Jeff Bezos Sees All! (From illuminatiwiki)

Rob Malda (aka CmdrTaco) recently posted his skepticism over the Amazon Tablet because of its Silk web browser.  His quick (and insightful) analysis zeros in on the way that the Silk browser functions as a direct window to the Amazon Cloud.  Silk isn’t actually downloading all those webpages, it’s showing you a proxy of every webpage that exists over on the Amazon proxy servers.  So what?

It’s not done for speed, as Rob points out, any CPU on the market holds its own for speed.  It’s not to save bandwidth– there’s no 3G on the tablet, just WiFi (where packets are “free”).  Here’s the speculation: Amazon wants to control (and track) all those packets.  Essentially, Amazon is parking a set of eyeballs over your shoulder and seeing exactly which webpages you look at, how long you look at them, and what you do on them.  So what?

Because this is the Holy Grail for targeted advertising, that’s what.  If Amazon knows that you spend all your time looking at motorcycle bits or frilly dresses or garden equipment, or biker dudes wearing frilly dresses holding garden equipment, then guess what you’ll see next time you click on the Amazon store that is ever so conveniently at your fingertips now.

Amazon is going Google one better: Google knows what you like, and serves up the appropriate advertisement and search results.  Amazon is now taking you one step closer: not only can they show you what you like, they actually have some shit for sale, and all you have to do is “one click”.

Forrester wave for ecommerce platforms 2009

GSI announced today that it’s selling out to eBay for $2.4B, which is a lot of money for an also-ran player in the ecommerce space.  But that’s not what drew my attention on this.  It’s the parts that eBay isn’t buying, or maybe that Michael Rubin wanted to keep for himself: shopRunner and ruelala.

ShopRunner is essentially Amazon Prime for the rest of us schmucks that don’t work for The Empire.  It’s a federation of online retailers who offer up yearly subscriptions to customers.  Pay $50 once, and enjoy free overnight shipping for the rest of the year–  A good deal, actually if you buy more than 6 or 7 items a year online.  The subscriptions are transferable across retailers.  If you’re a shoprunner member on shoes.com, then you’re also a member on sportsauthority.com or drugstore.com or borders.com (if they last through the summer).  ShopRunner has a future of becoming a serious consumer powerhouse– it knows what everyone is buying across all those sites, it can bring discounts, and it can introduce new properties to consumers.  It’s all about logistics and customer fulfillment now, and ShopRunner is in a great place.

RueLaLa is a private deal site.  I’m less impressed about this part.  I think the ‘deal of the day’ site is cool and all, but it may have run its course in terms of growth.  The ‘private sale’ model likely has an even shorter half-life: once people realize that the perception of exclusivity is just that, a perception, then the passion will fall off, and RueLaLa will wind up for what it really is: a discount outlet for branded goods.  Sales will be solid, but outlets are never sexy.  There may be an exportable SAAS model there, and I know that RueLaLa has been trying to put that together, but I also know that converting one site into a SAAS platform pretty much requires a complete tear-down and rebuild, or starting from scratch.  At that, RueLaLa is really just a cash-flow to fund something else.  We’ll see on this one.

On the other side of this deal, eBay is moving up the value chain a bit, and picking up some legitimacy in the process.  Let’s be honest, when you hear the word “eBay”, how many of us instantly think “beanie babies” and “random junk flea market”?  eBay has a branding problem, and that’s caused a revenue problem: eBay was never taken seriously as a shopping platform for “real” companies, even though they have a huge amount of traffic and do an enormous amount of sales.  Theoretically this all changes now with the acquisition of GSI: it’s a true B2C ecommerce platform and fulfillment/logistics network.  (GSI always differentiated itself from the other platforms by offering not just the website infrastructure, but the fulfillment warehousing and other logistics goodies).

eBay was always a distant 2nd place behind Amazon.  This doesn’t really change that, but it does indicate a different tack: rather than try to go against Amazon head on in terms of product mix and navigation and pricing, eBay is showing that its’ going for the Taobao model: build up a store from the grass roots small vendors by providing them an ever growing amount of  tools and merchandising functions, then cement in the relationships with an exclusive payment method and legitimate company retailers in the mix.  Taobao, for those of you who’ve never heard/seen of it, pretty much owns the China market to a level that Amazon could only dream of: some estimates put over 70% of ecommerce going through Taobao at one point or another.

eBay is looking to solidify it’s own market space.  Consumer-to-consumer sales? check.  B2C sales? check.  In-house payment method? check.  Fulfillment value chain? check.  The only thing missing now is physical retail space.  I used to think that Amazon would buy Sears or Target.  Now, eBay may get a shot.

eBay made a smart move on this.  Michael Rubin made an even smarter one.

Samsung apartment cluster in Seoul. It looks like those towers in The Matrix...

The word zaibatsu (財閥) in Japanese, or chaebol (재벌) in Korean, translates most closely to ‘business conglomerate’, but there are some important differences than what Americans or Europeans might understand: zaibatsu are very close-knit to their partner companies, often exchanging shares, emphasis is placed on vertical integration wherever possible, money can slosh around internally much more easily than modern Western law would allow.  While the zaibatsu were broken up after WWII by MacArthur, their shells continue on in Japan: Mitsui, Mitsubishi, Sumitomo. (side note: Mitsui and Mitsubishi each own either side of downtown Tokyo).  In Korea, the Chaebols are even tighter, usually family-run affairs, and pretty much stitch up +80% of the Korean economy.  Perhaps you’ve heard of a few: Hyundai, Smansung, LG, Lotte.

We are now starting to see the rise of the Internet Zaibatsu: Amazon, and Google lead the pack, with Liberty Media, IAC, and other smalle companies following close behind.  These organizations share many of the same qualities of a classic zaibatsu (that sets them apart from just being a conglomerate):

• sympathetic data swapping among properties (either product data or personalized customer profiles) is a central goal in order to maximize economies of scope.  This can bring great seamless integration, or it can dunk you into an opt-in email hell from “partner companies”.
• IT infrastructure is shared wherever possible for economies of scale
• Properties are free to do what they want to meet P&L goals, as long as part of those goals serve the larger good by extending functionality or getting new data sets into the graph.

So far so good, right?  Here’s the thing: zaibatsu are simultaneously tremendous pools of capital and research innovation, but they are also desperately smothering to the environment around them.  The mere hint of a zaibatsu contemplating entry into a market is enough to scare the crap out of the mid-level players.  I am not stating that they are monopolists or oligarchs, just that the zaibatsu structure makes these tough companies to beat.

To a certain extent, the confidence (arrogance) that comes with being a zaibatsu can lead a company into strange directions.  At the extreme edges of the vertical integration strategy, zaibatsu companies will get into businesses where they probably don’t belong.  For example, Samsung specializes in heavy equipment and manufacturing, which lead them to electronics and appliances and all sorts of robots and then data control and professional services.  In the process, Samsung has also bought up huge tracts of land in Korea, which in turn got them into the apartment housing and farming business.  Strange bedfellows.

Google, in a search for ever-more efficient data centers, has gotten itself into the hardware business, data center construction, and overall power management.  Some eyebrows went up, however, when Google started to publicly state it was investigating new ideas toward Fusion power and other nuclear designs.  Is that a natural extension to address their electrical grid needs, or is it just hubris to think they’re so smart they can bring us Mr. Fusion?  Most recently, Google has announced boutiques.com, which may actually put them very close to the line of direct competition with the advertisers that pay the bills.  In terms of competition with Facebook or Amazon, boutiques.com makes perfect sense.  In terms of ’sticking to the core business model’ however, it may stray from the path, IMHO.

Amazon started with books.  Amazon then became such a great early ecommerce store that they branched out to other forms of media.  Soon, Amazon sold everything, including some things that probably don’t make sense, or didn’t really catch fire (like groceries).  That was all horizontal expansion.  The vertical expansion has gone both up the chain and down the layers: Amazon has spent a lot of time and effort to monetize and commoditize as much of their infrastructure as possible.  Their servers, their OS, their digital storage, their shipping are all now services for sale (independent of you being an Amazon merchant).  Shipping, warehousing and business metrics are all available from Amazon.  I’m surprised they haven’t pursued nuclear power like their friends in in Mountain View, yet.

In the end, which model is better?  One school of thought says that the Internet market loves specialization.  As an employee of shoes.com, the day we saw our competitors start stocking watches and trinkets and other chotchkies on their homepages was a good day.  Every day that Zappos moves more toward general merchandise is better for a shoe-only website, right?  The other school (the zaibatsu school) says that it’s all about customer wallet-share.  Anything an organization can do to satisfy more of the needs of their customers is a good thing.

Personally, I am not passing good/bad judgement on either model.  I am just trying to re-introduce a Japanese/Korean term for what we’re seeing lately.

Just remember, No matter where you go, there you are.

Multichannel, multichannel, multichannel.  For online businesses, it is simultaneously the New Promised Land as well as The Impending Doom.  I’ve discussed before how I think Amazon will ultimately see its greatest threat come from Walmart, and may actually acquire Target or Sears in order to pre-empt the risk of a competitor that can offer online deals as well as physical storefronts.  The same could be said for Best Buy over NewEgg.com, REI over backcountry.com, or even Dave & Busters over Gamestop.com.

Along the same lines, I think Facebook’s recent addition of ‘facebook places‘ isn’t merely trying to push out fourquare or gowalla for eyeball share– quite the opposite– they seem to be warmly welcoming  those partners into the fold.  All Facebook wants is everyone’s current GPS coordinates, regardless of who tricks the user into surrendering them.  Why?  Because once Facebook has your 10-20, it can turn around and drop a dime on you to all those potential location-sensitive advertisers.  Facebook has the opportunity to beat Google at it’s own game.  Think Multichannel.  Think Mobile.  Think Minority Report, much sooner and much worse than anticipated.

Google must realize this also, hence its mad rush to buy up some social network providers along with location-triggered services.  I fear it may be too late for Mountain View, however– everyone has their personal troupe/network built out on Facebook, and they’ll be loathe to do it again somewhere else.

The other risk here is that the proletariat may rise up in rebellion against constantly announcing their whereabouts, but if there are free lattes involved, I wouldn’t be surprised to see people surrender their bank card PINs.

For those of you who may not be familiar with EDI, it’s a system for all those coal-burning AS-400 mainframes and other legacy computers to share data with each other in a standard format.  Through a series of arcanely formatted pre-set protocols, computers send invoices, inventory levels, sales requests to each other, and then send back all the acknowledgement messages.  It’s efficient, but klunky.  I would bet that Amazon sees this klunkiness, and thinks it can do better, and make a little bit of cash by providing a better service.

Retailers will come and go, but they’ll always need to do a few things: store their data securely, talk to vendors, track customers, and sell stuff.  Look at Amazon’s trajectory: they offer all of these things either freely, or for a small percentage-type handling fee.  They have the A9 search/merchandising platform, a cloud computing offering, most of their sales comes in from vendors, they have millions and millions of customers tracked in real-time, and they offer a method for small vendors to sell goods fairly easily.  Prediction: Amazon.com will continue to be a front-end website, but more and more, we’ll see Amazon showing up as the “retail platform” for other branded websites (like Zappos.com).

The ice is getting thinner for conglomerated pure-play online retailers.  If they don’t offer something uniquely value-add, customers will simply go directly to the brand’s own website to buy their stuff.  Where would you buy your Adidas?  Zappos.com, Shoes.com, or Adidas.com?  It depends on what you need and what each one offers, right?  The end product is the exact same, so it comes down to the free shipping, the search engine, and the eye-candy on the website.  Amazon was never that glamorous a website to start with–  a very utilitarian look and feel (but very information-rich) experience overall.  We all know that Amazon does usability research, so all that data must be worth something, right?

Zappos has built a great base of user loyalty through its mix of customer-centric activities and transparency.  Their back-end has always been first-rate, but also probably very expensive (call centers are pricey).  If all that IT development and warehouse operations can be folded into the larger Amazonian Empire, then Zappos can concentrate on giving away free pizzas to the customers, or tweeting about Tony’s sushi dinner, or whatever.

Amazon will pick up a few more “major” retailers.  My short list of predictions includes: NewEgg.com, Overstock.com (hostile takeover likely), Etsy.com, and maybe even Target retail to finally “go cross-channel”.  They’ll likely buy out BillMeLater or even Mastercard to get the financial end covered.  Afterall, Amazon needs to watch out for Walmart.