Transcript: What is Amazon's Fourth Dreamy Business? (TSP Insights)

Host: I know you covered a lot about, you know, Amazon and Microsoft uh uh in your career. So, I I want to ask you um about Amazon uh primarily.

Um and I think uh you know, in one of the podcasts you're talking about yeah, I think the fourth dreamy business, you know, that Amazon is uh wants to create, you know, the first three being Prime, uh marketplace being the second and AWS uh being the third.

And I'm curious like what at this point, what do you think um uh the fourth dreamy business Amazon might get to?

Guest: Yeah, and there's a lot of discussion about this and it's I need to go back and look at Jeff Bezos's specific definition, but um, I know that a lot of people talk about the advertising business as one potential.

And of course, they're making billions. They just started breaking that out in their results and I don't have those numbers in front of me, but it's certainly getting to the size that it could be a dreamy business.

But one of the characteristics that Bezos set was customers love it. Customers love it.

And I look at the advertising business and I go, the third-party sellers who feel like that's essentially the extra tax that they have to pay to even be relevant in search results. I don't think they love that.

And end users, customers who are ordering those products, man, maybe helping their search results if the or their search for products if those ad results are better than they would have gotten from an organic result but are do they really love it?

I don't know. And I think that's a really interesting characteristic of that term dreamy.

Host: I was thinking that it's part of Marketplace business. Guest: yes, exactly. It doesn't feel so much like it's it's its own business as it is it's an adjunct to one of the existing dreamy businesses. I totally agree with you on that.

Um, but I think that characteristic of customers love it is actually very important because if you look at AWS and you look at Marketplace, um, and uh you you look at the what was what was the third one? I just slipped my mind. Prime.

Of course, Prime. Yeah, customers love that. Maybe not so much Marketplace consciously, but I think they do love the selection. Prime video, perhaps, but again, then I think you can look at that and say, well, that's just an adjunct to Prime as well.

And and do customers really love it? A lot of the stuff on there seems like table stakes compared to I mean, sure, there's good shows on there, but there's good shows on Netflix. There's good shows on Hulu. You know. Um, So, I I I don't know.

That's the that's the long answer to to the question of saying, I think that is one of the biggest challenges that Andy Jassi has. And he's been in the CEO role now for just about a year, exactly a year, actually.

And I think I think there's a real question. Oh, actually, no, now it's all coming back to me. I think there is a potential at least for Amazon to build the fourth dreamy business out of shipping.

Shipping and logistics beyond shipping for Amazon's own customers and products, becoming a legitimate rival to UPS and FedEx.

And the thing about Amazon is, I think like a lot of us, I was an early customer especially because I'm in the Seattle region and they were on my radar. And there's this characteristic that gets back to this notion of loving it as a customer.

There's this characteristic of magic. When Amazon does what Amazon does well, it can feel like magic.

And if they can bring that approach to something like shipping and logistics and truly solving pain points, not just doing me too kind of stuff, which I know they wouldn't do if they went into that business.

Um, and you've seen this start to come together with this program that they launched earlier this year called Buy with Prime, where if it's a product on a third-party website, they will still fulfill it as if it were a prime product.

And so that to me, given all the infrastructure they've built out and everything that they know about logistics and shipping from their own operations, I think that has the biggest potential.

Host: I actually don't I mean it's hard for me to uh think that that is going to be the fourth uh business because it's so I think the one thing it lacks is strong returns.

Because I think the four characters Bezos talks about is uh you know, I think one of them is strong returns.

I think what it lacks is strong returns because they're already like let's say internally Amazon balance sheet if you look um let's say how much they're spending on the logistic and you separate out marketplace and logistics as separate entities and cost it to logistics as you can come up with an estimate that they're already making some billions of revenue and they're mostly net negative.

And it only makes sense in this idea that there's a huge marketplace and Prime and all these things built around it that this particular thing makes sense.

So, I actually uh it's it's hard for me to like get into that vision whether it will be you know, who knows it can be probably, but it's hard to see for me that it will be a strong returns business. Um, but I'm curious what do you think about Alexa?

Because uh I'll give you my perspective because I feel like Alexa like it was a false customer signal delight, I think uh Amazon received with Alexa products. because one of the strongest trends I've seen with Alexa products is no one uses it after six months probably.

I think the churn is super high. Uh I think 80 to 90% customers who buy Alexa devices are not using it. And this is like my observation of 30 people I go to around me. Uh no one uses their Alexa.

Um and the one that uses sticks to it because they have like specific very defined use case that they've defined and they are using it for that purpose and that could be like an alarm or they've they've they've figured out one or two specific things and initially we got a wrong signal that everyone will use for that super customer is using and I feel like Alexa is one area where we wrongly estimated as as a success.

I'm curious what you think about it. Guest: That is interesting. I I I I really appreciate your perspective. And by the way, I I just to go back real fast. I appreciate you pushing back on the shipping too. I that kind of skepticism is important.

And and I think it shows just how tough those criteria are to meet. But um, on Alexa, and you can tell, well, I got to turn my Alexa off. I I hear you.

I I I I think I might fall in that latter category of customers, so just in terms of um, I'm a bit of an outlier because since I'm covering the company much as I use Windows, I try to use Alexa in the same way, so I know what's new and what's not.

And um, I think the use cases are not as great at this stage in the evolution of Alexa as Amazon might have hoped or at least not as valuable.

Um, a lot of the stuff seems like novelties and I'll tell you the place where they get me on Alexa at this point is stuff like the the high-end speakers, uh the Echo Studio. My wife has one in the basement and like that kind of thing I really love.

But then again, high-end speakers are high-end speakers. There's lots of them out there and is to be said that Amazon is offering anything unique there? They would argue maybe yes, incrementally in terms of the the spatial audio or whatever it is.

I I hear you. Here's my question on that. Is Google Assistant different in that regard? Host: Uh, I think the difference is Google is better in terms of what they do with their Google voice.

It has always been better like whether we do it on mobile or um their Google Assistant is way better because the customer 360 degree experience, they can do many more things than Alexa usually can do.

Uh, but having said that there there's a false signal of product market fit in Alexa because theoretically you take any product that is uh, you know, you know, it's fun, it's easy to use and push it at the top of Amazon's discount funnel.

Uh, you can get $100 million sales. I think that happened with Alexa because they were giving six pack free Alexa for you know, for really cheap amounts. It was the Thanksgiving gift for like couple of years.

Uh and that can always like you know, if you use your strengths too much, you can like miss the real customer signal.

I felt like that happened uh with uh with Alexa because if you you can technically push a particular new product in all your channels. and if it is a low cost hanging fruit and it serves a particular your a delight factor for a couple of days.

That's usually the classic gift uh product that you want because like these gifts with less than $20 gifts are usually delightful first for first five days and then oh, you realize that these are not actually sustainable use products and they just, you know, that I have to give some gifts, so this is a good gift to give, but they'll not use it.

So, I feel like Alexa got especially the initial smaller devices got that false product market fit.

Um, and it's it's almost like the double-edged sword of being an Amazon like you can get this false product market fit because you are actually, you know, you have this incredible website where 100 million people are hitting.

And if you put a product at top of the page and combine it with discounts and make it seem that you're getting something $100 worth for you know, $25 then a lot of people will buy it and try it.

But I think the sustainability and retention factor depends on how useful it is and only over time can you tell if it's actually useful or not. Um, but they don't give out explicit stats, so we don't know.

This is just my gut theory that it's not useful enough. Guest: When you say Google Assistant is better, are you referring to the value through the breadth of applications that it has or to the underlying technology and speech recognition or both?

Host: I I I'm just talking as a pure customer that it has many more applications, but intuitively as an engineer, I can tell Google has always been better than anyone else in terms of their products.

Uh I can't put a number of, you know, how much error percentage or like how good their AI model is, but intuitively you know that Google is definitely better and if you ask any developer and like pick them who is better in terms of AI, like I'm pretty sure it's it's Google even now.

Guest: Yeah, I'm a Pixel 6 user and just the the integrations that they do even with something like a voice recorder, just the smart ways that they do the transcriptions and upload them to a browser that you can access through your Google account.

I'm always impressed with the way that Google implements these things. Host: Yeah, I think Google's ability to execute certain things is like 10x better than some other companies, but they're also bad at like figuring out certain things.

Like we've seen the number of chat applications that came out of Google. Uh, they had the first product, in my view, the first product they got is the right one, G Talk, it was called back, you know, 10 years back. They had the right product.

They had to just copy it on mobile and they would have been done. I think they're coming a full circle 10 years back to that uh interface again. Um, I don't know. What do you think?

Guest: Yeah, I I I hear you that the the I still refer to meets and hangout and get corrected.

Yeah, we're we're uh we're one of those um G Suite original free plan customers that are making the upgrade to a paid plan after 11 years of a free lunch and uh it's worth it though.

It's not that bad um in terms of the cost at this point and it's um, for a shop our size, implementing something like Exchange and active directory would just be complete overkill.

Host: Yeah. Guest: I'm sure your colleagues at Microsoft and Office 365 and Microsoft 365 would be arguing with me, but that's okay.

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