Executing big ideas at scale is not easy. When Netflix (NFLX) came to Amazon Web Services to host its video-streaming business as a paid subscription service, it had never been done before. Getting it right at scale in the marketplace took time, money and a lot of trial and error.
When Bezos later launched a competing service, Amazon Prime Video, he had the luxury of fiddling with the details inside the house account. Initially, he offered streaming as an add-on to the company’s popular Prime shopping and fulfillment service.
Bezos took the same approach with logistics. For a flat rate, Amazon Prime subscribers got two-day shipping. As the service grew, the company made strategic investments and fiddled with details based on feedback from Prime customers. And that is Bezos’ secret: He builds services for Amazon using its scale, perfects them based on results, then offers the refined products to others.
There is good precedent. Web Services is the intricate network of data centers strung all over the globe. It began as the necessary technical backbone of the Amazon online store. Later, Bezos would offer it as a standalone product. Now it is on track to do $10 billion in sales and is throwing off more than $500 million a quarter in profits.
Fulfillment by Amazon follows that template. It’s a business-to-business service that provides warehousing, fulfillment and customer service to small businesses. FBA takes all of the services Amazon perfected for its own store and offers them to smaller enterprises looking to scale up.
And leasing 20 wide-body cargo jets, starting an overseas container-shipping business and working on autonomous delivery vehicles and aerial drones are all part of a bigger plan. It’s a fully formed small-business logistics service inside Amazon with big ambitions. That should worryFedEx (FDX) and United Parcel Service (UPS).
Last year, Amazon purchased Twitch, an online video-streaming site for gamers. While the nearly $1 billion price tag raised eyebrows, Amazon has quietlydoubled the size of the business to more than 100 million monthly users. And it is expanding the appeal with Cooking and other how-to channels.
You don’t have to squint to see what Amazon is up to. It’s a critical piece of a new-era streaming network that dovetails nicely with Amazon’s plan to split Prime Video from the standard Prime membership. For $8.99 per month buyers get a polished service with an impressive library of licensed and original content. The addition of live channels from Twitch adds a new dimension and makes it a formidable competitor to the much larger Netflix.
Bezos has a penchant for fostering new businesses inside Amazon and for growing shareholder value. Piper Jaffrey analyst Gene Munster writes: “Twitch could be worth $5 billion to $20 billion in five years.”
Amazon shares may consolidate their recent gains, but any substantial weakness in coming months should be seen as a buying opportunity. Bezos is, incredibly, just getting started.
This article is brought to you courtesy of Money and Markets.