While lots of retailers are currently struggling to figure out last-mile logistics, players who have been investing in the space for a while are moving their focus to areas like the middle mile (the leg before goods reach fulfillment centers) and intralogistics (the movement of goods within fulfillment centers).

Seeing an opportunity, Amazon is pairing its AWS cloud computing capabilities with extensive e-commerce logistics to create a suite of supply chain offerings for small to midsize businesses. It has even been extending these services beyond its marketplace clients with solutions like “Buy with Prime” which allows brands to offer Prime’s delivery speed, package tracking, and return logistics on their own e-commerce sites.

Doing so not only creates additional revenue for Amazon but also helps it optimize its own supply chains with fuller freight loads and more efficient operations. 

In this report, we break down Amazon’s strategy in the supply chain across 3 key takeaways: 

• Amazon is automating intralogistics. With Amazon’s enormous warehouse footprint, a dizzying number of offered products, and millions of packages shipped every week, automating intralogistics is key to driving e-commerce profitability for the tech giant. 
• Amazon wants to revitalize the middle mile. Amazon has been ramping up its middle mile capabilities with new products and investments in freight management and air cargo. In doing so, the tech giant is looking to capitalize on an often overlooked leg of the supply chain. 
• Amazon is betting on sustainable mobility. Amazon has taken some big swings in the electric vehicle market, striking deals to purchase fleets of vehicles and investing billions of dollars. 

Amazon is automating intralogistics

Intralogistics involves the movement of information and goods within individual fulfillment or distribution centers. 

A key enabler of Amazon Prime’s quick delivery speed is the company’s extensive network of fulfillment centers. And with over 1,100 centers in the US alone and a reportedly extremely high employee turnover rate in warehouses, Amazon is keen to automate intralogistics as much as possible. 

Amazon is one of the top players for supply chain patents, with many of its filings related to automating intralogistics processes like mapping the footprints of fulfillment centers for efficiency or detecting inventory levels.

In 2022, the tech giant introduced new intralogistics robots named Sparrow and Cardinal. Currently, these robots are designed to sort packages, move goods throughout the fulfillment center, and pick goods of different shapes, sizes, and materials (an area existing picking robots have difficulty with). 

Amazon has also made moves outside of its internal robotics development, such as: 

• Acquiring intralogistics robot maker Cloostermans in Q3’22 to boost its robot research and deployment. 
• Announcing its warehouse & distribution network in Q3’22. This is a pay-as-you-go service offering inventory management within Amazon fulfillment centers and automated distribution for sellers.
• Expanding its warehouse footprint by investing in smaller fulfillment centers — situated near major population centers and stocked with in-demand items — to enable same-day deliveries for some of its goods. 

While Amazon has been ramping up its offerings and investments in this space over the last few years, the tech giant has recently conducted the largest layoff in its history and has closed or abandoned plans for dozens of warehouses. Given the increased focus on cost control, the success of its automation bets could be more important than ever.

Amazon wants to revitalize the middle mile

The middle mile is the leg of the supply chain where goods are brought from distribution centers to fulfillment centers. This leg can include ocean, air, and ground freight. While the middle mile has traditionally been outsourced, it has recently received more attention as squeezed supply chains have made headlines for costing retailers millions of dollars in profit. 

A successful middle mile is also crucial to last-mile operations to ensure fulfillment centers have goods in time to meet the ever-shorter delivery timeframes promised to customers.

Amazon has a distinct advantage in providing middle-mile services to retailers as it has already invested heavily in its own freight technology to make Prime shipping possible. Also, with Amazon Web Services’ cloud computing capabilities, the tech giant has high visibility into logistics — a key component of successful middle-mile operations. 

Building on this, Amazon offers Amazon Freight which allows retailers to book space on its freight trucks for thousands of routes across the US. Amazon uses algorithms to determine which vehicles are operating at LTL (less than load) to offer discounted shipping rates to retailers. 

Amazon has also made strategic moves with air cargo. Previously, the e-commerce retailer relied entirely on contracts with UPS and FedEx. But in the last few years, Amazon began to shift its strategy and in 2021 opened a $1.5B air hub in Kentucky to have more ownership over its middle mile. 

Additionally, Amazon has struck several deals for minority stake investments and strategic partnerships in this area, including: 

• A minority stake in Air Transport Services Group, an aircraft leasing and air cargo transport provider, in Q2’21
• A minority stake in Hawaiian Airlines to operate 10 airbus freight plans starting in fall 2023
• A partnership with Azul Cargo Express in Q4’22 to expand its delivery reach in Brazil
• A partnership with India-based Quikjet Cargo in Q1’23 to expand its reach in India

Amazon has been operating these planes under the brand Amazon Air which has expanded rapidly since its inception in 2015. With air cargo’s high barrier to entry both from a regulatory and capital standpoint, expect Amazon to begin creating additional revenue streams from its investments similar to what it has done with Amazon Freight. 

Amazon is betting on sustainable mobility

Fuel costs account for around 15% of last-mile expenses and volatile fuel prices can sometimes push this proportion even higher. However, it’s estimated that using electric last-mile vehicles can reduce fuel costs by more than half — attracting interest from big fleet operators. 

Amazon (which has a 2040 net-zero emissions goal) has already made significant moves to electrify its delivery fleet and has made some big bets on sustainable mobility, including: 

• Backing California-based EV maker Rivian and pledging to order 100,000 delivery vehicles from the company. Amazon has reportedly delivered 10M+ packages with Rivian EVs.
  
• A commitment to deploy 10,000 electric delivery vehicles in India and entering into partnerships with India-based companies (Tata Motors, Mahindra Electric, Magenta Mobility, and TVS Motor) to produce those EVs. 
• Amazon is also still wanting to deploy battery-powered delivery drones under its Prime Air program, which has already made some test deliveries in California and Texas. However, this division has been heavily affected by the Q1’23 layoffs. 

Source: Amazon

With Amazon shipping well over a million packages a day, meaningful progress toward sustainable mobility could have a big impact. However, even with its carbon reduction efforts, Amazon’s total emissions grew by 18% in 2021 as demand for its services went up — signaling that the company will need to make additional investments in making its supply chain more sustainable to hit its net-zero goal by 2040.

The post Amazon in Supply Chain: How the tech giant is building on its e-commerce investments to offer B2B supply chain services appeared first on CB Insights Research.

Yes — many companies got good at selling stock as opposed to software, as Twitter celeb OnlyCFO highlights below.

But in the earlier days of the internet, the breakouts did something weird.

They generated revenue.

A lot of it.

Here’s a look at 5 of the OGs of the internet and how quickly they scaled revenue in just their first 5 years:

• Facebook
• Google
• Amazon
• Netscape
• Yahoo

h/t to Matt Turck and Dez Fleming of FirstMark Capital for sharing this data on Twitter here.

For more on how these and other internet giants continue to shape the tech landscape, dig into all our big tech research.

The post How quickly did Google, Amazon, Facebook, and other early internet companies grow revenue? A: Crazy fast appeared first on CB Insights Research.

This has created opportunities for tech companies that are able to increase visibility and improve efficiencies, particularly using AI and ML (machine learning). In 2023, an estimated 60% of global organizations plan to invest in digital supply chain technologies.

Big tech players’ access to a wide range of data — from weather patterns to e-commerce transactions — and their proprietary AI/ML systems make them uniquely positioned to serve the supply chain industry from first mile to last.

Google in particular is relying on its strength in cloud computing and its access to real-time logistics data via Google Maps to deliver new supply chain tools. This could help Google upsell existing Cloud clients on a wider range of services and ultimately take market share from more dominant cloud providers like AWS. 

In this report, we break down Google’s strategy in supply chain across 3 key takeaways: 

• • Google is leveraging its own AI/ML capabilities for supply chain offerings. The search giant is using existing consumer products like Google Maps to release software that helps supply chain managers deploy fleets more quickly and plan routes more efficiently.
  • Google is modernizing the supply chain with digital twins. Google is an early mover in simulating supply chains via digital twins to more accurately track and predict logistics issues. 
  • Google is investing in supply chain sustainability. Through multiple areas of its business, Google is creating products and inking partnerships that promote supply chain sustainability by tracking resources like raw materials and fuel. 

Google is leveraging its own AI/ML capabilities for supply chain offerings 

Google has released numerous software applications for supply chain managers recently that piggyback on its existing AI/ML capabilities. These include:

• Optimization AI, released in 2022, is a cloud fleet routing API for first- and last-mile delivery fleets. It helps supply chain managers optimize fleet planning for fuel and time efficiency by solving small-route planning problems like traffic and reducing delivery estimates.
• Last Mile Fleet Solution, also launched in 2022, syncs with the API to give employees a user-friendly Google Maps interface to help guide speedy deliveries.

Currently, these products can be used in addition to a supplier’s existing technologies or as an end-to-end solution. This go-to-market strategy is especially important given that many customers will need time to migrate over from legacy systems. 

Google’s Last Mile Fleet Solution. Source: Google

Additionally, Google has partnered with logistics leader XPO to support its customers with cloud-optimized loads and routes. Google has also paired up with supply chain automation provider Dematic to offer AI/ML technologies for e-commerce and omnichannel fulfillment. 

Historic inflation, rising fuel costs, and labor shortages have made the supply chain increasingly expensive. To mitigate these forces and increase profitability, companies have been investing in owning more of their supply chain. 

Google Cloud already supports large players in a variety of industries from retail to healthcare. As Google Cloud covers more ground with its supply chain features, it’s aiming to embed itself in these clients’ expanding supply chain ambitions.

Incorporating logistics data from Google Maps also helps differentiate Google’s supply chain offering from Amazon’s long-standing third-party logistics (3PL) business.  

Google is modernizing the supply chain with digital twins

Digital twins are virtual simulations of real-world physical objects and systems that can model potential scenarios.

In supply chain planning, they can combine data from various sources — like a user’s supply chain stack, weather, and traffic patterns — to improve visibility, predict environmental patterns, optimize inventory, and identify process improvements.  

Big tech players with advanced cloud platforms and computing capabilities have been early leaders in developing these solutions for supply chains. In Q3’21, Google announced its Supply Chain Twin, a digital twin creator within the Google Cloud ecosystem.

Armed with this tool, supply chain leaders can make strategic decisions to create more efficient operations or reduce delays when unexpected logistics issues occur. Google customers have seen up to a 95% reduction in analytics processing time using Supply Chain Twin.

Google has augmented its digital twin offering through acquisitions and partnerships. For instance:

• Google’s 2022 acquisition of environmental data provider BreezoMeter allows it to more accurately model local environmental conditions throughout the supply chain.
• Google has partnered with C3.ai to integrate elements of the enterprise AI firm’s product suite into Google Cloud. The combination is helping supply chain managers more accurately model potential risks to their drivers, fleets, and cargo.

Source: Google

Similar to Google’s other supply chain offerings, Supply Chain Twin is another way the big tech company has extended its cloud computing abilities to drive additional revenue. 

The logistics space is highly fragmented, which could make it challenging to build out digital twins for entire networks. However, Google’s existing cloud product and customer breadth, as well as its external acquisitions and partnerships, could help it put together more pieces of the supply chain puzzle. 

Google is investing in supply chain sustainability

In many industries, supply chains account for over 80% of greenhouse gas emissions.

Across Google’s efforts in supply chain management, the tech giant has sought to help clients reduce emissions by building more sustainable and resilient supply chains. Google itself currently operates carbon-neutral with the goal of running its data centers using carbon-free energy sources by 2030.

Google’s cloud-based offerings like Supply Chain Twin enable supply chain leaders to receive more accurate analysis to determine where processes can be improved. For instance, fleets can be loaded more effectively, be tracked more accurately, and drive more fuel-efficient routes. Delivery giant UPS, for instance, has used Google Cloud’s analytics platform to reduce fuel consumption by 10M gallons annually. 

Google’s data can be implemented even earlier in the supply chain to meet sustainability goals. For instance, Unilever has used Google Earth’s satellite imagery and AI to detect deforestation in its supply chain. Google also partnered with Boston Consulting Group and energy provider Eni in 2021 to found Open-es, a platform to help companies measure the environmental impact of their supply chains and collaborate on the energy transition.

Going beyond data analytics, Google has also been experimenting with delivery vehicles. As of 2022, its parent company Alphabet has completed over 250K last-mile deliveries with its drone division Wing.

As regulators and consumers warm up to the idea of using drones for delivery, it’s possible that Google may offer a full end-to-end supply chain solution that incorporates these vehicles — which release 84% fewer emissions and use 94% less energy per package than diesel trucks. 

The post Google in Supply Chain: How the tech giant is turning Google Cloud into a full-scale supply chain solution appeared first on CB Insights Research.

Under pressure from consumers and investors, more and more companies are announcing goals of reaching net-zero carbon output. Meanwhile, earnings call discussions mentioning sustainability topics have become much more common in the last few years.

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The post What is Microsoft doing to optimize energy use & reduce emissions? appeared first on CB Insights Research.

Among several shared characteristics, these companies thrive by understanding, building, and strengthening their business moats — the key competitive advantages that set them apart.

Companies can build moats by strengthening their brands, achieving economies of scale, or even lobbying for special status from the government. In return, they can receive customer loyalty, pricing power, and legal protections that make it difficult for other companies to compete with them.

Today, the most durable moats are being built on advantages like network effects, data, and repeat engagement within a product ecosystem.

Google, for example, started its moat by developing a better algorithm for indexing and searching the internet. The company has since strengthened that moat by putting that advantage to work in transportation, shopping, and most importantly, advertising.

In this report, we look into 29 business moat examples and dive into how they work.

Table of contents

• Network Effects
  • Marketplace: The virtuous circle that made Amazon a trillion-dollar business
  • Marketplace: How OpenTable created a monopoly by giving restaurants a ‘single-player mode’
  • Marketplace: How Uber dominated ride-sharing by owning supply and demand
  • Marketplace: How Airbnb‘s massive network of hosts and guests makes it hard to ignore
  • Marketplace: How PayPal built a $100M business by serving both online sellers and buyers
  • Data: How Google used its search expertise to build a wide data moat
  • Platform: The OS that made Apple a trillion-dollar company
  • Platform: How Facebook’s control of the social graph made it hyper-durable
  • Platform: How treating EVs as a two-sided platform helps Tesla maintain a wide moat
• Cost Moats
  • Switching cost: How IBM used the psychology of fear to own back-end technology for decades
  • Switching cost: Why ADP is still America’s biggest payroll services provider
  • Switching cost: How Slack retains users by being an “enterprise social network”
  • Sunk cost: The business model that made Gillette a $57B company
  • Cost advantage: Why no satellite radio provider can undercut SiriusXM
  • Cost advantage: Why GEICO going D2C made it Warren Buffett’s favorite stock
  • Cost advantage: How Amazon Web Services built an impenetrable economy of scale
  • Cost advantage: How Walmart has kept prices low by taking power away from individual stores
• Cultural Moats
  • Brand: How Patagonia grew by understanding its customer identity
  • Brand: Why consistency has been key to Coca-Cola’s success
  • Brand: How Starbucks changed Americans’ relationship with their coffee
  • Tradition: How Marmite became condiment king in the UK
  • Tradition: How Harley-Davidson built a culture that withstood wars, recessions, and negative press
• Resource Moats
  • IP: How Pfizer turned Lipitor into the best-selling drug in the world
  • IP: The universe of characters that made Disney a $300B company
  • IP: How Qualcomm uses 130,000 patents to generate billions in revenue
  • Knowledge: How Intel uses rapid development to maintain dominance in its market
  • Knowledge: How Canon turned its technical expertise into a compounding benefit
  • Regulatory: How the Kingsbury Commitment gave AT&T a 71-year monopoly
  • Regulatory: How years of regulatory and compliance efforts are paying off for Coinbase

The post 29 business moats that helped shape the world’s most massive companies appeared first on CB Insights Research.

The space is undergoing a digital transformation driven by an explosion in healthcare data and use cases for AI. Incumbents are quickly learning that inexperienced data science teams can cause more harm than good.

In response, big tech companies are building tech to streamline drug discovery, clinical trials, manufacturing & supply chain, and remote patient monitoring & health records.

Some tech giants will likely succeed in healthcare — as partners, competitors, or both — and will play a key role in pharma’s digital transformation. In this report, we analyze the trends driving each big tech company’s pharma strategy, their current initiatives, and what it means for the industry.

Download the report to find out:

• Which pieces of the pharma value chain big tech is attacking
• How big tech’s product strategies differ across drug discovery, clinical trials, manufacturing & supply chain, and patient monitoring & health records
• How big tech companies leverage partnership deals with incumbents to expand their pharma offerings
• Which strengths and capabilities differentiate each tech giant from others in pharma

REPORT HIGHLIGHTS:

• Big tech companies are likely to double down on hardware and software, with the aim of capturing as much patient data as possible. The amount of data generated from these products is significant. Expect big tech companies to utilize their data expertise to discover and commercialize digital biomarkers.
• The number of pharma acquisitions by big tech companies dropped steeply in 2022, after a very active 2021. Deals to pharma startups with big tech participation also slid over the same period. Alphabet led big tech in unique pharma investments in 2022 by a wide margin, followed by Microsoft.
• Big tech companies will continue to offer AI expertise to pharmaceutical companies. Anticipate big tech to begin negotiating contracts with shared upside for drugs discovered as a result of their pharmaceutical partnerships.

The post The Big Tech in Pharma Report: How Amazon, Microsoft, Apple, and Alphabet are capitalizing on digital transformation appeared first on CB Insights Research.

After 2022’s countless shake-ups, many are hoping that the new year will usher in a renewed sense of dynamism — and maybe even optimism — in the tech world as “the new normal” shifts once again.

If nothing else, the coming year will certainly prove that nothing in tech stays the same for long.

Markets will continue to shift profoundly as tech players adapt to a landscape where economic uncertainty looms large. But, at the same time, many spaces won’t appear to slow down at all as remarkable advances emerge at a rapid clip.

Using the CB Insights technology intelligence platform, we analyzed signals like investment activity, executive chatter in earnings transcripts, media mentions, patents, and more to identify the top 11 tech trends to watch in 2023.

Our 59-page report digs into trends like:

• Fintech startups adapt on the fly to contend with formidable market conditions
• Incumbents move to lock in consumers with super app-level platforms
• Ambient health monitoring will make it easier than ever to keep tabs on patients
• Virtual power plants take off as more homes produce their own electricity
• Tech will help regenerative agriculture become the new organic
• Women’s health tech companies turn their attention to menopause

The post 11 Tech Trends To Watch Closely in 2023 appeared first on CB Insights Research.

The same is true of understanding corporate strategy.

Understanding a company or its competitive strategy doesn’t come from listening to senior executives rattle off carefully coached talking points.

Instead, as Drucker points out, corporate strategy is visible in where companies allocate their time and money.

It is found by mining resource allocation and relationship data. Who are a company’s partners, investments, and M&A targets? These are the non-BS predictors of strategy.

Our 67-page coffee table book of strategy maps shines a light on the strategies behind some of the world’s most important companies — from Amazon and PayPal to Tesla and CVS Health.

If you’re a data and strategy nerd like us, we think you’ll enjoy this one.

The post The CB Insights Book of Strategy Maps appeared first on CB Insights Research.

Amazon, Microsoft, Google, Apple, and Oracle are all deeply involved in new healthcare-related product development, investments, M&A, and partnerships. Leveraging software development expertise, device and wearable leadership, and cloud computing expertise, each company is looking to grow market share.

With healthcare providers and patients more willing than ever to adopt new technologies and explore new models of care, expect the healthcare space to remain a strategic focus for big tech for years to come.

Download the report to find out:

• The major tailwinds fueling big tech activity in healthcare
• The competitive advantages of different tech giants in healthcare technology
• How big tech is impacting the future of healthcare

Report highlights:

• Gathering, leveraging, and monetizing data is a guiding force in big tech’s healthcare activity. Amazon, Microsoft, Google, and Oracle are all competing to be the cloud platform of choice for healthcare providers, software developers, and life sciences organizations.
• Healthcare strategies are beginning to distinguish themselves. Amazon is moving into healthcare provision, with new products and major acquisitions. Microsoft is building a leading healthcare development platform. Meanwhile, Apple is planning to leverage its connected ecosystem to dominate consumer home health.
• Established competitive advantages are key. With new access to millions of healthcare records, Oracle can build its cloud, CRM, and life sciences verticals. Amazon can leverage its core of dedicated subscribers and an unparalleled logistics network to dominate employee health. And Google might secretly dominate one of the most important touchpoints in healthcare.

The post The Big Tech in Healthcare Report: How Amazon, Google, Microsoft, Apple, & Oracle are fighting for the $11T market appeared first on CB Insights Research.

Google, Amazon, Microsoft, and Apple are leveraging their software development and cloud computing capabilities to support automakers as they increase connectivity, improve sustainability, and tackle the autonomous driving challenge.

With big tech companies looking to expand the reach of their cloud services and gain market share in the vehicle space, expect the auto and mobility space to remain a strategic focus for years to come.

Download the report to find out:

• The competitive advantages of different tech giants in auto & mobility
• Where big tech is competing in auto & mobility
• How big tech is impacting the future of auto & mobility

Report Highlights:

• Big tech companies are leveraging their strengths in software development, AI, and cloud computing to reshape the future of auto & mobility. Google, Amazon, Microsoft, and Apple’s automotive investments have centered on the in-vehicle experience, autonomous driving, vehicle electrification, and connected vehicle infrastructure since 2015.
• Big tech is doubling down on connected, autonomous vehicle technology. Since 2017, Google, Amazon, Microsoft, and Apple have collectively acquired or invested in 13 companies in autonomous driving tech and 4 companies in connected vehicles tech, which amounts to over 40% of the automotive investment activity.

The post The Big Tech in Auto & Mobility Report: How Google, Amazon, Microsoft, and Apple are changing the automotive industry appeared first on CB Insights Research.

Microsoft, Meta, and Qualcomm have stepped up their efforts in tech product development, investments, partnerships, and acquisitions.

Download the report to find out:

• The major tailwinds fueling big tech activity in the metaverse
• The competitive advantages of different tech giants in the metaverse
• Where big tech is competing in the metaverse

REPORT HIGHLIGHTS:

• Big tech is showing an increasing interest in gaming. Microsoft and Meta have made a combined 15+ gaming acquisitions, with the goal to own immersive entertainment in the metaverse.
• Tech giants are expanding outside of their core products to compete in the metaverse. Meta is attempting to bring semiconductor development in-house to reduce its dependency on players like Qualcomm, while Qualcomm is bundling its AR/VR chips with AR/VR software development tools.
• Big tech is doubling down on their competitive advantages. Qualcomm is dominating in developing processors for AR/VR. Meanwhile, Meta is exploring social networks and advertising opportunities, while Microsoft is building an arsenal of gaming content it will offer exclusively on Xbox platforms.

The post The Big Tech in Metaverse Report: How Meta, Qualcomm, and Microsoft are building the metaverse appeared first on CB Insights Research.

The tech giant has made 90+ investments in the sector over the last 2 years. These investments complement activity from Google’s existing pharma-focused ventures, Verily Life Sciences, Calico Life Sciences, and Isomorphic Labs. For example, Verily recently raised $1B to further its mission to enable precision health.

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The post Analyzing Google’s pharma strategy: How the tech giant is expanding its presence in drug development appeared first on CB Insights Research.

In this evolving retail environment, big tech companies Meta, Amazon, and Google continue to expand their product development, investment, and partnerships into new sectors of retail tech.

Download the report to find out:

• How each giant’s retail tech priorities have evolved over the last 3 years
• The top areas of retail tech where big tech is investing
• The global markets where big tech companies see the most potential for growth
• What the big tech companies’ expansions into retail tell us about their broader strategies

REPORT HIGHLIGHTS:

• Big tech companies will make themselves more prominent competitors with traditional retailers. The giants are reaching into retail across the customer journey, capitalizing on their ability to collect consumer data and personalize the experience.
• Retail tech-as-a-service providers will gain new competition from big tech companies as well. The tech giants are elevating themselves as B2B partners to optimize retail operations online as well as in stores.
• Big tech is eyeing the metaverse as retail’s next destination. Since 2020, nearly a quarter of Meta, Amazon, and Google’s retail investment activity has focused on metaverse tech.

The post The Big Tech in Retail Report: How Meta, Amazon, and Google are transforming retail appeared first on CB Insights Research.

In this hot climate tech environment, big tech companies Microsoft, Amazon, and Google have stepped up their efforts in climate tech product development, investment, and partnerships.

Download the report to find out:

• How each giant intends to tackle their ambitious net-zero carbon emissions goals
• How big tech companies are adding new carbon accounting and climate risk analysis features to their platforms
• The areas of climate tech where big tech is investing
• Where each big tech company is headed in the climate tech space

Report Highlights:

• Big tech has set ambitious net-zero goals and players are working toward reducing their carbon footprint. While all 3 giants have made net-zero commitments, Microsoft is the most aggressive, with the goal to be carbon negative by 2030.
• Big tech is vying for a piece of the climate tech software market. In particular, Microsoft and Google have launched carbon accounting software offerings for subsets of their existing users.
• Climate tech investment is heating up. For all 3 incumbents, climate tech is an investment area of growing importance. Amazon and Microsoft have launched funds focused exclusively on climate tech, while Google has created an accelerator focused on climate tech startups.

The post The Big Tech in Sustainability Report: How Amazon, Google, and Microsoft are tackling emissions appeared first on CB Insights Research.

Virtual try-on uses technologies like augmented reality, computer vision, and artificial intelligence to allow customers to overlay images of clothes, makeup, and other accessories on an image of themselves or an avatar to visualize how an item will look.

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The post The virtual fitting room: How Amazon, Walmart, Alibaba, and others are using AI and AR to transform shopping appeared first on CB Insights Research.

Some, like Moore’s Law, have been extremely prescient. Others, like Conway’s Law, provide counterintuitive insights — such as why Microsoft sells Xbox consoles at a loss, or how Facebook became one of the most valuable companies in the world by offering a free service.

Download our comprehensive 67-page report for deep dives on 11 of the most famous tech laws, with examples from tech leaders like Amazon, Apple, IBM, and Salesforce.

Table of contents

1. Moore’s Law: The self-fulfilling prophecy that ushered in the digital age (with examples from Intel, Nvidia)
2. Metcalfe’s Law: Why big networks produce colossal winners (Facebook, WordPress)
3. Law of Mobility: The value of making products available anywhere, any time (Netflix, Monzo)
4. Gall’s Law: Why the best products are built from simple systems (Twitter, AWS)
5. Law of Modularity: Why building blocks are essential to modern tech design (Salesforce, eBay)
6. The 2-Pizza Rule: Why small teams lead to big success (Amazon)
7. Conway’s Law: Why corporate structure is vital to product development (Apple, GitHub)
8. Yule’s Law of Complementarity: When a loss-making product is good for business (Microsoft, Sony)
9. The Law of Shitty Clickthroughs: Why innovative marketing is better than expensive marketing (Glossier, Axios)
10. Zimmermann’s Law: How free products can build rich businesses (Facebook, Amazon)
11. Pareto Principle: Why startups can raise capital even though most will eventually fail (Union Square Ventures, Sequoia Capital)

The post 11 laws driving success in tech: Amazon’s 2-pizza rule, the 80/20 principle, & more appeared first on CB Insights Research.

In fact, AI is one of Google’s competitive advantages in the healthcare space. The company’s unprecedented global reach and access allow it to deploy multi-national, real-world tests of algorithms. Incumbents like Ascension, HCA, Sanofi, and Boehringer Ingelheim are turning to the tech giant as they make sense of their data for precision medicine, clinical support, and more. 

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The post Analyzing Google’s healthcare AI strategy: How the tech giant is automating health operations & care appeared first on CB Insights Research.

While the anticipation for the tech giant’s plunge into banking builds each year, it’s important to first understand Amazon’s existing strategy in the sector — what Amazon has launched and built, where the company is investing, and what recent products tell us about Amazon’s future ambitions.

Based on our findings, it’s hard to claim that Amazon is building the next-generation bank. But it’s clear that the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.

As a result, the company has built and launched tools that aim to:

1. Increase the number of merchants on Amazon, and enable each merchant to sell more.
2. Increase the number of customers on Amazon, and enable each customer to spend more.
3. Reduce any buying/selling friction.

Amazon isn’t building a traditional bank that serves everyone. Instead, Amazon has taken the core components of a modern banking experience and tweaked them to suit Amazon customers (both merchants and consumers).

In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.

We’ve compiled everything we know about Amazon’s foray into banking, financial services, and fintech. Dig in by downloading the full report.

Table of Contents:

1. Amazon’s product strategy

• Amazon Payments
• Amazon Cash
• Amazon Lending
• Amazon’s next financial pillar?

2. Amazon Market strategy outside the US

• Amazon financial services in India
• Amazon financial services in Mexico
• Amazon financial services in South America

3. Rumors: What will Amazon do next?
4. Closing thoughts

The post Everything you need to know about what Amazon is doing in financial services appeared first on CB Insights Research.

We dig into FAMGA’s acquisition and investment activity in 2021, highlighting key trends, top deals, and more.

Download the report to find out:

• Which tech giant leads investment activity
• The technologies and industries gaining traction among FAMGA
• Where big tech has placed its $1B+ bets

Report highlights:

FAMGA SLOWS ITS Funding ACTIVITY IN 2021

Big tech-backed funding dipped to $9B in 2021 from 2020’s record high, with blockbuster deals to companies like Cruise Automation, Deliveroo, and Databricks.

BIG TECH ACQUISITIONS REACH A 5-YEAR LOW

FAMGA’s acquisition activity continued its downward trend.

Microsoft leads FAMGA in acquisitions over the past 5 years and upped its acquisition pace significantly in 2021.

Download the full report to see all of FAMGA’s investments and acquisitions in 2021.

The post Big Tech’s Playbook: Where Facebook, Amazon, Microsoft, Google, and Apple are investing & acquiring — and what it signals about the future appeared first on CB Insights Research.

Throughout the 2000s, Amazon’s e-commerce dominance paved a path of destruction through books, music, toys, sports, and a range of other retail verticals. Big box stores like Toys “R” Us, Sports Authority, and Barnes & Noble — some of which had thrived for more than a century — couldn’t compete with Amazon’s ability to combine uncommonly fast shipping with low prices.

Today, Amazon’s disruptive ambitions extend far beyond retail. With its expertise in complex supply chain logistics and competitive advantage in data collection, Amazon is attacking a whole host of new industries.

The tech giant has acquired a brick-and-mortar grocery chain, and it’s using its tech to simplify local delivery, such as machine vision-enabled assembly lines that can automatically sort ripe from unripe vegetables and fruit.

In June 2018, it acquired the online pharmacy service PillPack. Now, it’s building out a nationwide network of pharmacy licenses and distribution with its Amazon Pharmacy product.

On its own Amazon Marketplace, the company is using its sales and forecasting data to offer de-risked loans to Amazon merchants at better interest rates than the average bank.

The tech giant saw a huge boost from the Covid-19 pandemic, as more consumers were shopping online and staying at home — Q3’20 profit hit $6.3B, up 200% from Q3’19. Although Q3’21 profits dipped to $3.2B, Amazon still has the spending power to tackle new industries.

On calls with investors, executives of public American companies mentioned Amazon more often than they mentioned any other big tech company. 

We researched the 5 industries where Amazon’s disruptive intentions are clearest today — pharmacies, small business lending, logistics, groceries, and payments — as well as 7 industries where Amazon’s efforts are more nascent. The disruptive possibilities in these industries — home & garden, insurance, smart home, and luxury fashion — remain speculative for now, but with Amazon’s scale and advantages, they could soon be a reality.

Below, we lay out the case and the progress that Amazon has made thus far.

TABLE OF CONTENTS

• • The 5 industries Amazon will disrupt in the next 5 years
    • Pharmacies: Making drugs a low-margin commodity
    • Small business lending: A direct, data-driven source of financing
    • Fulfillment & delivery: Using the AWS model to create a new business line 
    • Online groceries and digitized stores: Changing the way customers grocery shop
    • Payments: Giving small merchants a cheaper option

• • The 7 industries Amazon could go after next
    • Insurance: Bundling value into the shopping experience
    • Luxury goods and services: Bringing high fashion online and digitizing beauty salons
    • Brick-and-mortar retail: Launching Amazon Style
    • Smart home: Racing to connect the whole house 
    • Home & garden: Capitalizing on supply chain expertise
    • Media & entertainment: Expanding into the gaming and audio markets
    • Handcrafted goods: Amazon Handmade takes on Etsy

The 5 industries Amazon will disrupt in the next 5 years

1. Pharmacies: Making drugs a low-margin commodity

Pharmacy chains like Walgreens and CVS have already seen their retail revenues suffer from the rise of Amazon’s convenient “everything store.” Today, they have a new challenge: in addition to disrupting their “front of the store,” Amazon is angling to disrupt their core business of drug distribution.

Amazon’s interest in disrupting the drugstore is decades old. In 1999, Amazon bought 40% of Drugstore.com (at the time, a pre-product and pre-revenue company). Bezos would later hire its CEO, Kal Raman, to run hardlines (retail products which are hard to the touch) at Amazon.

Amazon proceeded to lay low in the pharma space until 2016 when Amazon reportedly received its first licenses to sell pharmaceutical products and drugs from various state boards across the United States.

In 2018, Amazon made another move towards gaining a footing in this notoriously complex and highly regulated space: it acquired PillPack in a deal worth around $750M.

Source: AlphaStreet

The PillPack purchase was Amazon’s first significant move not just against the major drug store chains, but against the powerful pharmacy benefit managers (PBMs) that manage the dispensation of drugs for major employers, and others in the healthcare supply chain.

Amazon’s acquisition of a business with pharmacy licenses in all 50 states caused the tickers of Walgreens, CVS, and Rite-Aid to lose about $11B in value overnight.

However, the Covid-19 pandemic increased the need for streamlined medication delivery and ramped up the competition between large drug stores and Amazon in the short term.

Though Amazon has an advantage in its logistics and delivery capabilities, it may need to speed up its pharma initiatives before existing pharmacies and pharmaceutical companies catch up.

WHY AMAZON IS GOING AFTER PHARMA

When it comes to pharmaceuticals, there are several reasons that Amazon — and its direct-to-consumer model — could be a good fit in the industry.

Convenience: The process of filling a prescription at a typical brick-and-mortar pharmacy is often inefficient and time-consuming, and the pandemic has prevented at-risk patients from accessing pharmacies. Amazon’s model aims to limit the effort patients need to expend while also getting prescriptions to them within a day or two.

Customer experience: Complaints from users of specialty pharmacies about errors, delays, confusing policies, and poor customer service have been common for years. Amazon’s advantage here comes in its 2 decades of e-commerce logistics experience — this could help avoid delivery mistakes, a vital consideration for serving people with complex medication needs.

Partnerships: Amazon’s healthcare partnerships could provide a large web of beta testers for new healthcare products. Amazon had been working with holding company Berkshire Hathaway and investment bank JPMorgan on Haven, a joint venture aiming to streamline healthcare for their employees. However, the project was shut down in February 2021 after challenges with gathering data due to employee healthcare costs, employee turnover within the project, and unclear goals. Amazon has since announced a new partnership with pharmacy benefit manager Prime Therapeutics. Prime’s Blue Plan members will be able to receive their medications via delivery through Amazon Pharmacy.

Pre-existing customer base and distribution capabilities: The Covid-19 pandemic has made fast and dependable medication delivery a necessity for pharmacies. CVS and Walgreens now offer free 1- to 2-day delivery from a local pharmacy, and CVS also provides same-day delivery for a fee. But with more than 200M Prime subscribers worldwide — conditioned to expect free, fast delivery on virtually any good — Amazon will likely be placed to offer better distribution than CVS or other pharmacy chains.

Physical stores: When Amazon acquired Whole Foods in 2017, it also acquired around 450 physical locations where it could theoretically dispense prescriptions the same way that CVS and Rite Aid do. These stores could serve as hubs for medication delivery, similar to how Amazon currently offers same-day Whole Foods grocery delivery. Recent reports also indicate Amazon is exploring rolling out brick-and-mortar pharmacies in its Whole Foods locations. Although there are no definite plans yet, the news triggered a drop in shares of competing drugstore chain operations like Walgreens and CVS Health.

Amazon has also opened several Amazon Fresh locations in the US. These stores are more like conventional grocers, and could contain pharmacies — either for in-store prescription pickup, or as hubs for a local delivery service.

Streamlined distribution: Amazon’s ambitions in pharmacy may not end at just delivering drugs.

The pharmaceutical supply chain involves all kinds of middlemen, each of whom takes a slice of profit as drugs make their way from the manufacturer to the end-patient user — the kind of messy business model that Amazon has special expertise in disrupting.

In broad terms, patients pay pharmacies for drugs, which pay wholesalers, which in turn pay manufacturers or distributors.

But there are additional layers that make the supply chain more complex. Pharmacy benefit managers (PBMs) negotiate with distributors and manufacturers for better prices on bulk drugs — a service they offer to payers (insurance companies). They also receive a copay from individual patients and get paid by manufacturers to market their drugs to payers.

Among the different middlemen, PBMs make the lion’s share of the profit from your typical drug transaction. On the sale of a drug with a sticker price of $100, the profit breakdown is roughly:

• Wholesaler: $1.00
• Pharmacy: $5.00
• PBM: $6.00

Virtually every insurance provider outsources its drug procurement to a pharmacy benefit manager. Most major employers use PBMs as well to help negotiate for better rates on drugs for their employees.

PBM’s core advantage is that they collect from every party along the pharmaceutical supply chain. They increase their margins, while end patients pay higher drug costs because of how complex and inefficient the process is.

In the long-term, Amazon’s skill set and scale could give it the power to disrupt and simplify this supply chain — first in the form of pharmacies themselves, and later, by targeting wholesalers and PBMs.

For more on this topic, check out our research brief on the pharmaceutical supply chain.  

HOW AMAZON IS GOING AFTER PHARMA

Amazon took its first major step in the pharmacy space when it acquired the online pharmacy PillPack for around $750M in 2018 and later rebranded the company to PillPack By Amazon Pharmacy.

PillPack delivers users’ medications directly to their homes. Notably, the company sends pills in pre-sorted pouches to be taken at specific times of the day. In addition to sending medications, PillPack includes info sheets that list when to take each medicine, when the current batch of prescriptions will run out, when to expect the next shipment, and more.

The PillPack user experience is designed to be clean, simple, and more intuitive than traditional pharmacies. Source: PillPack

In November 2020, Amazon announced that it was further expanding its pharmacy delivery business — the company launched Amazon Pharmacy, which allows customers to order prescription medications and offers free delivery and prescription discounts for Prime members. The offering relies on PillPack’s pharmacy software and fulfillment centers.

But Amazon Pharmacy does have its cons. For example, the service doesn’t ship Schedule II medications. Though it accepts some insurance, the highest discounts and long-term medication supplies are available to cash patients, which limits the scope of customers Amazon can attract. The senior director of health care industry research at Gartner, Kate McCarthy, told Advisory Board she sees Amazon Pharmacy as being more focused on increasing the company’s connection with the American household rather than discounts.

Down the road, Amazon may further leverage its tech to expand its healthcare presence. In 2019, Amazon’s voice assistant Alexa added its first HIPAA-compliant skills, including allowing patients to check on prescription delivery status and reminding patients to take medications. The Alexa app platform also carries lightweight healthcare apps from institutions like Mayo Clinic and Libertana to answer simple health questions, send alerts in emergencies, and help communicate with caregivers.

In the future, these capabilities could lead to Amazon getting into the diagnosis, drug recommendation, and even the prescription side of pharmaceuticals — though that future is likely some way off.

WHO’S AT RISK?

Traditional brick-and-mortar pharmacies

Today, Amazon’s efforts in the pharmaceutical space mainly attempt to disrupt the last-mile of the pharmacy supply chain: retail pharmacies like CVS and Rite Aid.

The current process of picking up a prescription is time-consuming and inefficient, and the price that patients pay for their medicine varies based on factors like geography, insurance, and more.

In the past, retail pharmacies defended against disruption by having the most convenient and the fastest way to fill a prescription for most Americans. Amid the Covid-19 pandemic, however, prescription delivery became table stakes, with most retail pharmacies waiving their delivery fees, or offering 1-2 day free delivery or same-day delivery for a fee since many patients could not fill prescriptions in person.

But the delivery offerings come at a price for pharmacies. With its vast network of fulfillment centers and its PillPack acquisition, Amazon could offer cheaper and faster delivery, pricing out the retail pharmacies in the long run. Amazon also has footholds in the brick-and-mortar world it could eventually leverage, through Whole Foods and its Amazon Fresh grocery chain.

Pharmacy benefit managers (PBMs)

In the longer-term, Amazon could use these capabilities to take aim at one of the most lucrative — and disliked — parts of the healthcare supply chain: PBMs.

Three PBMs make up nearly 80% of the market in the US: CVS Caremark, Express Scripts, and OptumRX.

Pharmacy benefit managers are extremely lucrative businesses, with over $140B in annual revenue for CVS Health’s PBM division alone. However, they receive significant criticism due to the lack of price transparency as well as perverse incentives around how PBMs select which drugs to supply to consumers.

Amazon does not rely on pharmaceuticals to drive its profits, so it has the freedom to become a virtually non-profit approach to pharmacy benefit management — and with PillPack, it may have the growth engine required to reach PBM scale negotiating power.

With a large user base of consumers ordering drugs through Amazon, the company may be well-positioned to negotiate bulk discounts from drug distributors. This is already the operating model of companies like GoodRx and BlinkHealth. Amazon, however, would be able to leverage the largest member population in the United States to do it.

With lower costs in place and a more transparent supply chain, Amazon could become an attractive alternative drug supply partner for employers who are unhappy with the rebate-driven PBM model that contributes to high drug costs for their employees.

For more on this topic, check out our brief, Amazon In Healthcare: The E-Commerce Giant’s Strategy For A $3 Trillion Market.

2. Small business lending: A direct, data-driven source of financing

Amazon took its first steps into commercial loans back in 2011, when the company began offering small-business loans to merchants participating in its Amazon Marketplace via its Amazon Lending arm. At that time, conditions were well-suited for Amazon’s entry into the commercial lending sector: the global financial crisis of 2008 had shaken confidence in even the largest commercial banks, initiated a credit crunch, and left millions of small businesses struggling to secure the capital they needed to survive. Since then, the company has doubled down on its lending efforts.

As of 2021, Amazon has 2M third-party merchants in the small and medium-sized business sector that use its platform, information on the financial health of those businesses, and the customer-first culture to build a compelling lending platform.

WHY AMAZON IS GOING AFTER SMALL BUSINESS LENDING

Over the last 2 decades, the percentage of Amazon sales completed by third-party merchants has increased from 3% to 56%. These SMBs have succeeded on the Amazon marketplace in part because Amazon has, in Bezos’ words, invested in and given them “the very best selling tools we could imagine and build.” 

Among those selling tools today is small business financing.

Amazon Lending gives its third-party sellers access to up to $1M in loans or credit for inventory management, product line expansion, or product promotion through a partnership with Marcus by Goldman Sachs. It also provides loans to merchants through a partnership with Bank of America.

The Marcus partnership is the first time that Amazon will open up its treasure trove of sales data on its sellers to a third-party financial institution to make underwriting decisions.

Source: Amazon

Giving out loans to Amazon merchants in this growing space makes sense for Amazon: if the company can give its third-party merchants loans that go back into selling products on Amazon, it’s a win for both sides. Amazon gets the increased business, plus a cut of the interest from the loans; the merchant gets the capital it needs to grow.

Unlike traditional small business loans, Amazon automates its loan repayment process, taking the owed money out of a merchant’s Amazon sales income. And its streamlined application system — which is based on pulling metrics from a merchant’s Amazon account — makes it easier for small businesses to access financing.

Often, the aims of large financial institutions stand at odds with those of small businesses. It costs a bank a similar amount of money to process a $50K loan as it does to process a $1M loan, but the expected profit of the smaller loan is much lower. Given that credit needs for small businesses tend to be for smaller amounts, banks can see them as being less profitable opportunities.

Another challenge facing small businesses seeking capital from commercial banks is a lack of suitable collateral. Banks prefer to lend to businesses with assets, such as property or specialized equipment, that can be used to secure the loan. This puts small, online businesses at a distinct disadvantage, as these companies are much less likely to possess the kind of tangible collateral that banks often seek.

These challenges make small business loans an attractive market for Amazon to disrupt.

Amazon already has huge amounts of data on the merchants that use its platform — and subsequently doesn’t need the kind of extensive documentation required by many commercial banks. Whereas banks often rely upon credit scores and personal financial documentation to determine the risk associated with lending to a given business, Amazon already has information such as revenue history and future earnings projections, inventory data, and sales data.

The company also possesses a wealth of tertiary data about prospective borrowers, such as a business’ relative popularity within its vertical and its standard of customer service based upon Amazon user reviews — information no financial institution has. With all of this information, Amazon may be able to make better-informed lending decisions than the average commercial bank — and, as the approval system would be data driven, likely process them faster.

HOW AMAZON IS GOING AFTER SMALL BUSINESS LENDING

Today, Amazon Lending offers small business loans ranging from $1,000 to $750,000 to qualifying merchants with repayment plans of 3 to 12 months. It makes money by charging interest on the loans — the retail giant reportedly charges rates of 6% to 19.9%, within the range of the average rates from other online and alternative lenders. 

“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success.” — Peeyush Nahar, former Vice President, Amazon Marketplace

Merchants who wish to participate in the Amazon Lending program must be invited to do so, meaning that not every Amazon Marketplace merchant can apply for a loan. Amazon extends these invitations based on an algorithmic evaluation of a merchant’s business, from the popularity of their merchandise to their inventory cycles, among other factors — a critical calculation that helps Amazon mitigate its lending risk.

The advantage of this exclusivity is that Amazon can offer loans quickly: unlike traditional lenders that rely upon extensive documentation typically furnished by the borrower, Amazon Lending typically approves loan applications within just 24 hours. Amazon also does not charge borrowers origination fees or penalize them for prepayments. The company also paused its automatic repayments for the first few months of the Covid-19 pandemic, providing small businesses with valuable lifelines.

Despite only offering short-term loans to prequalified merchants, Amazon’s small business loans have proven to be popular. From launch in 2011 to Q1’19, Amazon reported it issued $5B across more than 20,000 businesses in the US, Japan, and the UK. In the year ending May 2020, Amazon loaned over $1B to small businesses in the US alone. In 2021, Amazon and its lending partners loaned nearly $1B to SMBs in the US.

Source: Amazon 

The invite-only nature of Amazon Lending might seem exclusionary, but it allows Amazon to prequalify merchants and provide a superior experience for borrowers by streamlining the loan application process and reducing the time needed to reach a lending decision.

Amazon has also teamed up with Lendistry to launch Amazon Community Lending. The program provides loans of up to $100,000 to Amazon sellers in the US, most of which are small and medium-sized businesses (SMBs). Lendistry is especially focused on supporting minority-owned SMBs in struggling communities. The loans come with 8% to 9.9% interest rates.

Additionally, Amazon has launched lending offerings in Germany, where sellers are eligible to apply for loans of up to roughly $845,000 (€750,000) at ING Bank. Sellers can repay their loan within 3 years. In India, Amazon has partnered with ICICI Bank to allow sellers to overdraft their accounts up to ~$33,425 (INR 25 lakhs). The overdraft application process is entirely digital.

WHO’S AT RISK?

Commercial banks & local lenders

Amazon’s vast network of merchants is the perfect launchpad for a lending business.

Among these companies, Amazon has a deep competitive moat made up of data and speed — one that is difficult for commercial banks to match. With its data advantage, Amazon has the power to offer loans to businesses that traditional banks might consider lower-quality borrowers and refuse (or lend to on more onerous terms).

“Amazon has had a hugely positive impact on our business. Traditional funding vehicles wouldn’t support our model of direct to consumer and we needed help. Amazon stepped in and is a great partner for us.” — Caleb Light, VP of Sales, Power Practical

This data also means Amazon has a significant advantage in terms of the customer experience of applying for a loan, as getting a loan through Amazon is much faster than getting a loan through a bank.

Competitor e-commerce platforms

While there may be no incentive for Amazon to lend outside its own ecosystem today, the company is using its small business financing program as a means to encourage merchants around the world to leave local competing e-commerce companies and join Amazon.

Amazon’s streamlined lending system offers its merchants capital to use on buying more Amazon inventory, and in return deducts monthly payments automatically.

In September 2017, Amazon began offering loans to pre-qualified Amazon merchants in India via a partnership with the Bank of Baroda in anticipation of that year’s holiday shopping season, allowing their merchant customers to expand their inventories ahead of the crucial holiday period.

Amazon followed up its tentative steps into small business financing in India in April 2018, when the company invested $22M as part of the Series C round of SMB-focused capital finance marketplace platform, Capital Float. The company also invested in Capital Float’s $15M Series E in April 2020.

The significance of these moves is less that they promote Amazon loans to current Amazon merchants, but that they have the potential to bring new merchants into the Amazon ecosystem.

In addition to loans, Amazon can also offer the small businesses it lends to marketing opportunities, better placement within Amazon’s search results, or information about how to increase sales.

Small businesses themselves

If small businesses grow over reliant on the availability of Amazon lending, they risk a hard fall should Amazon significantly scale back its focus on SMB financing and product promotions.

From 2017 to 2021, Amazon increased the number of private label brands it sells from 30 to more than 100. These kinds of private label products provide Amazon with an obvious host of benefits, such as not having to share space and revenue with other SMB brands or spend time developing its own products.

Private labels could also increase competition for the SMBs that want to use the Amazon marketplace to sell their wares — or even lead to an unfair advantage. In India, Amazon has been accused of copying other merchants and manipulating the search engine to ensure its products are prioritized in the results. In the US, it paid $2M to settle a price-fixing investigation of the “Sold by Amazon” program, which it shut down shortly after antitrust authorities launched the investigation. 

Amazon is also partnering with larger brands to sell their products on the e-commerce site, including Apple and Under Armour.

Prioritizing big name brands and private labels over small businesses would make small business lending inherently less attractive inside Amazon, and along with the numerous major risks involved, may imply that the company is walking back some of its ambitions in the space.

For more on Amazon’s financial services strategy, see our brief, Everything You Need To Know About What Amazon Is Doing In Financial Services.

3. Fulfillment & delivery: Using the AWS model to create a new business line 

For Amazon, selling products is only half the battle — it’s getting those items to customers that really matters.

Fulfillment logistics is the process of storing inventory, packing customer orders, and shipping orders. To do so effectively requires significant investment in inventory tracking, fulfillment, and delivery technology.

Shipping is one of the most important and largest cost centers for Amazon. The company prides itself on rapid delivery as a way to enhance the customer experience and entice more customers to join Amazon Prime.

As of 2019, Amazon offered same-day or next-day shipping to 72% of the total US population, up significantly from just 4 years prior. Today, Amazon is expanding its same-day delivery services to cover a total of 12 US cities.

Source: CNBC 

However, the company used to rely almost entirely on shipping companies UPS and FedEx, as well as the US Postal Service, to get shipments to customers, taking that part of the business out of its hands entirely.

Over the past decade, Amazon has been investing heavily in its logistics and delivery capabilities, trying to improve the speed and efficiency of the shipping process and reduce its reliance on third-party logistics providers. From 2014 to 2018, the company increased its logistics infrastructure in the US by nearly 3X. The infrastructure growth showed no signs of slowing down in 2020, when it expanded by 50%.

Similar to how the retailer’s largest non-retail businesses lines like AWS began as a way to make its own operations more efficient, Amazon’s logistics goals may be to own the shipping process for their own business, but could eventually turn outward to help other businesses with their logistics needs.

WHY AMAZON IS GOING AFTER LOGISTICS

Amazon spends a significant amount of money on shipping and logistics.

The company’s shipping costs totaled $53B in the first 3 quarters of 2021, including $18.1B in Q3’21 alone, up 20% YoY.

In fact, its shipping costs are increasing at a faster pace than online sales, showing how the Covid-19 pandemic has impacted the price of delivery in recent months. The company spent over $15B from 2020 through the first 6 months of 2021 on Covid-related measures like enhanced cleaning, PPE, and social distancing measures in fulfillment centers.

Though the retail giant used to rely almost exclusively on carriers like UPS and FedEx to ship their packages, Amazon now ships and delivers more than two-thirds of its own packages using Amazon Logistics. In July 2020 alone, the company shipped 415M packages.

HOW AMAZON IS GOING AFTER LOGISTICS 

Amazon aims to reinvent shoppers’ expectations of what is possible for delivery, including addressing today’s pain points. The company is primarily focused on automating the delivery process, making it faster, more efficient, and more predictable.

Though Amazon has already invested significant funds into building out its fulfillment and logistics operations, it still plans to expand in the coming years.

The company expanded its fulfillment and logistics infrastructure by 50% in 2020, hiring thousands of drivers, buying trucks and planes, and adding more warehouses. This expansion continued through 2021 and will likely spill over into 2022.

However, outside of expanding its capacity, the company is also investing in and creating new technologies that may automate or improve the logistics and delivery processes, from drone fulfillment to autonomous delivery vehicles.

Patents & new initiatives 

Amazon is expanding its logistics infrastructure through a variety of different in-house initiatives. Fulfillment is one important area to improve efficiency.

Amazon has already employed 350,000 robots across its warehousing network, using robotic fulfillment to increase the speed and accuracy of getting online orders filled and ready to ship.

The company has also looked to shopping malls across the US, which are filled with stores that are going out of business or closing brick-and-mortar locations, to increase fulfillment square footage. In 2020, Amazon was in talks with the largest mall owner in the US, Simon Property Group, to convert old department stores into fulfillment locations.

Although there have been no updates on the Simon Property Group talks, Amazon has already converted out-of-business malls in Cleveland, Ohio, to act as fulfillment warehouses, according to the Wall Street Journal.

Source: WSJ

When it comes to mid-mile and last-mile delivery — getting the customer orders from warehouses to their final location — Amazon has a few initiatives in the works.

Freight matching: Freight matching platforms have risen to prominence for efficiently matching shippers with available carriers, facilitating partnerships between verified players, and providing pricing transparency.

In May 2020, Amazon launched its new digital freight matching platform across the continental US. The announcement is significant because it may allow Amazon to use its scale to gain greater control over the mid mile freight market, strengthening its position as a major shipper.

Source: Amazon Freight

As Amazon establishes its freight matching capabilities for third-party shippers, it may leverage its scale to offer below-market rates to shippers and competitive rates to truckers — drawing business away from competing platforms. In fact, it announced a new initiative to lease Amazon-branded trucks to small trucking companies, according to The Information.

The Amazon Freight Partners (AFP) program provides delivery partners with business training, loans and other forms of support. Partners are responsible for hiring drivers and managing their work. Each participant partners exclusively with Amazon to move goods between warehouses and delivery stations by following predetermined routes, and participants are paid at set rates. They can use their own trucks, but Amazon also offers a lease option that includes maintenance, a truck replacement, and repairs. Amazon hoped that the program would increase the number of its delivery partners to 285 in 2021, up from 100 in 2020.

Driver shortages have created challenges for the AFP program in the US. Nevertheless, Amazon expanded it to 5 countries in Europe at the end of 2021.

Autonomous last-mile delivery: Last-mile delivery, or the final leg of the supply chain, is complex and highly inefficient. In fact, last-mile delivery accounts for 53% of total shipping costs. Since consumers have grown to expect free shipping, retailers and logistics providers are increasingly eating these costs.

Amazon and others are investing in innovative ways to cut costs and increase speed of last-mile delivery.

For example, in early 2019, Amazon launched “Scout Delivery,” an autonomous delivery service in select areas. In July 2020, the service expanded into Atlanta, Georgia, and Franklin, Tennessee. Just a year later, Amazon announced plans to open a Scout Development Center in Finland. The center will work on developing 3D technology to improve the robot’s safety. Amazon’s fleet of autonomous electric devices are about the size of a cooler, and navigate sidewalks to deliver select products to Amazon Prime customers.

Source: Biz Journals 

Further, one of the technology giant’s patents, for “mobile fulfillment centers with intermodal carriers and unmanned aerial vehicles,” describes a system for combining drone delivery and automated fulfillment.

Source: USPTO

Expanding its logistics network: Outside of its investments in technology to improve the speed and costs of fulfillment and delivery, Amazon is spending significant amounts of money to expand its existing logistics infrastructure.

For example, the company expanded its logistics square footage by 50% in 2020. It also announced the expansion of its Amazon Air capabilities in February 2019, including 50 planes and a $1.5B hub in Kentucky, which opened in August 2021.

The tech company also expanded its own last-mile delivery network, inviting individuals to develop their own fleets of Amazon vans through a Delivery Service Partner program that launched in 2018. As of August 2020, the program has reportedly created 85K jobs across 1.3K small businesses, delivering 1.8B packages.

However, there have been concerns surrounding the pace and speed required by these independent contractors to stay on as Amazon partners, including a poor environment for employees and aggressive daily targets that incentivize risky behavior. A North Carolina-based delivery partner is now suing Amazon over setting unattainable goals and misrepresenting the earnings potential of the program.

Investments & partnerships 

Amazon is acquiring and investing in upstart transportation companies to build out its own transportation ecosystem.

For example, Amazon acquired self-driving tech developer Zoox for $1.2B in June 2020, aiming to expand its auto portfolio. The retailer also invested in autonomous driving developer Aurora Innovation, with the goal of building out autonomous vehicles for logistics.

Outside of autonomous driving, the company invested in and partnered with EV truck maker Rivian. The startup is working on delivering 100,000 electric vans to Amazon by the end of 2024.

Amazon also partnered with autonomous trucking startup Embark in 2019 to transport goods along an interstate highway, aiming to reduce reliance on physical drivers and increase efficiency.

To enhance its robotic fulfillment capabilities, Amazon acquired CANVAS Technology, a robotics company building autonomous carts for moving goods within warehouses and developing outdoor delivery robots in April 2019.

WHO’S AT RISK 

Delivery companies 

Amazon’s logistics ambitions clearly bring the retail giant in direct competition with its current delivery partners, including private companies like UPS, DHL, and the US Postal Service (USPS).

Amazon’s shipping partners have benefitted from the retailer’s massive order volumes for years, but those revenues are coming under threat as Amazon builds out its own delivery capabilities. The USPS made $1.6B in profit or $3.9B in revenue in 2019 from Amazon alone, accounting for less than 10% of the USPS total annual revenue. Amazon also represents roughly 13% of UPS sales, while FedEx canceled its relationship with the big tech company in August 2019 after disclosing that Amazon contributed only 1.3% of the company’s total revenue.

If Amazon continues to expand its logistics network, it is estimated that the company could reduce last-mile delivery costs by $2B to $6B, according to RBC Capital Markets. This incentivizes Amazon to continue to reduce its reliance on third-party shippers.

Supply chain & logistics startups 

If Amazon continues to develop its logistics capabilities and then begins to offer these services to outside retailers, supply chain startups may suffer.

There is a wealth of logistics companies that each target a small portion of the supply chain, from digital freight forwarding to inventory management to autonomous delivery.

CB Insights clients can see the full supply chain optimization tech market map here. 

If Amazon bundles many of these functions into 1 product, many of these companies could be at risk.

However, funding to supply chain startups reached record highs in 2021, with $41B in funding across 789 deals, highlighting that investors still believe the market opportunity is robust.

Other major retailers 

Major brick-and-mortar retailers are also at risk, as Amazon’s logistics plays further embed the company in consumers’ daily lives while retailers struggle to catch up with the requirements of online fulfillment & delivery.

Walmart, for example, is building out its logistics infrastructure and capabilities amid the Covid-19 crisis, as it also seeks to reach consumers where they are — at home. The company launched a direct competitor to the Amazon Prime membership, called Walmart+, which provides users with free unlimited delivery, discounted fuel pricing, and mobile checkouts, for nearly $100/year. As of September 2021, 32M American households use the service.

Source: Walmart

Unlike Amazon, Walmart is mainly focused on growth through partnerships rather than in-house development or investments. In August 2020, the retailer announced a partnership with Instacart to pilot same-day delivery services in select US markets.

Other retailers are also expanding online commerce options, as customers are now more likely to purchase from retailers that offer curbside pickup or omnichannel services.

That being said, Amazon has decades of experience and deep pockets, giving the company a significant advantage against its competitors, many of which are just now looking to grow fulfillment and delivery capabilities.

4. Online groceries and digitized stores: Changing the way customers grocery shop

In 1998, Jeff Bezos and his biggest VC advocate, John Doerr, began investing in promising dotcom startups trying to bring the grocery store online. Most would go bankrupt — Wineshopper.com, Homegrocer.com, and delivery service Kozmo.com — but the experience seeded Amazon’s future ambition to dominate the US grocery industry, estimated to be worth about $800B, according to CB Insights’ Industry Analyst Consensus.

A decade later, Amazon would hire 4 former executives from Webvan, a prominent online grocery company and failure of the dotcom era, and set its sights on online grocery again. Today, that project, Amazon Fresh, is delivering groceries from both its own warehouses and Whole Foods stores within 2 hours.

Today, online groceries represent one of the biggest opportunities in retail. Many consumers have embraced online grocery shopping, especially as the Covid-19 pandemic encourages new users to try online grocery delivery to reduce in-person exposure. 

Now, supermarket chains all over the country are battling for consumer attention.

Amazon Fresh, the business born out of Amazon’s hiring of 4 former Webvan executives, which merged with Prime Now in 2018.

Traditional grocery retailers are experimenting with new online grocery formats and pricing models as consumers stay home and are more willing to try out different grocery options. However, Amazon may have an advantage over other retailers given its aggressive expansion into the online grocery vertical with a constantly expanding nationwide logistics network and immense spending power.

WHY AMAZON IS GOING AFTER ONLINE GROCERIES

Online grocery sales were steadily increasing before the Covid-19 pandemic, but have since shot up to record levels. Sixty-eight percent of US consumers ordered groceries online at least once during the pandemic, per grocery delivery startup Good Egg, 43% of whom place orders at least twice a month.

While online grocery shopping has expanded significantly over the last several years, its overall penetration in the American market is still relatively low. E-commerce accounted for 9.5% of annual grocery sales in 2021, up from 3.4% in 2019.

One of the biggest challenges facing online grocers is that of keeping costs low both for themselves and for consumers. Margins in the grocery industry are notoriously low, and while typically bringing retail online is a means of increasing margins, there are several reasons why moving grocery selling online has historically been a problem for grocery stores’ revenues.

Storage costs: Online grocers have to maintain expensive investments in storage and distribution facilities, which brings costs up significantly. Perishable foodstuffs must be frozen or refrigerated, meaning that storage facilities are often climate-controlled, which can further increase costs.

Distribution: Owning and maintaining a fleet of delivery vehicles can be costly, as can operating regional distribution centers. As with storage facilities, delivery vehicles must be climate-controlled to preserve freshness of the products. Managing brick-and-mortar grocery stores, by comparison, is relatively inexpensive.

Amazon, however, is uniquely positioned to face these challenges, by virtue of its extensive shipping and logistics networks and its Whole Foods stores — which can act as both shops for in-person shoppers and distribution centers for online grocery shoppers.

One of the other major challenges online grocery retailers must overcome is a consumer preference for in-store shopping. It’s hard to compete with the convenience of online ordering and delivery, yet many consumers still prefer shopping in-store due to the ability to pick their own produce.

Since stay-at-home orders and safety concerns have kept many consumers at home during the Covid-19 crisis, online grocery shopping is the only option available for some.

However, these customers may be tough to retain after the pandemic, as the online grocery experience is still flawed. Consumers say they dislike learning about missing or unavailable items the most, followed by an inability to choose their products themselves.

Source: Digital Commerce 360

Amazon is working on building out machine learning technologies to lower the cost of its services.

Notably, the company has developed an “automated ripeness detection system” that scans fruits and vegetables in its warehouses and cold storage facilities. The algorithm analyzes the fruit or vegetable, determines its high-level quality (e.g., if it’s damaged or expired), and decides whether to throw it away or not. The technology is used by Amazon in Europe and India to supplement a manual inspection practice already being undertaken by associates at AmazonFresh depots. It can reportedly detect spoiled foods with an accuracy of more than 90%.

As mainstream retailers such as Kroger and Target move more aggressively into the online grocery space, it’s likely we’ll see continued investment in and adoption of similar technologies, as retailers seek to close the gap between the in-store shopping experience and its online alternative.

HOW AMAZON IS GOING AFTER ONLINE GROCERIES

Amazon’s $13.7B purchase of organic grocery chain Whole Foods, the company’s largest acquisition to date, raised more than a few eyebrows in 2017.

Some analysts claimed Amazon’s purchase of the retailer was short-sighted, and that Whole Foods’ reputation as a premium retailer — with prices to match — was at odds with Amazon’s low-price, high-volume model.

However, this analysis overlooked a key source of value for Amazon’s acquisition: namely, the potential to use Whole Foods stores as ready-made distribution centers.

With Whole Foods’ 500+ locations across the US, Amazon gained quick access into the highly competitive grocery retail market. Even without its inventory, equipment, and storage facilities, Whole Foods’ physical locations were valuable.

Moreover, many Whole Foods stores are located in affluent urban areas and typically attract higher-income consumers with a preference for high-end grocery products — a similar demographic to that most likely to shop for groceries online, according to a Gallup survey.

Amazon’s grocery initiatives beyond Whole Foods could also give it a leg up in this industry. With 23 locations in the US and more to come, the company’s grocery chain Amazon Fresh (formerly known as Amazon Go Grocery) could give it further brick-and-mortar stores to act as distribution centers. Cashierless technology also provides Amazon with even more granular data about local shoppers’ shopping habits, connecting purchases to individual Amazon accounts. The company also has a chain of convenience stores, Amazon Go.

Amazon has greatly benefited from the Covid-19 pandemic, especially in online grocery. The company’s US online grocery sales increased by 3x year-over-year in the second quarter of 2020 alone, and its grocery delivery capacity grew by 160% in the same time period. Amazon is reportedly on track to double its online grocery sales by 2026.

Even so, the e-commerce giant actually lost market share in the online grocery sector. It commanded around 36% of the American online grocery market in January 2021, down 3 percentage points from October 2020 and dropping below competitor Walmart’s 55% share. When including traditional brick-and-mortar grocers, Amazon’s overall share of the grocery market is still relatively small.

But looking to the future, Amazon still poses a formidable threat, largely because of its significant logistics edge — which can be summarized by 2 broad advantages.

First, Amazon is willing and able to take a financial loss on delivery if it means providing a faster, superior delivery service to consumers that will lead to greater market share in the future.

Second, Amazon’s investments in its logistics infrastructure aren’t limited to its online grocery business; the improvements Amazon makes to its grocery delivery services can be adapted and scaled to other parts of its logistics operations and vice-versa.

Digitized grocery stores

Amazon’s disruption of the grocery industry goes beyond online shopping. In 2020, the company launched Amazon One, palm scanning devices customers can use to pay and verify their identity. It first deployed the devices to Amazon Go stores, but the technology’s use cases extend far beyond supermarkets. For example, employees could use Amazon One devices to enter their place of work.

Dash Cart, the company’s smart shopping cart, also launched in 2020. It automatically identifies items in the cart, allowing the customer to pay for their groceries without interacting with a cashier.

The Dash Cart has had a ripple effect on supermarket chains. Grocery stores Kroger and Albertsons have also introduced smart carts, while grocery delivery service Instacart is investing heavily into smart shopping technology. In October 2021, the company acquired smart cart startup Caper AI for $350M.

Source: Amazon

While competitors are busy developing their own smart cart technology, Amazon is expanding its digitized stores overseas. In the UK, Amazon plans to open 60 new Fresh cashierless grocery stores in 2022 and 100 stores per year in 2023 and 2024. The company is also considering expansion into Spain, Italy, and Germany in 2022. Amazon’s plans seem quite ambitious, considering it opened only 6 stores in the UK in 2021 despite plans to open 26. The rollout of Fresh stores in the US also fell behind schedule in 2021.

In India, Amazon has taken steps to consolidate its online grocery stores. The company has created a unified store Amazon Fresh, integrating once separate supermarkets, Pantry and Fresh. The new store is available in more than 300 cities across the country.

But Amazon’s digitization of the grocery store has also faced criticism, especially regarding biometric data. Because the company is storing Amazon One data in the cloud rather than on the device, there are significant concerns over the security of the users’ palm scans. As additional reasons for concern, US senators have also pointed to Amazon whistleblowers who had come forward about issues regarding data security at the company.

WHO’S AT RISK?

Competing grocery delivery services

Amazon’s immense spending power has allowed the company to compete effectively within the online grocery market from the outset. Amazon currently offers free 2-hour delivery (in select locations) to Prime members on orders that meet the minimum amount. Though traditional retailers like Walmart and other grocery delivery competitors like Instacart aim to price their services similarly to the e-commerce giant, Amazon’s deep pockets may help to undercut delivery prices if the competition continues to heat up.

Amazon is likely to continue pressuring traditional grocery retailers and emerging rivals like Instacart as competition intensifies.

Other supermarket chains

Although the expansion of Amazon Fresh stores is lagging, ambitious goals for 2022 and beyond indicate Amazon’s dedication to its brick-and-mortar grocery stores. Equipped with Dash Carts, its digitized stores have taken grocery shopping to another level, and competitors will need to keep up. The president and CEO of the Independent Grocers Alliance, John Ross, says the shift from traditional checkout registers to cashierless checkout is inevitable. The cashier labor shortage will only expedite the process.

5. Payments: Giving small merchants a cheaper option

Amazon has been building out a presence in the payments space for years, with products including: 

• Amazon Pay: Amazon Pay is an integrated payment management system that allows third-party merchants to sell their products on their own sites but use Amazon’s payment tech to receive orders. It also streamlines the payment experience for customers.
• Amazon Cash: Amazon Cash allows consumers to deposit cash without any fee into an online Amazon account by scanning a special barcode at partner retailers.
  
• Amazon Visa debit/credit cards: Amazon has partnered with Visa to offer a debit card for Prime members and a credit card for non-Prime members. Both offer cash back perks.
• Amazon Reload: This feature allows Amazon Prime members to transfer money from their bank into their Amazon accounts to create a balance. As a reward, 2% of the transfer amount is added to the user’s account right away.
• Amazon Go: Amazon Go is a cashierless convenience store where consumers can simply walk in, grab items off the shelf, and then walk out. The customer’s Amazon account is billed for the purchase when they leave the store.
• Amazon Fresh: This chain of grocery stores uses the same “Just Walk Out” technology as Amazon Go, but shoppers can also use checkout lanes.
• Amazon One: This contactless payment and identity verification service relies on palm recognition.

The logic behind this kind of financial ecosystem is clear — if the company can get consumers to put money into an Amazon-owned account, they will ultimately spend more with Amazon. For example, the Amazon Prime Visa rewards users with Amazon credit.

If Amazon can create a payments channel that’s good for Amazon consumers and saves merchants money, it could have the edge it needs to disrupt the payments industry in a tectonic way.

WHY AMAZON IS GOING AFTER PAYMENTS

When you swipe a credit or debit card at a store, the retailer is charged an additional transaction fee as a small percentage of the overall purchase, also known as an interchange fee. These fees range from 2%–4% per transaction. In 2020, credit card companies earned $51B from interchange fees.

These fees can significantly cut into the bottom line for small businesses, especially if they mostly deal with smaller purchases. But the price isn’t the only factor merchants have to consider when choosing a payment processor — they also need one that doesn’t negatively impact the customer experience.

Especially with the Covid-19 pandemic, adoption of contactless payment options like Apple Pay or Google Pay is rising. By 2025, nearly 60% of consumers worldwide will use mobile wallets.

If Amazon can find a way to make its own payments options stickier, easier for consumers to use, and cheaper for merchants to accept, it could find huge opportunities in this industry.

HOW AMAZON IS GOING AFTER PAYMENTS

Amazon is coming at payments from the perspective of the merchant, who needs a cheaper processing method, and the consumer, who needs a reason to choose Amazon Pay over any other service.

For merchants, working with Amazon means getting access to low fees, Amazon marketing services, and, in the future, easy, one-click access to new tools that capitalize on Amazon’s large member base.

Adopting an Amazon Pay account could allow merchants to experiment with new retail techniques, from cashierless payments to improved targeting to better “buy-online, return-in-store processes.”

On the customer side, the focus is on convenience, speed, and perks that encourage consumers to use their Amazon Pay accounts rather than a debit card.

To make Amazon Pay an attractive option for consumers, Amazon has spent the last several years building additional Amazon financial products and services that complement its value, like Amazon Cash, Reload, and credit cards.

The common theme with all of these products is that they encourage customers to load money onto their Amazon accounts or become more dependent on the Amazon payment system. The more a customer builds up an Amazon balance, the more useful Amazon Pay and Amazon’s other financial features become.

In March 2019, Amazon announced an integration with Worldpay, which serves as a back-end intermediary between banks and credit card companies and is one of the largest payment processors in the world.

It is a notable pivot from Amazon’s IP strategy, where the playbook has been to build, patent, and keep proprietary technology in-house to fuel Amazon’s marketplace. However, keeping Amazon’s customer-centric “day 1” philosophy in mind, Amazon Pay’s top priority is reducing payment friction for customers to buy goods and services and for merchants to sell more things.

Amazon has also taken note of the fast-growing Buy Now, Pay Later (BNPL) market. In 2021, it announced a partnership with Affirm that offers shoppers the option to pay off items in monthly installments. The service is available for purchases that cost $50 or more.

Additionally, Venmo digital wallet users will soon be able to pay for their Amazon purchases using their Venmo account, thanks to a new partnership between the companies. The integration will reportedly be complete in 2022.

Amazon is also partnering with ticketing company AXS to deploy Amazon One palm scanners at an entertainment venue in Colorado. Customers using the scanners will have access to a separate entry line. Amazon and AXS plan to install the system in other venues in the future.

Source: Amazon

Meanwhile, consumers in India can take advantage of the Amazon Pay Later service. So far, 2M customers have signed up to purchase items they can either pay off the following month or over a period of several months. Amazon customers can also use the service to pay utility bills. But the company is not the only one to offer such financial products in the country — Flipkart Pay Later and LazyPay boast 2.8M and 3.5M users, respectively.

WHO’S AT RISK?

Card processors & online payment providers

The companies that should be most concerned about Amazon’s ambitions in the payments space are online payment providers like PayPal and Stripe, and card processors like Chase, Visa, and Mastercard.

Today, Amazon Pay’s costs are competitive with other major online payment gateways. With its 2.9% transaction fees and $0.30 authorization, Amazon comes in right alongside PayPal Standard when it comes to annual costs.

Source: CodeinWP

Amazon can differentiate itself with its access to data about a merchant’s customers and its ability to offer new kinds of marketing. PayPal and Stripe do not have a wealth of information about what customers are buying or how they’re buying it — and that’s information Amazon can use to make sure its payments products are more valuable than others.

Global payments competitors

Amazon’s push into payments has been global.

Internationally, the company has been especially focused on countries with large unbanked populations and high growth e-commerce markets.

In India, Amazon’s main competitors in payments are Google Pay, PhonePe, and Alibaba-backed Paytm.

In 2018, Amazon launched bill pay through Amazon Pay in India. It also spent $40M acquiring app aggregator Tapzo, primarily to increase Amazon Pay usage by making it a default payments scheme for customers in certain apps.

Amazon has an advantage over other startups and banks in international markets and domestically because it doesn’t need to drive a profit from transaction fees — and subsequently doesn’t need to cut deeply into merchants’ margins. In many cases, it may even be able to help merchants drive revenue.

This is because Amazon benefits from activity taking place in Amazon Pay wallets, as well as the resulting upward trend in Amazon spending. This is why Amazon’s presence in payments needs to be taken seriously, and why the mounting spread of the Amazon Pay button is the best signal yet that disruption in payments is coming.

For more on Amazon’s financial services strategy, see our report Everything You Need To Know About What Amazon Is Doing In Financial Services.

The 7 industries Amazon could go after next

6. Insurance: Bundling value into the shopping experience

Amazon has already shown some interest in building out its own insurance business.

In 2016 it launched Amazon Protect, a UK service that provides accident and theft insurance on products sold through Amazon.

A 2017 product manager job listing in Amazon’s EU Product Insurance group hinted that the company had definite designs in the insurance space: “We have ambitious plans to significantly grow operations in our current markets and create new, innovative products that will provide excellent customer experience and satisfaction.”

In 2018, it confirmed an investment in the India-based startup Acko, which primarily works on car and bike insurance policies. In September 2018, Amazon made its interest in the insurance market in India even clearer when it filed with the country’s Registrar of Companies to begin selling its own health, life, and general insurance products. In March 2019, Amazon received its corporate agent license from the Insurance Regulatory and Development Authority of India, clearing the way for the company to proceed further.

Amid the Covid-19 pandemic, Amazon began offering cost-free health insurance to its sellers in India, with Acko handling the policies, claims, and reimbursement.

In September 2019, Amazon rolled out a pilot for Amazon Care, a healthcare service for its employees in the Seattle, WA area. On the Amazon Care app, patients can set up virtual doctor’s appointments, home visits (depending on location), and also schedule Covid tests. Amazon recently expanded the virtual service to its workers and other employers regardless of their location in the US. The company plans to launch in-person services in over 20 cities in 2022.

Amazon is also helping its sellers purchase product liability insurance for protection in case their merchandise causes injury to a customer. The company requires all sellers who generate more than $10,000 in sales in one month to have liability insurance. On the Amazon Insurance Accelerator marketplace, sellers can buy coverage from established and startup providers. Merchants based in China can also invest in product liability insurance through Amazon’s partnership with insurance company Marsh.

For home and auto coverage, Amazon has partnered with leading insurers like Geico and Allstate to build Alexa skills that provide policy information and quotes to current and prospective customers. The company has also partnered with Travelers to offer its home insurance customers a free Echo Dot device.

Source: Geico

Whether offering home insurance, product insurance, or car insurance, Amazon could use its size as an e-commerce retailer and its huge member base to become a major distributor in the United States.

Amazon’s strong brand and customer trust could make Amazon Insurance a highly attractive option for customers — especially Prime customers — looking for a more valuable insurance offering. The interest is certainly there, considering a recent survey showed that 55% of consumers would buy insurance from Amazon.

7. Luxury goods and services: Bringing high fashion online and digitizing beauty salons

Amazon has already taken on the world of fashion, selling clothes, shoes, and accessories on its platform, but recently it has turned its focus to a new category — luxury goods.

In September 2020, the retail giant launched a “Luxury Stores” function to try to entice high-end brands to sell on its platform. The store is only available for select customers on the Amazon mobile app, and initially partnered with only Oscar De La Renta. Since then, 9 brands have joined Luxury Stores, including Elie Saab and Roland Mouret. The service also expanded to Europe in 2021.

Source: Vogue

Even though Amazon is giving brands more power and freedom than it would on its regular digital storefront, and more than luxury brands could see with traditional department stores, some companies are hesitant to bite.

For example, luxury conglomerate LVMH has already commented that it won’t list its products on Amazon, mainly due to the proliferation of third-party counterfeits on the Amazon platform.

Though Amazon may not become the premier luxury marketplace any time soon, its wide breadth of paying Prime members and deep pockets means the company has an opportunity to provide luxury brands with exposure, marketing, and a new sales channel.

Meanwhile, in 2021, Amazon branched off into beauty services with the launch of a hair salon in London. Hair consultations at the Amazon Salon use AR technology to let customers test different looks before making a decision. For a complete branded experience, the salon is equipped with Fire tablets to provide entertainment during appointments. Amazon has also integrated shopping into the experience, and clients can browse haircare products and order them directly from Amazon by scanning a QR code.

Source: Amazon

Upon launch, the salon was available only to Amazon employees, but the company opened it to all customers shortly after.

However, Amazon’s foray into hair salons has more to do with testing new technology and promoting products rather than becoming a serious contender in the salon business space. Currently, it has no plans to launch additional salons.

8. Brick-and-mortar retail: Launching Amazon Style

In January 2022, Amazon announced the launch of a physical store called Amazon Style. The first location will reportedly open later this year in Los Angeles.

The Amazon Style store is connected to the Amazon Shopping app, which customers can use to select garments to try on or purchase. The fitting rooms feature touch screens that allow shoppers to explore garments, rate them, and request additional styles and sizes.

Source: Amazon

Amazon has designed the shopping experience to be, above all, convenient. Every item of clothing comes with a QR code that shoppers can scan to see size availability and other details, so there’s no need to comb through clothing racks. Consumers will also enjoy special deals and personalized product recommendations.

9. Smart home: Racing to connect the whole house  

Amazon has significant ambitions in the smart home industry, though the market has been slow to take off and likely won’t become a full reality for years.

Amazon has long set its sights on dominating the smart home market, and launched its first smart home product — the Amazon Echo smart speaker — in 2014. Many competitors like Google Home or Sonos have gained traction since then, but Amazon still held 69% market share of the smart speaker market as of August 2021.

However, the smart speaker is only the start of a complete smart home.

Smart houses bring connected devices into many aspects of home living, from heating to lighting to kitchen appliances. Since 2018, Amazon has been rolling out Amazon-branded smart devices that integrate the Alexa voice assistant capabilities, from microwaves to clocks.

Source: Amazon

Many smart home systems are not interoperable — in other words, they don’t work with other products from outside systems. Smaller, cheaper appliances and items — such as smart locks — allow Amazon to get customers more comfortable with Amazon-branded smart products while also ensuring that customers stay within the Amazon universe when looking to build out a connected home.

In 2018, the retailer partnered with Lennar, one of the largest home construction companies in the US. New Lennar homes offer built-in smart home capabilities powered by Alexa, from thermostats to doorbells.

Amazon has also invested in about 30 smart home-related deals through its Amazon Alexa Fund, and has acquired smart home companies including:

• Doorbell and smart camera startup Blink for $90M in 2017
• Connected doorbell Ring for $1B in 2018
• Wi-Fi mesh network startup Eero in February 2019

The number of smart home appliance users in the US is expected to more than double to reach 64M by 2025. With these acquisitions, Amazon is preparing to win big as the market takes off.

10. Home & garden: Capitalizing on supply chain expertise

When Amazon launched its Plants Store in early 2018, the garden sector was wrestling with a change in attitudes across the industry. But Amazon had strong evidence that its logistics and distribution expertise could make gardening a profitable niche for the company to grow into.

Many younger consumers, particularly first-time homeowners, view gardening as a product or service rather than the leisurely, long-term pastime of older generations. Generally, younger consumers want plants, but don’t have the time to devote to keeping difficult plants alive. They also often prefer to order plants online rather than visit a nursery in person.

Especially amid the Covid-19 pandemic, plants have become a way for some to experience nature while stuck indoors or while unable to travel. In fact, garden retail was one of the top industries experiencing growth amid the pandemic, with sales increasing by 8.6% year-over-year in spring 2020.

Online companies like The Sill and Bloomscape have successfully carved out a space in the home & garden industry by making the plant selection process less risky. They primarily sell plants that are hardy and easy to keep alive, include detailed care information, and offer a money-back guarantee on plants that die soon after purchase.

But the challenges of shipping plants — along with rapidly changing climates, ongoing changes in water restrictions, and heightened demand for hardier plants — have made the home & garden sector more difficult for smaller, brick-and-mortar operations and online-first startups to navigate successfully.

The Sill ships nationwide from its own warehouse and shipping facility, which is crucial for maintaining quality control when it comes to shipping plants with specific needs.

When Amazon launched its Plants Store in 2018, it gave consumers the ability to sort plants by a range of criteria, including size, type, climate zone, and even the amount of sunlight required for optimal growth. Source: Amazon

Amazon could expand its footprint in gardening by using its warehouse network, nascent brick-and-mortar network, and massive advantage in the supply chain to make buying and selling plants online more convenient for its associated merchants.

Amazon’s acquisition of Whole Foods and emerging conventional grocery chain could be powerful leverage in disrupting the gardening space.

And with 110 fulfillment centers nationwide, Amazon’s superior logistics infrastructure could pose an existential threat to traditional home and garden centers.

Amazon can continue to apply pressure on incumbent plant suppliers by directly appealing to younger, more convenience-focused consumers who continue to see gardening as an extension of their lifestyle.

11. Media & entertainment: Expanding into the gaming and audio markets

Video games represent a $211B market, according to CB Insights’ market sizing tool. Amazon has already entered the fast-growing market through acquisitions and launching a gaming subscription service.

In 2014, Amazon acquired video game live streaming platform Twitch for $970M. At the time, the platform had 55M visitors per month. But by 2020, it boasted 30M daily visitors who tune in to more than 7M streamers. The pandemic spurred Twitch’s rapid growth, and it has expanded to offer non-gaming content as well. The platform now hosts 91% of all streamed content, making Amazon an undisputed leader in the live streaming space.

Amazon also launched a cloud-based subscription gaming service called Luna in September 2020. Users can play a variety of games for a monthly fee of $5.99. The company has launched Luna controllers. However, the service is still in the early access phase, so users who sign up must wait for Amazon to give them access to the Luna platform.

Source: Amazon

Amazon faces strong competition in the cloud gaming market. Microsoft’s Xbox Game Pass service recently passed the 25M subscriber mark and is constantly expanding its portfolio of games. But not all tech giants have found success in the gaming market. Stadia, Google’s cloud gaming service, struggled to turn a profit after launch. Recent reports claim Google has demoted the project and will instead focus on using the technology as a white-label service.

In addition to gaming, Amazon is investing in audio. In August 2021, reports surfaced that claim Amazon Music is building out a live audio feature that would host artist performances, podcasts, and radio shows. The company plans to incorporate the feature inside Twitch as well.

Amazon also acquired podcast network Wondery in 2020 for an undisclosed sum, a move that shows its dedication to the audio streaming industry. Today, the company is the largest investor in the audio business, surpassing Spotify. Although Spotify is the streaming platform with the highest market share, Amazon Music is growing faster than its Sweden-based rival.

12. Handcrafted goods: Amazon Handmade takes on Etsy

In 2015, Amazon launched Handmade, a store for handcrafted goods to take on the $680B handicrafts market. Since then, it has seen a 20x increase in product selection and a 7.5x increase in the number of sellers who come from over 80 countries.

Source: Amazon

Despite the success of Handmade, its chief competitor Etsy is still performing well in the market. The number of active sellers has grown steadily over the years. Thanks to the explosion of e-commerce in 2020, the number reached 4.3M, up from 2.7M the previous year.

However, Etsy has also increased the fees sellers pay on the platform through an Offsite Ads program. With Offsite Ads, Etsy will run online ads on behalf of merchants. If a customer clicks and makes a purchase, the seller will pay a 12%–15% fee in addition to standard fees. Offsite Ads are only optional for sellers earning less than $10,000 per month.

Amazon Handmade requires merchants to sign up for a seller account that costs $39.99 per month, in addition to fees, and then sign up for Handmade. Once Amazon approves the application, the merchant will no longer have to pay the monthly fee — only a 15% fee for every sale.

Even though Handmade offers fewer categories than Etsy, merchants can benefit from Prime shipping and a big consumer base. Considering 63% of sellers reach profitability within their first 12 months on Amazon, we can expect Amazon Handmade to continue attracting merchants who want to bring their handcrafted products in front of a large audience.

The post The 12 Industries Amazon Could Disrupt Next appeared first on CB Insights Research.

The search giant is building advanced quantum computing hardware, has a strong focus on developing quantum AI, and is putting significant energy into achieving scientific breakthroughs around quantum. Alphabet (Google’s parent company) also has a secretive non-Google team called Sandbox working on quantum tech. Expect Google to look to gain an edge by integrating quantum-powered AI capabilities throughout its product ecosystem.

We dig into all of these themes, and more, below.

Read more about big tech’s quantum activity in the full Big Tech In Quantum Report.

Google is building cutting-edge quantum technology

Google targets 1M qubits by the end of the decade

Google builds its own quantum computers, and its machines are currently among the most powerful in the world — though not yet capable enough for useful commercial applications.

Google is planning to up the number of qubits (what quantum computers use to calculate things — the more the better) to 1M by the end of the decade. The company believes this will be enough to run an error-corrected, commercially relevant quantum computer.

Google just opened a quantum computing campus

Google has built a quantum AI campus and data center in Santa Barbara, California to house its main quantum computing efforts.

This indicates that it is doubling down on its quantum computing bets and is expecting the tech to become a more significant part of its business.

Source: Google

Alphabet has a secret, non-Google quantum effort

Alphabet has a software-focused quantum team called Sandbox that is dedicated to applying quantum technology to near-term enterprise use cases. Sandbox operates mostly in stealth mode; however, recent job postings and past comments from its leadership indicate that its work includes:

• Quantum sensors — There are hints that Sandbox is working on a hypersensitive magnetism-based diagnostic imaging platform, possibly a magnetoencephalography (MEG) system for reading brain activity, that combines quantum-based sensitivity gains (tens of thousands of times more sensitive than typical approaches) with quantum machine learning to disentangle a signal from background noise to boost sensitivity. This could allow for more precise scans or for cheaper, more flexible deployments of magnetic-based imaging devices for use beyond hospital settings, as well as improved access in lower-income countries.
• Post-quantum cryptography (PQC) — Quantum computers threaten much of the encryption used on the internet. Post-quantum cryptography will defend against this. Expect Sandbox’s work to be focused on helping enterprises transition to PQC and making Alphabet’s sprawling online services quantum-safe. (Find out more about post-quantum cryptography in our explainer.)
• Distributed computing — This tech allows computers to coordinate processing power and work together on problems. Sandbox’s work here may focus on integrating near-term quantum computers into distributed computing networks to boost overall capabilities. Another approach would be to use quantum optimization algorithms to help manage distributed networks more efficiently.

Google has made scientific breakthroughs

Google establishes itself as a quantum science leader

Google partners liberally on quantum initiatives

Google has partnered with several quantum computing startups — including QSimulate, IonQ, AQT, and Pasqal — on quantum computing projects. This helps Google tap into additional industry expertise while more tightly weaving its quantum computing platforms into the broader ecosystem.

The tech giant is also working with numerous university teams and some corporations, including Nvidia and Boehringer Ingelheim.

Google’s quantum advances keep it in the news

Google could benefit from a quantum AI ripple effect through its businesses

Google thinks that quantum AI is a killer early app

Google’s main quantum efforts are branded under Google Quantum AI and the company sees artificial intelligence as a key application of quantum computers — even in the near term with only moderately powerful machines.

Google has also developed an open-source platform for building quantum machine learning models, TensorFlow Quantum.

Source: Google

AI is key to Alphabet’s long-term business goals

Alphabet is investing heavily in all sorts of AI tools to integrate into its businesses. Though quantum machine learning is only one aspect of this broader strategy, the company is indicating through its big bets in the space that it is bullish on the tech. If it succeeds, then Alphabet could use quantum computing to eventually boost AI initiatives across its entire business.

“As we are thinking about AI, it all starts with foundational R&D we do. I think we are one of the largest R&D investors in AI in the world. And so thinking ahead and doing that and we are doing it across all the foundational areas and we are taking many diverse approaches.” — Sundar Pichai, Alphabet CEO, Q1’21 earnings call

Alphabet’s businesses are set to go quantum

Many of Alphabet’s businesses make use of AI in some capacity. These areas could be given a significant boost by advances in quantum AI, including business lines like:

• Search and ads — Quantum computing will allow for better ways to parse through big datasets quickly. Advances in natural language processing (NLP) that stem from quantum machine learning could help deliver more relevant and targeted search results and ads.
• Waymo — Quantum machine learning could help AI make faster decisions based on less data. Applying this to self-driving car tech could help autonomous vehicles better adapt to dynamic situations on the fly.
• Google Assistant — Just as quantum NLP could help Google better understand websites, it could also help its voice assistant better interpret requests. The company may be hoping to gain a quantum edge over rival voice assistants.
• Google Cloud — As well as offering cloud-based quantum computing services to enterprises, Google could use quantum algorithms to better manage tasks like cloud data storage.
• DeepMind — DeepMind has built a reputation for pushing AI capabilities to the edge, like with its protein folding prediction tool for drug discovery. Quantum machine learning would amplify many of DeepMind’s tools and may eventually help defend against competitors looking to catch up with it.

Looking ahead

To find out how Microsoft, Amazon, IBM, and Intel are competing with Google, check out the full Big Tech In Quantum Report.

The post Google In Quantum: How The Tech Giant Is Competing For The Next Era Of Computing appeared first on CB Insights Research.

Against this backdrop, big tech companies Facebook (now Meta), Apple, Microsoft, Google, and Amazon are investing heavily in securing their platforms and building cybersecurity products and services.

Download the report to find out:

• How big tech companies are adding layers of security to their cloud platforms and devices
• The different areas of cybersecurity where big tech is investing
• How big tech giants are responding to privacy concerns and regulations
• Where each big tech company is headed in the cybersecurity space

REPORT HIGHLIGHTS:

• Big tech is committed to security. While each company has made investments in cybersecurity, Google and Microsoft stand out with their recent pledges to spend $10B and $20B, respectively, in this area over the next 5 years.
• There is a battle to secure the cloud. Microsoft, Google, and Amazon view cloud computing as a massive revenue opportunity and are seeking to win customers by offering superior protection. 
• Privacy is a divisive issue for big tech. While Apple is rolling out privacy protections and shaping public opinion on the topic, Facebook continues to face penalties for its use of customer data. Each big tech company must grapple with how it handles the customer data at its disposal.
• Cybersecurity represents a new revenue stream. Through recent acquisitions, several big tech companies have moved beyond protecting their own products to offering cybersecurity services to other companies.

The post The Big Tech In Cybersecurity Report: How Facebook, Apple, Microsoft, Google, & Amazon Are Tackling Cyber Threats appeared first on CB Insights Research.

Funding to quantum tech startups soared to record levels in 2021. Media interest in the space has continued to climb. New milestones and scientific breakthroughs are being announced at a quickening pace.

Against this backdrop, big tech companies Google, Microsoft, Amazon, IBM, and Intel are investing heavily in building their own quantum computers and developing applications around enterprise use cases.

With enormous prizes on the horizon, none of these big tech companies want to be left behind.

Download the report to find out:

• How big tech companies are looking to gain from quantum advances and their strategies for commercializing quantum computing
• The different approaches they are using to develop their own quantum computers
• How big tech giants are using partnerships to build out their quantum capabilities and stake out market positions
• Which strengths and capabilities differentiate each big tech company in quantum

REPORT HIGHLIGHTS:

• Big tech’s quantum activity is ramping up quickly. Google, Microsoft, Amazon, IBM, and Intel are all developing their own quantum computing hardware. Big tech companies have already been behind several breakthroughs in the space.
• Cloud is an early area of quantum competition for big tech. Google, Microsoft, Amazon, and IBM have all launched quantum computing services on their cloud platforms. Numerous startups have partnered with big tech companies to offer remote access to a broad range of quantum computers.
• Big tech is poised to forge ahead with quantum advances. Google, Microsoft, Amazon, IBM, and Intel all have ambitious quantum roadmaps. Expect rising qubit counts and more frequent demonstrations of commercial applications.
• Watch for quantum computing to become a hot geopolitical issue, especially for US-China relations. Expect quantum-forward big tech companies, including China-based Baidu and Alibaba, to be drawn deeper into political debates. In the US, government efforts to rein in big tech could be countered by officials nervous about keeping up with countries racing ahead with quantum technology.
  

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