What is Amazon's best acquisition?
IMDB? Whole Foods? IMDB? Twitch? IMDB? Kiva?
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Today, we’re talking about Amazon’s best acquisition. Was it Whole Foods? Ring? Twitch? Kiva Systems? IMDB? Your credit card?
Also this week:
Meta vs. TikTok
Can NFTs help turnaround an English football club?
Links and dumb memes
Amazon’s best acquisitions
Amazon recently announced that it’s acquiring One Medical for $4B. The company operates a chain of ~200 primary care facilities and serves 760k+ patients on a monthly subscription model.
It is Amazon’s latest move into the US healthcare industry, which accounts for 1/5th of the country’s GDP ($4T):
Haven: In 2018, Amazon partnered with Berkshire Hathaway and JPMorgan on a venture to solve healthcare for 1.5m combined workers at the three companies. The project folded last year (the memes in the Bezos-Dimon-Buffett group chat must have been lit, though).
Amazon Care: In 2019, Amazon created a telehealth program for its employees and has since rolled it out to a handful of corporate partners.
PillPack: Also in 2019, the e-commerce giant acquired this online pharmacy startup for $1B.
Scott Galloway believes that One Medical’s network of care centres can combine with PillPack and Amazon Prime’s 66 million households to create “a significant societal unlock” when it comes to healthcare.
I have zero expertise on whether it will work but do have a semi-related anecdote: when Amazon announced that it was turning PillPack into Amazon Pharmacy, I wrote a piece in The Hustle about how the move would affect DTC health startups like Ro (which ships erectile dysfunction drugs by mail). The write-up included the phrase “Big Dick Bezos”, which led to this response from the Ro team:
Anyways, the One Medical deal is a great prompt for this parlour game: “what is Amazon’s best acquisition ever?”.
According to Wikipedia — which 60% of the time is right every time — Amazon has made 112 acquisitions (totalling $37B+ based on financials made public). Here is every deal over $100m.
Which is the best acquisition? Well, we need to define what “best” means.
There are a few ways to look at it:
Market cap contribution: Ben Gilbert and David Rosenthal at the awesome Acquired podcast have a breakdown of the best tech acquisitions of all time. In the analysis, they say “the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value.”
By that measure, Facebook’s acquisition of Instagram comes out on top. Zucky McHarvard acquired IG for $1B in 2012. By the time of Acquired’s analysis in 2020, Instagram was making $20B a year, which was ~28% of Facebook’s revenue. And ~28% of Facebook’s market cap was $153B at the time. Ergo, Facebook’s $1B investment yielded a $152 absolute dollar return (Google acquisition of YouTube for $1.65B in 2006 yielded an absolute dollar return of $84.5B in the analysis). The gains are probably less impressive now but those two deals are still legendary.
Strategic: In 2008, Apple acquired a semiconductor design firm called PA Semi for $278m. Casual observers may not know the name but it’s one of the most consequential tech deals of the past two decades. While PA Semi isn’t a direct revenue contributor like Instagram or YouTube, the company’s 150 employees laid the groundwork for Apple’s in-house chip business that now powers everything from iPhones to AirPods to Macbooks. And with industry-leading specs (sorry Intel).
PA Semi indirectly contributes to Apple’s sales by allowing the company to charge premium prices and lock in users with better tech, but it’s hard to tease out. Conversely, Instagram and YouTube were also strategic home runs but their revenue-to-market cap contributions are much more straightforward to calculate.
Back to Amazon. The $1.4T company has so many business lines that it’s hard to place many of the M&A deals into either of the buckets (eg. Whole Foods makes ~$20B a year but it is low margin and the operation has complex strategic implications for Amazon’s delivery, Prime bundle and brick ‘n mortar ambitions).
Still, let’s use the parameters as a starting point and try to answer the following questions:
What is Amazon’s best acquisition to date?
Which acquisition will be the best 50 years from now?
What is my favorite acquisition?
What is Amazon’s best acquisition to date?
I outsourced this question to the Twitter hive mind and got ~200 responses.
The most popular pick for “best” Amazon acquisition ever was:
Kiva Systems, a robotics company that Amazon acquired in 2012 for $775m (it’s since been re-named to Amazon Robotics). Over the past decade, Kiva robots have been key in automating Amazon’s fulfilment centres.
The robots look like large Roombas and move products around the warehouse, helping Amazon “pickers” package orders. Check them out:
The Kiva acquisition falls into the “strategic” bucket and — like PA Semi for Apple — provided a key technology for Amazon’s operations. Translation: you have Kiva to thank for that same-day shipping of a single toilet paper roll. (Also, I’m not defending any of Amazon’s warehouse working conditions…just talking about the technology…please don’t @ me).
While Kiva doesn’t have direct revenue contribution, investor Ajay Agarwal explains how the technology hugely affects Amazon’s cost structure:
Amazon employs 1 million workers, the majority in the fulfilment centres. Kiva 3x the output of one worker. So, without Kiva, Amazon would need 3 million people. Amazon’s attrition is 3% per week, so this would imply 5 million workers/year need to be hired just to maintain steady state. They'd run out of people!
For Amazon, an extra 1 million warehouse employees — at $18 an hour — would cost ~$40B a year. Kiva was also a strategic coup because it took a major technology player off the market just as e-commerce was hitting its stride. Shortly after acquiring the company, Amazon
Big Dick Bezo’d cancelled Kiva’s contracts with Home Depot and Staples.
Not everyone is sold on Kiva, though. A few Twitter replies said that the robotics technology is limited by the way it moves around a warehouse (scanning barcodes on the ground) and the types of packages it can carry.
Here’s a reply from Will Phelps:
Started my career with Amazon and worked with several fulfillment center people closely tied with the Kiva Systems integration. It was never very clear that the robots paid off due to their lack of flexibility.
The bar code scanning was an occasional but fixable problem. The biggest issue was how Kiva was built for softline shoe boxes but Amazon sells everything.
You lose a lot of space utilization efficiency compared to a traditional fulfillment center library, which led to lower stow and pick rates which equals more labor cost for something that was supposed to save you labor costs.
So there’s that.
The other top picks for Amazon’s “best” acquisition are all revenue generators.
Twitch: Acquired for $940m in 2014, the platform already makes $2.6B a year in revenue. And it has a dominant share in the growing live-streaming business.
Ring: Acquired for $840m in 2018, the smart-home hardware business — with a recurring revenue (subscription) component — gives Amazon a foothold in people’s homes and could be the lynchpin for even crazier strategic integrations around home delivery and the Prime bundle (side note: I have a Ring and love it, but also realize that the data collection has potential to be dystopian AF). It’s making $500m-$1B a year.
Audible: Acquired’s David Rosenthal unearthed some wild numbers on the audiobook app (“Currently has 40%+ market share of the $5B audiobook market, which is growing at 25% (!!) YoY. Market size projected to reach $35B by 2030. All high margin digital revenue.”)
MGM: Haha, kidding. No one said this. But the $8.5B deal for the film studio gives Amazon great streaming IP for the Prime bundle, including two of the most valuable media franchises in the world (James Bond, Hot Tub Time Machine).
The revenue-to-market cap multiple is a bit trickier for Amazon. Why? Because 70%+ of its $400-500B annual sales is in the high-volume but low-margin e-commerce business. Therefore, none of the these deals sniff the revenue contribution that Instagram makes for Facebook.
A more appropriate standard would be to compare the operating profits — if any — from these business segments to Amazon’s cloud business: Amazon Web Services (AWS). AWS is on a comical ~$80B annual run rate and accounts for the majority of Amazon’s operating profits (the high-margin Amazon ads business is up to a $35B annual run rate, too).
Twitch and Audible are primarily digital businesses, so the future contributions to operating profits could def be significant…especially if P. Diddy’s line of Audible meditation recordings take off:
Which acquisition will be the best 50 years from now?
Other replies for the “best” acquisition flagged the long-term potential of a few deals:
Whole Foods: Amazon has been trying to figure out grocery shopping for ages. It’s very different to deliver books vs. perishable goods. As Ben Thompson says about the $14B Whole Foods deal from 2017, the grocer gives Amazon a “first best customer” for innovation in food management and logistics. Five years on from the deal, Amazon hasn’t done anything groundbreaking with Whole Foods. But grocery is a potential weak spot in the Prime subscription bundle, so we may look back at the deal as a game-changing defensive play.
Zoox: In the same way that Kiva helped to automate warehouse work, Zoox — an autonomous vehicle startup that Amazon acquired for $1.2B in 2020 — could be a strategic win and automate Amazon delivery.
Annapurna Labs: Acquired by Amazon for $350m in 2015, Annapurna serves a similar role that PA Semi did for Apple. The company designs chips and hardware that power the AWS data centres. Depending on how much more dominant AWS gets, we may look back at this deal as the winner.
Pill Pack + One Medical: If — big if — Amazon cracks healthcare, these deals will obviously look great in hindsight. With a company of Amazon’s size, there are so few industries that move the needle (it’s the same rationale for why Apple is getting into cars).
What is my favorite acquisition?
One of Amazon’s first deals ever: the acquisition of movie reviews site IMDB for $55m on April 27th, 1998. The company actually acquired 3 companies on that day (Bookpages for $55m, Telebook for $55m) because Bezos was flush from Amazon’s IPO in May 1997 and spending like a drunken sailor.
The IMDB acquisition is worth its weight in gold based on the fact that you can filter the database for every movie that stars both Rob Schneider and Adam Sandler (the 200m+ monthly site visits and subsidiary Box Office Mojo are also pretty good).
The most regretful part of the IMDB deal is that Amazon shut down the message forums in 2017 due to toxic comments. This sucked because IMDB forums had some of the greatest internet content in existence. My favorites were people arguing about movie “plot holes” like this comment:
Was Forrest Gump imagining everything? None of the stuff he talked about when he was sitting on the bench actually happened? At least not to him directly. Think about it. Here’s a guy who won the medal of honor, international ping pong championship, cross-country runner, multi-millionaire, etc, etc, etc yet no one on the bench that he talks to recognizes him (or really believes him)? Also, once we’re in the present time, he doesn’t do anything extraordinary anymore, nor does he do anything to show his vast wealth!
Oh, and your boy Trung has an IMDB page.
Here are two final tweets from the “what is Amazon’s best acquisition” survey. The first is a great stat:
The second is the funniest reply (PS. my wife laughed at this tweet so I’m allowed to post it).
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Links and Memes
Meta vs. TikTok: The Chinese short-term video app TikTok is eating Zuck’s lunch and the latest chapter is spicy. Instagram has been rolling out TikTok-like features in the Reels tab (full screen video/photos, remixing tools and AI recommendations). Lots of users including the Kardashian Clan — which has a ludicrous 1.2B combined Instagram followers — is not happy about the changes. Why? AI recommendations of random content will loosen the Kardashian grip on influencer power. Anyways, Instagram backtracked on some of its changes and there was a ton of good coverage:
Former Facebook exec Sam Lessin explains how technology is changing entertainment: 1) Pre-internet, we had content from publications like People Magazine; 2) then content from your friends killed People Mag ; 3) then Kardashians/Influencers killed content from your friends; 4) now, TikTok’s algo is killing influencers; and 5) Pure-AI powered content will kill algos.
Nathan Baschez breaks down the risk for Meta of going all-in on Reels
Casey Newton interviews Adam Mosseri — the head of Instagram — on why they walked back some of the changes (either way, it’s clear that video is the future of mobile entertainment vs. photos)
Ted Lasso meets Moneyball meets Web3: My latest Bloomberg piece is about a group of 30+ US crypto investors — including a former ESPN gambling analyst, derivatives trader, Gary Vee and Daryl Morey ( 76ers president of basketball operations) — that bought Crawley Town FC, an English Football League 2 club (3 tiers below Premier League where Man U and Arsenal play).
The management is applying Web3 ideas of decentralization in the decision-making. Now, I’ve seen a lot (ALOT) of useless NFT ideas but the Crawley Town FC NFT is interesting and can actually affect on-field performance.
Example: the team had money to sign a player and put the decision of which position to fill (goalkeeper, defender, midfielder, attacker) up to a vote. The vote weight was allocated 50% to NFT holders and 50% to season-ticket holders. The final result called for a midfielder and Crawley Town management obliged.
The Family Guy’s major problem: Nerdstalgic explores the Family Guy joke format. Basically, the show has a super thin plot and is just a bunch of “cutaways” to random jokes. Some of the jokes are absolutely incredible but the analysis shows that doing too many “cutaways” actually hurt Family Guy’s ratings (another interesting nugget from the vid: the South Park duo hates Family Guy).
Good thing my newsletter isn’t peppered with random jokes and memes…
…except for these glorious jokes and memes:
This last meme hit home. I stopped trying to be “productivity guy” about a decade ago. Every idea I have is in Gmails to myself, Google Docs and Notes (forever lost in the digital ether).