Voice – the next big paradigm shift

By | Amazon, Google | One Comment

I just worked my way through 213 slides of Mary Meeker’s annual Internet Trends publication. If you’re at all into understanding how the tech world is evolving I recommend you find the time to read it yourself (embedded below). This time round the most thought provoking slides for me were slides 115-133 where she talks about voice as a computing input.

The way I see it, in the next five years voice will replace typing to become the dominant input method for quick commands and short passages of text. Here’s why:

  • Speaking is much quicker than typing – according to Mary Meeker it’s 3.75x, and the difference will be greater on mobile
  • Speech recognition is starting to work now – as evidenced by the success of Amazon’s Echo and the fact that 20% of Google Android app searches in the US are now voice
  • The keys to success are accuracy and latency, with both improving fast. Google, Baidu and Hound are reporting 90%+ accuracy rates and speculating that adoption will sky rocket when accuracy reaches 99%. Moore’s law is taking care of latency.

However, audio out sucks in comparison with text on screens, so I think we will see ‘voice in – text out’, most obviously on mobile phones where we have a great screen already. Amazon’s Echo and Google’s Home are interesting in this regard. At the moment they feel a bit uncomfortable to use because they don’t offer much feedback that shows whether they are understanding what you are saying and audio out isn’t great to confirm purchases or other actions. However, they are are designed to be operated at distances that preclude reading screens so the solutions are simple. A bar of LEDs on the side of the device  that light green when comprehension is high and red when it’s low would help solve the first problem.

‘Voice in – text out’ throws up some interesting design challenges, and big rewards will accrue to the companies that crack them first.

Additionally, for some time voice dictation will remain inferior to typing for longer form documents where the precise choice of words is important. I might be able to speak at 150 words per minute, but I can’t read and correct what I’m saying at that pace.

Amazon, Google and Apple are the ones pushing voice the hardest, and that’s perhaps not surprising as it will favour large companies and platform owners. Convenience is one of the big benefits of voice and following voice searches we will collectively choose default options much more often than we do today. I can imagine asking my Echo to buy flowers for my mum and simply saying ‘yes’ when I’m offered something similar in price and style to my last purchase. That gives Amazon amazing power to decide who gets my business, and that’s power they will leverage to take a bigger cut. That’s best for Amazon and second best for large existing brands. It’s bad news for startups who will struggle to get promoted due to a preference for recognisable brands and concerns over their ability to handle volume. (This effect will be less pronounced if Amazon do put a screen on the side of future versions of the Echo – then I’m more likely to browse through multiple options.)


The consistency of Amazon’s revenue growth is amazing

By | Amazon | No Comments

Amazon just posted strong Q1 results and investors sent their share price up 11%. If you’ve been reading this blog for some time you will know I’m a huge admirer of the way Jeff Bezos has built his business. One of his mantras has been to re-invest profits to drive growth and the growth he has achieved is remarkable for it’s consistency over the last ten years. As you can see from the chart below Amazon has delivered on the proverbial hockey stick that startups put in their business plans, and they’ve done it at serious scale.

Screen Shot 2016-05-03 at 20.51.56

One unfortunate side effect of prioritising growth over profits is that it’s never been totally clear whether Amazon could make profits if it wanted to. Believers believed they could, and sceptics sold their stock. What’s new is that in the last couple of quarters Amazon has posted record profits. That could be because they have run out of good investment options, or it could be, as Benedict Evans speculated, that Bezos wanted the increase in share price that profits would bring so that his employees’ options are worth more.

Screen Shot 2016-05-03 at 20.52.40

This year Amazon and Netflix are buying movie rights – sports next year?

By | Amazon, TV | 2 Comments

I wonder if history will look back on Netflix’s 2013 screening of House of Cards as a watershed moment. It was an incredibly brave bet at the time – an investment of $63m in production costs from a company whose previous success had principally come from re-running TV shows that had premiered on traditional TV channels. Netflix was following a formula that had worked well at cable and satellite companies around the world – buy exclusive content to drive subscriptions – but they were the first streaming service to do it at scale.

Fortunately for them, House of Cards was (and is) a massive success, winning 3 Emmy awards, drawing millions of views, and most importantly, is widely perceived as having made a significant contribution to Netflix’s subscriber growth.

On the back of that success Netflix doubled down on their original content strategy and Amazon has gotten in on the game.

I think of these early moves as Netflix and Amazon camping out on the lawn of traditional TV. They stood up and were noticed, and they won some battles, but it wasn’t clear how much of a threat they were to incumbents.

Now I read that Netflix and Amazon are buying up the rights to indie films at the Sundance Festival whilst traditional TV companies are scaling back their investment. If those investments prove successful in increasing their subscriber numbers they will be back bigger and bolder next year following the ‘content begets audiences’ playbook to profitably buy audience share from their competitors. Meanwhile, assuming those competitors don’t want to cede the market they will face the difficult task of rebuilding sufficient confidence to outbid Netflix and Amazon.

Remember also that most cable companies are encumbered with legacy data networks and are struggling financially whilst Netflix and Amazon Prime are growing nicely, and it’s easy to think that the cards are now stacked in favour of the new entrants.

The next logical step is for Netflix and Amazon to move into sports rights. When that happens we will know the battle has entered its final phase.

The future of mobile ecommerce

By | Amazon, Ecommerce, Facebook | 3 Comments

We’ve been doing a good deal of thinking about the future of ecommerce as the world goes mobile. As we all know people are increasingly accessing the internet and shopping from their smartphones (one of our more recent investments has 81% of it’s traffic from mobile), and within mobile people are spending a larger and larger share of their time in apps at the expense of browsers. That presents a challenge for retailers of occasional purchases whose customers don’t use them often enough to download an app. On the web these retailers found their customers via search, but that doesn’t work as well on mobile.

So how will discovery work on mobile?

In a couple of different ways, I think.

Firstly some apps will aggregate goods from lots of retailers and discovery will happen in app. Amazon is the best example here, but different types of discovery are appropriate for different types of purchase and whilst Amazon works well for commodity goods it doesn’t work so well for higher value goods where the purchase is emotionally driven. That creates space for startups to build discovery experiences focused on specific verticals. Good examples include Houzz in interior design, and Stylect in fashion, and Top10 in travel. We have invested a lot on this theme and the last three examples are partner companies (note Thread is working on their mobile app).

Key to success for these companies is building a loyal customer base with high life time values. The aggregation needs to be broad enough that transactions occur frequently but narrow enough that product discovery is truly engaging. Strong brands will be built on the back of great product ranges and strong discovery experiences.

Secondly, some companies will focus on a small range of their own products. They will be primarily web based (including mobile web) and may not need an app. Strong brands will be built on the back of amazing products and first class marketing. Facebook is the best channel for many of these companies, for now at least. Bonobos in the US is a good example, and amongst our partners I would point to Lost My Name, Big Health, and Spoke.

An interesting question for the first group is whether the aggregation moves from apps into the OS layer, or something similar. There are lots of hints we are headed in this direction:

  • Baidu surfaces recommendations from maps
  • Facebook’s Instant Articles pulls news discovery into Facebook
  • Amazon’s Echo device enables re-ordering via voice command

If aggregation does move to the OS layer then in the short term partnerships will become critical drivers of traffic and custom, and in the long run I hope we will see a meritocratic discovery process emerge.

Update: Benedict Evans argues here that the trend within mobile towards apps is concentrated in a small number of apps (mostly Facebook and YouTube) and hence less significant for ecommerce companies than one would think

Jeff Bezos says to align yourself with your customer

By | Amazon | 16 Comments

I just saw this quote from Jeff Bezos on A Founder’s Notebook:

Another thing that we [Amazon] believe is pretty fundamental is that the world is getting increasingly transparent—that information perfection is on the rise. If you believe that, it becomes strategically smart to align yourself with the customer. You think about marketing differently. If in the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it, in the new world that inverts.

Just about everything I read from Bezos is on the money and this is no exception. The big driver of increasing transparency and information perfection is social media. Everyone has a printing press these days and it’s no longer possible for companies to control the message. Hence it makes sense to invest more in product and correspondingly less in sales.

This is doubly true for startups for whom it is increasingly true that there is no other strategy than to win by having the best product, and often the best product by a mile. When competing with large incumbents the rule of thumb is that winning requires having a 10x better product.

Finally, think of product as encompassing the whole user experience, from sales and marketing through delivery to after sales care.

Amazon using more robots at fulfilment centres – jobs growing slower than reveneues

By | Amazon, Startup general interest | No Comments


Amazon is committed to driving down costs and providing better value for its customers. They’ve also been in trouble for paying low wages in their fulfilment centres. Hence it’s not surprising that they are investing heavily in warehouse automation systems. Back in 2012 they acquired robotics company Kiva and now they have announced their latest generation warehouse which uses “robotics, vision systems, and other high-end tech”.

The interesting thing for me is what this means for jobs. There have been lots of predictions recently that up to 40% of employment is at risk from automation and artificial intelligence such as Amazon is deploying. As you can see from the picture above the new warehouses do still have human workers, so we aren’t looking at a 100% automation scenario. However, if we compare the growth in Amazon’s employees with their revenue growth we can get a picture of the extent to which these new technologies are displacing human labour.

Amazon said recently that it will hire 80,000 additional workers to fulfil customers orders this holiday season. That’s a 14% increase on last year. Revenues meanwhile are growing at 21% so it follows that without the robots there would have been a requirement for more additional workers. A 21% increase in additional workers would have taken the total to around 85,000, making it a reasonable first level assumption that the robots have taken 5,000 jobs.

Moreover, it would be interesting to see the job numbers broken down by fulfilment centre. My guess is that the newer centres are more tech enabled than the older ones, and in those new ones a greater amount of human labour is being replaced by robots.

And is this a bad thing?

In the long run, no, so long as we can feed and house everybody it is a good thing that robots are liberating us from menial jobs. In the short term it’s also good, so long as unemployment stays low. Additionally, whether it’s a good thing or a bad thing is slightly irrelevant because it’s happening and it would be a huge mistake to try and stop it. That would mean forcing companies to use less efficient means of production undermining which would undermine competitiveness and send business and jobs to jurisdictions that weren’t restricting the use of robots.

Company culture is increasingly important – to customers

By | Amazon, Startup general interest | No Comments

It’s pretty well recognised now that a strong company culture helps bring success to a business, but what’s new is that a company’s culture is starting to matter to consumers. Moreover, whilst shareholders may judge a company’s culture on how much it contributes to good execution, customers judge it on ethical grounds.

Hence, for the second year running Amazon Anonymous are running a boycott Amazon campaign this Christmas which they claim has so far diverted £1.3m of spend (many of my north London neighbours will be pleased…) and a range of people are urging us to boycott Uber. I think we will see more and more of this sort of thing. People are increasingly concerned that the companies they shop with match their values. This plays out positively for companies with a strong ethical profile and negatively for those with unpopular practices.

Interestingly, some of the elements of company culture which have historically been great for shareholder value are the ones that are now undermining brands. Taking the examples above, Amazon’s famously frugal culture has landed them in trouble for low wages and Uber’s all out aggression has led them to many actions that most people view as unacceptable, most recently threatening journalists with smear campaigns.

I think we are heading towards a better world where unsavoury behaviour is tolerated less, but it is also a more complicated world for managers.

Thinking of UX work as a search for new experiences

By | Amazon, Startup general interest | No Comments

At the end of yesterday’s post on Android and Amazon Forks Benedict Evans wrote:

Amazon has never been a user experience company in that sense – it thinks about user experience the way Fedex does, as something to focus on ruthlessly, but not as a playground for new experiences.

I’ve been long on Amazon for ages now (and hold some stock), but this got me thinking.

When I look at the companies we’ve been investing in recently they are all delivering new experiences and their success is predicated on delighting customers. We love it when there is a real ‘wow’ moment. That’s what happens when people get their book from Lost My Name or when they’ve swiped 10,000 pairs of shoes on Stylect, to take two of our most recent investments.

I think those ‘wow’ moments are increasingly important for Amazon and other large companies too. Existing user flows should still be optimised, of course, but these days that’s table stakes. It’s the ‘wow’ moments that get customers excited, makes them loyal, generates word of mouth marketing (the most important kind), and gets free press.

I’m skating slightly ahead of the puck here, but given that everything is changing and commoditising with increasing pace these days all companies (large and small) will have to deliver those wow moments to stay relevant. And that means thinking about UX as a playground for new experiences.

As a side note, I see this as another reason to be long startups.

Google slashes cloud prices

By | Amazon, Google, Startup general interest | No Comments

I love Amazon and AWS for the way they keep cutting their prices and for the way they support the startup ecosystem. As an example they offer Forward Partners companies, and the companies from many accelerator programmes $10,000 of AWS credits, effectively making it free to get started on their platform. For these reasons Amazon is the first choice for most startups.

However, Google just slashed its cloud prices and is not cheaper than Amazon for all but the heaviest users. Significantly cheaper in fact. Pricing for these products is complicated, but by the analysis of cloud management software company Rightscale Google is 30-60% cheaper for on-demand usage (i.e. light usage), 21-32% cheaper for 1 year heavy reserved instance pricing (i.e. moderate usage) and 3-19% more expensive for 3 year heavy reserved instance pricing (i.e. heavy usage).

Price decreases come regularly in this market and I’m sure Amazon will take action soon, otherwise startups will start turning to Google. I can watch this sort of price competition all day long, but it will be interesting to see how Google fairs playing the price game against Amazon. Historically they have been a high margin monopoly type business whilst Amazon has always been about low prices.

Amazon’s low price strategy

By | Amazon | No Comments

Amazon has long pursued a strategy of winning by pricing low. Many of you will have experienced that strategy first hand with regular price reductions from Amazon Web Services, but it goes right across their business. Their approach has led to strong revenue growth but few profits which has analysts sharply divided – some believe they will never make large profits and the shares aren’t worth much whilst others believe that they are building controlling positions in market after market which will put them in great position to improve margins over time. I’m in the latter camp.

I just read the following story about how their low price ethos played out when they entered the DVD market in 1998. It’s a great case study about the importance of playing to your strengths, having a clear mission and running sustainable strategies. Stay with it through the first paragraph…

If you have bigger lungs than your competitor, all things being equal, force them to compete in a contest where oxygen is the crucial limiter. If your opponent can’t swim, you make them compete in water. If they dislike the cold, set the contest in the winter, on a tundra. You can romanticize all of this by quoting Sun Tzu, but it’s just common sense.

I worked on the launch of the Amazon Video store, Amazon’s third product after books and music. At the time of the launch, DVDs had just launched as a product category a short while earlier, so the store carried both VHS tapes and DVDs. The day Amazon launched its video store, the top DVD store on the web at the time, I think it was DVD Empire, lowered its prices across the board, raising its average discount from 30% off to 50% off DVDs.

This forced our hand immediately. Selling DVDs at 50% off would mean selling those titles at a loss. We had planned to match their 30% discount, and now we were being out-priced by the market leader on our first day of operation, and just before the heart of the holiday sales season to boot (it was November, 1998).

We convened a quick emergency huddle, but it didn’t take long to come to a decision. We’d match the 50% off. We had to. Our leading opponent had challenged us to a game of who can hold your breath longer. We were confident in our lung capacity. They only sold DVDs whereas we had the security of a giant books and music business buttressing our revenues.

After a few weeks, DVD Empire blinked. They had to. Sometime later, I can’t remember how long it was, DVD Empire rebranded, tried expanding to sell adult DVDs, then went out of business. There were other DVD-only retailers online at the time, but none from that period survived. I doubt any online retailer selling only DVDs still exists.

The key takeaway for me is that Amazon’s mission of being a low cost supplier coupled with the knowledge that they were financially stronger than DVD Empire made the decision to match the price cut a no-brainer and hence easy to take quickly, whilst DVD Empire probably should have known their bluff would get called.