It must be terrifying to come into competition with Amazon. This is no fluffy, beanbag-hopping Silicon Valley love-in – it’s a relentless growth machine devouring market after market in pursuit of apparently limitless ambition.
The company just posted its best ever full-year results, with 2017 revenues up 31% to $177.9bn, making profits of $3bn. But crucially, it didn’t do it selling books.
For the last 23 years, founder Jeff Bezos has put on a masterclass of aggressive diversification. He started an online book store that turned into an online books and electronics store that turned into an online everything store that now also does video streaming, consumer electronics, cloud computing, advertising, physical grocery retailing... the list goes on.
The company is now reaping the benefits. Growth in its core business – directly selling goods online – has slowed to just (!) 20% this quarter. That’s far below what you see in third-party seller services (Amazon’s cut of its Marketplace sales - up 38%), AWS cloud computing (up 44%), subscription services (mainly Amazon Prime, up 47%) and advertising and payments (up 60% combined).
The result is that these other activities have grown to 33% of Amazon’s business, from less than a quarter only three years ago – and overall growth, far from decelerating, is actually picking up pace.
Compare that with one of Amazon’s greatest rivals, Alphabet, which grew revenues 23% to $110.9bn in 2017, making an admittedly far larger profit of $12.7bn despite the painful impact of tax reforms in the US and fines in the EU.
Google’s parent company famously split its core business from its ‘other bets’ a few years ago. The idea was to show off stellar profits at Google and stunning revenue growth in the other bets, which include its smart home and various health divisions, including one that’s trying to cure ageing. Unfortunately, it only half worked.
Alphabet’s many other bets are certainly interesting, but they’ve singularly failed to set the world on fire, in the way that Amazon’s mighty ‘side-projects’ have. Indeed, most of the search engine's best bets – YouTube, Gmail, Android, Google News – were made years ago, and Google continues to make 98.7% of Alphabet’s revenues.
Alphabet’s success is therefore almost entirely the result of its impressive core business, which continues to innovate and expand. That could change, of course, if its incredible investments in deep learning artificial intelligence pay off in ways that currently only a vast mechanical mind could see. Even if that doesn’t happen, perhaps it won’t be a bad thing: conglomerates have a nasty habit of disintegrating, after all. But if that’s the case, why is Alphabet still trying?
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