Lessons from Amazon

Love it or hate it, you can’t ignore Amazon. The online retailer continues to grow at an amazing rate, all the while maintaining top rankings for customer satisfaction.

In in his annual letter to shareholders released last week, CEO Jeff Bezos explains how setting high standards helps Amazon keep pace with increasingly empowered consumers.

“How do you stay ahead of ever-rising customer expectations?” he writes, adding that it takes a combination of strategies. “But high standards … are certainly a big part of it.” He then describes seven “essentials” of what he has learned about the importance of high standards.

While his experience is based on retail, Bezos writes, “I sense that the same customer empowerment phenomenon is happening broadly across everything we do at Amazon and most other industries as well. You cannot rest on your laurels in this world. Customers won’t have it.”

Tim Mueller’s Transaction Analysis: New IT M&A Deals June 16

Amazon to Acquire Whole Foods Market

Financial Information*

  • Enterprise Value: ~$13.7B
  • EV/LTM Revenue: 0.9x
  • EV/LTM EBITDA: 10.3x

Transaction Facts

  • Amazon (NASDAQ:AMZN) and Whole Foods Market (NASDAQ:WFM) announced today that both parties have entered into a definitive merger agreement, in which Amazon will acquire Whole Foods for $42 per share in an all-cash transaction valued at ~$13.7B, a 27% premium to Thursday’s closing price.
  • The transaction, which includes Whole Foods’ net debt, is expected to close in the second half of 2017.
  • Following the take-over news this morning, Amazon rose 3% and Whole Foods surged 27%. Conversely, stock prices of competitors tanked — grocery stores Kroger and SuperValu dropped more than 10% each, and retail chains Target and Wal-Mart fell 10% and 6%, respectively.
  • Amazon’s market cap has appreciated by ~$15.6B today.

A New Competitive Landscape

  • Big Bet: As Amazon’s largest acquisition, the deal will give the giant an immediate brick-and-mortar presence from the more than 460 Whole Foods stores concentrated in prime urban locations across the US, Canada and Britain. The retail disruptor, which has dipped its toes in the $800B grocery business with Amazon Fresh, is scaring competitors with its entrance into the large retail market.
  • Window of Opportunity: While Amazon is one step closer to becoming a consumer monopoly, the deal could provide breathing room for drugstores, mass-merchandising outlets and department stores to rethink their strategies and defend their own stakes. Macy’s, AutoZone, and Staples are among the leaders of their sectors that could use this small window of opportunity wisely to rethink their strategies before Amazon fully figures out how to implement its technologies with its retail presence.
  • Maximized Value: This deal will benefit Whole Foods, which has been struggling to sustain profits as a high-cost operator. Now the store will continue operating under its high-end Whole Foods brand while under Amazon.
  • Catch-Up: Competitors are trying to play catch-up. Walmart has agreed to acquire the men’s clothing company Bonobos for $310 million today in an effort to transform itself into a strong e-commerce player, but the critics say the impact will be minimal as Amazon’s presence in e-commerce is unparalleled; Amazon accounts for 43% of U.S. online retail sales and its Prime membership more than doubled in two years. The deal will drive further competition in prices and speed, as Amazon finds a way to sync its technologies and services with its physical stores.

For more information about this transaction, click here to read the press release.

To receive instant analysis on the day’s business news from Tim Mueller, contact [email protected]. Check out a list of diverse assets for sale on SBN’s IT M&A Marketplace powered by IT ExchangeNet here.

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What Amazon’s bold moves in the marketplace can teach you

First, there was Amazon

Although founder Jeff Bezos always intended for Amazon to sell everything, he started with books. Once the technology infrastructure was in place, Amazon began to collect customer data and lots of it. Amazon team members became experts at analyzing it, and used it to create personalized product recommendations and email marketing.

After successfully taking over many retail markets, Amazon now has its sights set on the business-to-business world.

Now, there is AmazonSupply

Like me, an avid Amazon purchaser, you may not have heard of AmazonSupply, Amazon’s “beta” site that quietly launched two years ago dedicated to selling supplies to businesses.

Combined with its Web Services division and its lower product costs, Amazon is positioning itself to be the premier supplier to businesses, offering a comprehensive program to reduce costs across a business’ whole supply chain. AmazonSupply’s website boldly declares that its goal is: “To supply everything needed to rebuild civilization. Ambiguous? Absolutely. We are trail-blazers who yield no limits. We have just begun.”

Trailblazing the Amazon way

Even if Amazon or AmazonSupply doesn’t directly target you, someone else, somewhere in the world will. Here is my take on what makes Amazon successful at disrupting, and then dominating markets:

1.      Team members love disruption and even disrupt their own businesses.

2.      They are expert at imagining what their customers will want in the future and how they will want to buy it.

3.      They have the courage to make bold, smart investments to capture a leadership position in new markets.

4.      They intensely focus on their customers’ experience.

5.      They establish emotional relationships with their customers and shareholders.

6.      Technology is the backbone of the business, and they use it strategically.

7.      They love customer-specific data and are experts at collecting, analyzing and using it.

8.      They hire big thinkers and challenge them relentlessly.

9.      They manage cash flow instead of profits.

10.     They accept (maybe even like) that they will create some enemies.

11.     They accept that their hard-driving, cost-conscious culture results in high employee turnover.

12.     Their CEO is ambitious, relentless, a micromanager, dedicated to his customers and a brilliant visionary who loves conflict.

Like it or not, aggressive and creative companies like Amazon are using technology and propelling change at an ever increasing rate. The disruption that they create is ongoing and guaranteed to affect you at some point. Whether or not AmazonSupply directly affects you, you must continually reinvent and improve your business or risk being left behind.

If you have been complacent about innovation or investing in new capabilities, you need to start now or risk being the next travel agency or book store. Study Amazon. What can you learn from it?

Amazon in talks to buy TI mobile chip arm: paper

SEATTLE, Mon Oct 15, 2012 – Amazon.Com Inc. is in advanced talks to buy the supplier of chips for its Kindle tablet computer, Israeli financial newspaper Calcalist reported on Monday, in what could mark a step in the company’s ambitions in the smartphone sector.

The report said any deal for the smartphone chip business of Texas Instruments Inc. would probably be worth billions of dollars and could make Amazon a direct rival to Apple Inc. and Samsung Electronics Co. Ltd., which also design their own chips.

“It would make sense, as the chip is a critical component and Amazon has an existing relationship with TI,” said Ovum analyst Nick Dillon.

TI’s chips are used in Amazon’s Kindle Fire tablet and Amazon CEO Jeff Bezos had underlined TI’s strength in the industry at the tablet’s recent launch.

“With the trend towards more vertical integration, led by Apple, speculation that Amazon is interested in TI’s chipset arm is unsurprising,” said Ben Wood, head of research at British wireless consultancy CCS Insight.

But some analysts questioned whether it would make sense for Amazon to spend billions on the business when many smaller and independent smartphone chip makers are reporting steep losses.

TI has flagged its plans to exit the business.

Gartner analyst Carolina Milanesi said she doubted whether Amazon wants to “become that intimately involved with hardware.”

TI said last month it would shift its wireless investment focus from products like smartphones to a broader market including industrial clients such as carmakers, where it is hoping for a more profitable and stable business.

In mobile-computing boom, a battle rages for marketing

NEW YORK/SAN FRANCISCO, Thu Oct 4, 201 – Amazon.com Inc. CEO and founder Jeff Bezos, who quipped at a shareholder meeting a few years ago that “advertising is the price you pay for having an unremarkable product,” is eating those words.

Three years on, as the company moves aggressively into the mobile computing business with its Kindle tablets and ereaders, Amazon has already spent $34 million on TV advertising for the Kindle in the first half of the year, according to Kantar Media, and there’s more to come.

Indeed, in the consumer technology business, where billions of dollars are poured into marketing, great products go only halfway towards winning market share.

Take Apple Inc, for example. Perceived as a company that has triumphed with exceptional technology, it has long been the pace-setter on marketing, too, spending some $1.5 billion on iPhone and iPad advertising since their introduction.

Now Samsung Electronics Co. Ltd, Amazon, Microsoft Corp and other tablet and smartphone makers are stepping up with big spending on TV spots, print ads, guerilla marketing stunts and over-the-top launch events.

Amazon’s new $199 tablet gets tepid reviews

SAN FRANCISCO, Wed Sep 12, 2012 – Amazon.com Inc.’s latest $199 tablet computer got tepid reviews from some closely watched gadget reviewers, a potential hiccup for the world’s largest Internet retailer as it tries to grab a bigger share of one of the hottest technology sectors this holiday season.

David Pogue of The New York Times said the 7-inch Kindle Fire HD has no camera on the back, no GPS navigation, no speech recognition, and trails Apple Inc.’s more-expensive iPad in thickness, screen size, screen sharpness, Web speed, software polish and application availability.

Walt Mossberg of the Wall Street Journal said the 7-inch Kindle Fire HD is not as “polished, fluid or versatile” as the iPad. After prolonged use, some apps and content took longer to launch and web pages loaded more slowly through the new Wi-Fi technology, compared to the iPad, he added.

Ads “assault” users every time they start the device or resume using it, Mossberg also noted. Amazon said this weekend that customers can turn ads off for $15.

EBay and Amazon eye same-day delivery

SAN FRANCISCO, Aug. 13, 2012 – Getting a new music CD or a cup of coffee delivered to your door within the hour was one of the things that made the Internet seem so amazing back in the late ’90s. Then, of course, it turned out the Net wasn’t able to revoke the laws of business physics, and delivery services such as Kozmo.com and Urban Fetch blew up. Now, the two giants of Web retailing are giving same-day delivery another try. But they’re taking very different approaches, and it remains to be seen whether the services will scale up beyond a few cities.

Earlier this week, EBay invited select San Francisco customers to sample EBay Now – a shopping app that boasts same-day delivery. Bay Area residents who have received an invite will be able to download the app to their Apple  iPhones and iPads.

All of the products featured will be new and sold directly by local stores, including Target, Nordstrom  and Walgreens. Once you hit the “Bring It” button, your personal

EBay shopping valet will pick up and deliver the item to wherever you are—the office, home, coffee shop. The Web auction house will waive the delivery fee for your first three purchases (which can’t cost less than $25), after which point a $5 surcharge will be tacked on. The beta pilot is only meant to gauge whether there’s an appetite.

“Same-day services are satisfying both the convenient need of online shopping and immediacy factor of offline,” says Scot Wingo, chief executive officer of ChannelAdvisor, a global e-commerce software provider.

Amazon.com already offers limited same-day delivery. Shoppers who have signed up for a $79-a-year Prime account can get it on eligible items for $3.99 in 10 metro areas, including Chicago, New York, and Seattle. Retail experts speculate Amazon could roll out a more extensive same-day model, coupled with a change in its sales tax policy.

The Seattle-based company has avoided having a physical presence in states that require e-tailers to charge sales tax. That has kept prices low but made same-day delivery in those places almost impossible. Under mounting political pressure, Amazon has agreed with several states to do that in return for tax credits to build warehouses near metropolitan hubs, according to a Financial Times investigation.

An Amazon spokeswoman declined to comment.

Amazon says Kindle owners can lend Harry Potter e-books

SAN FRANCISCO, Thu May 10, 2012 –Amazon.com Inc. said on Thursday owners of its Kindle e-readers and tablets will be able to lend Harry Potter e-books to each other in a move aimed at encouraging more people to use the devices and sign up for its Prime service.

Amazon, the world’s largest Internet retailer, bought an exclusive license from author J.K. Rowling’s Pottermore e-book business to make all seven Harry Potter e-book available to lend through the Kindle platform.

Lending begins June 19 and includes Potter e-books in English, French, Italian, German and Spanish.

Amazon did not say how much it paid for the license, but comments from Chief Executive Jeff Bezos suggested the deal was part of its plans to spend heavily to promote Kindle devices and its Prime service. Prime offers free two-day shipping and video streaming for $79 a year in the United States.

“This is the kind of significant investment in the Kindle ecosystem that we’ll continue to make on behalf of Kindle owners,” Bezos said in a statement.

Purchased

Amazon unveils effort to develop original TV shows

SAN FRANCISCO, Wed May 2, 2012 – Amazon.com Inc. unveiled a new effort to develop original comedy and children’s TV shows to distribute over the company’s video streaming service.

The move is part of a broader push by Amazon to produce its own content, including video and e-books, to sell to its millions of customers over the Internet.

The world’s largest Internet retailer said people will be able to submit ideas for television series to the website of its Amazon Studios unit. Amazon said it will option one new project per month and add it to a development slate where it will be tested for viability with an audience.

Amazon has been spending heavily in recent quarters to add movies and TV shows to its video streaming business, increasing competition with Netflix Inc.

However, both companies are also working on producing their own content from scratch to reduce reliance on big movie studios and TV production companies, which want to be paid well for their work.

Amazon Studios, which was launched in November 2010, accepts movie scripts and asks customers to review the ideas online, using the feedback to choose which project should go ahead.

The unit has received more than 700 test movies and 7,000 scripts so far, and 15 movie projects are under development.

Amazon soars 15 percent as digital sales boost margins

SEATTLE, Fri Apr 27, 2012 – Amazon.com Inc.’s stellar quarterly results are helping convince skeptics on Wall Street that a bout of intense spending is beginning to pay off for an Internet retailer trying to transform itself into a technology company.

Shares in Amazon leapt 15 percent on Friday after it reported first-quarter earnings and margins well above investors’ most bullish expectations, tacking on some $10 billion in market value and marking its biggest single-day gain since October 2009.

CEO Jeff Bezos has tried to convince investors to stick with the company for the long term as it flirted with losses in recent quarters. He is trying to transform Amazon from an online version of a big-box retailer like Wal-Mart into a provider of technology services.

Some investors argue that its valuation of over 70 times forward earnings – dwarfing companies like Apple Inc. and Google Inc. that produce record profits – is justified because Amazon is on track for enormous margin expansion as it expands into more-profitable services from hosting websites in the cloud to providing an online marketplace connecting buyers and sellers.

“These services will become an increasingly important part of Amazon’s overall business and will be a driving force of profitability going forward,” Bernstein Research analyst Carlos Kirjner wrote.

Amazon is trying to be “not a bookseller or a retailer, but a company that uses technology and (now) its scale to transform whole value chains” from retail to publishing and video distribution.