Author(s): Ben Wood
Amazon is among the most secretive companies in the technology space and one rarely gets an insight into the details of how the company is performing. However, in what has become an annual ritual, founder and CEO Jeff Bezos has offered his latest thoughts on the progress of the company in a shareholder letter published this week.
The headline statistics make impressive reading:
- Prime: 100 million customers worldwide; 5 billion items shipped in 2017; 100 million items shipped in the US using unlimited two-day delivery.
- Echo, Echo Dot and Fire Stick: tens of millions of units sold.
- Alexa: 30,000 skills available; 4,000 smart home devices from 1,200 companies now supported; 15 percent improvement in far-field speech recognition and more than 25 percent improvement in Alexa's spoken language understanding.
- Amazon Music: tens of millions of paid users, with the subscriber total for Amazon Music Unlimited more than doubling in the past six months.
- Amazon India: the fastest-growing online marketplace in India.
For anyone who doubted the momentum that Amazon has achieved, these numbers provide clear evidence of its strength in online retailing.
For several years, the company has indicated that Prime members spend more than other Amazon users. The milestone of 100 million subscribers and an average of 50 items shipped per membership speaks volumes, and underlines how much work Amazon has put into recruiting Prime customers and spurring usage of the service.
But the story doesn't end there. Amazon is pouring money into its Prime Video service, which it clearly says is "driving Prime member adoption and retention". When launched, Prime Video was an audacious move that some considered a misguided decision. But its success is clear, particularly if the main goal for the platform is to fuel the powerhouse that is Amazon Prime.
This has a double benefit. The combination of services in Prime has a self-reinforcing effect, which Amazon describes as a "flywheel" for growth. But it's also an impossible mix for specialist rivals, such as Netflix, to copy. Amazon will hope that the tight coupling of content with Prime will generate unrivalled scale, which over time will enable it to spend more than Netflix and others on original programming. This potent combination is a daunting prospect for Amazon's competition in retail and content.
Efforts in other areas are also paying dividends. Amazon enjoyed its best year in 2017 in terms of hardware sales. The tens of millions of Echo devices and Fire TV Sticks that were sold have added further contact points in the homes of already loyal Amazon users, merely reinforcing their engagement with the complete Amazon experience.
Alexa, the cornerstone technology for Amazon's smart speakers, is also making impressive strides. The figures Amazon reported in its letter aren't new, having been revealed at CES in January (see CES 2018: Connected Home). But the sheer number of skills and compatible smart home devices gives Amazon a tremendous head start over major rivals like Google and Apple. Furthermore, there's phenomenal progress being made behind the scenes in the infrastructure that makes Alexa's technology work, in domains such as artificial intelligence and machine learning.
The bottom line is that Amazon continues to set the benchmark in many areas, and as its global reach expands in highly strategic markets like India, the pressure on rivals will be relentless. The question is how long it will continue to be reliant on its Amazon Web Services cloud business for profit, given that the consumer business remains in full-throttle investment mode. There appears little sign of this outlay slowing down.
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