There’s been a lot of negative discussion of Netflix recently – and while I think they have made mistakes, I’m bullish for the medium-term future. Essentially, Netflix lost 2% of their subscribers after a 60% price hike. Their overall revenue increased 4% from the second quarter, and 49% YOY. Granted, they expected more, but that big of a plummet?
The main argument I hear is that Amazon is going to compete with them. Amazon has had Instant Video (used to be called Unbox) for awhile, but now they are starting a subscription service, similar to Netflix. The content providers clearly want a second major player that they can play off Netflix from a negotiation stand point. But to assume they can be competitive with Netflix in the next year or two is misguided, in my opinion. Netflix has a huge user base of very loyal customers. More importantly, Netflix has significant distribution through set-top/DVR boxes, TV manufacturers, gaming consoles, Apple/Google TV, iPad, iPhone, Android, etc. Amazon has distribution on almost exclusively TV manufacturers and Google TV. Amazon has had time but is clearly not getting the same distribution – my hypothesis is that it’s because they are competing with some of the other channels with their Kindle Fire. And the assumption is that they’ll eventually get into the mobile phone space as well. So Microsoft, Google, and Apple aren’t going to push Amazon’s streaming service over their own, or Netflix (which has no single horse in the race). And distribution matters – I believe (albeit without proof) that people make buying decisions based on whether a device supports Netflix.
Content is still king, but as long as Netflix can continue to secure more content (which they can, utilizing their distribution/brand advantage), I would buy into their growth.
When Amazon announced its acquisition of Zappos yesterday, I was pretty excited. Here were two of my favorite companies joining forces. I have become a huge advocate of Amazon (especially their Prime service) over the past couple years, as they continue to show innovation and reduce the pain of shopping (this doesn’t account for the Kindle and AWS, which I discuss here). I’d say 90% of my online shopping goes through Amazon due to price/ease.
Zappos, on the other hand, is a more recent fad of mine. I heard Tony Hsieh speak at TiEcon earlier this year, and it was the best keynote I can remember, especially given that I was able to stay awake (without coffee) on a Saturday morning with very little sleep. And he was quite inspirational, though he didn’t talk just about Zappos or his background. I actually bought a book on his recommendation – Happiness Hypothesis (which I will blog about sometime in the future), ironically on Amazon.
Their value prop is awesome (free unlimited shipping and returns) and their service is impeccable. While they focused on shoes (competing with Amazon’s Endless.com), they had already expanded into apparel, and it was only a matter of time before they moved to other types of goods that Amazon offered. I loved where the direction they were pushing the market in, and was hoping that I’d eventually be able to choose between Zappos and Amazon for that next gadget or toy.
The question I wonder is whether, as a consumer, is it good that these companies are now one and no longer competing. As Hsieh colloquially put it in his letter (btw I like his sense of humor), this was less an “acquisition” and more like “Amazon and Zappos sitting in a tree…” In my opinion, Zappos’ customer service cred kept Amazon honest, but now that they are “sitting in a tree” together, who is challenging them, and pushing even their vaunted reputation higher? I’m sure there are smaller companies out there that are evolving, but to reach their scale it requires significant capital. Perhaps Ebay can challenge them but given their CEO’s recent statement, it looks like they’re going to push their Paypal offering (which has a terrible customer service reputation, fair or not), which to me means they may be deshifting their focus against Amazon.
Anyways, I will leave you with the presentation Hsieh gave to TiEcon – it gets really interesting around slide 36 (though even the beginning is great):
Amazon releases their earnings this Thursday, and while most of you probably heard about the controversy regarding Amazon (#amazonfail) last week, what you may have overlooked in all the hubbub was the astonishing 300,000 Kindle 2′s sold in the less than two months since it’s release. That’s over a $100M in revenue from a single item. Amazon is expecting to sell 800,000 overall for 2009 – over $280M in revenue. Absolutely incredible. Oh and don’t forget the Kindle leads to higher margin book sales through wireless delivery. So it got me thinking, if there was a executive of the year award (I blame the NBA – it’s award season there), Jeff Bezos would have to be considered one of the frontrunners, right? Just for kicks, here’s a revenue comparision against their biggest competitor EBay (I guess I have to continue with my proclivity towards graphs):
And stock performance (take with a huge grain of salt, very different companies, and BBuy is signifcantly bigger than the rest with their $40B+ revenue) over the past 6 years compared to Best Buy, Circuit City, Barnes & Noble, Ebay, and the S&P:
And while their commerce side is continuing to grow, their transformative cloud offerings, AWS, could dominate their revenue within 5-10 years. AWS is currently recognized in the “Other” category on their quarterly reports (last figured at $131M in Q4 2008). Anyways, who knows what will happen Thursday, but Bezos has definitely impressed me.
I had no intention to get a Kindle 2, mainly because of its high price tag. But my nephew (aka my sister and brother in law, seeing as my nephew is not even 1 year old) bought one as a surprise – and I love it. At first, I can’t deny I was disappointed. It didn’t include any accessories (for 350 you think you’d get a cover – very Apple-esque of them, although at least it did have an AC/USB adapter), there’s no light on the device, you can’t replace the battery, and the screen seems a bit small.
But then I started playing with it. The screen is phenomenal. When I first opened it, I mistakenly thought the picture (a portrait of a poet) was just part of the plastic covering the screen – I only discovered it was the display 5 minutes later when I looked at the screen. The e-ink is phenomenally clear and easy to read. Downloading books via the device or online is a breeze. The battery life seems great (only charged it once so far).
But two features seem really cool to me. First, it’s extremely easy to open up PDF and DOC files – just send them via email to your email@example.com and it shows up right on your Kindle home screen. Second, it has a web browser built in (under the experimental section). That’s right, it might be crude and only work on certain sites (the mobile versions), but I think it’s awesome that I can read ESPN articles as if it were printed out in paper. And it’s free. Pretty awesome. Sure there are other devices out there, but none seem as cool as this. I love my iPod touch – but I use that mostly for games. This device encourages reading – something much more useful and beneficial. Congrats Jeff Bezos and the Amazon team, you can count me as impressed. Now work on cutting the price.