ChannelAdvisor

Amazon news items: Amazon Phone!? and Holiday pricing

A couple of interesting Amazon items out today around a rumored Amazon phone and some interesting price comparisons.

Amazon Phone?!

Mark Mahaney - Top rated internet analyst and Conan O'Brien look-alike, has a note out today that suggests based on Asian supplier checks that Amazon maybe looking to put out their own Smartphone (I would guess Android-based) next year.  Here's a snippet:

Amazon smartphone may be coming next year – Based on our supply chain channel checks in Asia led by Kevin Chang, Citi’s Taipei-based hardware research analyst, we believe an Amazon Smartphone will be launched in 4Q12. 

 

This is already on top of speculation that Amazon already has a 10-inch Tablet on the way behind the Fire.

I'm sure many skeptics will have a lot of reasons this doesn't make sense, but what's intriguing to me (and long-time readers will know this theme) is this thesis:

• Amazon sells a lot of smartphones today.
• As a data-driven retailer, they presumably have a lot of data on what consumers are looking for and buying.  I would say probably more than anyone else - even Apple. e.g. Consumers don't look to apple for comparisons against Android phones.
• They are smart and execute well and have a history of that.
• Therefore (if these rumors are true), must see an opportunity/segment in the market that isn't being satisfied today that they think they can disrupt with their own phone.
• BTW, if you havent' seen AmazonWireless, be sure to check it out and compare that experience vs. buying form Verizon and ATT. It is significantly better because, well, it's Amazon.

Only time will tell if this rumor is true, but it's interesting to try and understand what Amazon's up to here.

Holiday Price Check - Amazon set to dominate with 8-10% value advantage and awesome selection.

I always look forward to the e-commerce price analysis done by Jeetil+Team @ Deutsche Bank.  They have a database of 133 products across different top categories of retail and price check them against all the top online retailers.  In addition to pricing, they look at selection as well.  

The bottom line is that Amazon dominates in Selection and price - frequently 8-11% cheaper than other retailers.  This chart does a good job of summarizing their findings:

Another interesting chart shows that over time, Amazon is pulling away (from a value perspective) from eBay and Wal-mart - the two closest competitors: (This looks at only 91 sku's as that's the LCD of the three)

The way to read this chart is that in 2010, eBay was 1.8% more expensive and today it's 8.2%.  These are fully loaded prices - core+S+H+tax+etc.

Interestingly they did note that eBay is leading in Video games and Walmart is being very aggressive in media (books/movies). Also eBay has done a good job in beefing up their selection, last year it was a challenge and this year they have parity across the 133 SKUs.  These final two charts show the selection across several retailers vs. Amazon and you can see eBay has selection parity which is good to see.

 

SeekingAlpha disclosure - I am long Google and Amazon. ebay is an investor in ChannelAdvisor where I am CEO.

 

 

 

 

Kindle Fire - The first 24hrs - an e-commerce viewpoint (and Gadget Geek)

This is part I of a II part series:

• Kindle Fire - The first 24hrs - executive summary (you are here)
• Kindle Fire - Detailed review (coming soon)

I've been living with my Amazon Kindle Fire for about 24hrs now and I wanted to share my initial thoughts.  The goal of this review is to look at the AKF from a couple of viewpoints:

• You are new to tablets, should you take the plunge?
• You are already in the Kindle family, should you upgrade?
• You have an iPad already
• You are in the e-commerce ecosystem, what does AKF mean? (be sure to catch up on my initial thoughts here).

As you know, I tend to be somewhat verbose, so I wanted to start with an executive summary.

Executive Summary - Scorecard

First, I'll start with a scorecard:

• Packaging - A+ - Very cool packaging and it's eco-friendly.
• Setup - A+ - Wow, amazingly easy setup - the device was already wired to my account.
• Overall device asthetic - B - It's a little heavier and thicker than I expected (iPad spoiled)
• Screen/resolution - A - very strong and crisp
• Speed - A - the device hums, I was only able to slow it down running 3 things in parallel
• User Interface - A - very cool how they have hidden all the nasty Android stuff and the carousel/favorite shelf metaphor is very clean and cool
• Apps - B - very good set of apps, missing three of my favorites though: Spotify, Twitter and WatchESPN :(
• Books - A - The Kindle reader and store are excellent as you would expect
• Music - A - I had tried the Amazon music cloud stuff, and the AKF brings it to life.
• Movies/Videos - A - This is where the device really sings - the Prime instant video is amazing and a game changer and can't be good for Netflix.
• email - C - The email client is pretty basic and lacks that iPad aesthetic.  It also doesn't work with exchange which is a problem for me. There is an App, TouchDown, that seems to bridge the gap.
• Web - C - Text based sites were snappy, graphic heavy seemed very slow to me - could be a settings issue or maybe Silk will get smarter with time? Example - just loaded cnbc.com and it took 25 seconds?
• E-commerce - A - The Amazon app is amazing, it also lets me install my favorite other apps (eBay, paypal, etc.).

In summary, overall I'd give the device a solid A- and if they could improve the browser speed, I'd get rid of that minus.

• Exceeded expectations - The content apps (music, video, books) are very strong.  I did have a bug with one book (see below), but otherwise, everything in this area was very strong.  Having used an Android phone, the UI exceeded my expectations, it hides a lot of the Android warts and the app-store experience is much better than the junk in the normal android app store.  
• Under expectations - With all the hype around the Silk browser, I was expecting it to be much much faster.  I'm still working on this/exploring, but it seems when I load image-heavy sites, the browser really crawls - 10+ seconds to load a page kind of slowness.  Text-based sites are very snappy though, so it seems to be something with the way the device is loading images.  I haven't played with settings to see if that's something I can experiment with and get it to be faster.

Executive Summary - Conclusions

Here's my conclusions based on the different scenarios:

You are new to tablets/ereaders: 

If you want a tablet primarily for media consumption, this is your best first tablet.  You get first-class book reading, movie watching and music and the Prime membership is a no-brainer.

If you want a first tablet primarily for email and heavy web surfing, you should wait to see if Amazon can get the browser to be faster.  Most business people will be disappointed, most consumers will be fine.  FYI, Facebook and many of the other apps are quite snappy.

You are in the kindle family:

If you are already in the Kindle ecosystem, this is a huge leap up from the e-ink displays.  While it has a glass screen and you'll have a bit of glare in some reading situations, I personally preferred backlit so I can read in low light situations.  What's awesome is you can do both - keep your old kindle and bring it to the beach, and then use the AKF for everything else.

The movies, illustrations, color, apps and what-not make this a clear 'yes' for Kindle users that are thinking of upgrading.  If you have kids, it's great to have access to children's books, or if you read books with illustrations, it's a much better experience.

You have an iPad already:

The AKF is 40% the price of an iPad, but 75% of the experience.  If you are already an iPad user, that 25% is very noticable - the email and browser are the biggest differences, but little gaps in the app experience, etc. mean that you'll probably gravitate to using your iPad vs. the AKF if you already have one.  I think a lot of the negative reviews (NYT are directly comparing the AKF to the iPad).I never was in the camp that AKF is some kind of iPad killer.  For a larger audience, it is a very strong first content-oriented tablet and for the Kindle folks, it's a great upgrade.

E-Commerce Ecosystem:

The Amazon integration (Amazon app, app store, book store, etc.) is amazing and I continue to believe this device is going to materially accelerate Amazon's business and be one of the hottest holiday gifts this holiday.  

Finally, as Bezos has said - this is a premium product at a non-premium price.  It's not an iPad, but it is a great step for Kindle users and a good first tablet for most non-business users.

SeekingAlpha Disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.

 

Amazon news roundup - SMS, Browser Bar, Fire, Prime, Augmented Reality - phew!

There's been a ton of interesting news out on Amazon this week and some of it has been under the radar because of the Fire excitement, so while we all wait patiently for our Fire's to arrive, here are the highlights.

• New Prime analysis from JPM
• Kindle Fire orders up to over 5m?
• Amazon SMS messages
• Amazon's new toolbar
• Amazon Flow - bringing augmented reality to e-commerce

New Amazon Prime analysis from JPM

ChannelAdvisor came out with our Amazon Prime analysis a while back and we believe there are 10-12m Prime members as of Q311. Doug Anmuth over at JP Morgan has an interesting Amazon Prime analysis out this am.  He took Amazon's Q3 disclosed shipping revenue and costs.  Using this approach (which is much different than our approach) he comes up with 13.2m Prime users.  He also believes there's a 3X bump in Prime subscriber purchases (we see it as more of a 4x).

This table does a great job of summarizing his analysis->

Doug also puts a 5% Prime attach rate to Fire (I think that's low), and that could add 1.2-2.6m new Prime subscribers in Q4 alone.

Kindle Fire orders up over 5m?

When Amazon announced the Fire, we came out with our 5m units in Q4 prediction based on the dual win of price and Kindle branding/family recognition.  Many analysts thought that number was pretty crazy and we took some heat for it.

Flash forward 60 days and now we have most stock analysts at 5m units, with several in the 6-7m unit range. Also this news item came out of Digitimes which is a publication that follows the electronics supply chain:

Amazon has recently increased its Kindle Fire orders to more than five million units before the end of 2011 as pre-orders for the machine remain strong, according to sources from upstream component suppliers.

Amazon SMS messages

This one isn't going to materially move the needle, but I wanted to point it out because it illustrates how Amazon is always polishing the consumer experience.  A while back I was tracking an Amazon package and noticed the option to enter the "Amazon Text Trace SMS Test".  I entered that program and it simply gave me the option to be notified of shipping updates via SMS:

What's awesome about this is that instead of an email (I get too many already), I get a message right on my phone whenever something ships, arrives, and essentially changes status.  Along the way they always give you the opportunity to get more information on your package through hot links.

Here's what the phone experience is like:

Note that the tracking number is a live link for more information.  This is my Kindle Fire which is happily on its way!

Amazon's new BrowserBar

I have to admit that I was at first scratching my head when I heard that Amazon had a new toolbar for browsers, called Amazon Browser Bar (you can learn more here), then I installed it and after playing around with it, think this is a pretty clever next gen toolbar.  It is very useful on the PC web if you are in the Amazon ecosystem/prime user, but it could also be something they push down to the Kindle Fire (heck maybe it's already there and this is a PC version - won't know until tomorrow).

Here's what it looks like when you install it (Firefox only for now):

Here are the various items in the Browser Bar from Left to Right:

• Amazon Button - quick access to your Amazon stuff - account, orders, kindle books, music, etc.
• Today's deals - Quick access to deals going on Amazon.
• Best sellers - Puts Amazons Window Shopping experience right in your browser toolbar (more below)
• Wish List - Universal Wish List (more below)
• Related items - more below
• Search amazon/web - e-commerce search
• A button- let's you configure the search functionality

The cool part of this BrowserBar is how it essentially makes sure you don't shop anywhere but Amazon, if it makes sense.

The 10 Best Sellers feature allows you watch the top sellers on Amazon - all-in or by category.  Here's the electronics category for example:

I like to keep an eye on top selling items as it can be a great way to track new books, music or gift ideas.

Next, the Wishlist allows you to wishlist any item on the internet and of course Amazon uses that as an opportunity to have you buy that at Amazon.  In this example, I was looking at a toy on Walmart.com and the browserbar made it easy to add it to my wishlist.

All of that is standard kinds of stuff you've seen in Browser toolbars before.  Here's where it gets cool. The BrowserBar is context-aware.  I was looking for a sports toy on Walmart.com and the BrowserBar noticed (click to enlarge and look at the area just below the toolbar) that Amazon has the product for $150 vs. Walmart at $168.  It does this for any website I tested.

Finally, not only does this work for standard e-commerce type stuff, but I was on google, searching for the latest Red Hot Chili Peppers album and 'pop', the Amazon Browser Bar detected what I was doing, set off the red 'related items' section and thus notified me they had something for me.  I clicked and sure enough, the bar saved me time to find this item.

Toolbars like this are only as good as their distribution so it will be interesting to see if Amazon scores a Firefox partnership or OEM deals with PC companies (hey maybe all PCs sold on Amazon should have this?) going forward.

Amazon Flow - Augmented Reality meets E-commerce

Amazon, via their A9 R+D arm, quietly launched a new mobile app that adds a really interesting new capability to their family of mobile apps.  The app is caled 'flow' and it is an interesting mariage of two types of mobile apps:

1. e-commerce /bar code scanners - these are pretty well known and commoditized these days.
2. augmented reality - you may not have played with any of these - Layar and Yelp are my two favorite.  Essentially how these apps work is you look through your phone's camera and then they add content to what you are seeing.

Here's how flow works.  In this example, I had a toy and flipped it over to see the barcode. Before I could do anything, Flow scanned the barcode and then hovered a product information pane right over the product.  From there I could click on the arrow for more info, or click on the buy now button.  Admittedly that's not too different from a RedLaser type experience, but what's nice is having it persist right over your camera and the scanner is amazing.

All of these little blue dots zoom over your image and find products to search - very cool and Terminator-esque.

Next, I tried a book.  I placed the book on my desk and looked through the Flow and bam - it found the book instantaneously (Note: I didn't scan a bar code here, it found the product from pure image recognition!).  In this example, it even allows me to watch a little video in real time which is cool.

Finally here's what it looks like for a book where you don't have the video.  It's pretty neat to be able to look at the product reviews and everything in real-time.

 

Tomorrow is Fire Day!

That's all the news to report this week, tomorrow I'll be sharing some early observations from the Fire.

 

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.

 

Analysis of Amazon's Q3 Results -should seller's be concerned?

Tuesday (October 25th, 2011), Amazon reported Q3 results and Wall St. puked all over them sending the shares down a cumulative 20%+ to below $200.  Because of all the negative press, I've had some 3P Amazon seller's ask if everything is ok, should they worry about their sales on Amazon this holiday season, etc.

In this post we'll peel the onion on the quarter and look at Amazon's Q4 forecast to answer those questions.

Note: for this post, unless explicitly called out - everything is what is know as ex-fx - it factors OUT any changes due to currency changes.  In this Q, that tends to bring the growth rates down, so what you read here may differ from what you have seen else-where, that is due to currency factors.

Amazon's Q3 Highlights

First of all, it's important to put this Q in perspective.  Amazon is coming off a huge Q2 that we reported here and last Q3 they had monster EGM sales of ~80% so they have a tough 'comp'.

That being said, here were some of the highlights from Q3:

• Revenue came in at $10.88b (now well over a $40b run-rate)
• Active customers surged 26% to 152m users - the highest growth rate since 2004 (bodes well for future growth).
• Paid unit growth was strong at 53% (compared to 56% in Q2)
• Amazon indicated they are now planning on 17 additional Fulfillment Centers (FCs) in 2011 - up 2 from just last Q!
• Amazon said that due to Kindle Fire pre-orders, they are making 'millions' more.
• Amazon opened in Spain and the first product ordered was: "a Blu-ray pack of "Star Wars: The Complete Saga" to a new Premium customer in Madrid." (Premium = Prime) - who knew those Spaniards had such good tastes?
• 9/28 was a historical record for Kindle pre-orders (beating last holiday season)
• 3P units inched up to 38% of overall sales (up from 36% last Q - indicating that 3P continues to 'take share' from 1P)
• Amazon's "Other" business is on fire - this is due to the success of their cloud computing platform - AWS which is an amazing system and LOB.

Digging into the Q3 growth rates

When Amazon announces, I always look at the different y.y growth rates they report.  I've always mentally mapped them to quadrants (US/Intl/Media/EGM) and came up with a handy visual this time around to show the growth rates.  I call it the Amazon growth quadrants:

I find this handy because it let's you see how each of the four quadrants is doing and also shows you five other data points that summarize each part of the quadrant.  For example, you can immediately see that the fastest growing 'quadrant' at Amazon is North American EGM (Electronics and General Merchandise) at 56%.  You can also see that Intl only grew at 33% overall, but that was due to slowness in the media segment, as you can see that EGM Intl was cooking at 51%.

Amazon is 54% NA vs. 46% Intl and 38% media, 58% EGM and 4% 'other' (AWS, ads, etc.).  So you can see from this quadrant-view that as EGM continues to be a bigger piece, it will nudge all of the growth rates up as media is weighing those down.

That's the snapshot view, here is a trend view over the last two years (8 Q's):

Here you can see that growth rates are all down somewhat with the exception of Amazon Overall (which may not make sense, but it's due to the mix shift to the faster growing EGM).

While it's never good to see downward trends, you have to put these in perspective:

• E-commerce - E-commerce is growing at 15%-17% (depending on whose numbers you go with).  
• Scale - Amazon is much much larger than it was 2yrs ago.  As you grow, the laws of large numbers start to catch you.

Bottom line: every amazon segment is growing faster than e-commerce and US EGM is growing 4X e-commerce and they are doing this at a $40b/yr scale.

This chart shows Amazon vs. eBay vs. e-commerce in NA:

This helps put the Q3 slight dip in growth into perspective.

What's new with Prime?

Amazon doesn't announce any Prime numbers, but in the 10Q they do disclose some details around shipping costs.  I've seen this mentioned as a negative on the quarter, so let's look (this table is from Mark Mahaney @ Citi's report):

So what you see is that Amazon's shipping cost as a % of sale goes up.  There's two ways to read that:

• Shipping costs are going up faster than sales (this would be the case for a standard retailer) and eating into Amazon's margins
• More prime users are signing up and thus Amazon is spending more in free shipping.

Of course, I tend to think it is the latter situation.  What's interesting is many retailers spend 10-30% on Sales and Marketing where Amazon spends around 3% on marketing - crazy right?!  Well, crazy like a fox - I believe Amazon believes that they'd rather put 5% in free/subsidized shipping vs. putting it into marketing.  Said another way, that 5% drives more sales in free shipping than it ever could in marketing.  Consumers love free shipping.

 Q4 guidance - gloom and doom or conservative?

Those were the Q3 highlights, now let's look forward to Q4 and beyond, here's what we learned from the conference call.

• Amazon gave an unusually broad range for Q4 - $16.45b and $18.65b - which represents 27% and 44% growth respectively.  The mid-point is 36% growth which is pretty conservative coming off a 39% trajectory.
• On the bottom-line they forecasted a big $500m swing of $(250m) and $250m.   

I'm not a public-company CEO, but the game on Wall-st is managing expectations.  One thing none of us can predict is how consumer confidence will look in Q4.  A lot of people have pointed out that the congressional super-committee is suppose to solve our budget problems by their deadlines.  Who is the genius that put these at 11/23 and 12/23?

The big concern in the World of e-commerce and retail is you have this Thanksgiving-Christmas storm of bad news and politics that further erodes not only confidence in our leaders, but causes consumers to pull back on holiday shopping.

That's a long way of saying that given the world today, it's hard to say: "Q4 will be like Q3", because we know these things have and can derailed consumers.  So personally, I think they are being prudent to give themselves a lot of wiggle room.

Amazon's CFO, Tom Szkutak said this on the call:

 In terms of the guidance for revenue for Q4, as we've done in previous years, we've given a wide range of guidance in Q4 just because of the seasonality and it's difficult to predict. But we feel very good about the demand that we've seen to date. And certainly, at the high end of the guidance, you can see there's an acceleration that's possible that's reflected in that guidance.

As for the bottom line, I was an early Bull on Kindle Fire and I think what we are seeing is Amazon is a bit surprised by the demand (or they wouldn't have to order 'millions' more units).  I'm starting to think my 5m number maybe blown out of the water and I've seen Wall St. analysts now nudging up to 6m Fire units for Q4.

With any razorblade model, you have a margin hit at the beginning razor sale and then make it back as the consumer adds razorblades.  I think Amazon is being prudently cautious here.  They certainly know the profile for normal Kindles, but for Fire - who knows.  It' s best to assume a low Prime take-up (say 5%) and then pleased that it comes in at 20%.

Amazon Prime'd to set Q4 on Fire

When I look at everything Amazon is doing - new FCs, 3P ramping, Prime usage increasing, Fire orders growing, it suggests they really wound the Q4 rubber band tight and if the consumer can just hang in there, we should see a monster Q4 from Amazon, that I think will quiet the critics.

 

SeekingAlpha disclosure - I am long Amazon and Google.  eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

Amazon Q3 results preview / cheat sheet for retailers

Amazon is set to announce their Q3 results on the heels of solid results from eBay and Google.

Our SSS data suggests that Q3 for 3P EGM (non-media -electronics/general merchandise) came in about 72% across the quarter.

Financially, Wall St is looking for:

• Revenue: $10.9b
• EPS: $.19
• Y/Y US Revenue growth:  43%
• Y/Y Intl Revenue growth: 33%

Other areas we'll be watching closely that are more forward looking and relevent to sellers/retailers:

• Overall GMV trends - Amazon reports on four segments (Domestic/non-domestic/Media/EGM) and we always look for trends there
• User growth - Amazon in Q3 reported 144m active users, and that metric has been growing nicely.
• Seller unit % - The percentage of units that are 3P vs. 1P (Amazon sold directly)
• Paid unit growth - Q2 grew 56% in Q2, it will be interesting to see if Q3 was up or down here y/y.

We'll also be listening very carefully for any news around Kindle Fire, how many FCs are online and any other tidbits around how Amazon feels about Q4.

Q4 guidance

In true 'what have you done for me lately' fashion, the most important part of the Q3 release is the Q4 guidance. Specifically, folks on Wall St. are very concerned about the margin pressure that may come from the Amazon Fire (which doesn't ship till Nov 15, but we forecast 5m units will sell).  Our rationale on this:

• Let's say worst case, Amazon loses $50 / Kindle Fire (most break-downs show $10)
• Amazon sells 5m units-> $250m in Q4 extra losses due to Fire.

So $250m is the worst case 'margin hit' that Amazon faces in Q4.

On the revenue side, let's look at what I think is a conservative scenario.  Let's put the 5m fire units into some buckets:

1. Existing prime users (I'm in this bucket) - We are part of the Amazon ecosystem (Kindle, video, music, Prime) and the Fire is a must have as it gives us more+better access to our content.
2. Non-prime users, that will become prime users - You are a light part of the Amazon ecosystem - you have some Kindle books, you have the $2 GaGa album and some free cloud storage.
3. Non-prime users, that won't become prime users - You are new/light to Amazon and just want to use Fire as a low-end Tablet.  You'll browse, email and maybe shop, maybe read some Kindle books, but don't join Prime because you hate free 2-day shipping and access to thousands of streaming videos.

 

If you agree with me on these three use-cases, then here's what I think the economic impact of each of these is:

• Existing prime users - The cream of the Amazon customer crop and Amazon is already making a killing on these folks.  Their spend is 4X non-prime.  To be conservative let's say that economically from a Fire perspective, we actually get the least amount from these guys - let's even say their spending habits increase 0.  In reality, I could see them maybe going from 4X to 5X, or decreasing any Prime churn, but let's say 0.  Think of this as a customer loyalty program.
• Non-prime users, that will become prime - This is the lucrative group.   The Fire will bump them over the hump and get them into Prime. They'll spend $80 for the video and 2-day shipping, then their average Amazon spend will go up 4X. Let's say they spend $100/yr on Amazon and that becomes $400 @ 10% margin - that's $30+80 in incremental margin or $110.
• Non-prime users that don't become prime - Getting the Fire will naturally cause this group to consume more Amazon digital content - kindle ebooks, VOD, and even physical products.  Let's say these guys spend $0 today, and they bump to $200 - $200*30% = $60 incremental margin (digital goods have higher margins).

 

Finally, if you generally buy into those economics, the real key to this whole thing is the mix of each bucket.   Rest assured that Amazon completely 'gets' this and it's the clear reason why they are packing so much new content and benefits into Prime and will continue to do so.  I believe they will make Prime so compelling you will see this mix:

• 33% - Existing prime users - 1.65m units - $82.5m in cost, no offsetting margin.
• 45% - Non-prime that become prime - 2.25m units - $110m in cost, and $247m in margin for a net positive contribution of  $135m
• 22% - non-prime users that become prime - 1.1m units - $55m in cost, and offsetting margin of $66m for a net positive of $11m

Bottom line, you have $250m in costs and $313.5m in revenue bump for a net positive of $63.5m.  Think of this as a first year analysis.  For year two, you have NO COST (because they already have the fire) and in year two you make $313.5m (which has upside as some of the third group move up to group 2).  Now you may argue, ok I get what you are saying, but all the cost will be incurred in Q4 and the revenue will come over the following 12 months - into 2012.  Perhaps, but I actually think the most high margin events (prime sign-up and digital goods) will actually come right after the device is opened and that component alone ($66m+180m = 250m) will offset my $50 unit costs and if the unit costs are actually $10: $250m (revenue bump) - (5m*10=50m) = $200m incremental profit that is actually upside on Q4.

Now, Amazon is notoriously a) tight lipped on these kinds of things and b) conservative on guidance, so I think what we'll hear in Q3 is that they are conservative here and then in Q1 when they announce, we'll hear -surprise, surprise, the amount of content consumed was amazing and we not only filled the margin dip from the device, but created a handy surplus.

What do you think?

Do you think Amazon will be conservative on guidance?  Do you think my numbers are totally off? Sound off in comments.

SeekingAlpha Disclosure - I am long Amazon and Google and eBay is an investor in ChannelAdvisor.

 

 

 

 

 

 

 

 

AMAZON LEAK: Amazon Kindle Fire already has 250k pre-orders!

As everyone knows, Amazon is super tight lipped about sales of Kindle, Prime membership, etc.  But the folks over at Cult of Mac/Android have secured a screenshot of Amazon's internal order management system called Alaska (Availability Lookup and Sku Aggregator) that you can see in the original post here and I've provided here for you to look at as well.

 

I've never personally seen ALASKA, but Amazon insiders have mentioned it to me and based on my pretty deep knowledge of Amazon, this looks to be the real deal:

• ASIN number matches at the top
• The core US FCs are listed on the left using airport like designators I've heard them use before.

It is unusual that Amazon would leak this information, clearly a) someone maybe on their way to getting fired or b) they are uncharacteristically so excited by the Fire sales so far they want to pop the balloon of the naysayers out there.

What does this mean?

Lots of folks on Wall St. thought I was crazy with my Q4 5m unit number so let's 'stress test' that here.

• This represents a pre-order rate of 50k/day (yes you can argue that may taper off, I'd argue it's going to grow).
• At this pace, Amazon will have 2.5m pre-orders before the ship date of 11/15
• The original iPad sold 300k on it's launch date and Amazon is set to get in front of that easily.
• iPad2 had 2.5m units in it's first month
• Thus - Kindle Fire is on pace to be the largest tablet launch in history.  Not just lame existing Android tablets, iPad too!

So doing some math here, there are 90 days in Q4, which @ 50k/day would give you - 4.5m units sold.   Of course it won't 'work' like that I think what we'll see is:

• 2.5m pre-orders or 11/15
• Big marketing push, crazy low price point and buzz makes Kindle Fire a huge gift this holiday
• You get another 3m orders between 11/15 and 12/19
• 12/19-12/25 - pause for holidays
• 12/26-12/30 - everyone that wanted a Fire, but got a tie, sweater or socks instead, orders one for themselves. ;-)

Skeptics beware, this is going to be a very big game changer for Amazon and if they layer on top of this a 10", it could be even bigger!

Scot, why are you so excited about this thing?

I'm a gadget freak (some would say geek?) and already have an iPad2, iPhone and some Android devices and a bunch of kindles as well.  So someone at work asked why I was excited.  I'm definitely excited about the software and the device itself, but as we have tons of retailers that sell on Amazon's third-party marketplace here's what gets me excited:

• 5m people buy Fires
• 2.5m are already Prime users and they use it to just buy more - bumping them from 3-4x to 4-5x
• 2.5m are not in prime, 80% of them sign up
• We have 2m new prime users, moving us from 12m to 2m (a 16-20% bump)
• Those prime users make Amazon their default e-commerce store and they bring in an incremental surge in demand
• That's just Q4!!

My only regret is that Amazon doesn't have a physical store I can go camp out at on November 15th.

SeekingAlpha Disclosure- I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

Amazon lights a Fire on Q4/2012, Quidsi gossip and Fulfillment center buzz

There's a ton of Amazon news out today that we wanted to fill you in on.  Of course there's the Fire, but there's some interesting news on Quidsi and Amazon's Fulfillment centers also.

Amazon Lights a Fire on Q4

Unless you are living under a rock, you probably saw that Amazon formally announced the Kindle Fire. It turns out that much of the speculation (we covered it  here) was true.  There were a couple of big surprises:

• Pricepoint - $299 and $250 were the price points rumored and Amazon trumped that with the $199 price point. Amazon also slid the lowest kindle down to a meager $79
• Prime - It's not included, but Fire users get 30 days to get addicted.  I think the take-up rate will be huge on this as you essentially get the value of a Netflix streaming membership on the device (instant video) plus free 2 day shipping for only $80. 
• Silk - When you think of the 'standard' apps that sit on a tablet, you have email, browser, app store, maps, ereader, movie player, photo album.  Amazon has now stripped the Google/Android versions of those off the device and replaced them all except email+photo album.  By providing a new browser powered by EC2, they are also taking an interesting strategic step.  Could this grow off the tablet and become a contender for Chrome/IE/FF down the road?  Personally, I'd love to give it a try and see if the speed really is that amazing.
• Bezos - It was great to see Bezos out as the spokesman.  He does a great job as the chief evangelist for the company and I think they should leverage him more.  For a long time he has been out of the spotlight.  I really liked the messaging around: "Premium products at non-premium prices".  This clearly carves out a different niche than what Apple is going after

The Fire Prime trial solves two problems that we identified with the 'bundled Prime' rumor:

• Existing Prime users get a benefit here - we don't have to buy Prime again to enjoy the benefits on the Fire and the device truly is $199 for us.
• It keeps the device clost low, but will get that additional $80 out of most of the non-prime buyers.  I don't think Wall St. sees this yet as they are freaking out about the possible margin impact here.   The device is effectively $280 for these people.

Sticking by my estimates, but now they feel a little light

A couple of people on Wall St. thought I was pretty much insane, but I'll stick by my predictions on Fire sales:

• Q4 2011- 5m units
• 2012 - 20m units
• Fire's surge of Prime users will give a 20% lift to Amazon ramping now and going through mid-2012.  

If anything I'm more bullish on that as the device really seems to be a solid entrant and generating a ton of buzz.  I actually don't think it has to cannibalize the iPad market, it will just crush the Nook into oblivion and all the other lower-end tablets firmly establishing itself as the B/value player in a huge new market.  Apple isn't a 'loser' here, the most risk is for Google (more product searches not going to google), Netflix, B+N, and Walmart.com/eBay as Amazon locks in the consumer into their marketplace/e-commerce ecosystem.

A lot of people don't realize that Amazon is actually quite transparent in this regard, here's a screen shot of their top selling items, look at what shot to the top (within 2hrs of the announcement)-> (click to enlarge) this is ordered from best seller on the site down to lowest.

Yep, Fire is number one with a bullet, and then you see all the new touch and low price models rounding out the top. In short, Amazon is going to sell a TON of these devices starting now and going through Q4.  Think of all those people coming to the site, pre-ordering their Kindle, and picking up some other general merchandise while they are there, or going ahead and signing up for Prime, etc.

Best Fire demo

There was  a ton of coverage yesterday on the Fire, the best demo I've seen is embedded here, in this 5min demo, you really get a feel for what this device is going to be like.  In short - very snappy and full of great content.

I like when he gets all three rows of the home page scrolling in real time.  SWEET!!

Quidsi update

Matt Nemer, Wall St. Analyst with Wells Fargo, had a meeting with Amazon management and scooped a couple of interesting tidbits.  Quidsi is the company behind Diapers.com and Soap.com that Amazon acquired in November of 2010.  Earlier this year Quidsi expanded into Pets with Wag.com and Toys with YoYo.com.

Matt discovered:

• Quidsi is launching three more categories ASAP
• Home furnishings (to compete with CSN/Wayfair most likely)
• Green products
• Sporting goods (to take on the GSI Sporting Goods trifecta)
• They are being super aggressive on Wag.com and sales pace there is already exceeding soap.com's first two months

Fulfillment Center Tour notes

Both Matt and Gene Munster @ PJC were given tours by Amazon of their Phoenix Fulfillment Center.  Some interesting tidbits from their write ups are here:

• Amazon believes their FCs are best of class on many KPIs: error rates, free replacement and view this as a e-commerce strategic advantage
• Orders leave in < 2hrs and their network can reach the entire continental US using ground shipping in 2 days - a huge logistics achievement that gives Amazon a strategic advantage.
• They are on plan to have > 70 FCs by EOY
• Amazon owned and FBA inventory are co-mingled
• Amazon leverages the Japanese Kaizen system to implement improvements and drives a relentless focus on waste reduction
• Example: when an error happens, designated error handlers take over so the normal workflow is not disrupted.

Bottom line: Amazon sees fulfillment as a key pillar of their customer experience - bigger shopping windows, faster deliveries, lower error rates all improve the buying experience, increase loyalty and drive deeper competitive moats.

SeekingAlpha Disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO, I have pre-ordered a Kindle Fire.

 

 

 

 

 

What does Amazon's Kindle Fire tablet mean for the marketplace/e-comm side of the biz?

I've been getting a lot of questions from retailers and Wall St wondering about our thoughts around the Amazon Tablet.  In this post, we'll review some of the materials you may not have seen so we're all on the same page and then dig into what this means for Amazon sellers, Amazon Prime and Amazon's 3P marketplace.

Come on baby, light my fire: Background on the Amazon Fire

Amazon is widely rumored to be releasing a more general purpose version of the Kindle this week Wednesday at an event in NY (hey Amzn - I didn't get my invite yet).  MG over at TechCrunch seems to have the best info, and most of his datapoints have been confirmed from a couple of sources:

• It will be Android based
• It will have a 7" screen (Like a Nook, but smaller than a 10" iPad), color and multi-touch
• It will be in the $250 price range (about half an iPad)
• It will come with an Amazon Prime membership (remember this)
• It will of course be fully integrated with the Amazon content system - streaming music, Kindle eBooks, streaming movies, cloud, android app store, etc.  One analogy I like to use is Amazon has been building the lego blocks for this puppy for years and it's going to be exciting to see how they all come together in one device for the first time.
• It will probably be formally announced this Wednesday, September 28, 2011.
• Amazon 'gets' the importance of Q4 and they learned with the Kindle that they can stimulate a lot of demand, so I suspect they will go earlier and bigger with this device as their confidence is probably higher with a second gen vs. first gen offering.

How many Prime subscribers are there today?

To understand the impact of this device, we need to approximate how many Amazon Prime members there are today. First, Amazon does not disclose this information at all.  Trust me I've tried about a bazillion times to get even a ballpark.  So any time you hear a Prime number out there, it's a guess.

That being said, we can make an educated guess based on some datapoints we do know:

• Amazon has 144m active global buyers (active is not registered, it means people that actually purchased something in the last year.)
• The Prime user spends about 4X of the non prime user

Based on demand data we see when a seller goes from non-prime offers to prime, we believe that 10% of the Amazon active buyers (where prime is available) are on prime, or 10-12m.  This may feel high as the latest datapoints out there 2-3yrs ago were in the 5m range, but Amazon has made a concerted effort to both add value to the prime membership as well as push the Prime trial which we think has a very high conversion rate.

Let's call it 10m to be conservative.  Remember that the Prime user buys 4X as much, so this audience has the power of 40m buyers, or probably represents 30% of wallet and 8-10% of buyers.

 How many Tablets will Amazon sell?

A lot of this depends on how many Kindles Amazon sells and... Amazon doesn't disclose that. Wall St. analysts peg annual Kindle sales in the 21m/yr range.

Another key datapoint is that there are 75m/yr tablets (mostly iPads) sold. 

So you can look at this two ways:

1. Some % of Kindle moves to the new device - e.g. 50% or 10m/yr or 2.5m/Q
2. Some % of Tablet goes Amazon's way vs. Apples. - e.g. 10% or 7.5m/yr or ~2m/Q

Keep in mind both of these numbers are static whereas both markets (ereaders and tablets) are growing in the 20-30% range easily.

I'm seeing Wall St. Analysts put out there 2m units for Q411 and 6.4m for 2012.

I think they are underestimating this device and Amazon's power to push out a product in high volumes.  Thus I'm going to go out on a limb and predict:

• Q4 2011 - 5m units
• 2012 - 20m units

Why? 

• I believe Amazon will quickly transition the Kindle models to favor the new tablet
• As a Prime user, the fact it comes bundled with Prime is actually a negative for me.  I don't get value for my prime.  The answer?  I believe Amazon will offer the device at some discount ($199?!) to existing prime users.
• I'm sure Amazon has some other surprises for this device (probably unique content and selection and benefits) that haven't leaked that are going to be incrementally exciting on top of what we already do know.
• HP's discounted Touchpad flew off shelves, admittedly at a $99 price point, but the thing had a dying OS and no content/apps - this proves that there is a clear huge market for a $200-$250 device that undersells the iPad - and admittedly has fewer features.  It will be a VW to iPad's Caddy.

What does this mean for 3P and the entire ecosystem?

I believe there are two impacts for sellers and Amazon's e-commerce business from Fire:

1. A surge in new Prime users (this assumes the device comes with Prime)  - Details below.
2. Pin-action from traffic - As we've seen from the last couple of year's Kindle launches, the device simply brings a lot of people into the front door of Amazon and there's a fair amount of pin action. "Oh, while I'm here, I'll go ahead and order that blu-ray player and soccer gear I was looking for.".  I think you'll see a good 2-5m incremental new users coming to the site.  

How many Prime users will Fire add?  Let's do some napkin work here.  So I'm saying 5m+20m=25m for the next 16 months and analysts are saying 2+6.4m = 8.4m.  So let's say we have a range of 8-25m Fire users by the end of 2012.  To be conservative let's give that a 50% haircut assuming a bunch of the Fire buyers already are in Prime.

That's 4-12m new users to prime - or a mid-point of 8m.  With 10m existing prime users that we conservatively say is static, that bumps Prime Subscribers up by 80% to 18m.  Those 8m users will spend 4x the average Amazon buyer. Prime today represents 30% of Amazon wallet and a surge in 80% Prime bump incrementally could add 20% new incremental wallet to Amazon over the next 16 months.  Even if you assume that these new Prime users are only spending 3X the existing Prime users, this is a huge win and one of the reasons that Amazon can razor blade these devices out there.

For sellers what this means is:

• The trend towards Prime is clear - every Amazon seller needs to think about supporting FBA
• Fire should drive some nice incremental Q4 traffic and help potentially layer on another layer of growth in 2012.  With Amazon EGM 3P growing at 80%, if the macro-economic picture doesn't change, we could see a bump up towards the 100% range.
• Translation - if you aren't already selling on Amazon, the train is leaving the station, time to get on board!

SeekingAlpha disclosure - I am long Amazon and Google and plan to buy a Amazon Kindle/Tablet the first day possible and regret I won't be able to wait in a long line somewhere ;-) eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

 

Autumn Release Helps Retailers Be Better Online Sellers

Today we announced our 2011 Autumn Release--an entire release dedicated to improving your visibility into your sales, as well as your visibility online.  

The highlight of the release is the new Amazon 360 dashboard--a comprehensive look at everything you need to know to be a better seller on Amazon: 

• Top-performing products
• Percentage of products winning the Buy Box
• Feedback Ratings and Negative Feedback
• Order-defect rate
• Product listing status
• Orders past shipment
• and much more. 

Read all about it at the following link and be sure to check out the slideshow that walks you through how the dashboard will look. 

http://www.channeladvisor.com/autumn-release

 

A Retailer's Perspective on Amazon's Amazingly Awesome Q2 2011 results

Amazon released Q2 2011 results on Tuesday, 7/26 that put to bed any criticisms that Wall St. had about their heavy investment this year.  The company posted it's fastest y/y growth rate, 51%, in the last ten years.

There's already been copious press about this monster Q, but in true Amazon Strategies tradition, we have a retailer's view (if you partner or Amazon is a competitor, I think you'll find this of interest) for you today.

Note - click on any charts to expand them to a larger size in a pop-up, I kept them smaller as this is a long post.

Highlights

This section could be really long because it was just a stellar quarter, but here are the highest of the high, highlights:

• Amazon's revenue came in at $9.9b vs. Wall St's expectations of $9.3b
• Paid units (a new measure this Q!) grew 56% y/y
• North America grew at 48% y/y
• EGM (non-media or Electronics and General Merch) is now 59% of sales - you'll see why in detail later in this report
• Seller units (what we call 3P or marketplace) were 36% of paid units - up from 34% share last year - which means that 3P is growing at 76% y/y - wow (details later)
• Management has formally announced 15 FCs (fulfillment centers) and plans on a few more. They will all be up and online for Q4, which will give them 65-75 FCs! (wow).
• Active customers are now over 144m

We've been talking to hundreds of retailers about the secret sauce to Amazon's continued success and this Q is a great opportunity to highlight two key drivers - 3P and Prime/free shipping.

Key Driver - 3P: Amazon's Unit growth and 3P growth

3P is jet fuel for Amazon -it allows Amazon to dramatically increase selection and grow faster than it could if it had to outlay the cash and resources to buy, inventory/hold, ship everything.  It also helps push down prices on Amazon as 3P's fight for the buy box.

Frequently we get asked questions such as: "Will Amazon keep doing 3P" and "What if Amazon competes with me".

In this chart you can see that 3P (the blue line) is actually growing materially faster than 1P.   That doesn't mean Amazon won't sell the same products as you will, but clearly 3P is where the bulk of the growth is coming from and in many markets, Amazon is almost using 3P to stock entire categories.

The growth of 3P has driven 3P units up to 36% of units sold. When you think of all those kindle books in that unit number on the media side, I'd imagine that in EGM the number is more like 50% of units are 3P.

Key Driver - Amazon Prime - The power of Amazon Prime

Another key driver is Amazon Prime - Amazon's program that gives annual free two-day shipping for a $79 subscription.  Jeetil Patel over at DB has some great analysis on Prime where he has been tracking it's adoption in NA and International (Europe primarily).  In this chart he charts the NA and EU launches against each other as if they started at the same time (even though EU launched Q1_09 and US was Q1_07.

You can see that Prime in Europe is driving significant growth in EU as it gains traction.  In the US it has leveled out somewhat, but still drives huge up-ticks in buyer frequency.

 

Justin Post @ Merrill Lynch has a good chart that shows that programs like Prime and Super saver don't come cheap.  In fact, in Q2, Amazon posted record shipping costs.  This chart looks at them as a % of sales and you see that they now at 4.9%   So for every $100 sold, $5 goes to supplement S+H.  The optimist would say 'great' this means more prime users locked into Amazon.  The pessimist would say that this is going to essentially erode margins towards 0.

Another analysis we are known for is oure detailed dive into Amazon's segments, which is in the next section.

Dissecting Amazon's segments (us/intl/media/egm)

Part of the fun of following Amazon is that they are notoriously tight lipped.  The best information they release that I have found that gives retailers a good baseline of how Amazon is doing and how they should be doing (in addition to our Same Store Sales data that is) can be derived from four segments Amazon releases:

1. Media US - Media (books, music, video games, kindle ebooks) domestically
2. Media Intl - Same as above but non-domestic and I always look at ex-fx to take out changes in the US Dollar and foreign currencies (this is called ex-fx for 'ex' or take out 'FX' or Foreign eXchange rates).
3. EGM US - Electronics and General Merch in the US
4. EGM Intl - same as above but non domestic ex-fx
5. Amazon overall - I also put in Amazon's overall growth rate ex-fx in here as a baseline so you can see the leaders/laggards.

What this chart tells us:

• Leader - EGM US grew to 67% - right in line with our SSS incidentally!  This is impressive because the US is Amazon's most saturated market.  If they are 3-5 years ahead in the US and still growing at 67%, then it seems like Intl could grow this way for a decade!  Remember that these segments are all in the $10B run-rate scale and growing 50% at that scale is massive - certainly not the same as 50% on $1b.  They are adding something like two JCP.com's a year at this pace.
• Leader - EGM Intl at 53% (>60% w/ FX) - Very impressive, and still early days.  I suspect when the Intl FCs come on line, this will accelerate again
• Amazon overall - 44% - this is lower than the 51% recorded because I'm looking ex-FX for apples to apples.
• Media US and Intl were the same at 20% - largely driven by kindle.  Remember this is a Q when Borders filed for bankruptcy and Amazon's media business accelerated as they anticipated the move from physical to digital and are a driver of that, not a victim.

Food for thought: E-commerce is growing at 14% and every Amazon segment is growing faster.  EGM US is growing 5X US e-commerce.  

Final thought - Amazon tablet and are they out Walmart'ing Walmart?

Finally, there's a ton of speculation that Amazon will release an Android-based tablet in Q3 for the holidays.  The company didn't say anything about it, but the Q3 forecast did have a pretty big bump up in several cost lines which made some analysts on Wall St. speculate there was $ in there for a big launch.

Finally, many analysts are starting to call Amazon the Wal-mart of e-commerce. To that end, Scott Devitt @ Morgan Stanley had a cool chart.  This chart shows Amazon and Wal-mart's net sales (adjusted for inflation) as if they companies started at the same point in time.  

Remember that Amazon only counts their rev share on 3P in revenue, so the gross sales from Amazon are actually a good $10b bigger/yr than even this chart shows!

 

With this core thesis that Amazon will essentially be the next Wal-mart, but faster because they don't have to build out thousands of physical store, he smacks a 2014 revenue bogie of $100B for Amazon.  Seems crazy, but with the company doing > $40b this year and a 50% growth you can get there pretty quickly (60b in 2012, 90b in 2013, 120b in 2014) - and actually that assumes things slow down somewhat, so $100B could actually turn out to be conservative!

 

Conclusion

This quarter provided more mounting evidence that Amazon is essentially running away with market share in e-commerce.  Consequently, we believe retailers urgently need to think of an Amazon Strategy - partner, compete, co-opetition?  Amazon is becoming so big and growing so fast, you almost can't afford not get on this train.

 

SeekingAlpha disclosure - I am long google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.