Amazon Declared A Failure … in 2000
Amazon is a juggernaut. It dominates commerce and has hollowed out and reshaped the retail landscape. It provides the tech infrastructure for many businesses with Amazon Web Services (AWS) and competes with Netflix which has reshaped entertainment and “streaming”. And that’s just 3 things it does… there’s so much more.
Even though it has been more than 20 years since its founding and IPO, there could still be more ahead for Amazon’s original core business. E-Commerce’s share of US Retail Sales during this time has grown from almost nothing to 15+% — 1 out of every 6 dollars.
Amazon’s dominance wasn’t always obvious. Let’s go back in time for a moment.
One expert thought Amazon was destined for failure 20 years ago, just 6 years after its founding. It was a public company for only 3 years and 3 months.
Aug 28, 2000:
Unless shareholders get rid of Bezos and the buffoons in the boardroom, those clowns may add a new chapter to the books sold by AMZN called Chapter 11. This company is a joke, and so is its leadership
In those early days Amazon was criticized as a failure waiting to happen — it was only a matter of time according to some analysts. They thought it would go out of business.
The criticism has continued but today it’s about Amazon being too powerful of a global corporation. And then of course the issues about employee compensation and privacy.
20 years ago the story was that Amazon was the poster boy for “Internet 1.0” excess of promises over reality. And it would have been seen as right and proper back then — just look at the stock chart:
Some numbers from Barry Ritholtz highlight just how off the doom-calling was in 2000:
The numbers today seem almost shocking compared to 1998, when the company “posted a loss of $125M on revenues of $610M.
20 years later, Amazon’s daily revenues are greater than 1998’s annual revenues. Last year, the company sold 241.5B dollars worth
That’s $660.27M per day – 50M more dollars per day than the company sold for all of 1998.
inflation-adjusted, the 1998 revenues are still less than $1B dollars ($939.7m) for the entire year. That’s less than a day and half of sales today."
We would all love to go back in time to buy AMZN at that $19-billion dollar valuation. It turned into $894.2B, a 47X return...an annualized average return of 21.1%"
To paraphrase singer Prince, “If only we could have bought Amazon’s stock like it was 1999!!”
But maybe it’s not too late to invest for a second act and ride the wave of Amazon’s new businesses. I mentioned Amazon’s success in commerce, data and entertainment. That’s priced in.
Now there are two relatively new Amazon lines of business that are just a few years old, younger today than Amazon was back when it was destined for “Amazon.bomb” back in 1999.
One of Amazon’s biggest new businesses: Freight.
Freight?
Yes.
Amazon used services like FedEx, UPS and USPS but now it competes with them.
This is just like it used to sell other publishers’ books, but now can produce its own via its Kindle self-publishing business. Or how it used to sell other studios’ movies but now makes and broadcasts its own films and shows.
Amazon now also ships its own packages - it’s broken off ties with FedEx. Almost overnight Amazon became a Top 3 carrier.
"Amazon is now its own largest parcel carrier. Let that sink in. How did a company that started selling books out of a garage in Bellevue, WA build the world’s largest vertically-integrated D2C supply chain?
Amazon has entered the market as the top third-party logistics carrier (or 3PL in industry parlance) globally --before anyone was able to take notice. They now employ more workers (648,000) than either FedEx (450,000), UPS (481,000) or USPS (497,000) - up from just 117,000 in 2013.
And they’ve built the infrastructure, which is very hard to replicate: 390 warehouses, 50 planes, 300 truck power units and 20,000 delivery vans."
Amazon’s carrier business results are frankly amazing, given the speed and scale.
There’s one more relatively new Amazon category which has grown with impressive speed and scale: Voice.
We will eventually leave behind keyboards and screens, and voice will be part of a change in user interfaces (“UX”). This change overlaps with other trends, including wearables (e.g. earpods), augmented and virtual reality, physical gestures, and neurological inputs from our nervous system.
Amazon customers are already purchasing via voice and Alexa and Echo.
One last detail about Amazon’s Voice business of interest for those technically-inclined:
Just as some people are publishing their own books via Amazon Kindle, creating their own movies which might be seen on Amazon Prime, or selling their own products via Amazon, there are now coders building voice software for Amazon’s Alexa voice service, through coding “skills”:
"David Markey, a 22-year-old senior studying applied mathematics and economics at Brown University, got his first Amazon Echo during the e-commerce giant’s Prime Day sale in 2016...he capitalized on the product and now earns $10,000 a month by coding “skills” for Alexa."
"I set up my apartment with smart lights and I used the Echo for setting timers for cooking...I found that to be a really good way to get the news while I was having my morning coffee.”
But...He wanted a skill to teach him a new word and its definition each day, and he wanted it to be read in a human’s voice...
“Everything there was voiced by Alexa,” he says. “So I decided to make one myself...
In May 2017, Amazon launched its Alexa Developer Rewards program, which pays developers who create top performing skills within specific categories, like “education and reference” or “trivia and accessories.”
This Developer Rewards program not only creates opportunities for entrepreneurs, it is a very low cost way for Amazon to develop products and services for its users.
Here’s something interesting about the trends in the younger Amazon business lines I’ve mentioned — Prime, AWS, “Kindle” and “Alexa”/ “Echo”:
“"Prime" appears 131 times, "AWS" appears 81 times, "Kindle" appears 66 times, and Alexa and Echo for a combined 34 times...
...Prime was only introduced in 2005, AWS rolled out in 2006, the Kindle was introduced in 2007, and we first heard of Alexa and Echo in late 2014.
So, these are four of the most-used words you'll find in the 23 shareholder letters, but they refer to products that didn't even exist for the first half or more of the company.”
Yet again, it feels like early days for Amazon. In Bezos’ words, it’s “Day 1” every day for the company.
Instead of books, it’s package deliveries, voice services and software and entertainment and media. I don’t think anyone will be ready to declare any failures so eagerly.