Quick Thoughts: ‘Tis the Season to be Amazon


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–          Amidst stories of tepid brick-and-mortar spending, on-line sales were up roughly 19% YoY for Thanksgiving and Black Friday, with mobile nearly 22% of total e-commerce.

–          Sales from desktops were up 16% on Black Friday, compared to 43% growth in mobile e-commerce. Overall, mobile was nearly 40% of traffic to on-line retail sites, up 34% YoY.

–          Sunday’s 60 Minutes Bezos feature was a 15 minute primetime Amazon infomercial – pitching “Everything you want, deliverable in 2 days, at prices lower than stores” to 15 million viewers.

–          The Prime Air Octo-copters revealed on the show have snagged fawning coverage from most media outlets. They may not fly for 5 years, but they can still deliver sales for Amazon.

Jeff Bezos’ famous donkey-bray of a laugh was beamed into millions of American homes Sunday night, as the nail-biting finish of the marquee Broncos/Chief NFL match-up segued into the opening segment of 60 Minutes. With the teaser of a big secret to be revealed to an incredulous Charlie Rose, the story proceeded like a 15 minute infomercial, with Bezos in the role of the late Billy Mays. Charlie toured one of the 90 fulfillment centers, gawking like a fan-boy at the algorithmic shelving system and automated package sorting robots. An Amazon manager spoke to the goal of being able to deliver “ANY product that a customer might want” in terms that made it seem as though the goal had already been achieved. Amazon Web Services was oohed and aahed over, with the implication that some large majority of Internet traffic was served from its magical data centers and a reminder that AWS was building out a “private” cloud for the CIA.

Finally, the big secret was revealed – Amazon is developing autonomous drone 8 rotor helicopters to deliver packages of up to 5 pounds, within 30 minutes, to addresses within 10 miles of a fulfillment center. Taken at face value, this is fantastic, eliminating most of the cost and time of delivery for as many as 94% of Amazon’s shipments. Order it on line, 30 minutes later, a drone hovers in and leaves a waterproof box on your door step. While CEO Bezos expressed optimism that the “Prime Air Octo-copters” could be operational within 5 years, Twitter lit up with skeptics predicting years of regulatory gridlock and/or snipers taking down the drones for sport or profit.

I think the skepticism misses the point. First, Prime Air is no more outlandish than Google’s self-driving cars, which were mocked mercilessly until it became clear that there could be a real business there. To me, it is a good sign that a market leader is willing to think so far outside the box. If they can make it work, it could be huge. If they can’t, Bezos will kill it. Second, the big reveal was bait for journalists far and near to write about Amazon and its world beating delivery prowess on Cyber Monday. As the new owner of The Washington Post, Bezos is a quick study on working the media. For shoppers who didn’t have Amazon at the front of the minds at the peak of their Holiday shopping frenzy, the ones that watched 60 Minutes probably do now.

Even before Sunday night, it seems that Amazon was having a satisfying Holiday. Right next to that story about Amazon’s delivery helicopters, many news sites ran with reports on the disappointing crowds for brick-and-mortar retail stores on Black Friday. The New York Times reported that weekend sales were off $1.7B or 3% vs. last Thanksgiving. While physical retail is suffering, on-line shopping hasn’t skipped a beat. IBM Analytics estimates that e-commerce sales rose almost 20% YoY on Thanksgiving and nearly 19% on Black Friday. That on-line was 44% of the overall declining weekend spending speaks to the dismal circumstances for brick-and-mortar retail.

The other interesting takeaway from the weekend retail numbers was the strong performance of mobile platforms. According to IBM, tablets and smartphones accounted for nearly 22% of all e-commerce sales and nearly 40% of Internet traffic to on-line shopping sites for Thursday and Friday. Mobile sales were up more than 42% YoY, with mobile traffic rising 34%. This powerful shift to mobile is the key to understanding ComScore’s e-commerce numbers, which suggest an unimpressive 3% growth for the month of November, but do NOT include mobile. Assuming that the mobile platform share of overall e-commerce seen this past weekend has been stable for the full month implies overall on-line retail sales growth of about 9%. Given that the Holiday rush traditionally begins with Thanksgiving, which fell on the latest possible date this year, the single digit monthly growth number is thought to be somewhat muted by the calendar vs. previous seasons.

I think all of this speaks well for Amazon, which benefits from mobile, given its well designed and widely distributed shopping app. Already reaping market share from its competitors, both on-line and in the stores, this latest slug of publicity will hardly hurt as Bezos and Company continue toward their manifest destiny. Whether this future includes helicopter drones, only time will tell.

For our full research notes, please visit our published research site.

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