Watching Amazon: In the Age of Amazon, AWS was the Biggest Game Changer of the Decade

When my Watching Amazon co-host John “ColderIce” Lawson and I recorded our latest episode, we were focused on the recent announcement Amazon made barring their third-party merchants from using FedEx ground service to deliver to Prime members, hinting that it thinks the service is too slow to get packages to their destinations in time for # Christmas. And while we got into the implications of that move for sellers on the platform, we touched on a prediction that Amazon could actually double their revenue by 2023 — which seems like an incredible feat if they can pull it off.

Amazon in the 2010s and Beyond

But with this being the end of another decade — a decade in which Amazon seemingly dominated the headlines in a variety of ways – we had to discuss what we think was the most impactful “thing” the company was responsible for during the 2010s.

Below is an edited transcript of our conversation. To see the full convo watch the video or click on the embedded SoundCloud player below.

John Lawson: Amazon is blocking its third party sellers from using FedEx corps ground delivery for prime shipments this year.

Brent Leary: And why is that?

John Lawson: Because of that 90% number, that’s what they say.

Brent Leary: That’s probably the… That’s the reason they’re giving.

John Lawson: That’s the reason they can say, okay, let’s push the button now.

Brent Leary: Yeah, because look they’re slacking.

John Lawson: And they’re saying they don’t know when they’re going to remove that requirement.

Brent Leary: Right.

John Lawson: I’m saying they’re never going to remove the requirement.

Brent Leary: Even if they do remove it at some point, it won’t matter at that point because-

John Lawson: It won’t matter at that point because they’re already compensating for all the new packages that they have to deliver without that system in place. But you have to understand too, man, this is a big move. This is a arm twist for independent business owners that are running on the platform, because now you can’t even pick who you’re going to use. They’re saying, no, you have to use our service, which I believe ultimately is their move in general. One hundred percent. They weren’t all packages delivered by…

Brent Leary: This is all about controlling the complete supply chain in the ecosystem-

John Lawson: Whose control?

Brent Leary: Amazon. Because they’re going to get blamed for the customer experience, whether it’s good or bad, it’s going to always point back to Amazon. So if that’s always going to be the case, you want to have as much of that control of that overall experience ecosystem as possible. So if you have FedEx screwing up deliveries-

John Lawson: No, it’s not “if”, we remember in 2016 when UPS screwed up all of their deliveries-

Brent Leary: Right, and who got the blame?

John Lawson: It was all about Amazon so I get the control.

Brent Leary: So this is all apart because if they’re going to get the blame, they want to make sure that they at least are worthy of the blame.

John Lawson: Man, just the thought though of all the third party sellers now on the platform being… Okay, here’s my problem, in order to use Amazon systems currently, you have to be a prime member, you have to ship the item into the warehouse and that price for sellers continuously goes up, up, up, and you also have load balancing that you have to maintain because if you have too much inventory in the warehouse, they ding you and they charge you extra.

Brent Leary: Well, you would have to think that Amazon – who will have more and more control in market share of shipping – won’t they be able to control costs when they have more of that market share and that should hopefully stabilize things.

John Lawson: I think they have control of the cost of delivery, but I think pick, pack and ship and storage are revenue streams for them.

Brent Leary: They definitely are revenue streams.

John Lawson: Yeah and they’re going to tweak it more and more on their end and less and less backwards.

Brent Leary: And once again, having more control of that allows them to get more people into the program by saying, Hey, if you join this program, we’ll cut you some discounts.

John Lawson: Yeah, to some degree I think they are… we are seeing some of that too, but also we’re seeing a strain on the warehouse. You know, there’s a constraint here. It’s always going to be the square feet of space-

Brent Leary: Right.

John Lawson: … right? So the more people you bring in, the more constraint you have on the square feet of space.

Brent Leary: Yes, the more people means more things are going to have to be put into the warehouse.

John Lawson: Right.

Brent Leary: But they’re building warehouses, and more robots.

John Lawson: Here’s one thing I… off topic a little bit, but I’m wondering if they could ever get into the vibe of Webvan where they built a little too much space too fast and it ends up kind of really putting the pressure on them.

Brent Leary: I think they’re probably smart enough to not do that-

John Lawson: Just because you do have a model to learn from.

Brent Leary: They’ve learned. Remember we just talked about how they learn from other people’s mistakes…

John Lawson: Yeah.

Brent Leary: That would be a huge one not to learn from. So I just can’t see that happening. But I can see, you know, UPS and FedEx really missing significant pieces of their business because Amazon is picking it up.

John Lawson: Now all of this is great. Our economy’s fantastic. God forbid there’s a slowdown.

Brent Leary: Well, it’s going to happen [eventually].

John Lawson: Okay, so what happens then? Are we going to have over inventory of warehouse space that’s going to be costly for them? We’re going to put in a whole lot of van drivers, going to see some layoffs… You never know what the…

Brent Leary: You know what? I think what they will do is before third parties start filling the warehouses with junk, they’re going to start getting more selective about what they will approve, what they will bring in-

John Lawson: They’re going to get more selective about who they’re going to do third party with.

Brent Leary: Absolutely.

John Lawson: Yeah, they are.

Brent Leary: Because once again, it’s a learning process. They’re going to learn about what sells, who sells, you know, and how efficient that sale is and they’ll take all of that in consideration before they approve people that are selling things that have no shot of getting out of the warehouse, which is clogging up space.

John Lawson: Right, we talk about getting the electronic thing and you want a cable, you got 3000 people that got the same stupid table. Do we need that?

Brent Leary: Exactly. OK Next up is an analyst report that says Amazon’s revenue to double by 2023-

John Lawson: 2023.

Brent Leary: Only like three years away.

John Lawson: In three years.

Brent Leary: Now he cites a couple of things that I do think are going to drive growth. AWS is going to continue to grow and not just top line, but profit margin too.

John Lawson: Okay, so that makes sense.

Brent Leary: And it’s profit. It’s really the biggie. Another one that is getting bigger and bigger over time, we talked about this a couple of times, you know, the Digital Ad stuff, I mean that overall Digital Ads are growing and I think Amazon-

John Lawson: And they only own a small piece-

Brent Leary: They’re third, but they’re a distant third.

John Lawson: Yeah, distant third and so there’s a lot of room.

Brent Leary: A Lot of room, there’s a lot of room for them to take from Facebook and Google, but there’s also just the overall market is growing too. So their piece is growing bigger and the overall is growing bigger and that’s going to drive-

John Lawson: That’s a good sign.

Brent Leary: Oh, and here’s the stat that just blows my mind.

John Lawson: What’s that?

Brent Leary: He estimates that by 2025, Amazon Prime membership, I don’t think this is just the US, I think its overall Amazon Prime, international Prime membership is going to reach 259 million.

John Lawson: Beep, beep. That so off the racks….

Brent Leary: Okay, so I threw a lot of stuff out there, I wanted to see if you thought this guy… and it’s not just him, there’s some other guys too, do you think this is this crazy talk or is this possible or is this, yeah, it’s going to happen.?

John Lawson: It’s not going to happen.

Brent Leary: Okay.

John Lawson: It’s not going to happen. I don’t think that’s going to happen. Matter of fact, if they don’t even talk about, within the next three years, Amazon being broken up by the Feds, then I don’t think you’re actually looking at the reality of things, especially what we just talked about, where they’re actually putting pressure on the delivery of package systems in the US, I cannot see them staying where they are and that breakup is going to cost them a lot of money.

Brent Leary: It’s fascinating. I mean this whole thing is fascinating. Their stock price is right around 1,700, 1,800, somewhere around there. This estimate said it’s going to grow to about 2,400 by next year.

John Lawson: By next year?

Brent Leary: That’s by next year. This is the other article that talked about how the big idea for 2020 is Amazon and he’s talking about it from a stock price.

John Lawson: See this is the whole thing though, because stocks are really kind of based on speculation, right?

Brent Leary: They’re there based on expectations more than anything. But I will say this, AWS and Digital Ads. Those are huge. And those are the huge profit drivers, so what does that do? That puts money back in for Amazon to spend on other stuff.

John Lawson: I give them 50%.

Brent Leary: Okay.

John Lawson: I can see that going up to around 2000. I can see it going up to 2000.

Brent Leary: But their revenues, annual revenues right now look like there are over 200 billion…

John Lawson: A year.

Brent Leary: … a year for everything. So this is basically saying by 2023-

John Lawson: It’d be four.

Brent Leary: Over 400 billion. That’s a huge number.

John Lawson: That’s a huge number bro.

Brent Leary: Here’s the big question. For this decade, out of all the things they’ve done, what has been the most impactful thing Amazon has done in the 2010s?

John Lawson: It’s AWS.

Brent Leary: That easy huh?

John Lawson: It’s that easy. It really is that easy. Because I remember being introduced to AWS, I was doing some videos and I had no place to really store all the videos. I just had so much stuff on hard drives, hard drives, hard drives and I was like, what is this AWS? And I was looking and I’m like, well nobody was really using it just for storage, right? If you think about it guys, I backup my Mac on AWS. There’s no software to just do backups-

Brent Leary: No interface whatsoever.

John Lawson: Right, it’s horrible interface. But it’s just raw places to store data. And I was like wow, that’s pretty cool, I can store all these videos in there. Cost me maybe a dollar and a quarter per month, right? Cause I don’t have any traffic to it, it’s just sitting there and to do that on Dropbox or any of those other drive services, even Google, it still costs me more. And I was like, wow, that’s really cool. Right? And then it had… these started getting the developers in that would build interfaces cause it’s raw, and they will start building interfaces to do that. And then you started seeing people build actual applications on there. I remember when they made it easy to build a WordPress site-

Brent Leary: Oh I remember that.

John Lawson: You remember that?

Brent Leary: Yeah.

John Lawson: And I was like, oh this is pretty cool because it’s so much cheaper than other WordPress things. And I just think what it went from that to where it is today is amazing.

Brent Leary: I will definitely say AWS too, but I’ll say it from a different perspective. You ever seen those commercials lately, of the little kid asking the father, why are you able to do that? Why are you able to watch this? Why are they able to, you know…

John Lawson: Yeah, yeah.

Brent Leary: And it’s all because these businesses were built on AWS. Think about Netflix. Before, you know, they actually used to go to the mailbox and you get your thing in the mail and you’re watching, you put it back in there. And that was when, content was still old fashioned to a certain extent. Yeah. But then they took off and they took off when they went digital. And why were they able to take off?

John Lawson: Because they were able to use AWS.

Brent Leary: Why are we even able to get Uber rides and Lyft rides?

John Lawson: AWS.

Brent Leary: I mean it’s the things that you talked about, but it’s also, it’s the business enabler that has taken off. And that leads to why AWS, to me, is the biggie because it empowered the changing of customer expectations. Because these companies like Uber or Lyft, they basically put a dent in the taxi cabs, but they’ve also created an expectation that customers are looking for in terms of the way that they get things. And we want to be able to track things and we want to be able to have as much information and control over our own experiences. AWS kind of unleashed that by letting people build these business models on top of their service.

John Lawson: Yeah, I mean, you can build anything you think of, you’ve got the computing power now available to you and it’s scalable.

Brent Leary: You don’t have to make a million-dollar upfront commitment to build out an infrastructure, you can pay as you go, and that once again, that chain, that’s been a game changer. It changes the way businesses are created and formulated and even in terms of how they operate most businesses. And you’ve seen AWS, signify the rise of the subscription business model in general. Before AWS there were, kind of like the book of the month club and stuff like that but…

John Lawson: I think they just digitized it all.

Brent Leary: And that that is pretty cool.

John Lawson: You know what? It’s the delivery.

Brent Leary: It’s not only the delivery-

John Lawson: It’s the ability to deliver it.

Brent Leary: But it’s also the… you have to have the customer service and experience baked in from the very beginning of the business model.

John Lawson: Yeah, but they don’t offer that.

Brent Leary: But they enabled that-

John Lawson: They enabled it. Okay.

Brent Leary: And by them having their own customer obsessive culture… You know, when people say, why can’t you guys be more like Amazon in terms of, just get me my stuff, make it easy for me to get my stuff. That also was part of the equation for these companies to say-

John Lawson: Absolutely.

Brent Leary: Amazon did it and now we’re able to do it too.

John Lawson: You’re right, and I’m overlooking a couple of things. Cause at first it was just storage, then it became, well we can bring Lex into it so that you can have voice embedded or you can have-

Brent Leary: That’ll be next decade’s thing-

John Lawson: That’s true. But all the other parts that Amazon creates, they make it available inside of the platform as well, so that you can tap into, already done, I don’t know what it’s called, but it’s all techy, right? Yeah, you know, so I get it.

Brent Leary: That has changed, you know-

John Lawson: Because there’s a lot of services inside of AWS.

Brent Leary: I mean, there’s too many to even think about, but I think that has really made a huge difference in the way business is done, in the way companies engage customers and how customers are now empowered because they do have more capabilities. It’s easier to switch from a service or a product when it’s digital, just digitally flipping a switch. So AWS, you got to say that, not only is the biggest thing Amazon has done in the decade, that’s amongst the biggest things in business for the decade.

John Lawson: One of the biggest things. Yeah.