This is a really amazing and clever idea on Amazon's part: Taking a system or technology that you've already built and are maintaining, and make it accessible to others as a platform. Then continue using that platform as if you were a/the best customer.
They did it with AWS, they've done it with their retail business, and now they're probably going to do it with AmazonFresh/WholeFoods. It makes a lot of sense, and it offers them a lot more flexibility to use the platforms they build in other ways too.
This is a persistent myth that needs to die, AWS was not built to host their websites, and indeed did not do so for many years after it was established.
AWS wasnt their "spare capacity" nor was it them exposing their internal systems to the world so they could sell them off, It was developed from day one as a public facing service.
I don't think what you are saying contradicts the gp. All the expertise that went into developing tools to host their own website probably went into developing AWS. Just because they maintained two separate infrastructures doesn't mean that it's not an example of turning an internal tool into a product.
Your misunderstanding that comment. It was built "in the same datacenters by the same IT engineering team" but it was always it's own thing. "AWS services were quickly adopted by many teams" after it was built and a commercial product.
Sure, the intent was Amazon IT would eventually move to that system. But, they could let other companies work out the issues first vs. risking their main website. Just consider the risk for them if AWS goes down and take their own site outline while they are trying to sell high up time. That's simply a risk they had no reason to take.
PS: Remember, well executed traditional large scale infrastructure has higher up-time than AWS because AWS adds complexity.
AWS was built to host Amazon. Sure, it was a public facing service first, but AFAICT Amazon.com was always the primary target customer, and probably still is. AWS was built based on the needs and experience for hosting Amazon.com.
The experience of hosting and scaling Amazon may have informed some early AWS thinking but AWS was not built specifically to host Amazon and Amazon was never the primary target customer. This is evidenced by nothing more so than by the fact that despite Amazon's prescriptive initiative to move to AWS being well over 5 years in[1], much of retail & digital still runs on Oracle, dedicated HW, and bespoke internal services.
To make the statement today that Amazon "probably still is" the primary target customer betrays a lack of understanding of the scope of AWS and IaaS in general.
[1] It might be even 8+ years. I don't recall when it officially started so using 5+ as a very conservative estimate.
Eli Goldratt's The Goal popularized two main ideas. Theory of constraints and transition from production to services (subscriptions, or both).
Many, many have tried to transition to services. Amazon figured it out.
I was totally invested in Sun's grid computing vision, so I was very slow to recognize AWS. We already had VMs on servers and I couldn't wrap my head around virtualizing everything. It just seemed like so much monkey motion (too much work).
Even so, AWS is slowly, painfully recreating grid computing. By bundling up those services. But unlike Sun, AWS found an incremental path, with many, many ways to monetize along the way.
IMO, the biggest/best companies are the one's that take run of the mill daily business expenses and turn them into money makers.
Google needed email to run it's business. They built a customer facing service around it.
Computing answers is their thing. With their machine learning cloud services, anyone can compute answers for their complex problems.
Companies that stagnate tend to iterate, with little to show for it, on a few "core" products.
While they're too big to collapse altogether, I'd put Oracle, MS, Yahoo, and numerous others in that group.
Possibly Facebook. They're no where near as diversified as Amazon or Google. If the bottom falls out on buying eyeballs, they're in for a world of hurt.
I'd wager they are much less vulnerable to security breaches because of that. It forces them to treat all their tenants as potentially hostile whereas otherwise they might fall in to the usual trap of thinking that behind the corporate firewall life is good and everybody can be trusted.
I don't think that's the right way to approach this.
AWS is like any other hosting provider that also happens to have one really large customer, Amazon the e-commerce company.
Now, a nuclear powerplant is not going to co-locate with a regular hosting provider because they do not need to move any of that data off-site and co-locating others on their network would mean co-locating those others on the far side of their firewall, or in some kind of DMZ. Nuclear power plants tend to concentrate on what is their main reason to exist: to produce power, not to get into the hosting business so for them it would make absolutely no sense to allow others on their networks, besides any security risks that might cause. You could even argue that the only safe way to connect a nuclear plant to the internet is 'not'. Airgap the thing and call it a day, don't even try to secure it. For Amazon this is - for obvious reasons - not an option.
So for Amazon the company the decision to create a web hosting service which then has their e-commerce arm as one of the tenants (each behind their own (virtual) firewall) is no different at all than Amazon the company buying their hosting from any other provider (Microsoft, Google, Rackspace and so on). They have to host somewhere, no matter what. In which case they have all of the downsides of the current situation and none of the upsides. The impression that you are on Amazon's internal network when you are co-locating with AWS is where things no longer align with how things work from what I know about their infrastructure, AWS allows the creation of VLANs for segregation purposes which is roughly the level of separation that you would expect of any multi-tenant network.
So in that sense Amazon is not less secure than any other corporate setup, the only way in which that sort of situation could lead to trouble is if you managed to find an exploit in the network stack (for instance: the firmware of a switch or router) that Amazon operates that would expose traffic from one tenant to another.
But I'm not aware that any such breach has ever happened, in theory it could happen but that goes for any other hosting provider as well.
What level of compartmentalization would you be comfortable with?
He's basically saying that Amazon is a big logistics company. Except he calls it meat as a service.
It's an interesting take. But it is also how many analysts thought that Walmart would kill grocery stores. I personally don't think that Amazon will fare much better than Walmart... shopping for groceries is fundamentally harder online, and Amazon hasn't demonstrated any magic that makes that easier.
Amazon has found their way to cornering the one property that is not influenced by fashions and whims: scarcity. Both in a logistical and economical sense, they have been pushing the envelop on all corporate levels, from AWS to fresh produce.
To me, most of the "new and more agile" companies are cargo-culting the optimization paradigm, focussing on time-saving and convenience as if the more basic needs were already met. In that case, they are fighting for customer attention because the customer has attention to spare. Amazon however moved so deeply into the consciousness of the household (and, on HN, our work environments) that people are perfectly fine with Amazon being a conglomerate - since they literally deliver. Heh.
> that people are perfectly fine with Amazon being a conglomerate
What is this supposed to mean? Is there supposed to be something inherently not-fine with a conglomerate? If conglomerates survive because they're better able to deliver goods and services more efficiently then great.
As another comment pointed out[1], we are surrounded by conglomerates.[2] Other conglomerates that have delivered things people love include, but limited to, Toyota; Yamaha; Mitsubishi; Wesfarmers; 3M; Alhpabet; Honeywell; Berkshire Hathaway. The list is expansive.
From the perspective of the voting/idealistic shareholder, conglomerates make it very difficult to influence the activity of a company, since any individual activity is a small portion of their makeup.
Another problem with conglomerates is that big players compete in nonproductive ways. Large companies tend to actively lobby and influence regulations. The goal is generally to protect their business model (by limiting innovation), and it has been shown to have a very high return on investment. Having a broad base also gives conglomerates a lot of leveraging points in negotiations as well.
Conglomerates also concentrate your failure points in the economy. Infrequent major failures are more painful than frequent minor failures. Besides, companies should not be "too big to fail."
On the other hand, when conglomeration increases efficiency, it can be a good thing. As a result, if a market is stable and further innovation unlikely, conglomerates can be better for society than independent competitors, assuming sufficient competition to limit profit.
In my view, people have a strong tendency to question conglomerates, as they do with most large aggregations of wealth and power. On your list, I find many names that have been criticised for their acquisition strategies (and general corporate behavior).
I meant to stress the familiarity that regular people have with small businesses in comparison to large megacorps.
Is there supposed to be something inherently
not-fine with a conglomerate?
Some people think they have a tendency to be inefficient, as high-performing areas of the business waste money subsidising low-performing areas of the business. And low-performing areas are insulated from free market feedback, like going bankrupt or investors leaving.
Of course, some of this stuff is only obvious with hindsight. It was probably inefficient that Google Ads wasted money subsidising Plus and Wave; but probably efficient that Google Ads subsidises Gmail.
It's not about individual cases, but that having the businesses combined prevents investors from allocating capital between them, which is viewed as, in aggregate, less efficient as the allocation is a step removed from the market.
This assumes that investors are efficient at allocating capital, or that individual investors are more efficient than institutional investors.
As an obvious counterpoint: Birkshire Hathaway
A more local example, as an Australian, is Wesfarmers who have persistently maintained strong brands in hugely diverse fields. As a welder by trade I'm willing to bet that the people managing these two conglomerates are more efficient at allocating capital than I, at least.
> This assumes that investors are efficient at allocating capital
Yes, in aggregate, it does. Phrased another way, it assumes that the market is more efficient when different investments are unbundled and can be selected independently than when they are bundled.
Note that I am not necessarily endorsing this charge against conglomerates, just clarifying what I see to be its basis.
Amazon is a logistics company. They aren't (just) a store, they aren't (just) a web host. They have positioned themselves where they do a lot of unglamorous stuff that makes business work.
The are a meta store, anyone can set up a store and do the hard work of marketing and fulfilling orders and Amazon gets a slice. Then Amazon started hanging on to other people's inventory too, now you just need to buy the stuff and Amazon will hold it while you go out and do the hard work of marketing and selling and Amazon gets a slice. Their know there is scarcity of products and try to connect sellers with buyers.
With AWS they know new businesses will use their infrastructure but they don't want to take the risk with how it will be used. Any startup with any idea can take a real existential risk on their business idea and Amazon will take a slice. They know that for all its ephemerality information in the correct place is scarce, but they don't know how to solve all the problems with information. They made good tools and lease them to those the tackle information scarcity.
Where it doesn't make sense to have other people do it, they try to reduce costs by literally moving things from a to b. Their drones are the their most vivid example but there are countless mundane Amazon warehouses strategically placed. If Amazon doesn't know if the risk/reward is good enough they will contract it out and let the other assume the risk.
They are automating or distributing the ways of reducing scarcity and leaving themselves with minimal risk. As their risk and cost gets lower it makes sense for them to tackle ever smaller amounts of scarcity.
They are so efficient at dealing with scarcity that it makes sense for them, a multi-billion dollar company, to give you a button with the sole purpose of ordering you more laundry detergent by pushing that single purpose button. They are leveraging the scarcity of one empty self in one tiny room of your home. If that isn't the story of a company with a deep relationship with scarcity then I don't know what else it might be.
>"Their know there is scarcity of products and try to connect sellers with buyers."
What is there a scarcity of? Toys? No. Books? No. Clothes? No. Electronics? No. I'm not seeing it. I can buy these items at a brick and mortar store or another online retailer. They aren't scarce.
While prices are low, another aim of governments should be to keep wages high enough to maintain a standard of living. I think the fear around Amazon isn't that it is going to all of a sudden raise the price of goods from Whole Foods, but that they will reverse the employee friendly aspects of the company. When prices are low but wages aren't high enough to guarantee that people can take advantage of those lower prices, inequality is exacerbated.
There is another side of that which I've noticed as an American expat. If one country or industry decides to keep wages high, there are at least two effects.
1. The minimum required experience is also increased. You see this in industries where it's very difficult for new blood to break into because the minimum required experience/skill level is above an "entry level" position because the pay expectations of the industry require a certain degree of skill and experience going in.
2. Companies outsource. They seek to maximize profits, which means reducing costs, which means paying those with low demands for work that's good enough.
I actually moved out of the US for work because I found that I had better opportunities outside the US than in it. Not higher-paying (those would be in the US), but opportunities to build work experience from nothing, which I didn't see an option for in the US as a fresh college grad with a journalism degree looking to break into software engineering. I've been working outside the US for ~3 years now and although there have been challenges it's changed my life and career for the better. YMMV.
Youre exactly right, I compare job ads in the US vs another country all the time.
The US job ads have such absurd expectations and requirements, and demonstrate a total lack of any holistic approach to hiring, even for junior jobs. The companies come off as arrogant and entitled in their writing, even for areas which supposedly have shortages (eyeroll).
The job ads overseas are much less rigid and more flexible. I often see ads that lack any sort of requirement bullet points.
It seems much easier to get in, get trained and work your way up in the other country.
Then, you can return to the US and compete for senior roles, which can be pretty cushy in the US, and seem much more in-demand, if you want.
I wonder how much of the "requirements" in jobs notices are required. I have gotten several contracts while missing some of the key items they wanted. I have also seen ridiculous things like when DHH, the inventor of rails, couldn't get a job because he didn't have enough years of rails experience.
All but the dumbest recruiters know that a huge amount of people filling their roles are liars and I say this as a contractor. Just like any other group of people some contractors and recruiters are great and some are garbage. When garbage recruiters make garbage demands they get garbage contractors.
Technology is very hard to get into without experience(or even with the wrong kind of experience). Healthcare, anything with a license(usually requires some kind of apprenticeship).
The canonical example is in Medicine: Doctors, Surgeons, Dentists. All of these professions have strict professional bodies which limit the number of people that can enter them, therefore be it intentionally or not, the wages are kept high.
Actually the demand for healthcare will change when there is a change in price. There will always be a base demand level, but if you change the price of seeing a doctor then people would be more inclined to see them for minor things - annoyances, rather than emergencies. Therefore if you allow for more doctors to be created the salary should drop, and if all goes to plan the price for healthcare should also drop.
Although my opinion is in the current US climate, the prices will remain the same and someone else will just suck up the profit.
I actually don't see the connection between a "minimum standard of living" and a "minimum required experience." Is this the case with company under discussion, Whole Foods? If that requirement is a high school diploma, well that's why we strive for universal high school, but I'm not sure what the connection is here. Please, don't use intuition from high paying intelligentsia type careers to the majority of laborers in the US, much less the world.
I do grant I'm not sure the government with the law that exists can do anything about Whole Foods, or should it, and thus, I am making a bigger point about that the government is supposed to function for the public good. I think the glimmer in Whole Foods is more an indictment of the system in the US than anything.
> While prices are low, another aim of governments should be to keep wages high enough to maintain a standard of living.
Incomes, maybe; wages are a lever on incomes, but not the only one (and a potentially problematic one because pushing too hard on them depresses employment while driving up wages for the still-continuing, worsening inequality), and should not be focused on as a primary goal.
> another aim of governments should be to keep wages high enough to maintain a standard of living
Disagree. The aim of government should be to enable the elimination of every single job while also enforcing a fair distribution of wealth. Wage regulation is a traditional capitalist approach to solving this problem. There are other approaches which might need to be tried in the coming decades..
i agree! in fact, you know what would be a really efficient form of capitalism? what if we just eliminated wage regulation, and the marginal costs of workers to our business entirely, by making them slaves!
> what if we just eliminated wage regulation, and the marginal costs of workers to our business entirely, by making them slaves!
Your premise is incorrect and historically ignorant. Slaves are net more costly and drastically less efficient than free employees. George Washington, among numerous other slave owners of the time, for example wrote about that fact indepth. The net cost of workers skyrockets and their productivity implodes, in the case of slavery. Washington made the economic point that with slaves, he became entirely responsible for the cost of their existence, in all regards (shelter, food, health, etc), and their work output was at best on par with or below that of free labor (which is exactly what one would expect). As a system, slavery was a failure morally and economically.
The goal shouldn't be to get rid of jobs - people need something to do since we made surviving so easy. The goal should be to improve the quality of people's jobs.
The conglomerate discount is real - about 10% on average in developed countries. This applies to public companies, so is a revealed preference of institutional and retail investors, not VCs and angels.
I retract my previous statement and substitute it with something more like:
The discount investors apply to conglomerates is linked to perceived lower risk.
So while it might not be accurate to say investors want smaller, nimbler, more focused companies without specifying which investors, it can be accurate to say something like investors looking for a higher rate of return (which implies greater risk) want smaller, nimbler, more focused companies.
I don't understand your comment. Given the same rate of return, investors prefer lower risk. So what you seem to be saying is conglomerates produce lower returns.
But I don't think that's what the conglomerate discount is, which I believe says that the components of a conglomerate are worth more than the conglomerate itself. More precisely, "Conglomerate discount is calculated by adding an estimation of the intrinsic value of each of the subsidiary companies in a conglomerate and subtracting the conglomerate's market capitalization from that value." [1]
Except for the top 5 tech companies because they have a free pass to become monopolies in new industries and extract massive profits versus incumbent companies.
Yeah even before seeing that list (which was much longer than I had expected), I could name Berkshire, the mega-food groups, the mega-media groups, Koch Industries, and General Electric as conglomerates.
"Conglomerate" is a latinate word for "put together", which is to say that it doesn't immediately refer to the idea of a parent company with controlling interests in several subsidiaries over different markets so you're bound to pick up different uses of the same word. For instance, "conglomerate" is also a technical term in geology. Just check out the hits from the 19th century.
Also, I'm wary of using n-grams to infer anything about the relevance of concept because there are such things as intellectual fads, and some expressions might suddenly hit public consciousness and later fade away without the idea it referred to ever becoming any less relevant. MacLuhan's media theory, for instance, became an intellectual fad in the 1970s and MacLuhan hit celebrity status. Later on, it faded away, but I don't think what he was describing became any less relevant. This kind of stuff is noticeable to anyone, though they might be hard pressed for examples: just try and notice how the buzzwords in your field changed over time.
The expression "multinational corporation", as well as the word "globalization", were also fads of the 1970s too. At the time, they were more like academic fads: researchers started taking notice of these things and suddenly they became "a thing" among academics as it was a frontier research topic. Later on they hit public massively, probably peaking around the late 1990s and early 2000s with the 1999 Seattle riots, the FTAA debates and just the overall shift towards massive multilateral agreements coupled with shrinking governments. Nowadays neither of the two is as "in" as it was back them either in political or academic debate, but the concepts themselves aren't any less relevant. Or at least that's my two cents on the whole issue.
If you look up Sorkin's earlier articles, he'd also posted recently on some failed / dismantled conglomerates -- the use here quite probably refers to that, which his regular readers might get.
There's a lot of invective in this HN thread that is directly addressed (Berkshire-Hathaway, etc.) within the article itself. This suggests things.
I'm well aware that ngrams aren't absolute proof and that language itself changes (quite particularly in business and finance). But it is a datapoint to be considered. Answering it from ignorance isn't a particularly strong counter.
> users said they would be taking their business from Amazon and returning to Diapers.com—which, other users pointed out, was no longer possible
I have a hard time taking this seriously. "Lock-in" is just a sunk cost, it's more about the psychology of switching than an actual problem. If they went through all the pain of figuring out AWS's XML formats then they shouldn't have any trouble with another cloud service...
I'm increasingly wary of the "sunk cost fallacy" argument. For reasons which are difficult to articulate clearly, but the upshot is that I don't think SCF gives full weight to the issues involved, at least in some instances.
One aspect of this is risk. Whatever your present course is, you've greately reduced your uncertainty regarding it. A new course of action may involve a great deal of unrealised and unrecognised risks. That is, your costs are understated, and your benefits are overstated. Particularly with complex situations.
Decision theory generally proceeds as follows: map out all possible outcomes, all possible courses of action, estimate probabilities of each action leading to each outcome, and choose the action with best outcome distribution.
So far I haven't seen anybody argue against it directly... the problem instead is availability, most people aren't aware of it and can't or don't use it on a daily basis.
Well, when a company has various activities, the direction/management decides that a company must focus on a single activity ("focus on a single trade and be expert in it, delegate the rest" is then their motto).
Then when a company has a single activity and is an expert in it, the direction/management decides that a company must have diverse activities, be it vertical integration to decrease the costs, or horizontal integration to reduce competition, or just invest/acquire in totally unrelated sectors to eliminate risk.
And then back to step one, and so on.
The only constant goals in all this seem to be:
1. to justify firing employees and lowering working conditions;
2. to generate artificial activity for all the direction/business/finance sector, so that they always feel both useful and powerful.
Yes, there's actually absolutely nothing special about what Amazon is doing.
It's GM buying Hughes or Perot. Or Berkshire buying company xyz. Or GE buying its hundredth company. Or Walmart getting into xyz category. Or Google buying Nest & Boston.
The sensationalism is courtesy of Bezos nearing the richest person on earth status combined with Amazon's increasing pervasiveness in the US economy. It's the hot new new story of the moment to write sensationalism around, spin up some fear, whatever, gotta drive those clicks. It has so many angles to play on, it has even got Trump courtesy of the Trump/Bezos feud, what more could they ask for.
Ship avocados green and they survive, but aren't ripe the day of delivery, or until 2-3 days later. Ship them almost ripe so that they arrive ripe, and they will be bruised and nasty, unless they pack them in an avocado sleeve that keeps them from rolling around.
Done right, it has the potential to be a better avocado experience, because so many morons molest avocados, digging their grubby fingers into them and bruising the poor thing. And it's the next person who can't see this who buys the bruised avocado. All those brown spots in an avocado? Those are finger squeezes. Stop avocado rape!
There's a lot of problems with shipping produce direct to customer, sight unseen, and maybe a few benefits. But I gotta say even 10 years ago Fresh Direct in NYC was doing a genius job of it.
Interestingly, the article suggested that Amazon, in being both the distributor and the cloud provider, may be able to increase their advantage by exploiting information they hold on competitors.
Maybe. Still wouldn't be as much as google knows. Via android phone locations, apps installed, what people are saying in email/gchat/gvoice conversations, google home histories, youtube, etc. Not mentioning their other services like google cloud.
It would be very easy to use that data to know when and with who to invest.
It's exciting to be an engineer at Amazon because of the broad range of business problems it tackles and how easy it is to move among teams. If you want to pivot into video streaming, cloud computing, data science, etc., you can easily find a mentor. It makes me feel like personal ambition is my only limit (which is both daunting and exciting).
I don't know what the fetish is with Amazon. The article is ridiculous in suggesting Amazon putting Walmart out of business when it only started making real money in 2016. Amazon made $2B in 2016 and $0.6B in 2015, lost $0.2B in 2014. Walmart made $13B last year... but the article says Amazon is the one with the better mouse trap and "impervious to the natural life cycle of a conglomerate"? huh?
With the toxic culture, Amazon is going to go Uber someday. The Whole Foods acquisition is probably the start of Amazon taking a step too far.
Amazon has made real money for years, they just have reinvested it. Comparing Amazon to Uber is silly, they're an established business and leader in multiple markets.
Reinvesting income doesn't give you negative income. Having the highest marketshare doesn't mean they make money from it. Bezo is considered the worlds worst boss and there have been many articles about its corporate culture... that will catch up to Amazon.
Reinvesting income doesn't give you negative income.
When you're running multiple new mostly-empty datacenters or fulfillment warehouses that you built for future growth, the short term efficiency (and hence income) will be pretty shitty, no? I'm not talking about the cost of building them, but the cost of running them far from capacity.
Amazon certainly has its share of problems and failures, but a lack of strategic financial thinking is not one of them. Take a look at the graph [1] of Amazon revenue and profit over time. Those curves are not generated by people who aren't paying attention.
[1] http://www.businessinsider.com/amazon-revenue-vs-profit-2016...
