The Amazon Affect

Amazon.com, Inc., doing business as Amazon, is a multinational technology company focusing in e-commerce, cloud, computing, and artificial intelligence and now logistics. With over $232B in revenue in 2018, the company has a market capitalization of over $789B for the fiscal year ending in 2018. Amazon is world's largest retailer. It has the power to innovate, disrupt, and change the way consumers and businesses think and act. The company was founded in 1994 by the United States’ richest man, Jeff Bezos, who is worth roughly $170B in 2019.

Amazon is often referred to as one of the Big Four or "Four Horsemen" of technology along with Google, Apple, and Facebook. However, Amazon has morphed into much more than a technology company operating in the e-commerce sector. They are probably the most diversified single company on earth. What started as an online bookstore has expanded to sell just about anything you want right at your finger tips, including DVDs, software, video games, electronics, apparel, furniture, food, toys, and jewelry. Amazon even builds and sells it's very own consumer electronics such as the Amazon Kindle and Amazon Echo.

Amazon didn't grow to be the biggest and baddest company on earth organically. It can attribute much of it's growth to multiple acquisitions along the way. Here are just a handful of the companies that Amazon owns, including IMDB.com . Purchased in 1998, Amazon has integrated services that allow users to purchase DVDs, Blue-Ray, or digital download films via Amazon.com. They also own Alexa.com which is a big data company that collects information on people's browsing habits online and provides analytics on those habits. Alexa was acquired for $250M in stock in 1999. Remember that Amazon started off by selling books online? Well, it also owns Audible.com which sells audio books, radio, TV programs, and other audio versions of things like magazines and newspapers. Amazon bought Audible for $300M in cash on 2008. Since then, Audible acquired the rights to 5,000 titles to AudioGo, one of its main competitors, and is known for producing original content such as podcasts and radio dramas.

In July of 2009 Amazon paid a whopping $1.2B for Zappos, an international leading footwear and apparel website. A lesser known acquisition made in 2015 for $350M was the chip-maker Annapurna Labs,Amazon's first step into the chip market. Another book-related company that Amazon owns is AbeBooks which is dedicated to tracking down rare, out-of-print books to create an inventory of titles that are otherwise hard to locate. Staying with reading, Amazon bought Goodreads in 2013. According to Alexa rankings, Goodreads ranks in the top 350 most trafficked websites in the world providing online book reviews, recommendations and discussions. Moving on to live streaming, Twith.tv is a live streaming video platform that focuses on video gaming, broadcasts of e-sports and other gaming-related events. The company boasts that it has more than 1.5 million broadcasters and 100 million monthly visitors. Amazon bought the company for $970M in 2014. It has since integrated Twitch with Amazon Prime, allowing Prime subscribers access to exclusive screen and in-game loot.

While that may seem like a lot of purchases for Amazon, there are more. They spent $775 Million on Kiva Systems (now Amazon Robotics). The company makes robots for various tasks, including moving around products in Amazon's many fulfillment centers. The company is also working on drone delivery technology. One of Amazon's more recent and largest purchases was Whole Foods Market in 2017 for $13.7B in cash. At the time, the organic grocery chain had a market capitalization of $10B and was ranked 176 on the 2017 Fortune 500 list. One of the hottest home security devices to hit the market in recent memory is Ring. The company makes a range of products that incorporate outdoor motion based cameras and doorbells, such as the Ring Video Doorbell, that was featured on ABC's Shark Tank in 2013. Their most recent acquisition came with the purchase of eero, a popular mesh router company to help better connect smart home devices like Alexa. Amazon also recently led a $700M investment in Tesla rival Rivian, a Michigan-based electric vehicle start up company developing an all-electric pickup truck and SUV.

While it's not officially owned by Amazon but rather its founder, let's not forget about the Washington Post which is a major daily newspaper with a particular emphasis on national politics and the federal government. By owning  the Washington Post, Jeff Bezo's’ voice and opinion can be heard all the way in Washington D.C. The newspaper recently investigated the National Inquirer over the alleged blackmailing of Jeff Bezos' affair with Lauren Sanchez who is an Emmy Award-nominated news anchor.

Whew, that's a lot of companies that Amazon owns and I couldn't even begin to list them all. However, I hope you get the picture that if Amazon sees something it likes or needs, it will merely go out and purchase it. And with $93.73B in Gross Profit in 2018, Amazon certainly can afford to do just about anything it wants. This includes a giant logistics network to challenge UPS and FedEx with cargo jets and airports. The company owns over 40 Amazon Prime Air planes with 20 already in service. They are building their own air cargo hub in Northern Kentucky for about $1.5B. They even looked into buying a German airport in 2016 to service Europe better. Beyond planes, Amazon has bought thousands of its own truck trailers and is also starting to act as an ocean freight shipping operator to move goods between China and the US.

I recently ordered a couple of items from Amazon.com in the morning and they were delivered that very same day. Now that really impressed me and was well worth the extra shipping costs. How did Amazon pull off such an amazing feat? Well, let's not forget about all of those fulfillment centers. The official number of fulfillment centers and where they're located is a  closely guarded secret. As of January 2017, the company operates 387 centers in the US including Fulfillment Centers (many of them offering same day shipping. see map below, Same-Day Shipping centers in Red), Supplemental Centers, Return Centers, Pantry/Fresh Foods FCs, Whole Foods Retail grocery DCs, Prime Now Hubs, Inbound Sortation Centers, Outbound Sortation Centers, Delivery Stations, Airport Hubs, and others. Let's see FedEx UPS or ahem, XPO Logistics (much more on that later).

Source: Piper Jaffray, geobatch, WPVL Logistics

Of course, Amazon is the "Global" e-commerce retailer leading the way in Europe and Asia as well as the US. They operate 848 total global centers including Fulfillment, Delivery, Sortation, Prime Now hubs, Return Hubs, Fresh Food DCs. The map below illustrates Amazons global reach.

Source: Euromonitor International 2018

Source: Euromonitor International 2018

Amazon spent $21.7B in shipping costs in 2017 to ensure that we all received our packages on time. They used a variety of methods, including third party vendors such as FedEx and UPS as well as the USPS. Amazon has also been acquiring their own trucks and trailers as well as cargo jets. They have even gone as far as hiring contractors to deliver packages offering them deals on purchasing vans and getting cheap insurance. However, one can only imagine what it's like to work for Amazon as a vendor or contractor, especially given that their past history indicates that they like to be in control. One such third party vendor for that handled a bulk of Amazon’s logistics was XPO Logistics. That was until Amazon informed XPO in the middle of the busy holiday season of 2018, that Amazon would be withdrawing 2/3 of their $600M in annual business they did with XPO. This pullback caused the logistics company to fall short of their 2018 earnings expectations, especially in the 4th quarter and painted a bleak picture of XPO's 2019 revenue forecast. The shipper was pairing down its parcel injection, brokerage, last mile, and logistics activity with XPO. This includes leaving several XPO warehouses that recently handled Amazon work would go largely unused with many scheduled to shut down altogether. Some of the warehouses are located in Aberdeen, Maryland;, Edgerton, Kansas;, and Rialto, California.

Amazon was XPO Logistics' largest customer by far. Since the e-commerce giant was edging into heavy and bulky warehousing and delivery category, it didn't need XPO any more. In Amazon's annual 10-k filing, they cite intense competition in transportation and logistics. Due to the loss of Amazon as a customer, XPO's missed analysts earnings and revenue estimates on Thursday, February 14th, 2019 (same day that Amazon broke the bad news to New York on it's HQ2) which caused XPO Logistics, Inc. shares to sink more than 14 percent on Friday, February 15th, 2019. Shares of FedEx and UPS also fell on the news that XPO has lost Amazon's business. Very sad indeed. However, the writing has been written all over the walls for some years now. How could a giant e-commerce retailer like Amazon keep coughing up almost $22B annually in shipping and logistics costs? Amazon did a very good job of placating their freight and logistics vendors, telling them the had nothing to worry about and that Amazon shouldn't be viewed as a competitor. I guess XPO got the message too late. And when will Amazon fully pull their business from FedEx and UPS too?

Source:  www.supplychain247.com, Feb. 2, 2016

The number of people working for Amazon continues to go way up as the Seattle-based tech giant reached 566,000 employees worldwide during the fourth quarter of of 2017, with 217,000 added in that time frame alone. Amazon was founded in Bellevue, WA in 1994 and moved to its corporate offices in the South Lake Union neighborhood in 2010. The company employs approximately 40,000 people in Washington state and 25,000 at its Seattle headquarters. The Seattle HQ occupies 8.1M square feet of office space as of 2017 in 33 buildings and occupy 12 million square feet by 2022 across 40 separate buildings.

Amazon announced in September 2017- that it was looking to build a second headquarters promising to bring with it 50,000 employees that would make an average salary of $150,000 a year and spend $5B on new construction. In November 2018, it had chosen to split the HQ2 into two separate locations with one in Crystal City in Arlington, Virginia and the other in Long Island City in Queens, New York. It also announced that it was adding 5,000 tech jobs in Nashville, Tennessee, their new "Center of Excellence". Virginia said they would provide Amazon with $573M in tax breaks, $23M in cash along with other incentives. New York planned to give Amazon tax breaks of at least $1.525B, cash grants of $325M, and other incentives. Despite the obvious infusion of tax revenue, new high paying jobs created, and cementing New York as a much more than a financial and luxury retail town. New York looked to become a tech hub as well.

Things don't always go according to plan. After much thought and deliberation, Amazon decided on Valentine's Day, February 14th, 2019, not to move forward with a headquarters in Long Island City, Queens. While polls of New Yorker's showed that 70% approved of Amazon coming to town, collaborative relationships with state and local politicians make it clear they opposed Amazon's presence. There has been no word from Amazon or the folks in Arlington, Virginia on Amazon's plans for a future site in Crystal City. Instead, Amazon said they would grow across their 17 offices and "tech hubs" located around the US in places like Nashville, Boston, and Austin. What a blow to the folks of both NY and VA. Not exactly what they were expecting from Amazon. I guess it shows you should be careful what you ask for.

So what did we learn about Amazon’s effect on the business world and the world as we know it? It is a little scary about the scope of Amazon's shear size. Could they be the real life Cydedyne Systems that turns into Skynet? Doubtful, there is no reason to believe any of Amazon's moves are at all sinister in nature. However, you'd beg to differ if you're UPS, FedEx, or UPS. Not to mention the malls and brick and mortar stores across America due to the fact that they have single-handedly changed the way consumers shop. If you were invested in XPO Logistics, it means that you're worth a lot less now than you were before this last week. And if you live in New York and were looking forward to all of the new jobs and status that being Amazon's HQ2 was going to bring, you have to feel like you were punched in the gut last week. And for the rest of us, it goes to show you that Amazon has a huge effect on our lives and will continue to do so for the foreseeable future. Amazon is a spectacular company that has the power to change the business landscape in a variety of ways, just don't get in their way.