EP082 - Amazon Earnings, Walmart and Other News
Petsmart buys Chewy.com for $3.35M (largest e-commerce acquisition ever)
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Episode 82 of the Jason & Scot show was recorded on Thursday April 6, 2017.
Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
New beta feature - Amazon Automated Transcription of the show:
Jason: [0:25] Welcome to the Jason and Scott show this is episode 82 being recorded on Thursday April 6th 2017 I'm your host Jason "Retailgeek" Goldberg and as usual I'm here Scot Wingo.
Scot: [0:40] Hey Jason and hey Jason Scott show listeners Jason think it's been about 2 weeks since we set down to record a podcast and you've been. I've been to Orlando and you've been to Paris New York in Las Vegas Indian nursing the retail visits you can report on or trade shows.
Jason: [0:59] Treasures of first I'd like to highlight I got to see both Eiffel towers and both empire state buildings so I feel like that I should get some sort of special badge on Swarm if nothing else for that.
Scot: [1:11] Appointment by Venice in between there.
Jason: [1:14] I avoided Menace in this particular Las Vegas trip I was over the end of the strip at Mandalay Bay.
[1:21] So that that was this weekend that was for oracles modern user experience conference so I got a chance to, to do a keynote for their Commerce track there and that was fun I got to see a lot of colleagues and talk to some customers and see some of the new. New Direction that the Oracle Commerce Tech is going in which is interesting.
[1:45] I think the week before that I was in Paris with and clients and we did some store visits. Maybe not the kind of stores that most of the e-commerce folks are interested in we went to a bunch of unique specialty stores in Paris and so. Drive for example El Royale which is like the the world's most famous Taxidermy store and got to check out some of the unique merchandising and unique Merchant. Dice it was available we didn't mention shopping in the Paris Flea Market which is kind of a. When the longer running flea markets are out there and some school stuff so that was fun but maybe not super e-commerce related.
[2:29] And then I did not see any new stores in New York although I feel like they're a few under construction that I'm I'm here to check out when they open.
[2:40] Abbott used cobbler in Orlando for something much more fun.
Scot: [2:46] Yeah this was a spring break and, regular listeners will know I'm a big Star Wars fan so I drugged one of my children to a Star Wars celebration which is the 40th Year big anniversary did lucasfilm put on down in Orlando, it's good to be with $70,000 Starburst answer there's a lot of Star Wars and going on I got my fill for the year.
Jason: [3:08] Nice and what percentage of the time when you say you were in costume.
Scot: [3:11] I am not a cosplayer but no fair large percent of people are so it's always fun to see all the different costumes things people get pretty into it as you can imagine.
Jason: [3:22] Oh yeah I'll bet it's annoying at the airport when everyone tries to go through security in the Stormtrooper outfits.
Scot: [3:28] The bestest one year they had they always do like a stormtrooper March and they had that someone was doing like a marathon and they cross each other it was really funny watching the runners like run by a big blind of Stormtroopers.
Jason: [3:44] Nice and the the daughter that went with you was she the winter or the loser in the Family Pool.
Scot: [3:50] Other she's young enough to believe she was the winner so it was it was good.
Jason: [3:54] I just wish she was the winner too but I think what we've been talking about all these trips as an Amazon been reporting earnings today.
Scot: [4:04] Yeah just came out tonight so this is hot off the presses so. One pro tip for everyone to is 2 Pro tips every year a must-read for any retailer or person even. Remotely near industry is the Jeff Bezos shareholder letter I don't want to spoil that at all but I will put a link to it in the show notes to go look at that, the one of my favorite thing is to read as you go back to the 97 letter right one Amazon with public which they're celebrating 20 years of going public this year.
[4:38] I include this in every years letter so chances are you probably seen this before but it's another thing to go read and it's pretty amazing cuz in that letter. Basically says we believe these three things aren't going to change control of low prices. Fast free shipping in selection and that's were going to focus on for the future it's pretty amazing though.
[5:05] Italy nail all that 20 years later that that's a reading it it's almost as if it could be written today so I definitely meant that and then and this year shareholder letter. Luther departure some advice for auctioneers and things that I found really just really. Awesome so that's one pro tip partagas two and then the third would be when Amazon does there police they. I was clueless quote and I was looking to that because that I think you a pretty clear signal what's really important to them. Also there they have highlights there's 90 bullets these days cuz he does something effectively at least two Presley's a day at the space but that. What is always interesting and I'll just give you a little bit of it. R&D team is moving fast and delivering for customers and sellers the teams increase Prime selection by 70 / 75% since launching the program 9 months ago, increase lung capacity resellers by 26% already just this year announced 18 original TV series in India and last week introduced a Fire TV stick. I'm such a Jeff Bezos quote and then he finishes by saying Amazon. It's still day one for e-commerce today and I assure you they will keep investing in technology infrastructure, set that's so you know that. It's reassuring to me that they chose to really focus on India in the Presley's given all the exciting things that going on so that was interesting.
Jason: [6:34] Yeah and I India's a hot e-commerce Topic at the moment, I think in the last night you know traditionally there been those kind to indigenous player Snapdeal and flip card and then of course the Amazon has been trying enter the market and even others have had some presents.
[6:54] That's I think and last month eBay which she had previously invested in Snapdeal. Sold eBay. I am to Flipkart and made a big investment in Flipkart and I think the Google and maybe Alibaba had already invested in Flipkart so it, it's really starting to feel like, all the Indian players that aren't Amazon or trying to consolidate in the Flipkart and I think there's even rumors that foot card and snap the all-night emerge at some point in the idea being to create a super competitor to try to, fight Amazon for the Indian market so that that really seems like the the epicenter of the e-commerce Battleground in the world right now.
Scot: [7:36] So the flip cart razor earlier in April was a 1.4 billion which is not chump change and then, Amazon up to two billion dollars in India and I think he knows we're looking for fullment Center build-out. You're probably already there so this feels like a. Teenage commitment that this is a super important region to them that they want I want to win and to get enough tools reactionary to that. That raise that just came out kind of given the timing and things that it's was hard to tell but they're really big on India which was is coming interesting thing from this earning release.
Jason: [8:12] Yep in a super high level that's. White second most populous country in the world next to China they may be a little further along in education of the citizens and better internet access than China in so it's a huge e-commerce market and of course Amazon. Like basically this point already lost China so it's the largest market in the world it's that sort of open to competition.
Scot: [8:38] Yeah I agree and I think Dave Dave yeah there's a lot of lessons to be learned from China of not going aggressive enough there and really kind of. Getting in front of the the local competitor so that they seem to be all in on India so if we if we kind of pill the. Onion on the quarter it it when you wake up measured against Wall Street expectations it's what you would call a beat and Rays quarter so exceeded expectations on the top and bottom line and then leave. Forecast for 2 2 came out slightly ahead of Wall Street consensus so that's kind of where that raise and be kind of nerve being raised. Language comes from that 35.7 billion and revenue for the quarter after hours the stock is a. Pretty substantially if so about 5% which ramazan it is a very large cap stocks and that moved it from the effective Lee like. 910 bucks to 954 n last time on the show we talked about. Jeff Bezos became number two richest person after a big move in this. If it gets around $1,000 by my napkin math that would put him over the top which is which is interesting it just, another interesting data point is it looks like it if these numbers hold, it looks like Amazon will have a market cap of about 450 billion and Google will be at 610 so there is this interesting talk about. Facebook salsa in the conversation will one of these tech companies get to other be the first trillion dollar market cap stock so that's kind of where we are positioning Google's a fair amount ahead by 50% ahead.
[10:17] Abdul also announced of a pretty strong quarter what do you dig in.
[10:24] Every component of Amazon beat Wall Street expectations to the retail business which is their traditional. Retail business which includes the marketplace this new line on them they just recently broke out called retail subs and we will dig into that Amazon web services which is cloud computing and then the other category Now isn't just the ad. Business it did very well at all so it was kind of a little bit. Yep not exceed expectations was International growth a lot of that was due to pre substantial currency. Teachers going on and we take those out and look at a constant currency International itself did pretty well. So with us International through 24% in his Baseline and I was like to remind listeners e-commerce is growing at 15%. To hear you have the largest e-commerce player growing it out easily. Not quite double at this point but you can certainly faster than the Baseline those they're taking sure I had a pretty tremendous clip so it's 9% higher and.
[11:24] Equate 20 x the 35 billion no that's like 4 billion that just got sucked out of the other pockets of anyone selling online just in one quarter is one way to think of. So Sienna when is I used to like to look. And I stress treats people that Amazon doesn't get really clear category data but they. Always gave media an egm in EDM is electronics Jerome or should I stop doing that this year they provided a bunch of new disclosures annually and then, going forward it looks like they've stopped with media and AGM set to a bit of a bummer before Shelly I know enough to back into that so I was like to do that because it actually makes the number speaker, Amazon grew 24% looks like media grew at 7% media's books music video video games any digital books those kinds of things an egm is. Inside your obvious Electronics but any general merchandise so Sporting Goods cpg all that stuff has lumped into that category and it grew 26% so getting. Broccoli close to that 30% doubling of e-commerce unit growth was 24%.
[12:35] And what reason is the stock is up is why she was expecting a book 13 earnings per share and it came in at a buck 48 so literally 33%. Beats by my math coupler components I like to look at Marketplace this is obviously a big thing I follow the number the.
[12:53] Amazon reports is the percent of units that come from third-party and then tipped a little bit it always been taking up literally. Prime last 20 quarters I think and then I'll ask you for a last quarter it went from 50 to 49% units from third-party. Wizard we never seen it take down this quarter stick back up to 50% so that was good to see imagine going forward that will see it take up, car seems to be how it's going inside my bed is too you'll see 51 and then we get up kind of 253 ocean and q42, just the first part of business really get on fire during that timeframe.
[13:35] We think we talk show if you tore Amazon deep dive there's this this kind of Amazons. Total sales revenue of 35.7 billion actually mask quite a bit of what's going on in there and what you have to do is take out the Amazon web services and ads and you're left with 24 billion thank you to the first party business, you would think well okay if 50% is units then it will be another 24 for third-party. Actually it's a little bit more because average order value of third-party is substantially higher than first party and. So when you kind of look at gmv versus units by Maya Matthew get about 36 billion for third-party when you had those up Amazon. About twice as big as it seems to be 60 billion for this quarter so you know that that's kind of clothes going on a 250 billion dollar run rate for DMV across 1p and 2p with witches pretty interesting if they, give him a solid Q4 you may start to that I don't think they could crush 304 the year but you will Q4 would be the first hundred billion dollar quarter I think they could do that this year pretty easily unless things really slow down.
Jason: [14:51] And but you definitely think of their annual DMV is bigger than than the 60 times for right cuz the Q4 would be so much bigger.
Scot: [14:57] Absolute other kind of 260 is coming out pencil and if you just kind of assumed the same mix as last year.
Jason: [15:11] Which is a pretty big retailer.
Scot: [15:13] Yes that's a very large retailer that's a global number I always get asked that AWS cloud computing grew 47%, I was she was actually expecting a lot bigger so down there's a lot of pricing battles going on here between Google Microsoft and Amazon so that was good and margins held up nicely and that was one of the big treaters to. Earnings beat people expecting the cloud computing margins to be under pressure the biggest surprise in the quarter is. Amazon in their annual report started to break out the revenue from Prime, no some other stuff in there so it's a bit of a noisy number but essentially you can kind of make some assumptions and get close to a nun Amazon prime number so the big surprise they call that retail subscription. And I did that run you jumped 52% year over year, now what's interesting is about a year ago is when they introduce the ability to buy Prime on a monthly basis and then a little bit later they broke out the video so you can just do a video subscription, So currently with this report. Just yesterday consumer intelligence which is the surveying company and you and I are a little skeptical on surveys I think this is directionally interesting they estimated there's no 80 million Prime users and that that number, is up to ex from 2 years ago which would imply 2015 was 40 million and a lot of washing hands when they pick the. Pick through this retail subscription or they get to about the same numbers and it's about 60% us 40% International so that would imply about 45 million homes in the US which is.
[16:52] Pretty darn impressive other things that this report highlighted was that they sales that they. Amazon gets from a non Prime user is about $700 a year and Prime user spend about twice that it 14 or 1300 year also interesting Lee the survey picked up that now about 25% of users. I use that new monthly program which is 1099 and I think most of those we knew because if you were in the annual you probably wouldn't downgrade to the monthly useful to Auto renew setting Prime by the fire is. Prime has surged by. Coming out this monthly program generating at least half of that 55% growth I imagine his come from you folks that are joining the program and gets washed you excited is there was some concern that. The way the Census Bureau breaks up. Household incomes you're the stop here that's over a hundred and twenty K and it would have felt like that was it like 80 or 90% saturation so I think what gets people excited is this 1099 monthly plans seems to, pulling people down kind of more towards that Walmart consumer which I think is more of a 67 TK kind of household income so that was pretty interesting.
Jason: [18:04] Yeah it's it's fascinating the. I think I was another report earlier in the month that was kind of interesting that was looking at the habits of Prime members and I think there been this assumption, the Prime members were super loyal in the ones you got locked into that $99 that you wanted to get as much value from it as you could so you. Aggregated all your shopping on on Amazon and what this study showed was. They know that Prime customers are more voracious e-commerce Shoppers overall and that well they have a much bigger spin on on Amazon the nun Prime members. They still use multiple other retailers and spend more money over all men so I don't know if that's how accurate that is again like. You know somebody surveys are not very big numbers of consumers that they're making big inferences from. But if that's true that's pretty interesting cuz I feel like a lot of people have felt like the prime is a true walking program.
[19:09] You'll just have to take my word for it or read the show notes yeah the. So Scott like one of the things whenever we talk about Amazon picture go to a retailer they like you see their eyes roll in the back of their head and they go yeah yeah yeah but you know Amazon doesn't have to be profitable so it's not fair for us to compete with them because we do.
Scot: [19:31] Yeah.
[19:34] You and I both work hard to dispel this one so so just kind of put it to bed that's truly faults to Amazon's been profitable, as an entity for the last quarter so that's two years and that you would for Amazon is a preconcerted number, kick some ass kind of conservative accounting treatment that you look at and actually at Amazon if if you start 3D space your letters we don't have time to go into it that's right and what they really look at is free cash flow generated by the business. So another thing that they break apart is this is kind of unique it's their own measure.
[20:12] Tom is call CSI and its operating income for a business you could essentially so. So it's call Consolidated segment operating income and she's actually where they say it looked the retail business did this and the non-retail visited that so it's wait for them to come out with a little. Give you some idea of what component is your profit so. You're a lot of folks say well okay yeah sure their probable but it must be Amazon web services this doing it all eight eight of us is quite probable. But the North America retail businesses profitable to it. The generated 1.84 billion in cash this quarter just can't put a number on it now the one thing you can't peel apart from there as the marketplace so you could argue with the marketplaces hearing all that profit I would probably actually, but I don't think it's.
[21:04] You can't unfollow the marketplace in retail at this point just say well what's the 1p business making but you know that already we get it its profit the retail part of Amazon's business is Prague.
[21:17] Cloud computing possible and you get free cash flow. On a trailing 12-month basis which is what they like to look at they generated 10 billion dollars in free cash flow so so I think these numbers are at a scale that. It's hard Reef you that Amazon's prov1 and doing quite well on the bottom line.
Jason: [21:37] Yeah which is crazy of one of the things on the earnings that is that they're there shipping cost went up by a billion dollars so they spent 4.7 billion Justin shipping and to think like. There their profitable and potentially getting more profitable with that come investment is amazing.
Scot: [21:56] Yeah and then um. Returning service internet number and with that number you saw is like just the cause it doesn't have the offsetting revenue from Prime that goes against. Set an and fees from sellers actually knocked down by about how this is the actual true net cost.
Jason: [22:17] Interesting okay the other thing I heard a lot of a sort of squawking about it. How well a wso doing versus its competitors so obviously it is the 800-pound gorilla in cloud and certainly. Oracle and Google and Microsoft have an IBM of really. Shirt of targeted they're much smaller but at the moment they're growing faster than AWS is because there's so much smaller and I I know. Earlier in the month the Oracle team was like kind of taking some shots at 8 of us and talking about how much it was. It was its growth was slowing down. And I wire you know they thought that they had a better cheaper solution than Amazon and then that I noticed the Amazon sort of took the bait and refuted a lot of that in the. This weekend I think I saw the president of AWS coming out with some quotes talking about how. The the old Oracle model of walking you in the mediocre Services doesn't work anymore and that you talking about enough. An unhappy a lot of Oracle customers probably where that they were locked into this database for all this sort of time. So I always have a good trash talk but it is interesting it does feel like.
[23:42] Not only is Amazon winning at 8 of us but they're starting to add more Enterprise type software and kind of higher higher level software to the stack that feels like it's. It's more writing oracles kitchen so let you know they have a very credible database offering news that could help you avoid you having to pay Oracle for a database for example.
Scot: [24:01] Yeah one of the things that makes a whole apples and oranges is I know Microsoft. They switched everyone in office over to that Office 365 and they count that is cloud Revenue so it's kind of a little apples oranges where Amazon's cloud is really. The pieces of. Buy at the Lego blocks of cloud in other people putting applications in the bucket so either way so just put a number on it came in 6 billion I'm 16 billion, in a world of software that is a big business and as we mentioned his growing in north of 40% which is not too shabby and it has.
[24:45] Amazing margins which is nice.
Jason: [24:48] Yeah it's a it's a certainly impressive to have these two huge huge growth engines in one company makes you wonder what which which one of those the investors are investing in.
Scot: [25:04] People ask me if I think they'll split it out in and I really don't because eight of us is the operating system Amazon runs on and a lot of. Cool new features they're coming out with have been. Computer Bates internally through it for for Amazon's retail business and they would have come up with those ideas if there were two separate companies so I actually am concerned on that part I think they love having other because, the surgery would not having separate. Other big Amazon used iPad I'd ask you about is the echo look so I want to just grab that for folks that may have missed announced it and I'm curious to hear your thoughts on them.
Jason: [25:45] Yeah yeah today announced a new piece of Hardware today which is called the echo book and then start the next Generation Echo it's it's $200 that has all the features of the traditional Echo but it also has a camera in it, inside the the use case that they're touting is that you would put this in your closet or in your bedroom or wherever you get dressed and in addition all the traditional Echo features, you can instructed to take a picture or a video of you and so what this would let you do as I get dressed in the morning try on an outfit. I have Echo take a picture of you and then you can leverage this other service that Amazon launched about a month ago that I think we briefly talked about on the show called style check which is. Where you upload a picture to Amazon and a human stylus that works for Amazon looks it. That picture and give you advice about like give you sent pictures of two outfits will tell you which outfit they think looks better though give you fashion advice like human curated fashion advice and so you know now it seems like, they're making it much easier to use this style check by by putting this camera in your in your closet or in your bedroom. I personally think this is a super interesting Trojan Horse so.
[27:07] The more information you have about consumers fashion habits and what they actually use versus Buy, the better recommendations you can make for a close in the better close you can actually design for those customers you know fashion is such a trend based business and so many apparel companies have lived or died by missing trends. If you're a fashion company which Amazon aspires to be and you have a camera in the closet of potentially millions of consumers.
[27:39] You're guaranteed to be the the most on Trend you're guaranteed to spot the changes and behaviors and more exciting. You're not getting the stated behaviour you're not getting these like. Like a sort of artificial new trends that that the designers make when they when they go to Fashion Week every year, you're you're seeing the actual clothes that consumers where and that's a big deal because a lot of consumers buy clothes put in their closet and never where I'm so knowing what the real preferences are. A potentially give you a huge leg up in selling and designing fashion and frankly it also potentially has some really utility for consumers to help steer them two words. The gaps in their wardrobe or the things that they gravitate to and you know maybe I buy a lot of colorful shirts that I never wear them in and so you know Amazon could potentially. Remind me of the shirts that I'm more likely to really wear for example so it's it's potentially very interesting and it potentially is a super valuable new data source for Amazon if they get a lot of people that use this.
Scot: [28:44] Yes reaction to it is really fascinating because every dude I know. Doesn't get it off then like I thought it was April Fool joke this is crazy why would a man uses every woman. Pirate in women I chatted with about it they're like that's pretty out that work what kind of recommendations would they make you know that's handy I don't have a full length mirror. The factor could do a video of you turning around and see that outfit kind of a let you know the 360 view of Elf it kind of reminds me, when I watch the little promotional video reminds me the magic mirrors you talk a lot about you know where you know they're more touch screens and things with the gym I do the magic mirror is to.
[29:29] You see how an outfit looks and then say Oh I drive another top and then your interactive leave by that actually even better in some ways cuz you get the stylus component and the Machine.
Jason: [29:40] Absolutely in the magic mirror like that's a really expensive technology and you put it in this dressing room in in a fashion apparel store and it's. It's a real challenge because. You know of a hundred people that walk in that store only 25 of them are going to walk in the dressing room and only five of those are going to actually use the magic mirror so you bought this really expensive piece of Capital Equipment that only touches a small percentage of the consumers in your store whereas, this Amazon solution is 200 bucks in it potentially touches that customer 365 times a year so. Like I think it's it's a similar use case but dramatically more valuable than the in-store stuff that you see people experimenting with. It's funny you mention that the gender divide like you know certainly when you see this you think about things like Stitch fix which is largely focused on women and and you know, that they've always doubted that they have this Advantage from seeing all these women's preferences and their reaction to the outfits that the stylist curate in that they use that data to design their new clothes, well like this is sort of that model on steroids so you know you could have Amazon collecting much more data, I was a much better bigger data science team leveraging that day though so that's super interesting. An agenda divider was funny I think I had a debate on Twitter with our mutual friend David and he was taking the under on this he's not super excited but you heard it here first I've already you know.
[31:15] Put in my request to be. To be able to buy one and you know if I do buy one will see if a year from now if if I'm more fashionable than David cuz right now I feel like he has a pretty commanding lead over me.
Scot: [31:28] Is going to race to the bottom there I don't know.
Jason: [31:31] Yeah it's it's important if it's a reasonable goal post.
Scot: [31:36] When I when I first saw just the device and before I saw the video I thought wow that could be really dope.
[31:44] I thought it'd be more like a Dropcam competitor are they called the nest camera now because, are the nest cameras nice and I used one but then the thing it's a consoling you learning it I like, some ocean looking like a tree wiggle and is totally useless to the image recognition and the Machine morning on its not very good so when I saw it I thought it came with a voice interface and the motion-capture to be really amazing so I actually have multiple uses for the thing because having it is kind of a monitoring camera, it's also like an actual to me.
Jason: [32:18] Yeah and another use case we've heard a lot of talk and chatter about is a. Speaker phone or video conferencing phone so you know this this Hardware you could certainly do either those purposes so you can imagine. You get that same Hardware can be used for a bunch of different uses use cases and they could just add new skills and add new features, to Hardware all the time as as they already do when the echo one thing it was interesting to me about the hardware. And they say has the same feature set as the echo, you know our listeners will remember there's at least there's there's more than two but there to sort of ac-powered Echoes there's the Echo and the echo dot in the big difference between those two is the, the high-fidelity speaker in the Echo and I think the echo was a hundred and eighty bucks when it first launched as that. Am I am I remembering right now.
Scot: [33:12] It's still one of the other goes 199 and bumped.
Jason: [33:15] Solange the 200 is done a 180 so this device if it has the same audio in it that the echo has in it then they squeeze the camera in there are basically the same price. So I'll be curious if they. If they did any concert options to the audio to help before the camera or or how that all that all worked out what is of Interest.
Scot: [33:39] Did you see they did a over the air update for Taps and now you don't have to, press the button for to work so they will somehow saw the battery problem that originally, originally the use case was you'd hold down this button and you had to do that because it was battery operated and because it's listening to the lot of battery that that's kind of what that would do this, weaker so they run out an update to that to be a basic enhance that device so that that's no longer necessary about that was pretty nursing at its Eli news about that.
Jason: [34:13] No I didn't hear a lot about it and what was passing it means there's a. That is played out in the phone world right and in so they're there are on it it does take a lot of battery to listen all the time and so for example that the Apple iPhone you can activate Siri without pushing a button that only when you're plugged into AC.
[34:34] So like when you're in your doc at night for example there are some Android phones that listen all the time and take up very little battery but the way they do that is they actually have a dedicated ship that's a. In a single purpose chip is designed to be very little power and listen for that activation work and so you go I thought makes perfect sense that they could build a new that I can.
[34:59] Can listen all the time because I had a new chip in it but the fact that they were able to add that feature just in software is pretty interesting.
[35:08] Exactly and then the other thing and that you know haven't talked about how long they been working on this or any of those things but the one thing that done on me. Almost every apparel manufacturer I've ever worked with we've talked about closet closet analytics and we talked about the benefits of putting a camera in the closet and understanding more about half consumers are using the product in you talk to him about. Like having those devices for focus groups and test markets and panels and things are making it, a widely available consumer product and I probably didn't talking about that idea with a pro manufacturers for 3 or 4 years and it's, it's frankly probably on a lot of the pro manufacturers road maps but I'm guessing that the Amazon decided this was a good idea. In a much shorter cycle and while everyone else just talked about it and kind of put it on the back burner, these guys very quickly just did it and they're putting it out in the market and you know maybe it'll be successful and it'll be a big story we're talking about any year maybe it won't be so it'll be the next fire phone and David will be right and now they'll quickly learn from it and. Did it before they wasted too much money. A sport that's kind of the theme of Jeff Bezos shareholder letter but I do think the fact that they just put something out like this when so many other people have thought about it and talked about and not taking action is, one of the you need to find any characteristics of Amazon to me.
Scot: [36:33] No use case I wanted to ask you out cuz I don't know a lot about it is fitment because it seems like if you've got a camera there you should be able to do some body measurements and say to someone, you know since imagine this thing's been watching you try on 10 outfits and then now you say hey order me a small t-shirt that says, hey you know just so you're aware I check the measurements and I don't think this is going to fit you don't you think that they could get smart enough to do measurements.
Jason: [36:59] Absolutely interpointe like that apparel returns are very high and returns are super expensive returns are super expensive even for Amazon so anything you can do to, reduce returns by getting that are fitment is is hugely valuable there a couple of vendors out there the try to do fitment with a 2d camera and you know that they can do it but I expect that it's. Pretty and perfect there's really interesting fitment you can do with a 3D cameras and, from and we don't know yet what's really in this this new Echo device but it sounds like it's halfway between a 2D and 3D camera so what it sounds like is it only has a single in single camera but then it has a separate infrared. Rangefinder so that it can measure the distance you are from the camera and that that allows it to get more accurate sizing information about you.
[37:58] I'm so potentially it it it absolutely could have a use case in fitment.
Scot: [38:02] Yes winterson to see what direction to take this thing.
Jason: [38:05] Yep again you know that was a super interesting product. You know I don't think much of people are using it as a high-volume e-commerce ordering machine and so you don't have anything you don't look at that and say hey is, are these kind of cancer my tracks going to be a third a third big business for Amazon in the long run but when they start moving those those things from your kitchen, to your closet that they may have found some real use cases where where this kind of artificial intelligence can really even potentially Drive. Actual e-commerce revenue for Amazon then I think a couple other little news things in the Amazon world. I was actually just sit in a bee last this week in Las Vegas and Amazon had a huge booth at NAB. And the enemy is the National Association of broadcasters so big video production show all the news guys and it reminded me that Amazon had bought this video Processing Company called Elemental in Portland Oregon. I'm inside the booth at NAB is a Elemental AWS and they essentially have him put this this Elemental service on AWS and I sell at the broadcasters to to storm process all their video. And so to me that was just another interesting example of kind of you know Amazon AWS moving from Pure infrastructure to applications or services.
[39:39] They also released the The Lex api's this month which are like all the underlying speech and natural language processing. Libraries from the echo or from Alexa you can now use in an Amazon in your own applications.
[40:00] And that directly has been competing with like IBM bluemix with the Watson api's and M2 new api's that Google has as well so that was super fascinating. I think we saw this new subscription service from Amazon probably confused most of us subscribe with Amazon it's the.
[40:24] Did you read about that at all.
Scot: [40:25] Yeah I was I thought it was going to be famous on has subscribe and save wear for loosely, symbols you can buy A110 or need shower you could subscribe and get it coming on a regular basis parties of wanted to be involved in that for a long time so, you say I'm I don't know I'm a, biscuits I want a third-party way of doing that that's not available so I thought that's what it would be but it ended up being really more of an app store kind of things so the bility to manage subscription apps to come like Dropbox or Evernote things that nature so it was underwhelming It's All Digital subscriptions not physical and they're opening up.
Jason: [41:09] Accident that's that's potentially a competitor to PayPal I'm in part of. The pay with Amazon Echo System because it turns out one of The Unsung used cases of PayPal is that in our new digital lives we all have these, these digital subscriptions and recurring costs and you know there's a fair amount of what we call breakage in their search subscriptions we subscribe to something forget you subscribe to it and they just keep charging your credit card. On end when consumers to discover that that's super annoying and that you know that they want to save money and be able to manage what they're paying for so what a lot of people do as they use PayPal for all those, does recurring costs so they can go to One dashboard and PayPal and see all the services that they permission for recurring charges, which is something PayPal let you do credit cards don't let you do and then from PayPal you can turn on or off those various subscriptions and so that this this new service from Amazon feels like, a direct competitor with with that PayPal service it feels like it's sort of a centralized portal, for managing all your returning digital subscriptions will hate that's why you have me man.
[42:26] I think it was also a new Amazon patent which is pretty interesting and particularly in light of The Deco style we're talking about earlier, are the echo look we're talking about earlier rather they have a new patent on for on demand apparel Manufacturing and. You know that's a technology that the apparel manufacturers are all super interested in Adidas has some pop-up stores where they make your sweater in the store there's a, a store in Boston called Supply Depot that make the light high-performance will Blazers on the man in the store with ease. Today on demand weaving machines and now you know it looks like Amazon is investing some IP in being a leader in that space as well so it just seems like. Another Vector where Amazon is very clearly investing in fashion before the private labels in the Echo look in the photo studios that they've been building and and Union hours to see some interesting patterns in the space as well.
Scot: [43:30] The song Come Along the seam I saw that there's rumors that they're going to be coming out with an office competitor so, hosted, young sweet, thing I don't have any idea if that's real or not but sorry about that thinking that was pretty nice it would sit on top of AWS, it's interesting in that. Could you maybe I could so down that. Microsoft cloud growth in your Google's invested really heavily in their their G Suites so maybe it's a meter guy shoot a shot at the by there and then the last piece of Amazon news that is interesting is. Channel measures had an office in Australia for a really long time very active e-commerce Market there there's really no competitor to eBay so you Bay pops up in in Australia they do really well there, and I just rumors that Amazon is going to be there for 3 years, and it looks like it's official there was a newspaper interview with an Amazon head of Australia and he said yeah we're going to become, coming out in the summer so that's exciting for the people down under that they're looking to get involved in the Amazon ecosystem imagine they'll be a third-party offering and that kind of thing so competitive waves going to hit their pretty hard.
Jason: [44:45] Yeah it happens that may be a great opportunity for the channel advisor to host a Jason and Scott show in Australia.
Scot: [44:54] Yet you say that I've been there and that flight is really really really long so I'm not any love to fly but that wouldn't break you I don't know if it's like a 24-hour flight it's it's brutal.
Jason: [45:05] At those lights are the only reason I ever get to the bottom of my inbox.
Scot: [45:09] Yeah it's different in boxing her flight and then if you've watched every movie you haven't seen in the last 3 years and then you walked up and down the aisle 80 times and you're looking you're still got another 10 hours.
Jason: [45:20] Yeah usually causes Strife with my wife as well because it's all and never to be forced to watch some movies that we had intended to watch together.
Scot: [45:29] Yes.
Jason: [45:39] So some other exciting news and e-commerce outside of the Amazon Echo System there was an enormous acquisition this month than I think in fact is the largest acquisition ever in the e-commerce space.
Scot: [45:54] You can have in the theme of jet Walmart and where.
[45:58] Where the incumbents are saying hey we got to acquire something was really going to get dramatic change in the pet category PetSmart acquired chewy.com, that's not shoebacca it's more a chewy for 3.35 billion dollars making it the largest e-commerce acquisition today, interesting there is a lot of these e-commerce Acquisitions of gone for kind of 1 x Revenue so the rumors are that she was closing in on a billion-dollar and rate it so this would put it in over three, Exxon Road him so this is a really good outcome for the industry to have, AOA really quality exit equality buyer and hopefully denigration will work in and this could I'm not familiar with the know what's going on with the pet guys as far as their e-commerce things but it is friends easily zombie Channel guys have been struggling so for this whole your help, the accelerator e-commerce efforts as well.
Jason: [46:57] Yeah and you know that we've talked on the show before about this this theoretical Tipping Point in every category where when you get to about, 20% of category sales being on e-commerce that it becomes hugely disruptive to the the Legacy businesses and I haven't seen recent data on the pet category but I have a suspicion that might be one of those categories that the, you know has recently crossed over that 20% threshold in so that, you know that may have made it more of an imperative for one of the big brick-and-mortar players touch to invest in a solid e-commerce offering you know even fact. That that category is really getting disrupted by e-commerce.
Scot: [47:40] How about them so we talked a lot about Walmart on the last show they have gone on a kind of acquisition spree any other Walmart news you want you've noticed.
Jason: [47:51] Yeah so I think the Acquisitions have continued or at least potentially are continuing the they purchased at URL they purchase shoes.com, and I don't as I sit here I don't remember what the price was I think it was a couple million bucks was it three million bucks so that.
[48:10] I will put it in the show notes I apologize for, for not having on the top of my head but that was a pure URL that they purchased and you know one of the first Acquisitions they made in Marco where is here it was this shoe company shoe by and so they they bought shoes.com and they redirect it all the traffic to shoot by, so you know that that was the only true acquisition we've seen, other than we did read on recode a rumor that they are looking at both of us as well and so that that would be a super interesting acquisition of that proves to be true.
Scot: [48:48] Yeah be a great brand kind of have an exclusive on and so a lot of interesting things there we have the side benefit of housing Nordstrom doesn't Nordstrom carry bonobos.
Jason: [48:59] They do I think it could be one of those good news-bad news things for Nordstrom I believe Nordstrom is a significant investor in bonobos.
[49:07] So if the valuation was good you know nor some can make some cash out that acquisition on the one hand and potentially lose the product line on the other hand but not necessarily right like. I don't know what Walmart with Julie about going to go see if they would let Nordstrom keep keep selling it or not yeah. Into speaking Walmart or a couple other interesting things going on at Walmart. Walmart launched this new innovation incubator that they call story which was kind of the original test or for Walmart that Sam Walton ran, what store number 8 in San in San Bruno they're open this new lab and they've called it story. And the big news was that they got a Jenny Flies who was the founder of Rent the Runway to be the 1st. New startup in the incubator and it sounds like she's developing some New Concept around personalized shopping and doing it for Walmart.
Scot: [50:10] And then that's what it is it's a Super C.
Jason: [50:14] Only the very kind of something focused on personalized shopping in announced a ton of detail about exactly how the incubator will work so is, is it an incubator that Walmart is investing in and they own a piece of the startups and the startups aren't. Exclusive Walmart so it was Walmart just investing in this and, James lunch and company that might not sell through Walmart or is it Building Technology exclusively for Walmart unite I don't think we got we have that level of detail but I will say. It's just kind of an interesting diversion at the moment you see Walmart investing in new innovation capabilities and doing things like, like the store and you know frankly getting a big-name entrepreneur like Jenny involved I'm is all pretty credible and at the same time, you know we're reading about a lot of other retailers and most notably Target like walking away from a lot of their Innovation investments in a day, they have these Concepts stores that they cancelled they had this project goldfish that we were super excited to figure out what that was and that you know they cancelled that and let the. The The Innovation fellow that the that was involved in that project leave and then I think this week we read that, OKC car all who was their Chief Innovation officer is leaving, so you know on the one hand you have had some retailers that are struggling and look like they're really you're tailing their Investments and Innovation and on the other hand it seems like Walmart's really Double Down.
Scot: [51:42] Other interesting Walmart stories was just had Mark Lori written all over it that if you for select items if you. Order them online and have them delivered to the store for pickup you actually say if you know somewhere between 5 and $20 so that makes a ton of sense as it's cheaper for them they save on the shipping cost so they should pass that on to the consumer that was one of the Hallmarks of the jet system sale, that'll be interesting doing that's a little weird about it is if the. Is the imagery you're buying online is also in the store then you don't get a disc if it's already in the store that you don't get a discount so that they just feel weird. Is consumer to kind of be like well why are you just coming the stuff that's not in the store at United just to see how it plays out. We'll see how that goes.
Jason: [52:31] Yeah I am in very mixed emotions about that offering which I'll get to in a minute but I was also just sort of interested in the industry reaction to this announcement so it was sort of very binary I saw a bunch of Articles from people that are like man this is super smart and Walmart celebrity you know they're there advantages to try to compete with Amazon and and Mark Glory super smart and this is a good aggressive move and then I saw a bunch of other articles that are like, you know this this is rearranging chairs on the deck of the Titanic and you know this is a silly thing that isn't going to move the needle, and you don't why it why are they doing things like this when they need to reinvent the customer experience to compete with Amazon did you, do you like you come down on one side of that other.
Scot: [53:19] I can come back to the user experience in just kind of you know how do you explain to people that you're going to save money on this thing cuz it's not in the store but this one it's in the store you're not going to see me on I'm really curious to see how they figure it out.
[53:34] Is it from consumer protective it's not too.
Jason: [53:36] That's exactly my problem right like you're balancing two things customers want to save money for sure and you want to, it if there are efficiencies in encouraging the customer to one Behavior versus another you you certainly want to encourage them to the more efficient behavior and pass the savings onto that customer right like so I certainly agree with that sentiment and I think that's the, the underlying principle behind jet and I agree with the sentiment on jet as well but the, the user experience that gets manifested as a result of this is. Complicated and I think another big Trend in adoption is consumers are looking for simpler lower friction interfaces, and you know a bunch of the most successful products on the market right now we're out our successful. Largely just because they were a better simpler interface for a service that consumers were already used to so it like I would argue that, you know Hoover's Prime right now he probably the taxi was it's a better user experience for the same same sort of service in lower friction and Shear point. When in every product you put in your shopping cart has a different value prop and a different in a preferred delivery mechanism based on the cost to Walmart and whether or not it happens to be on the Shelf in which, which up for filming Center in happens to be in an all those sorts of things like I think exposing all that complication to The Shopper is potentially problematic and I would argue it was problematic on jet as well and so.
[55:09] You know the magic question is. Is there a way to to greatly simplify that not expose all that complication and supply chain ugliness to The Shopper but still like in Courage The Shopper to do what's in the best interest and save money.
[55:28] And so I guess time time will tell on that one I think that they had exactly I sent them it but I think there's enough potential to improve the user experience to do it.
[55:42] Good deal and Scott with that it is happen again we've we've wasted a perfectly good hour of our listeners time, so I want to thank everyone for tuning in it's been great to catch up with you after a couple weeks and I'll remind everyone to. Subscribe and write a review on iTunes.
Scot: [56:04] Yep that's one person that's all the news we have this week.
Jason: [56:07] Until next time happy commercing.