On this episode of the Making Markets Podcast, host Daniel Newman shares his insights on some of tech’s big stories this week and the market reaction:
- Facebook: A brief look at what is happening on Capitol Hill as Facebook once again is under fire. This time for its knowledge of Instagram’s negative effect on teenage girls, but the apparent decision not to make any changes as a result.
- Zoom + Five9: A quick update as this deal fails to receive confirmation as Five9 shareholders vote it down. Next week we will try to get Five9 or Zoom on the show.
- Amazon: The bulk of the show focused on Amazon’s big devices launch event this week. The scrutiny of Astro and the company’s surveillance and why a lot of that is sensational headline fodder. Amazon’s devices business is a growth engine.
You can grab the video here (and subscribe to our YouTube channel if you’ve not yet done so).
You can also listen below or stream the audio on your favorite podcast platform — and if you’ve not yet subscribed, let’s fix that!
Disclaimer: The Making Markets podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Daniel Newman: It’s always interesting to watch the market react to Amazon’s device and service launches events. There’s always an element of surprise, and there’s always a product that gets a ton of pushback. But there’s so much more to the device’s growth story, and it really is part of the overall Amazon growth story. We’ll dive into this and more this week, on Making Markets.
Announcer: This is the Making Markets Podcast, brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies, bridging the gap between strategy, markets, innovation, and the companies featured on the show. The Making Markets Podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, Principal Analyst and Founding Partner of Futurum Research, Daniel Newman.
Daniel Newman: Hey everybody, welcome to Episode Eight of Making Markets. It is the 1st of October today when I record this, but we are wrapping up September, and we are running towards a month of big tech earnings. We’ll start off with IBM and Intel. In the end of October, we’ll see the biggest tech companies on the planet: Microsoft, Google, Facebook, and of course, Amazon, will all be reporting at the end of the month. And I’m sure we’ll be talking a lot about that here.
This week has been an interesting week in tech. It’s not been necessarily a huge week, from the standpoint of markets earnings, investor days; but it has been a really big week with a few pieces of news. And this show, I’m going to focus in quite a bit on the Amazon devices launch.
Now, a couple other big tech items that did take place this week, and I’ll just take a minute to talk about them. One, Facebook had a visit to Capitol Hill; and it finds itself explaining what is going on with Instagram after a scathing report came out via the Wall Street Journal, about the company’s research, that had essentially founded that young women, especially in the United States and in England, but around the world, were having some very negative experiences, some of which were even including an increased thought of suicide. And now, the company is being asked to answer for the Instagram experience, how it’s going to handle this.
I think this is just one more example of big tech regulation. Looking at what I would think are the more important specific issues, as opposed to some of its broader ambitions to regulate big tech as a whole. So, I hope that these hearings help to shape some ways that we can look at how to improve the way social media and big tech are targeting potential consumers; because we do love the experiences that we get from these technologies, from these platforms.
But at the same time, we have to pay attention to who we’re hurting, what we’re impacting, and what the long tail is here, because we are really just beginning to find out. So, this isn’t the first issue that Facebook has had with its platform being used for nefarious activities, and I doubt it will be the last. But this is going to be something to watch.
Also, just last night, news broke that the big deal that took place, or was supposed to take place, between Zoom and Five 9, a $14.7 billion, all-stock transaction, has been voted down. Five 9 shareholders have voted down the acquisition, which at the time of the acquisition, had a double-digit percentage premium, I believe it was 12. Confirm that. But after last quarter’s earnings, Zoom’s growth, which was still very impressive, and I’ve talked about that here, at over 50%, the stock has retraced though, almost 25%. And the shareholders at Five 9 decided to vote the deal down, which at this point means it will not be going forward. There has not been talk about a second bid.
Zoom came out, and provided comments that it feels very comfortable that its strategy and its platform will continue to move forward. There’s still a partnership between the companies. I’m not going to say much more about that. I am talking to Zoom and Five 9 about potentially having a guest on the show, as early as next week. So stay tuned for that. If I can get them on here, we will go more into that deal. If not, I’ll probably come back to it in next week’s episodes. We can talk a little bit more about the implications for both companies.
But, the highlight of this week, was when Amazon Astro, the company’s first robot on wheels, rolled out on stage. It really did steal the show. It drove a ton of media attention. We heard of Elon Musk talking about “everybody’s personal robot.” There was something about a person in a costume. Well, Amazon said, “Once again, we are seeing giant tech companies competing to break the mold, to disrupt society, and bring new products and services into market that are going to change our lives.” And Astro, a personal, in-home robot, in my opinion, shows a lot of ambition.
And as I said in the preamble of this show, it really does represent that product, that Amazon launches, and every quarter, or sorry, every year during its devices launch, that just gets a ton of attention for being kind of like, “Wow. Look at the company breaking the mold.” You’re going to get the haters. You’re going to get the people that are excited. You’re going to see people raising their hand and saying, “I want one.” You’re going to see people that are going to come out and say, “Oh, it’s too expensive.” You got a little bit of all of that.
Of course, in the last years, you remember the autonomous flying drone that Amazon released, that would fly around your home, and had camera, and it was going to be used for security. And it was going to be used to be able to provide additional access and information to what might be going on in your home. And everyone’s like, “Whoa, that’s pretty invasive. But at the same time, super cool.”
This year’s launch with Astro, being just one piece of their overall launch, drove a lot of attention. It got some headlines. One of the headlines that it got in The Verge, was how terrible it is, and how the device basically doesn’t work, that it’s internal developers at Amazon have come out, there are leaked documents saying the thing will throw itself down the stairs, supposedly. It has the technology to know better than that, kind of like a robot vacuum cleaner. It’s supposed to be able to map the floor that it’s on, and not have these things happen.
What I would say about all that is, these kinds of reports, these kinds of pieces that come out, you have to take them all with a grain of salt. First of all, when an announcement comes out like this, and it is from an anonymous source, it doesn’t mean it’s not true, it just needs to be further explored. I look at companies like Amazon, and I think to myself, “It’s very unlikely that Amazon is going to put a product in market that doesn’t offer a safe experience.” That doesn’t mean that a product like this, first of its kind, autonomous robot on wheels with a large screen and a camera, won’t have issues, won’t have flaws. We’ve seen it with Tesla vehicles. We’ve seen it with basically every new piece of technology in the market: Samsung devices that had batteries exploding. Things can go wrong, and safety can be a hazard for companies.
But I just would ask people that are out there, that are reading some of the headlines on this, to let the market and let people who start to buy these, tell a story; not let beta tests and leaked documents of products that are software-enhanced, that could be based upon experiences months or even longer ago, much earlier in the process, to find how you read into these products.
The other headline that really broke through around Astro was all about this really being just a surveillance device. And to that, I have to say, I chuckled a little bit. And I’m not chuckling because of surveillance in big tech, and the idea that it’s watching us; I chuckled because of the idea that we carry a device around, almost everybody; I’m sure if you’re listening to this, you are among this group. You carry a device around in your pocket that actually we opt into to surveil us. The combination of the fact that most and many of the apps that we use have access to our microphones, have access to our cameras. We volunteer information. We are on them, staring at them lovingly, all day, many of us for 8, 10, 12 hours a day, inputting our information to a barrage of different applications that all have very data-rich opt-in experiences that we basically trade for.
We say, “Hey, I want Facebook. I want Instagram. I want Twitter. I want Amazon. I want Netflix.” Well, every time we use one of these apps, we’re giving up our data. So, a robot on wheels that rolls around our house, that has a camera that can potentially watch what we do in our homes, can feel pretty invasive; but we actually carry that device in our pocket. And before that, the Amazon echos or smart television sets we buy, an iPad, a laptop computer, all surveil us. To me, that particular argument, I’m sorry, but that doesn’t really hold any water in my opinion.
So hopefully, people will kind of think critically about this one, and not let the headlines get them too much. I always find it interesting with Amazon, how much more negative people are about the privacy issues than they are with other devices. Right? We think of Apple as the privacy company; and perhaps they are, in terms of giving data to other companies. But what about the way Apple itself uses that data? It’s a very interesting conundrum. Privacy is going to be a big topic. It’s another one of the things that big tech regulation is going to have to focus on.
But, as I promised in the beginning of this show, when I was warming us up in the intro, I basically said that devices is an interesting business, and it’s a growth business. And so, I want to just take a few minutes to talk about that. Because Astro itself was just one product, but we’re seeing the way that Amazon is diversifying its launch.
A few of the new products that caught my attention from this particular launch was the Show 15; it’s a $250, 15.6 inch device that goes either wall-mounted or goes on a tilt stand. This thing, it’s not a super-computer by any means, but it’s a powerful family organizing device. It can be used to watch movies, television in your kitchen, it can be your calendaring event. Of course, it’s got all the basic Alexa features, super cool. And like I said, just another expansion of that overall echo lineup. So, we really have a whole product assortment with Echo, that goes all the way from your dock devices that are the plug-in devices that can go into a child’s room or in a hallway, all the way up to these large format show devices. And they’re all pretty reasonable. You can get into these things at $40, $50 entry points. And this large format only is $250.
The company also did this cool GLO device, which is all about allowing children to speak to their extended families, using a combination of video and apps. So it’s got a display and that touch-sensitive projected space, where you can color pictures with grandma. And they partnered with a bunch of interesting companies here too, like Disney, Mattel, Nickelodeon, Sesame Street. Based on the pandemic world we lived in, I think that’s pretty interesting.
There was another set of new devices; there was a bunch of Ring updates. One of the ones I thought was pretty cool was the Ring set up for job sites. We all know Ring doorbell; it’s been super popular. Millions and millions of these doorbells are out in the marketplace. But now, we have the ability to basically put Ring on a job site, and protect the job site. It’s a step forward; another way to make money, of course.
Ring also started offering the ability for people to turn on the service of a monitoring solution. So, it partnered with a company to do monitoring. So that’s something you can turn on; you’re leaving town, you want your doorbell or your garage monitored. You turn it on, turn it off; it’s like an on-demand, consumption-based monitoring service.
So many solutions, though, came out; health solutions and nutrition solutions. You have what I mentioned with Ring and those solutions. You have their Together solution, which is all about caregiving. And let’s call it what it is; these are gateways, in the sense, to building a deeper and more meaningful relationship with Amazon.
Now, there’s a totally reasonable thought process about asking the question, “Why would I want to do that? How do we work more closely with Amazon? Should we be giving it more data?” And the truth is, I think that’s something every single person has to evaluate individually. But when you look at platforms, you look at added value in people’s lives. You look at what the company’s trying to do. I think it’s a combination of doing good and building revenue, revenue streams, and building the business. You look at Ring Protect Pro, you look at Amazon Together in the care hub. You look at Astro, and the ability for it to potentially track, set off an alarm, if someone is at your door when you’re out of town. These are the things that most people would feel pretty good about; but in my opinion, overall, this is a massive boon for growth for Amazon.
What you’re really looking at is company that’s got really sticky set of devices that are going to be in our homes, that are going to be driving revenue, that could potentially add significant business, adding significant business to the company’s top and bottom line.
So one of the quick questions that I think everybody needs to look at with the Amazon devices play is, when you start thinking about its service mix; and this is similar to what Apple is doing with music, with TV Plus, with its Arcade. Amazon is connecting services, whether it’s Ring, and the ability to monitor, whether it is these care services, whether it’s nutrition services, or it’s some of the ones that we probably know better, from Prime: music, movies, television. We know about the MGM acquisition that’s underway, and has a good probability of being completed.
It’s all about attaching additional revenue streams. The commerce one is the most obvious, right? As we begin to do more natural language processing, and we’re talking to our devices, and we are ordering things, of course, these devices are going to be operationalized and optimized, to be able to order from Amazon. That definitely drives more traffic. It builds… The Cloud businesses; companies become more interdependent with devices, more data, more workloads. It gives AWS growth and scale.
And of course, at this point, a lot of people look at the devices business, and think, “Oh, it’s pretty nascent to the overall company.” And, there is some truth to that. Doing some napkin math, I looked at it; I said, “In 2020, the company Amazon did almost $386 billion in revenue. But it’s fair to say that from a top-line, devices-only played a pretty small role.”
You can get some statistics out there about number of total units; Strategy Analytics said in 2020, Amazon sold about 55 million units of Echo. Ring doorbells did about 1.4 million units in 2020. So, if you looked at around $100 average unit selling price for all of those units, you’re talking about $5.5, $6 billion in total revenue, which is only 1% or 2% of the revenue from the devices themselves.
But that’s not the whole story. The whole story is, every one of those devices attaches. You have Prime attaching, you have potential added purchases of music, audio books. You have any and all e-commerce that attaches. You have a relationship being built. We talked about this Amazon GLO. But even just the Amazon plug-in Echo devices that go into your kids’ bedrooms, how they’re reading bedtime stories; you are interacting with this device. And at 5, 7, 10-years old, these children are building a relationship, a very personal relationship, with Amazon, with these devices. And that relationship will most certainly translate to a more meaningful consumer relationship as these children grow up, and become consumers themselves.
So that’s where I think the Amazon devices story, it’s less about Astro. The Astro product is super cool. I will probably buy one. I will write about it. I will probably have pictures of it all over my Twitter feed. And I will be the first to let the market know; or maybe not first, but I’ll be one of the first, to let the market know if there’s value here. And I think this is just the beginning of what this robot, and “robot for every human” experience is going to look like in our lives. Of course, we have robots that are software, and we have robots that are hardware; and Amazon is breaking the mold here.
But anytime you break the mold, you are going to challenge the status quo. You are going to receive a scrutiny. And, like I said, Amazon, for whatever reason, of the big tech companies, oftentimes gets more scrutiny than potentially it deserves, given many of the good things it’s doing with climate pledge, with hiring, with investment in small businesses and communities. There’s a lot of things the company is doing that it doesn’t tend to get credit for. And that’s kind of always that balance between being profitable and being successful and capitalistic, and feeling like maybe there is more the company could do.
I believe big tech, whether it’s ESG or DEI, will continue to play a huge part; it needs to continue to play a huge part. Amazon is doing its part. Can it do more? Well, that’s going to be something that the market and Amazon will have to continue to decide. But providing and bringing us the newest technologies, bringing us affordable security technologies of smart home technologies that can connect to our house. Being able to talk to a device for security and for caregiving. This is a lot of good stuff. It’s going to attach to a lot more services and skills, and bring a lot more revenue to the company, both in the near future, but also over the long-term, as those that are using Echo every day build a deeper and more meaningful bond, and it becomes a big catalyst of growth for Amazon.
So, devices launch, check. New robot, check. Whole list of new devices, check. But the story here, is really all about Amazon, and how all of this technology will help the company grow. And it’s hard to believe that it won’t. And that’s a wrap here on Making Markets. See you again soon.
Announcer: Thank you for tuning in to Making Markets. Enjoy what you heard? Please subscribe to get every episode on your favorite podcast platform. You can also watch us on the web, at futurumresearch.com/makingmarkets. Until next time, this is Making Markets, your essential show for market news, analysis, and commentary on today’s most innovative tech companies.