Amazon’s Echo Chamber

139 points by dko 11 years ago | 91 comments

hkarthik 11 years ago |

Scathing and harsh, but probably pretty accurate.

> No one makes money selling media for consumption anymore. That market is quickly and brutally dying. The media market is now so efficient that all profit is completely sucked out of the equation by the time you get to the consumption delivery system, to the point that it is barely possible to break even.

This part resonated with me a lot. The media market was always a race to the bottom. iTunes only proved there was a market, not that it could be profitable once there a multiple entrants with closed ecosystems competing for attention.

I think Amazon is full of smart people, but they need to focus on what they're good at to increase their profits. Their core businesses simply aren't profitable enough for them to try to compete with Apple and Google. They should fix that problem first and then turn to the more ambitious projects.

patio11 11 years ago | |

No one makes money selling media for consumption anymore.

This is a common belief among people in tech. It is also disastrously false. Frozen has sold 1.2 billion dollars worth of tickets. The related IP alone, to say nothing of merchandising, will be sold for decades to come, and bring in additional billions.

You know the DVD, a dead format that can be trivially pirated? Yeah, they sold 3.2 million copies of Frozen. In a day.

rhino369 11 years ago | | |

The author doesn't mean media isn't profitable, but media retail isn't profitable.

The author is somewhat right. It's only profitable when you have a walled garden that you control, so you can squeeze markup out of the supplier.

IBM 11 years ago | | |

The author is talking about Amazon's share in those profits. It's clear that people who own the IP make a lot of money in media content.

hkarthik 11 years ago | | |

For every Frozen, there are probably a hundred thousand failed media projects that didn't turn a profit. This is an outlier. And most of the profit ended up in the hands of the creators (Disney), not the distributors (everyone else).

Distribution of media is just not a profitable enterprise now. Too many closed, competing ecosystems and the entrenched now have so much capital acquired from other, more profitable ventures (Google from Search/Advertising, Apple from Hardware), that it makes little sense for anyone else to try unless they plan to be really different or disruptive.

loso 11 years ago | | |

I had to read this part of the article twice because I thought I couldn't be reading that right. I finally understand what he means but if taking what written at face value then he is horribly wrong.

robryan 11 years ago | | |

"all profit is completely sucked out of the equation by the time you get to the consumption delivery system"

Is this false though? For all the success of the itunes store I seem to remember it not actually making a lot of profit from content?

swartkrans 11 years ago | |

I like the post and agree with dcurtis about the abysmal phone. However I like my Fire HDX. It works for what I want to use it for: reading books and watching stuff. It isn't the best tablet, but it is not bad. It's the best for buying books and videos from Amazon. Ecosystem is subpar, but that is ok.

MBCook 11 years ago | | |

That's basically the problem I have with the Kindle. I love how convenient it is to buy books, and just turning from page to page is easy enough with the physical buttons on my model (or hopefully the little touch zones on the new model), but everything else sucks.

Software updates are rare, the menus are convoluted and obtuse, when the newer models you have to know secret touch zones to use different features. Simple options that used to exist have disappeared and new options of questionable utility have taken their place.

Probably my favorite thing about the Kindle is that it syncs my place with my phone, but the app on iOS is gotten much worse over the years. At this point when reading a book the timeline thing at the bottom and all sorts of weird little blue dots on it that I've never been able to figure out. Sometimes if you tap on one it goes away.

The things just smack of strange decisions. Who thought it would be a good idea to remove the page current buttons for two or three years in a row? And when they brought them back or not real buttons, but hopefully they're good enough.

In the meantime the books are still absolutely riddled with typos, terrible formatting, and if a publisher actually makes an update to a book you're unlikely to find out about it. What little I've heard of the authorship side of things is supposed be pretty dreadful too, were even recent kindles don't support some of the newest formatting things because Amazon hasn't bothered to update them.

It's the best e-book reader on the market, and in many ways it's a piece of crap. It's so clear the decision seem to be made by marketing or something else instead of what the readers want.

And sadly this experience seems to match what I've heard about other Amazon hardware. At best they behave like a mediocre hardware company who doesn't understand software. Even their flagship devices like the original Kindle fire have serious issues, which if you're lucky get fixed in a software update later.

ctdonath 11 years ago | | |

It isn't the best tablet, but it is not bad. ... Ecosystem is subpar, but that is ok.

My, what a ringing endorsement.

yen223 11 years ago | |

Didn't Bezos once say something like "your margin is my opportunity"? There's a certain irony in Amazon not being able to compete in mobile because the market is too efficient.

adventured 11 years ago | | |

They can't compete because they're producing mediocre products that add little value; products that consumers don't have a good enough reason to want. Creating their own Android equivalent store was an extraordinarily terrible idea.

The problem is not because the market is too efficient.

schwabacher 11 years ago |

Echo seems really smart to me - the reason Amazon is in hardware is because they are terrified of 'ok google, order me lighbulbs', or 'hey siri, i need a new pair of socks' becoming the way people shop for things online.

Amazon made Echo for 'alexa, order me wheat thins', and all the question answering and music playing is just window dressing.

nikcub 11 years ago |

There are a few ways of thinking about Amazon, here is one: they can invest back into new products in the same way Google do but at a larger scale since they don't have the pressure of returning profits to shareholders and Amazon's distribution and infrastructure is more likely to be complementary to followup hits than Google's search ad business.

In this hit based model, they can afford more than a few misses and they have already had plenty of hits (AWS, Kindle).

As an investor your question is: would you rather Amazon invest $50-300M trying things out with the advantage of their brand, position and infrastructure - or do you want them returning that money, pay tax on it only for you to have to find somewhere else to park it?

> No one makes money selling media for consumption anymore.

This couldn't be further from the truth. Cable is dying and tech and media companies are currently running a multi-billion dollar race in working out who will own whatever platform is next (Amazon buying streaming rights, building tablets and phones etc. is part of their version of what they hope next platform will be - winner(s) take hundreds of billions in market cap).

It is so untrue that as soon as Time Warner dropped their print and cable businesses Murdoch offered $85 billion for the content business that remained and they turned him down.

pgodzin 11 years ago | |

> they can invest back into new products in the same way Google do but at a larger scale since they don't have the pressure of returning profits to shareholders

Can you elaborate on this? Google tries plenty of "moonshots" that may never return profits to shareholders

nikcub 11 years ago | | |

I meant that Amazon are doing the same as Google. They have similar revenue, Google has twice the margin but is banking $10B+ p.a while Amazon spend all and beyond. They are both maneuvering to capture these new markets using their existing advantages.

For some reason Google investing in projects makes a sense for a lot of people, while for Amazon it doesn't even though it has produced business lines outside of their main that have more revenue and margin than anything Google have done.

boynamedsue 11 years ago |

"No one makes money selling media for consumption anymore."

Is that really true? No one makes money selling music, apps, or books on iTunes? Netflix doesn't make money selling a media consumption service? HBO doesn't make money selling premium content?

Those are all examples of media. And they're all capable of making money for their creators and distributors.

baddox 11 years ago | |

The next two sentences are

> That market is quickly and brutally dying. The media market is now so efficient that all profit is completely sucked out of the equation by the time you get to the consumption delivery system, to the point that it is barely possible to break even.

I don't think he's claiming that copyright owners can't make money selling copyrighted material. It sounds like he's claiming that the delivery networks can't make money.

Turing_Machine 11 years ago | | |

If that's actually what he means, it's a feature, not a bug.

Aldo_MX 11 years ago | | |

Delivery networks are not profitable anymore, but if you control the avenue, you can promote and distribute your own content for almost nothing and you can profit from it.

danhak 11 years ago | | |

And Netflix is not a delivery network?

staunch 11 years ago | |

International video game revenue is estimated to be $81.5B in 2014.[49] This is more than double the revenue of the international film industry in 2013.

http://en.wikipedia.org/wiki/Video_game_industry#Economics

ars 11 years ago |

Despite the title this has nothing to do with the product from Amazon called Echo.

So I call it clickbait.

Maybe call it Amazon's Echo Chamber instead.

chadnickbok 11 years ago | |

I though that the point of the article was that Amazon's hardware strategy isn't working, completely ignoring the echo. The title then invites us to draw our own conclusions about the echo, and enjoy the irony...

elmuchoprez 11 years ago | |

After reading it, I actually went looking for a date hoping it was written before the Echo announcement and was a wonderful coincidence.

On a side note, having to hover over the title to expose the date is a silly UX.

dcurtis 11 years ago | |

I titled it that on purpose, to allude to the new product. I hate clickbait.

I changed the title anyway.

scoot 11 years ago | | |

> I titled it that on purpose

Not originally - it was titled Amazon Has No Taste, and was changed to Amazon Echo. Even the current title (Amazon's Echo Chamber) is link-baity IMHO.

sireat 11 years ago |

Try being a small book publisher and dealing with Amazon. It feels like living in Google or Paypal customer service world(ie if you are an edge case we do not want you).

I've been helping a non-profit publish some books on Amazon and it has been rather trying.

It is silly, the book comes out great printed through Amazon Createspace and looks great on Kindle, but it gets taken off Kindle Direct Publishing because it is not using English or one of the handful of supported languages.

Why not let people use other languages if they mark the e-book appropriately?

The official Amazon answer has been that they can not guarantee quality in other languages and thus they do not support it.

The problem is that unless you are using one of the limited number of official language Amazon will delete your e-book. https://kdp.amazon.com/help?topicId=A9FDO0A3V0119

Welsh writers managed to raise up enough of a stink about it: http://www.walesonline.co.uk/news/wales-news/amazon-sparks-l...

Still it seems ridiculous that only way to get decent CS is through PR.

blobbers 11 years ago |

Although the author is a bit harsh, I tend to agree with him on the aspect that Amazon is largely creating second rate products and ultimately wasting a lot of shareholder money (their inventory write down on fire phone inventory was $170M).

The markets have been punishing them for their tactic of throwing it against a wall and seeing if it sticks. Ultimately, I think what allows a company like Apple to get ahead was the ability to say 'no', 'it isn't ready', 'do this better', 'redesign that', 'this sucks - can the project'. Bezos does not appear to run his company that way. It seems like he has a bunch of lieutenants building things, but nobody telling them 'NO!'

The author highlights one thing: Amazon is trying too hard to be everything to everyone, failing to excel in most ventures.

Don't get me wrong, I love their core business', use amazon prime, the web services have definitely been a game changer and the kindle makes my life on caltrain nice. But I'm certainly not going to invest in them until they start to show that they've learned to say 'no'.

firebones 11 years ago | |

How expensive are these bets, in reality? To me, they seem like long options. Minimal downside, but huge potential upside as they learn from each mistake and gradually improve and create more exposure to the potential of a hit.

But in reality, it's not the hits that Amazon counts on--it's the recurring revenue of Prime and Unlimited subscriptions and loyalty around lots and lots of low-margin purchases. To keep those memberships coming, you don't need to be a hit machine--you just need to keep offering incremental useful value, mediocre as it may be alone, to add value to the subscription.

I think that's the angle. It's not that Costco hot dogs are the best hot dogs in the industry for $1.50 (or $4.99 rotisserie chickens, or car buying services, etc.), it's just that these items add enough value to enough peoples' Costco experience that they renew memberships and spend a lot of cash on low-margin stuff.

cyanbane 11 years ago |

Great read and I agree with the majority of it.

This stood out though:

>Amazon’s retail strategy of being allergic to profit does not translate well into hardware manufacturing.

Don't most gaming consoles sell at a loss? The pickup for the console maker is on the publishing rights & distribution channels and the fact they take a gamble that the hardware will get cheaper over the course of that hardware generation. I had always though that it what Amazon was trying to emulate with their hardware attempts.

cthalupa 11 years ago | |

>Don't most gaming consoles sell at a loss

Initially, yes. Nintendo has traditionally turned a profit on most of their consoles (I'm not sure about the new one), but for the last several generations Microsoft and Sony have been losing money on each console purchase - at least initially. Later during the lifespan of the console the component cost has usually dropped enough that they start to turn a profit

philwelch 11 years ago | | |

Most console launches are supply-constrained and you can't buy one for months, so why do they charge the normal $400 price at launch when people can just buy them and resell them on Craigslist or eBay for hundreds more? If they launch at a higher price they can just ride the demand curve downhill over time by reducing the price and profit from the start.

brownbat 11 years ago |

> They make a product, they market the product on Amazon.com, they sell the product to Amazon.com customers, they get a false sense of success,

Also called "success."

You can make a business selling cheap crap with powerful marketing. It's not noble, but it's probably the norm.

Amazon just hasn't realized yet that it needs to stop competing with Apple and Google and start competing with SkyMall, As Seen on TV, and the dollar stores.

(Half joking. But only half.)

arjie 11 years ago |

Loved the Kindle from the beginning. Cheap plastic is part of its advantage. I take it places without the least fear for its safety. Cheap is good here.

dcw303 11 years ago |

I agree that their strategy is broken, but don't believe it's due a lack of taste.

I understood Amazon's hardware to be the opposite of Apple. Cupertino makes their profit on hardware mark up, so it makes sense that everything you buy on iTunes is as cheap as possible - standard complementary products theory. Since Amazon has primarily got their (marginal) profits from selling you content, it made sense that their ebook readers, phones, and tablets are cheap.

I don't get the Kindle Voyage. Premium priced hardware doesn't fit into their model. And now the Echo. I can't even guess how they think they will make money with this thing, or how it could generate more sales anywhere else in the org.

greyskull 11 years ago |

I kind of understand why Amazon makes mobile hardware. They control the software experience and push Amazon storefronts over Google's. You get people into an ecosystem and they become comfortable in it, so they stick.

They author says "No one makes money selling media for consumption anymore". But surely a properly executed (key word: "properly") foray into mobile devices is better for Amazon than staying out of it? If they can create a good value proposition for the hardware and a good software ecosystem too, that would be better for them then missing out on mobile consumption of all that media they've put so much effort into.

Or am I just completely wrong?

charlesju 11 years ago |

This is why it makes sense.

There are a LOT of people that use Amazon to buy things.

A lot of people don't know the difference between phones.

If Amazon has a giant splash screen saying it has a phone, naturally people will buy it just because they don't know any better (eg. 65 yr old Grandmas in Arkansas).

Additionally, Amazon is a long term company and they know that if they want their foot in the phone game they need to start somewhere so they did.

They have never cared about hardcore techies or even their investors. They are one of the most long term focused companies alive right now. They believe in iteration like a religion and they understand the average consumer.

It makes sense because it will make cents.

ctdonath 11 years ago | |

This - so long as Amazon understands this.

Amazon has to remember they're in the product sales business, and their hardware exists ONLY to facilitate sales where some customers otherwise have trouble figuring out how to get it. Kindle is great for people who don't have another ebook reader; make sure every platform imaginable has Kindle software available. Fire is great for people who aren't buying into any other tablet ecosystem; make sure good content consumption apps are available on all other tablets. Fire Phone should be a decent phone for those wanting a phone and otherwise uncommitted to other makers; make sure all other phones consume Amazon content easily. Fire TV should be a fine media player; get Amazon Video onto AppleTV and Roku ASAP. Amazon should view their own hardware as nothing more than gap filler where customers haven't committed to other options which should be pursued by Amazon with equal vigor.

For Amazon, exclusive hardware is dangerous. It should complement the competition, not compete where others are superior.

apta 11 years ago |

As a previous employee at Amazon, I was extremely surprised at the quality of how they write software internally. When I heard about their new phone endeavor while still there, I was not expecting anything to come out of it quality wise, at least from the software side, and it seems they compromised on the hardware side as well (I never examined one up close). I think anyone that has worked at Amazon, and seen their internal processes would not be surprised at this either.

soyiuz 11 years ago |

The article and the thread miss the point. Echo is a consumer / market research device. It gets an always-on sensor into some small percentage of American households. This could be used to collect data on in-home behavior in unprecedented ways. The seven microphones could probably be used to echo-locate walls, movement, and furniture positioning. The rest is up to the "always learning, in the cloud" part.

bkirkby 11 years ago |

where the author sees an echo chamber that portrays false success, i see a bias on behalf of the author that blinds him to some seemingly obvious truths. others have already pointed out the demonstrably false assertion that "no one makes money selling media for consumption any more." a statement like that seems to only be able to come from a blind spot.

i bought 7 kindle fires for my household (i have 6 kids) largely because it's the best deal you can get on a tablet and it performs it's function extremely well (i.e. media consumption device coupled with some games here and there). i don't think any objective measure of kindle fire can relegate it to failure just because it doesn't have the premium experience you get with a tablet that is 6 times the price. i personally do not think the apple experience is worth 6 times the price.

i've no idea if the the fire tv stick is going to be a good device, but the fact that it cost me $20 coupled with the positive media experience i get on our multiple fire tablets was enough to get me to buy one and try it out.

similarly, i can get amazon echo for $99 and i just signed up to try it out. i've long wanted a device with the presence and interface of a star trek computer. i'm skeptical that the technology is there yet to provide the kind of experience that i know will enhance the life of my family, but it's promise is exactly what i want and i don't see anyone else out there trying it esp. at the price point.

i think it's a bit myopic to relegate all of amazon's hardware strategy to the failure bin just because they had a clear failure in the fire phone. the other devices all seem to offer compelling reasons to try them out (not the least of which is price point).

pbreit 11 years ago |

There's some truth there but also some misses. Besides the phone, Amazon's hardware has been at least decent and in the case of Fire TV, the best. The Kindles and tablets are more than usable. Even if only a speaker with a handful of voice commands (the complete Siri-like experience is a stretch; but, for example, voice search on Fire TV is excellent), the Echo looks to be a reasonable product.

moeedm 11 years ago |

Spot on.

A lot of people have recommended a Kindle to me but I've held off. I can't get past the massive Amazon logo on it and the awful page turn.

sanderjd 11 years ago | |

Weird. My kindle paperwhite doesn't have an Amazon logo on it at all, I don't see how the page turn could be characterized as "awful", and it happens to be the far and away the best digital thing I've ever read a book on.

fidotron 11 years ago |

The danger here is actually being so far inside the tech echo chamber you can't see that they have an audience that really are buying their stuff. Yes, the Fire Phone is a misfire, but they have built an incredibly valuable high spending audience with the other Kindle devices.

MarkMc 11 years ago |

I don't see why the the author finds it 'extremely hard for me to understand Amazon’s consumer hardware strategy'.

The strategy is simple: If 100 million people only have an Amazon device (and do not have a Google or Apple device) and one of those people wants to watch the latest James Bond film or English Premier League final, then Amazon can take a 30% cut of the price the user (or advertiser) pays.

Amazon's execution may fail because their hardware is crap and are losing to Android and Apple, but their idea is sound.

adamc 11 years ago | |

There will never be a 100 million if the hardware is too crappy, and that's why the strategy is hard to understand; you can't just assume the end point.

That said, Amazon's phone is the only product I thought made little sense. The Kindles are successful and drive ebook consumption. Fire TV I have no idea, but the Roku has proven that the basic idea has a market. What other giant hardware stumbles has Amazon launched?

Zigurd 11 years ago |

Its curious that selling to one's customer base amounts to an "echo chamber." The Amazon Echo could be really nice. If I could tell it to play an audiobook, I'd be very tempted. It's a truly new product in a world that has too few of those.

cwyers 11 years ago | |

The problem with Amazon "selling to their customer base" is that they're doing the old "cheap razors, make money on the blades" shtick, because they're selling all their hardware at or near cost. So the correct measure of success is how many more blades you sell, not how many razors. The author is arguing that the low engagement after purchase due to poor quality undercuts how many blades they sell.

rajivtiru 11 years ago |

So you only used this title to piggy-back off the announcement of the actual Amazon Echo?

And you don't even mention it in the blog post. Nice.

Edit: It appears the title has been changed. Sorry for the asshole tone above, but I don't like clickbait.

cwyers 11 years ago | |

It used the launch of the Echo to talk about why Amazon hardware in general isn't compelling. I really don't see how that's "clickbait."

prawn 11 years ago | |

The article can reference a product without talking about it specifically. I think that's what the author was trying to do.

sidcool 11 years ago |

I absolutely disagree with the Amazon Fire phone being terrible. It's not the best in the market, but not terrible at all. Very harsh judgement on the part of the OP. I even suspect a malicious motive behind all the vitriol spewed against Amazon.