In 2005, I was shopping for an acoustic piano. Back then, piano shopping worked like this: Go to a showroom. Play every instrument. Pick one, and negotiate a price. Have it shipped to your house. Everyone understood that a piano store does not maintain much inventory on site.
Apparel shopping was completely different. Shoppers went to the store, tried things on, then paid and left with their purchase in a shopping bag.
In the early days of computers, companies used a fee-for-shared-service model for technology. It was common to pay a company like IBM rent for use of its mainframe machines. As computers became smaller and less expensive, businesses began to purchase their own equipment and the computer rental model went the way of the dinosaur. Interestingly, we’re now seeing a return to that old model, but instead of computers, businesses are renting web and cloud infrastructure services for apps and storage.
This is great news for small- and medium-size companies, as building the data centers to run those services is exorbitantly expensive. By only purchasing the infrastructure cloud services that they need from large companies like Microsoft, Google and Amazon, they eliminate the risk of that huge financial investment.
Even better, we’ve seen recent price wars among those service providers. Some of them slashed their prices by as much as 85 percent this spring in an effort to attract and retain customers.
I sit on the board of several companies that are dependent on web services and have seen this decision to rent play out several times. A good example is Carbonite, which is launching its computer backup services across Europe and recently joined the ranks of Amazon customers for web services. The decision for Carbonite was simple: If it were to build its own data center, not only would it cost excessive funds, it would have to maintain it and then (all too soon) upgrade it. It would be akin to building its own telephone or cable company instead of simply renting what it needs from a provider like Verizon or Comcast.
When I read that Amazon was in talks to partner with big fashion retailers like J. Crew, Abercrombie & Fitch and Neiman Marcus, it got my attention. Despite Amazon’s leadership position in online retail, you typically don’t associate these higher-end clothing retailers with a mainstream site that targets essentially everyone.
If we were talking about a partnership between Amazon and Wal-Mart WMT -0.94% or even Costco, that would be far less surprising because of their parallels in broad customer bases and emphasis on low prices. But rather than partnering, Wal-Mart is making its own investments to level the playing field with Amazon. So why are fancier retailers like Neiman Marcus considering such a partnership? What are the risks? And do these risks outweigh the possible benefits? I think they do.
One of the big financial stories of 2014 has been Amazon versus its investors. The company’s stock, after climbing nearly 40% in 2013, started to slip early this year, then plunged 11% on the last day of trading in January. Throughout February, the stock remained in the doldrums.
Investors, it seems, are weary of Jeff Bezos’ practice of plowing Amazon’s oversized revenue into secret projects designed to grow the massive company even more. The stock’s big drop in January coincided with the company’s announcement that it planned to raise the price of Amazon Prime, a sign that investors don’t trust management to use whatever money the price hike might generate to benefit shareholders.
Even before coming to Seattle for the first time on MIT Sloan’s Tech Trek, I had a feeling that I’d like this place. I’d heard how it’s laid back and outdoorsy. Yeah, rainy weather, but I’d also heard how friendly everyone is. Having just returned from our visit, I can say that the city lived up to its reputation. I really liked the vibe.
We visited three big tech companies on our visit: Amazon, Microsoft and Groupon. They had all given formal presentations on MIT’s campus and are always in the news, so we were all pretty well-informed about them. Visiting on their home turf, however, gave us a unique opportunity to observe and experience their culture, get a feel for the environment, and ask more probing questions. We also visited the venture capital firm Madrona Venture Group, which hosted a startup panel discussion.