October 28, 2017
Amazon is nothing short of a modern business wonder – the company is aggressively entering industries with no limit in sight. Amazon started off selling books out of Bezos’ garage and is now the largest online retailer in the world of everything from electronics to groceries. The company is in cloud computing; shipping and logistics; and on and on.
Furthermore, Amazon reigns supreme because it has put the customer journey at the forefront of its business model. Which begs the question that we at LTP asked: What are banks waiting for?
The biggest technology players are eroding the boundaries between industries as they seek to be all things to all people, according to a recent McKinsey report. The biggest Asian tech firms show why banks should be worried: Rakuten, Japan’s largest online retail marketplace, runs one of the country’s largest online travel portals and its messaging app (which can suggest shopping items based on your recent chats) has about 800 million users. The company also issues credit cards and offers mortgages and securities services. China’s Alibaba is another big e-commerce company that also does brisk business as an asset manager, lender, and payments firm.
Tech companies are breaking into finance more slowly in the West, but it’s happening. Amazon now provides loans for small and medium-sized companies. Facebook is integrating person-to-person PayPal payments into its messenger app, and Apple will allow iMessage users to send cash to each other.
McKinsey describes the biggest risks for banks as the four horsemen of the e-pocalypse. That includes disintermediation, where financial firms are cut off from their customers by an upstart like Lending Club. Perhaps a bigger concern is that their businesses get unbundled; right now, they might lose money on checking accounts, but make the money back (and then some) when customers return to the bank for mortgages. That could be difficult to sustain if everything is routed through a messaging platform that banks don’t control. This leads to the two other big risks, of being left to compete solely on low-margin, commodified services and, ultimately, losing brand awareness and becoming invisible as consumers can access financial services without knowing the brand, McKinsey notes.
The St. Louis Post-Dispatch reports that Amazon has become a licensed pharmaceutical wholesaler in 12 states, with a pending application in a thirteenth. To ship drugs directly to consumers, competing with large pharmacy benefit managers and mail-order pharmacies like Caremark or Express Scripts, Amazon would also need to be licensed as a pharmacy in each state to which it shipped drugs.
The Post-Dispatch was able to confirm through public records that Amazon has been approved as a pharmaceutical wholesaler in the states of Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon, and Tennessee. An application in Maine is still pending.
Amazon is making good on its promise to eat advertising.
In its third-quarter earnings report today, the e-commerce giant said it saw other revenue, which is mostly composed of ad sales (and to a much smaller extent, its credit card business), grow 58% year-over-year to $1.12 billion. That’s a slight increase from the growth rate in the prior second quarter when it grew 53% year over year.
(For comparison’s sake, Alphabet, Google’s parent company, which also reported third-quarter earnings today, reported ad sales at $24 billion. Facebook’s second-quarter ad sales were $9 billion; the company reports third-quarter earnings on November 11.)
Ad revenue continues to grow very quickly, CFO Brian Olsavsky said on the company’s earnings call. We’re generally pleased with the ad business. Our goal is to be helpful to consumers and help them make better shopping decisions… while also giving them targeted recommendations, making it helpful for customers instead of intrusive.
Amazon reported net income of $256 million, or 52 cents per share, for the three months ending September 30. That easily beat the 2 cents per share analysts had expected, according to FactSet. Amazon has long been known for investing the money it makes back into its businesses, such as opening new warehouses to fulfill orders. Many seemed to expect that again.
Revenue rose 34% to $43.47 billion, beating the $41.58 billion analysts expected. The company said net sales included $1.3 billion from Whole Foods Market, which Amazon acquired on Aug. 28. After taking over Whole Foods, Amazon slashed prices, added its logo on signs and set up a stand of farm fresh Amazon Echo voice-assistant devices by store entrances.
For the fourth quarter, which includes the holiday season, the company expects revenue between $56 billion and $60.5 billion, up as much as 38% from the year before, and above what analysts expected. It expects to hire more than 120,000 temporary workers to help pack and sort orders for the holidays, the same number it hired last year.
When Amazon, Microsoft, and Google all released their quarterly earnings on Thursday, they did more than give onlookers an update on their particular businesses.
As the three major players in the cloud computing market, the companies provided a glimpse of the state of affairs in that ongoing battle. The reports make clear that Amazon Web Services, which is on track to post $18 billion in revenue this year, continues to have the upper hand.