When you look at large manufacturing companies, it becomes very clear that the machine that makes the machine is just as important as the machine itself. There’s a lot of work in the iPhone, but there’s also a lot of work in the machine that can manufacture over 200m iPhones in a year. Equally, there’s a lot of work in a Tesla Model 3, but Tesla has yet to build a machine that can manufacture Model 3s efficiently, reliable, quickly and at quality at the scale of the incumbent car industry.
More than any of the other big tech platform companies, Amazon is a machine that makes the machine.
.. Amazon at its core is two platforms – the physical logistics platform and the ecommerce platform. Sitting on top of those, there is radical decentralization.
.. Amazon is hundreds of small, decentralized, atomized teams sitting on top of standardised common internal systems. If Amazon decides that it’s going to do (say) shoes in Germany, it hires half a dozen people from very different backgrounds, maybe with none of them having anything to do with shoes or ecommerce, and it gives them those platforms, with internal transparency of the metrics of every other team, and of course, other people (and Jeff) have internal transparency to their metrics.
These are the famous ‘two pizza teams’. The obvious advantage of a small team is that you can do things quickly within the team, but the structural advantage of them, in Amazon at least (and in theory, at least) is that you can multiply them. You can add new product lines without adding new internal structure or direct reports, and you can add them without meetings and projects and process in the logistics and ecommerce platforms. You don’t (in theory!) need to fly to Seattle and schedule a bunch of meetings to get people to implement support for launching make-up in Italy, or persuade anyone to add things to their roadmap.
This means not so much that products on Amazon are commodities (this much is self-evident) but that product categories on Amazon are commodities.
This model has two obvious consequences for Amazon. The first is that
- it can scale almost indefinitely – if you can launch x in y without a meeting or a new org structure, the speed of expansion into new categories is limited mostly by your ability to hire and to procure (and also by consumers’ willingness to buy a new category online, of course). The second is that
- the buying experience for any given product category ultimately needs to fit a lowest-common-denominator model. The platform teams cannot easily create custom experiences for each new category.
.. There’s a third consequence, though: those atomised teams don’t actually need to work for Amazon. This is the insight behind both AWS,
.. Estimates of the total value of goods being sold both though Amazon itself and through marketplace vendors (together this is termed gross marketplace value, or GMV) are generally about double Amazon’s reported revenue.
.. it now has a 25% operating margin.
.. Amazon invests cash from profitable units into the creation of new, unprofitable units, and you have no real idea what the distribution looks like. This, I think, is how we should see both AWS and the marketplace business: Amazon is uniquely obliged to disclose the profitability of AWS, but it’s not the only profitable part of the company.
.. The opposite extreme might be Apple, which rather than radical decentralization looks more like an ASIC, with everything carefully structured and everyone in their box, which allows Apple to create certain kinds of new product with huge efficiency but makes it pretty hard to add new product lines indefinitely. Steve Jobs was fond of talking about saying ‘no’ to new projects – that’s not a very relevant virtue to Amazon.
How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)
The United States loses, according to my estimates, close to $70 billion a year in tax revenue due to the shifting of corporate profits to tax havens. That’s close to 20 percent of the corporate tax revenue that is collected each year. This is legal.
Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal.
.. In 2015, $15.5 billion in profits made their way to Google Ireland Holdings in Bermuda even though Google employs only a handful of people there... 63 percent of all the profits made outside of the United States by American multinationals are now reported in six low- or zero-tax countries:
- the Netherlands,
- Bermuda,
- Luxembourg,
- Ireland,
- Singapore and
- Switzerland.
.. After learning Irish authorities were going to close loopholes it had used, Apple asked a Bermuda-based law firm, Appleby, to design a similar tax shelter on the English Channel island of JerseyAppleby duly obliged, and Jersey became the new home of the (previously Irish) companies Apple Sales International and Apple Operations International... In 2015, the Swiss Leaks revealed the owners of bank accounts at HSBC Switzerland, and in 2016 the Panama Papers revealed those of the shell companies created by the Panamanian law firm Mossack Fonseca. These showed that 50 percent of the wealth held in tax havens belongs to households with more than $50 million in net wealth.. In the Paradise Papers, we see that these are not only Russian oligarchs or Belgian dentists who use tax havens, but rich Americans too... For a long time, the bulk of it was held in Switzerland, but a fast-growing fraction is now in Hong Kong, Singapore and other emerging havens.The most compelling way to do this would be to create comprehensive registries recording the true individual owners of real estate and financial securities, including equities, bonds and mutual fund shares... One common objection to financial registries is that they would impinge on privacy. Yet countries have maintained property records for land and real estate for decades... comprehensive registries would make it possible to not only reduce tax evasion, but also curb money laundering, monitor international capital flows, fight the financing of terrorism and better measure inequality.
Why You Might Spend $1,000 on a Smartphone
Many delay upgrades of other big-ticket items so they can buy a better device
Apple’s newest iPhone is expected to have components that cost about 80% more than the components in the iPhone 7, including an edge-to-edge, organic light-emitting diode, or OLED, display, wireless charging and new sensors
.. If consumers take the new price points in stride, Apple and Samsung could widen their advantage over hundreds of smartphone rivals, many struggling to break even. Apple and Samsung claim nearly all the industry’s combined annual profits, with about 79% for Apple and 15% for Samsung
.. The two are defying the gravity that usually pulls consumer prices downward as innovation wanes and manufacturing costs fall. For example, average prices for TVs and laptops have fallen about 50% from their respective peaks over the past 15 years, to $467 for TVs and $598 for laptops
Benedict Evans: Content isn’t king
People in tech and media have been saying that ‘content is king’ for a long time – perhaps since the VHS/Betamax battle of the early 1980s, and perhaps longer. Content and access to content was a strategic lever for technology. I’m not sure how much this is true anymore. Music and books don’t matter much to tech anymore, and TV probably won’t matter much either.
Most obviously, subscription streaming has more or less ended the strategic importance of music to tech companies. In the past, any music you bought for your iPod had DRM and could only be played on Apple device
.. Even if you’d just encoded your own CDs (or downloaded pirated tracks, but in either case without DRM), physically transferring them to a different device with different software was a barrier. Your music library kept you on a device. With streaming these issues mostly go away. All the major services are cross-device (even Apple’s), and if you do switch to a different service you’re not giving up tracks you’ve paid money for, just a list of your favourites. Switching became easy.
.. Since music no longer stops people from switching between platforms, it’s gone from being a moat
.. Ebooks, like music, do not seem to create any moat for any broader platform strategy.
.. whenever I talk to music people or book people, very quickly the conversation becomes a music industry conversation or a book industry conversation. What matters for music are artists and touring and labels and so on, and what matters for books are writers and publishers and rights and Amazon’s bargaining power in books and so on. These aren’t tech conversations. The big tech platform companies rolled into these industries and changed everything, but then moved on to bigger things.
.. Tech needed content to make their devices viable, but having got the content (by any means necessary), and with it of course completely resetting the dynamics of the industry, tech outgrew music and books and moved on to bigger opportunities.
.. the shows that are watched mainly because they’re broadcast at 8pm on Saturday will suffer, and so will the channels that are watched because they’re high up on the program guide.
.. Amazon clearly is using content for platform leverage – as something else to speed up the Prime flywheel. Prime has become a third pillar to Amazon’s business, next to logistics and the ecommerce platform, and Amazon is always looking for ways to add more perceived value to it, preferably with no marginal cost – TV content that it owns outright is exactly that.
.. Unlike a Taylor Swift or Kanye West exclusive, this is more than just marketing – it’s something you lose altogether if you give up something else that’s not directed related. Cancel the subscription delivery service and you lose access to all Amazon TV shows.
.. For Google and Facebook, there’s no subscription to cancel – there’s no binary (renew/don’t renew, cancel/don’t cancel) decision you might take that would cut off your access to that great TV show. You don’t close your Facebook account – you just go there less. You might stop paying for the Youtube TV service, but that won’t cut off your access to any other part of Google
.. Buy an Android instead and you lose access to the (hypothetical) great Apple television service. This is why people argue that Apple should buy Netflix.
.. Part of ‘content is king’ was the idea that (at least in theory) content companies can withhold access to their libraries entirely, and in the past one might have presumed that that meant they had the power to kill any new service at birth. In reality, rights-holders have always had too strong a need for short-term revenue to forgo broad distribution, and few of them individually had a strong enough brand to extract a fee that was high enough to justify exclusivity
.. The reason Apple TV, Chromecast, FireTV and everything else feel so anti-climactic is that getting onto the TV was a red herring – the device is the phone and the network is the internet. The smartphone is the sun and everything else orbits it. Internet advertising will be bigger than TV advertising this year, and Apple’s revenue is larger than the entire global pay TV industry.
.. This is also why tech companies are even thinking about commissioning their own premium shows today – they are now so big that the budgets involved in buying or creating TV look a lot less daunting than they once did.