friction that stands between users and more exercises. These mindful cooldowns or yoga don’t burn as much energy as HIIT, but together with other types of exercises, they spur users to move more, close rings and in turn, get more motivated to get a workout in the next day. The rings on the phone act similarly to a list of tasks. The more rings you close, the better and motivated you feel to do it again the next day. Even when your energy level is low, you can still close rings with lighter exercises and keep the momentum alive.

Another thing I like about Apple Fitness+ is the setup. As a guy living alone in my apartment during a pandemic, I crave for a sense of community though I don’t desperately seek out people to meet. While I train with Apple Fitness+, for about 30-40 minutes a day, I get that bit of sense of community with the trainers. The number of trainers is limited to three; which is enough to make users feel that they have companions in a meaningful way. So far I have enjoyed the music curated and played in the clips. The curators know when to up the beat and when to give us silence, especially during the meditation periods.

Which brings me to what I like the most about it. I have started my days in the last few weeks with some yoga, stretching and meditation on Apple Fitness+ and I feel really great. I feel connected to my mind and body more through these exercises. As somebody who reads a lot and tends to work on a lot of things at the same time. I often catch myself unfocused and distracted in the busy world. These few minutes of connecting with my mind and body make me feel different and relaxed to the point that I really look forward to the next workout. Of course, I can search YouTube for free clips, but as I mentioned, I haven’t found anything that can offer consistency in style and variety in content like Apple Fitness+.

All in all, I don’t think that there is anything ground breaking about Apple Fitness+. If you look for some never-been-done-before reasons to like it, there is none. What makes it appealing to me is a combination of little things put nicely together to create a pleasant user experience. Pleasant enough to make me shell out $10/month.

Weekly reading – 16th Jan 2021

What I wrote last week

The Costco Model

Business

The latest memo from Howard Marks, just like his previous, doesn’t disappoint. He mentioned all the common senses in his memo which a lot of analysts and investors don’t seem to remember, myself included.

An informative interview by Patrick on an expert in the food industry

Neil struck it again with a sensible post on Apple’s share buyback

Visa’s new study on worldwide contactless payments after Covid

Bill Gates: America’s Top Farmland Owner

Second Measure looked at retention rate for different cohorts of Disney+ subscribers. I have quite a few questions here. How much of the bundle base came from the 3-year subscriptions sold at D23? Does the Prime Video include Prime Subscription which automatically includes Video?

Technology

You will soon be able to unlock your BMW with an iPhone in your pocket

Apple’s M1 chip can help you train models faster

DuckDuckGo is hovering around 100 million users/a day now

What I found interesting

What it’s like to go through a dramatic career change

If you are a left-wing protester, you’re 3x more likely to be forcefully confronted by the police in the US. My guess is that except from the aggressive looters, left-wing protesters are peaceful and give an impression to the police that they can use force against the protesters. Right-wing protesters appear more aggressive and intimidating. Plus, I wonder if the results are skewed because there are more states with the GOP-controlled local authorities than those with Dems-controlled authorities.

Dire Wolves Were Not Really Wolves

European Union gave citizens the “right to repair

This video clip is about how much Swedes trust their government and believe that their high taxes are in their benefits through free healthcare, education, great infrastructure and a great living standard. It can’t be more different from the US. Here, every time social benefits are mentioned, a lot of people can’t call them “socialists” or “communists” fast enough. It’s super fascinating to see people increasingly pay more taxes (as %) compared to billionaires and are convinced that a little bit of saving on taxes every month is worth having a low living standard and paying a lot of money for everything else. There is a natural and inherent distrust in the government that is the root of so many problems around here

Trump’s coup attempt of 2020-21, like other failed coup attempts, is a warning for those who care about the rule of law and a lesson for those who do not. His pre-fascism revealed a possibility for American politics. For a coup to work in 2024, the breakers will require something that Trump never quite had: an angry minority, organized for nationwide violence, ready to add intimidation to an election. Four years of amplifying a big lie just might get them this. To claim that the other side stole an election is to promise to steal one yourself. It is also to claim that the other side deserves to be punished.

When that violence comes, the breakers will have to react. If they embrace it, they become the fascist faction. The Republican Party will be divided, at least for a time. One can of course imagine a dismal reunification: A breaker candidate loses a narrow presidential election in November 2024 and cries fraud, the Republicans win both houses of Congress and rioters in the street, educated by four years of the big lie, demand what they see as justice. Would the gamers stand on principle if those were the circumstances of Jan. 6, 2025?

Source: The New York Times

Weekly reading – 9th January 2021

What I wrote last week

My review of the NYTimes as a business

If you haven’t heard of MDSave, read about my experience with it and how it can save you money

I talked about why I thought Apple’s Services have just only begun

Business

In the Face of Lockdown, China’s E-Commerce Giants Deliver

Consumer spending on the App Store reached $72 billion, compared to almost $39 billion generated on Google Play

A merchant detailed his dealing with Amazon. It’s mind-blowing to see how much Amazon charges merchants for being on their site and how much these merchants rely on the behemoth for revenue. While the total commission is high, that’s the price to pay when you don’t own the customer relationship.

Autodesk's sales growth after its SaaS transition
Source: Polen Capital

Technology

EV vehicles’ market share in France hit 19%, up 6x YoY

South Korea has 11 million 5G subscribers

Facebook published usage stats of their apps on New Year’s Eve. More than 1.4 billion voice and video calls were made on Whatsapp on New Year’s Eve

What I found interesting

The Eerie Beauty Of The Apple Watch Solar Face, And The Anatomy Of Nightfall

Hawaii beaches face the threat of erosion

Impressive as it is, Apple’s Services is still in the early days

Long known as an iPhone company, Apple has transformed itself in recent years to become less dependent on the iconic consumer gadget. I doubt the transformation stemmed from a desire to get rid of the association. Rather, the transformation is to respond to the consumers’ tendency to hold on to their devices longer and to keep the ecosystem strong as well as the products sticky. In FY 2014, Services was responsible for only 10% of Apple’s revenue. In FY2020, the figure doubled to 20%. It may not sound much, but it is given that we’re talking about a company of Apple’s size, stature and $250+ billion in annual revenue.

The growth of their Services is also reflected by the steadily expanding number of paid subscribers. In Q4 FY2020, Apple announced that they had 585 million paid subscribers and were well on track to finish the calendar year 2020 with 600 million subscribers. Only two years ago, the subscriber base stood 330 million as of Q4 FY2018.

Two days ago, Apple provided a few data points with regard to their services:

  • Developers have earned $200 billion through the App Store since 2008
  • Between Christmas Eve and New Year’s Eve in 2020, consumers spent $1.8 billion on digital goods and services on the App Store, with $540 million alone on New Year’s Day
  • Apple Music added 52 new territories and now has 70 million songs and 250,000 exclusive radio episodes
  • Apple TV App is “1 billion screens in over 100 countries and regions”
  • Apple Pay is available in 90% of stores in the US, 85% in UK and 99% in Australia
  • Apple Books has 90 million monthly active users
  • Apple Podcast is available in over 175 countries with programming in more than 100 languages
  • “More than 85 percent of iCloud users are protected with two-factor authentication”

I wish there would be more context for us to judge these numbers, but two data points specifically stand out for me. First of all, developers earned more during the Holiday Week between 24th Dec and 1st Jan in 2020 than they did in 2019. The App Store’s spending in 2020 went over $72 billion, easily dwarfing the $39 billion that Google Play had to offer. When consumers spend more on the App Store year after year, developers have more incentives to produce apps which, in turn, make the App Store even more vibrant. Plus, even though Android is on more devices than iOS, the App Store still generated more consumer spending, confirming the long observation on the market that Apple users are a more lucrative clientele for developers. If resources are constrained, why not focusing on where the money is?

Second, 85% of iCloud users enable two-factor authentication. Personally I only turn on the two-factor authentication for important accounts like my bank accounts, Gmail and iCloud. The figure provided by Apple indicates to me how iCloud users think about their account, implying a high degree of attachment and stickiness.

When it comes to Apple’s Services, I don’t consider them user-acquisition tools. Acquiring users is more like the job of the company’s legendary brand, marketing and hardware. I don’t think anyone switches from Android to iOS simply because they want to use either Apply Pay, Apply Books or Apple Podcast. Rather, Services keep users engaged and locked into the ecosystem. So far, these Services have done wonders for Apple and there is so much room to grow. Some s such as Apple Card, Apple TV+, Apple Fitness+ or Apple One are very new and limited to only a few markets. They are still in the development stage. Once they are further developed and introduced to more markets, Apple’s Services pie will grow bigger and their “overseas” customers will be even more locked in.

And then there are areas where Apple can potentially make inroads. The company has a knack for making small, incremental yet meaningful changes in complicated matters. It will not surprise me if they find a way to make our lives easier in areas such as our job, education or insurance. These offer plenty of opportunities for improvement and they are very personal; which is what Apple is all about. The company doesn’t even need to come up with paid services to generate more revenue. Even free services that can keep customers happy and locked in would already be valuable. Once customers are happy and locked in, the money will come later.

I heard and saw criticisms about Apple’s Services such as Apple TV+ or News+ or Fitness+. While some of those criticisms were warranted, it’s worth remembering that it’s rare to get something perfect at first try. Apple launched great and disappointing products before. Yet, the company is still here and among the top 5 richest companies in the world. The company is in the early days to grow their Services portfolio, trying, tweaking and expanding as they go along.

Disclaimer: I own Apple’s stocks in my portfolio

Weekly reading – 2nd January 2021

What I wrote last week

I reviewed two books: Operaatio Elop and Turning The Flywheel

I wrote about an important lesson I will take with me into 2021

Business

How Domino’s Pizza Drove a 90x Increase in Stock Value

How to use Pinterest for Marketing

The fear of missing out seems to fuel venture capitalists and investors to value startups many many times over its revenue

How to build tech products for a diverse user base

WordPress has 40% market share

Restaurants complain about not making money with Instacart. If you outsource the relationship with your customers and accept the behind-the-scene role, you cede control as well as any profitability to Instacart.

Airlines are making it really hard for customers to use credits. All airlines try to make customers use credits, rather than get reimbursed with cash. But some, like United Airlines, are exceptionally terrible. It’s rich to claim you are about serving your customers when claiming flight credits because of Covid-19 is difficult.

Inside the deal between Google and Facebook that drew antitrust attention

The App Store and Google Play notched more than $400 million in spending on Christmas 2020, up 35% YoY

An interview with Strip Co-Founder. Stripe’s revenue in EMEA is reportedly almost $530 million in 2018.

Covid-19 has been good for streamers so far

A horrifying account of working at Apple by an international student

Oyo Chain Hotel is facing great challenges amidst Covid-19

Technology

How Apple’s rivals plan to catch up with the mighty M1 chip

EU Signs €145bn Declaration to Develop Next Gen Processors and 2nm Technology

What I found interesting

She Noticed $200 Million Missing, Then She Was Fired

What the Dunning-Kruger effect is and isn’t

Chinese Demography

China’s Empire of Concrete

Abortion, Once Unthinkable in Argentina, Becomes Legal

How ‘Feierabend’ helps Germans disconnect from the workday

A long read about the US’ response to Covid-19. I don’t know how anyone can read this report and say anything other than: there is blood on those who are supposed to be in charge, but fail their duty miserably.

A great read on why Trump supports connect with him. It’s not about policies or principles. It’s feelings. It’s about long held frustration.

Amazon’s bully tactics and my thoughts on antitrust issues

WSJ ran a piece analyzing Amazon’s tactics in defeating businesses that were first partners, but became rivals standing in the way of Amazon’s private labels. It got me to think about when behavior from big and established companies became unlawful and unacceptable and when the behavior just stemmed from the drive to be more competitive. To me, there are three different aspects to this issue: the launch of competitive products or services against smaller businesses, the price undercut and the downright bullying. Let’s look at them one by one

Big techs’ launch of services and products against smaller businesses

Critics of big techs often accuse them of antitrust behavior when the companies launch a feature similar to what other smaller businesses offer. As these big tech firms usually own the customer relationship and hence important distribution, they have a clear advantage in promoting and selling the feature than smaller competitors do with their main products. To be clear, I am NOT against giants taking advantage of the data generated from their popular platforms for several reasons:

  • If a company wants to launch something new that is a response to a market threat and can potentially benefit the end users, why should it not be allowed to?
  • Yes, platforms like Amazon or Apple have a huge advantage at their disposal: data on consumer behavior. But how is that different from getting marketing intelligence from somewhere else? The difference here is that these platforms own the data, but first they have to WORK to build these platforms and maintain them
  • Retailers have their own private labels all the time. It’s hardly a surprise that they observe brands that rent spaces on their premises and subsequently launch their own labels
  • Copying others is what almost every business does to some degree

For these reasons, I don’t think the launch of services like Apple Music itself is an antitrust behavior by Apple. Clearly, the advantages over Spotify are 1/ the app is pre-loaded and 2/ Apple owns the operating systems and customer relationship. Plus, it’s not like consumers can’t download Spotify on Apple’s devices. There is a bit more friction involved compared to the effortless experience with Apple Music, but that’s the price you have to pay for when relying on others. I wrote about Slack’s lawsuit against Microsoft before. In that piece, I argued that Microsoft, in all their Microsoft365 offerings, has at least one option that doesn’t bundle Teams. Moreover, as in the case of Apple against Spotify, companies are free to add Slack to their stack besides Office365. Surely, Slack has a lot more convincing to do as it has to persuade companies that the additional expense each month is worth the extra utility from Slack compared to Teams. Nonetheless, that’s the nature of the competition and I do think Microsoft is within its rights to bundle Teams the way it does.

In this sense, if Amazon wants to introduce a private label in a certain category, based on their data, they are within their rights. Plus, consumers have one more option at their disposal. I personally don’t see a problem with that. If I were Jeff Bezos, I would do the same and you would be hard-pressed to say you’d do it differently.

Zappos, the online shoe marketplace, and its late CEO Tony Hsieh, successfully outmaneuvered Amazon and beat them into submission in the form of an acquisition that allowed Tony and his company a degree of autonomy from the parent company. In the book “The Innovation Stack“, the founder of Square talked about the pressure from Amazon in Square’s early days. Although much smaller than the Seattle-based company, Square managed to beat Amazon with their superior products and services. Why am I mentioning these examples? They serve as a reminder that small businesses can defeat much bigger resource-rich competitors.

Predatory Pricing

From the WSJ piece:

In a June 2010 email chain that included Mr. Bezos, a senior executive laid out tactics, saying “We have already initiated a more aggressive ‘plan to win’ against diapers.com in the diaper/baby space,” a plan that included doubling Amazon’s discounts on diapers and baby wipes to 30% off, and a free Prime program for new moms.

When Amazon cut diaper prices by 30%, Quidsi executives were shocked and ran an analysis that determined Amazon was losing $7 for every box of diapers, former Quidsi board members said. Senior Quidsi executives were even more surprised when, the day of the price cuts, Jeff Blackburn, a top lieutenant to Mr. Bezos, approached a Quidsi board member saying the company should sell itself to Amazon, said a person familiar with the matter. At that point, Quidsi wasn’t for sale and had big growth plans.

Quidsi started to unravel after Amazon’s price cuts, said Leonard Lodish, a Quidsi board member at the time, missing its internal monthly projections for the first time since 2005. The company felt it had no choice but to sell itself because it couldn’t compete with what Amazon was doing and survive. Amazon bought Quidsi in 2010 for about $500 million. It shut down Diapers.com in 2017, saying it was unprofitable.

“What Amazon did was against the law. They were selling diapers for below cost,” said Mr. Lodish. “But what were we going to do? Sue Amazon for antitrust? It would take years and tens of millions of dollars and we’d be bankrupt by then.”

Source: WSJ

When it comes to predatory pricing, it’s a bit more complicated. First of all, to many consumers, a giant like Amazon bullying a smaller rival like Diapers.com looks very distasteful, but to the FTC, it may not necessarily be illegal. Here is what the FTC currently says about predatory pricing

Source: FTC

Pricing below your competitors isn’t unique. What could get Amazon into legal trouble is whether it is establishing a monopoly in, as in this case, the diapers market and harming the consumers by raising the prices after eliminating competitors. Apparently, that hasn’t been the case. Last time I checked, there are more than one diaper brand on Amazon’s website and on the market in general. Plus, pricing is just one part of the value propositions a company can offer to consumers. Most car companies in the world will have a lower price than Ferrari, but the Italian company is still one of the most luxurious brands in the world and its customers still crave for its cars every year. It’s true that in some categories, prices are the dominant feature, but it’s NOT the only reason why consumers make the purchase decision.

Furthermore, one can argue that Apple Music, because it is owned by Apple, isn’t subject to the 15%/30% commission that 3rd-party app like Spotify is. Said another way, Spotify has to raise its prices to maintain its margin and as a result, make itself less competitive than Apple Music. That may be true, but once again, because there are alternatives to Apple Music on Apple devices such as YouTube, Amazon, SoundCloud and Spotify itself and because Apple Music isn’t the cheapest of all, in the eyes of the FTC, it is not illegal.

Where it gets unacceptable

Again, from the WSJ article:

At its height about a decade ago, Pirate Trading LLC was selling more than $3.5 million a year of its Ravelli-brand camera tripods—one of its bestselling products—on Amazon, said owner Dalen Thomas.

In 2011, Amazon began launching its own versions of six of Pirate Trading’s top-selling tripods under its AmazonBasics label, he said. Mr. Thomas ordered one of the Amazon tripods and found it had the same components and shared Pirate Trading’s design. For its AmazonBasics products, Amazon used the same manufacturer that Pirate Trading had used.

Amazon priced one of its clone tripods below what Mr. Thomas paid his manufacturer to have Pirate Trading’s version made, he said. He determined it would be cheaper to buy Amazon’s versions, repackage and resell them than to buy and sell them on the terms he had been getting; he decided not to do that.

Amazon suspended Pirate Trading camera tripod models that competed with the AmazonBasics versions repeatedly, Mr. Thomas said, alleging his tripods had authenticity issues. Amazon rarely suspended the tripod models that didn’t compete with AmazonBasics versions, he said. In 2015, Amazon fully suspended all Ravelli products, he said, and his company’s tripod business is now a fraction of the size it was. Mr. Thomas said he found being a seller on Amazon too risky and has largely pivoted to real-estate investing.

Several Amazon sellers said they have received notifications from Amazon, which has been battling fraud and fake goods on its platform, that say their products are used or counterfeit. Amazon suspends their selling accounts until they can prove that the products are legitimate, which can cause big sellers to lose tens of thousands of dollars each day, they said.

To turn their accounts back on, Amazon often requests that the sellers provide details on who manufactures their product along with invoices from the manufacturer so that Amazon can verify authenticity. Several sellers told the Journal they provided those details to Amazon to get their accounts reinstated, only for Amazon to introduce its own version of their products using the same manufacturer.

Source: WSJ

This is an example of under-handed and antitrust behavior that I think should be outlawed and punished. Here, Amazon used its authority and position to extract crucial information from other sellers and in turn, took advantage of the information to launch competing products. It’s one thing for Amazon to find out where sellers source their products on their own. It’s another for Amazon to leverage its position to do so. Worse, it disrupted Pirate Trading’s business repeatedly for unclear reasons and allegedly benefited its competing private label. This type of bullying behavior should be condemned and regulated.

In that sense, I don’t think it will be right for the likes of Apple to do the following to 3rd-party apps:

  • Make it hard for them to publish updates and features
  • Prevent them from being on the App Store without just cause
  • Extract proprietary information and use it against the 3rd-party apps

In short, it’s complicated and nuanced to determine whether a behavior from an established form should be punished and outlawed or whether it’s just the nature of business. My observation is that people usually jump into accusations and judgements too quickly, as well as collapse multiple issues into one. Regulations regarding antitrust in the future need to balance between letting companies, regardless of size, compete out of merits and making sure that bullying behavior is punished accordingly. That’s no small feat. That’s hard as you can by now imagine. But our society only advances when we make difficult accomplishments, doesn’t it?

Disclaimer: I own Apple, Microsoft, Spotify and Amazon stocks in my portfolio

Weekly reading – 19th December 2020

What I wrote last week

Adobe’s impressive performance and Disney’s true unveiling of Disney+

My thought on Apple vs Facebook and some data on iOS14 adoption

Business

Reviews of Apple Fitness+

Amazon is planning to offer a telehealth service to companies

A very interesting interview with the founder and CEO of Shopify on how to manage time.

A great letter from Brian Chesky on Ron Conway and his impact on AirBnb

Technology

This founder dodged a huge bullet after unintentionally racking up a Google Cloud Platform bill worth more than $70k+. Something to watch out for.

An interesting post that compares the new and old versions of Apple Map in Canada

What I found interesting

A new species of whales was discovered in Mexico. I kinda had mixed feelings after reading this. On one hand, I was glad we made this discovery. On the other, there may be some ignorant and greedy people trying to hunt them down for food or just an ego booster.

Reuters ran a piece on how the Coronavirus has evolved

A piece of good news. The Amazon seems to grow back

An inside story on how Pfizer achieved a miraculous feat in the race to produce a Covid-19 vaccine.