Volume 27: The big-tech strategy special + Allbirds as ingredient?
1. Zuckerberg goes all-in on Shops, while Bezos goes bargain shopping.
Tl;dr: Shops from Facebook adds new wrinkle to online shopping.
There’s no doubting the sheer weight of Amazon in online shopping. A fact borne out not only by their recent financial results, but also that 49% of all online shopping searches originate on Amazon (even higher among Prime members) compared to just 22% on Google. This means they’re not only winning at transactions but with discovery as well, which has enabled them to scale a significant advertising business very quickly. But all’s not well in the Kingdom of Bezos. Increasingly, the 3rd party merchant relationship is fraught with claims of abuse of market power, unfair competition and self-dealing.
Enter Shops from Facebook. Estimates vary, but as much as 50% of their advertising revenue comes from the kinds of small businesses CV-19 risks putting out of business forever. With their Shops initiative, Facebook is integrating the online shopping tech stack (Shopify, Woo Commerce etc) directly into their platform to enable millions of businesses to turn Facebook and Instagram pages into storefronts they can sell from directly. This will diversify the FB income stream by taking a small cut of transactions, boosting their advertising revenues as shopping becomes directly integrated within the ads, and helping more small businesses stay alive, which will ultimately position Facebook strongly for the economic recovery to come. Not to mention taking a dent out of Amazon Advertising and encouraging 3rd party merchants to choose FB over Amazon in the first place. Add this to their purchase of Giphy (and all the new data that entails), the advertising monetization of IGTV on Instagram (seeking to take a dent out of Google too) and we’re seeing some major and majorly smart long-term strategic moves from Zuck & co.
Meanwhile, Amazon looks like it’s going bargain shopping, after being linked with the purchase of AMC Theaters, JCPenney and Zoox. With so many retailers hitting hard times due to a combination of enforced COVID-19 closures and massive private equity induced debt, Amazon sees an opportunity to stake out a major long-term main-street presence for its brand. Just like Facebook, these moves would make much strategic sense. It allows Amazon to put its own private label brands (of which it has in excess of 100) into physical retail, while utilizing the stores as both retail and warehouse space from which they can significantly speed Prime Delivery via Zoox powered autonomous vehicles to those living nearby. Add the major investments they’re committing to creating a CV-19 hardened supply chain, and it isn’t hard to imagine extending this to Amazon-branded retail stores, where they could potentially re-build the trust to go shopping even before the pandemic subsides. Which, in turn, may help precipitate their very likely and very significant move into healthcare…
2. Microsoft to kill Slack and Zoom by featurizing both into Teams? It sure thinks so.
tl;dr: Microsoft gunning for $65bn in combined value.
This week, the CEO of Slack claimed that Microsoft is “unhealthily preoccupied with killing us.” Umm, sorry, but that’s what Microsoft does.
Featurizing, by copying a fast-growing competitive product and bundling it as a part of your own platform for free as a feature is an age-old strategic play in tech. One that Microsoft most famously wielded when bundling Internet Exploder as a part of Windows in order to put Netscape out of business, which it duly did.
This is why it came as no surprise to see Microsoft Teams launch in 2017. Part featurization strategy, part optionality strategy. (Not knowing what the future held vis a vis collaborative work, Microsoft wanted to make sure it had a playing piece on the board just in case.)
Now that work has suddenly shifted from the office to the home, Teams went from an interesting strategic option to being central to Microsoft’s overall strategy, almost overnight. Only this time, they’re not just copying Slack, they’re gunning for Zoom as well. You see, one of the biggest issues with both Slack and Zoom is their singular nature. You can’t collaborate easily on Zoom, and video calling on Slack is abysmal. By integrating both featuresets along with Office, Microsoft is aiming to create a more integrated and productive user experience for less cost to the enterprise (you can argue whether or not they’re there yet, but I can certainly appreciate the vision) and in the process gobble up $65bn in combined value. (Slack currently valued at around $19bn, Zoom at an eye watering $46bn).
Will it work? Yeah, there’s certainly a good chance that it might. Unlike both Slack and Zoom, Microsoft has relationships with pretty much every major enterprise on the planet. It’s a familiar brand. It’s trusted by CIO’s and IT managers for security and reliability. It’s building hardware and a 3rd party ecosystem around Teams. And it has the distinct advantage of having both deep pockets and strong competitive moats, which neither Slack nor Zoom can claim.
Who’s the other potential loser in all this? Oh, yeah. That would be Google, whose G-Suite portfolio has lurched so incoherently in recent years that I don’t even know what their video product is even called anymore.
3. All the players have entered the field. Let the Hunger Games begin!
Tl;dr: Confusing HBO MAX is last to launch, can it survive?
As the current landscape supercharges streaming media, HBO MAX is the last major player to enter the streaming war. The big winners so far have been Netflix, which has been going gangbusters as it’s strong brand recognition and deep content catalogue make it a go-to source of relief for quarantine boredom, Disney+ that’s been the only bright-spot in the Disney portfolio as we turn to it to safely distract our children, and Roku, which leads in distribution. (Around 40% of all streaming devices are Roku devices)
But big questions remain over others in the mix. Quibi is a dead brand standing as TikTok schools it in how to do mobile video. The Apple+ content catalogue is anemic at best. Reports are that they’ve been shopping around for 3rd party content to bulk it out and give people a reason to subscribe for longer than the trial period. Peacock has had a half-pregnant launch to existing Xfinity subscribers, and suffers from the long-term competitive disadvantage of an owner trying to have it’s cake and eat it too by launching a streaming service into a competitive environment, while at the same time trying to protect its incumbent cable business. Good luck with that.
Which brings us neatly to HBO MAX, which has loads of potential, but is an absolute shambles right now. It will have to sort out three big problems to succeed. (note, I’m excluding the fact that AT&T couldn’t negotiate launch deals with 70% of US streaming devices because I’m assuming they’ll figure that one out forthwith):
The brand architecture is a confused mess.
With the launch of HBO MAX, there are now three HBOs to deal with. The HBO you subscribe to via your cable TV company, which then allows you to access HBO GO online. The HBO you were formerly subscribed to independently is called HBO NOW, and the new HBO MAX that will ultimately replace HBO NOW and kind of replace HBO GO. Are you confused yet? Because HBO sure are. In a very competitive environment, this is a major and unnecessary problem. HBO really needs to sort this out and do it fast.The brand and content catalog are misaligned.
The tagline, “Where HBO meets so much more” encapsulates the problem statement perfectly. The HBO part is clear, it’s the so much more that’s the problem. HBO is the original luxury brand for content. A premium subscription on top of your cable bill for a niche audience that gives you access to compelling, challenging, content that’s decidedly not for everyone. While that content still exists within HBO MAX, it’s now accompanied by “so much more,” AKA a random grab-bag from the WarnerMedia catalog AT&T acquired on its media company acquisition binge. Content that, with the notable exception of Friends, is likely to appeal to a very different audience looking for a very different experience. This isn’t just going to be challenging from a consumer value and brand positioning perspective, but from a creator perspective too. Producing a show for HBO just isn’t going to have the cachet it once did, especially if that show now has to be diluted to meet the expectations of a broader audience. And the pockets of Apple, Amazon and Netflix are so very deep...They have to justify the price of offering so much more.
This is going to be an interesting experiment. HBO NOW, with a small catalog of high quality niche content, was $14.99. HBO MAX with an expanded catalog of content is also $14.99. On face value, that might look like a better deal, but relative to the streaming market overall, $14.99 is expensive. This means HBO MAX is seeking mainstream scale at a premium price point with a markedly mixed content catalog, whereas HBO NOW has always been a niche proposition in both the catalog and the audience. Worse, there remains the question of whether more is more, or whether more is in fact less. Does combining content catalogs that appeal to very different audiences, with differing perceptions of what represents quality, make the product more or less compelling? This is a really big question we’ve yet to see the answer to. Look out for a fast discount toward a more competitive price point post-launch. If that happens, the answer was “no.”
Ultimately, streaming video is a huge bet for the biggest players in tech and entertainment because the potential payoff is massive. Peak content has been talked about for years as ultra-cheap capital fueled an unprecedented explosion in the the creation of quality content. There’s little chance that all these providers can survive and thrive. On track record alone, HBO should be a winner. But, based on all this confusion, can it? And does heavily indebted parent AT&T have the stomach for an expensive, drawn out war for content and marketshare?
4. No, ad-people. Allbirds didn’t just stage an Adidas coup.
Tl;dr: Instantly jumping to the wrong conclusion because…not thinking.
Advertising talking heads on Twitter (sadly, it’s a thing) have been going gaga over Adidas hiring Allbirds to help manufacture the world’s most sustainable shoe. The Twitterati being all in a kerfuffle that hip Allbirds is staging a brand coup against boring old Adidas. Unfortunately for them, I suspect their immediate response couldn’t be further from the truth.
For ad-folks, Allbirds is sexy because it’s new, it’s Silicon Valley, it’s a hip startup focused on millennials and Gen Z, it’s DTC, it has purpose. Basically, it’s all the things they've been writing 100 plus page trend decks about for the last five years. But here’s the thing, in relative terms they’re tiny, and dependent upon VC capital that’s hounding them for growth. And, if they’re anything like the other DTC brands we’ve seen go public recently, they’re almost certainly losing money—gobs and gobs of it.
As is often the case, the most telling thing here is what wasn’t said. Nowhere in the press release is there mention of how much Allbirds brand presence there will be in the final shoe. If you think it will have even a fraction of the presence the advertising talking heads think it will, I highly doubt it. Much more likely, Allbirds have conceded that there isn’t a profitable path to scale for their core shoe business, it’s just too big of a lift to go beyond a niche presence. However, their expertise and knowledge about sustainable manufacturing is valuable and can be unlocked, scaled, and monetized if sold to partners who already operate at scale, like Adidas.
So, far from Allbirds taking over Adidas, this is much more likely Allbirds pivoting to become more of an ingredient brand like Goretex, a white label chip designer like ARM, or a consulting business with a niche brand attached like Lotus. (The car brand exists to demonstrate their engineering chops, they make their money from Lotus Engineering, which sells consulting services to much larger car companies.) If this is the case, it might be a smart strategic move for Allbirds. It instantly scales impact they otherwise can’t achieve alone, protects them from being preyed upon by Amazon, and would likely shift their business closer to the kind of high gross margins that tech-focused VC backers like to see.