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  • This video is sponsored by Brilliant.

  • The first 200 to use the link in the description get 20% off their annual premium subscription.

  • On September 4th, 2018, Amazon became a 1 trillion dollar company.

  • That's twice what it was a year ago, and only a month after Apple first broke the record.

  • Now, if your name rhymes with Real deGrasse Bison, you might point out that 1 trillion

  • is a pretty arbitrary milestone, that new years is fake, leap day is a lie, and the

  • phrasetime fliesis scientifically inaccurate.

  • But it's still a good excuse to stop and ask, Why?

  • Why is Amazon valued higher than Walmart, Samsung, Netflix, and Disney put together?

  • First, Jeff Bezos thinks only in the long-term.

  • And because investors understand this, the company can act in ways that only make sense

  • three, five, ten years in the future.

  • Second, they focus more on customers than the competition.

  • The goal is building loyalty, even if it means sacrificing profit today.

  • And finally, with remarkable scale comes remarkable efficiency.

  • When you ship billions of packages a year, you can buy your own airplanes, start your

  • own shipping company, and lower your prices.

  • But there's another reason Amazon has such an advantage: data.

  • No other website even comes close to the number of sales made with Amazon.

  • Not Ebay, not Apple, not even Walmart.

  • The battle seems already won.

  • Unlike a Costco or a Staples, companies can't really choose whether to sell on Amazon, only

  • whether they make the profit.

  • Say you're shopping for a pair of tennis shoes,

  • Most people would click buy, receive it in the mail, and never question who it came from.

  • It says Nike, the pictures are real, it even has the logo.

  • But often it's actually a reseller, who buys in bulk, adds a margin, and sells on

  • the same official-looking product page.

  • Sometimes it's not even the real product.

  • Knockoffs are everywhere.

  • In part, because Amazon isn't really incentivized to police them.

  • To you and me, it doesn't matter who the seller is if the price is right.

  • But for Nike, it's everything.

  • Brands can either refuse to sell on Amazon and watch other people do it for them,

  • Or they can embrace it, and yes, give them a cut of the profit, but at least see some

  • of it.

  • So, you can guess which one they choose.

  • Either way, Amazon wins.

  • In theory, a company the size of Nike doesn't need them, they have a recognizable brand,

  • and they can easily sell on their own website.

  • But even they submit to Amazon, who, at this point, isn't so much a player as the game

  • itself,

  • There's a whole industry around making sure your product shows up when someone searches

  • for it, and you get picked as the seller when someone clicksbuy”.

  • It's calledWinning the buy box”, in fact, here's a whole book about it, which

  • you can purchase, you guessed it, on Amazon.

  • Now, controlling 49% of online sales is impressive, But here's the catch: Online is only one-tenth

  • of retail,

  • It's a big slice of a relatively small pie.

  • To really prove its trillion-dollar valuation, Amazon needs to beat Walmart, at its game.

  • And that's harder than it looks.

  • This is Amazon's revenue from retail, this is Costco's, and this is Walmart's.

  • 90% of Americans live within 15 miles of its doors.

  • You could drive twenty-six hundred miles through Canada, and take a ferry to the remote Kodiak

  • Island, but you still haven't escaped the land of low prices andpoor fashion choices.

  • Not even if you're Pitbull.

  • Whole Foods gives Amazon a 500 store head start, but nothing compared to Walmart's

  • eleven thousand.

  • And yet, I'd still bet on Amazon.

  • Here's why.

  • The average grocery store has a profit margin of about 1%.

  • The slightest change in efficiency can be the difference between failing and thriving.

  • They need to know what customers are buying, how much they're willing to spend, and when

  • they're vulnerable to advertising.

  • This is why stores are so eager to sign you up for their rewards program, are you sure

  • you want to pass up on this 5% cash back opportunity of a lifetime?

  • Because all of a sudden you're the perfect customer, voluntarily identifying yourself

  • at the cash register, allowing them to link your purchases together and slowly build a

  • profile.

  • No individual receipt is all that valuable, but together, they can start to see trends

  • and even make predictions.

  • A few years ago, Target made the news for doing exactly this:

  • A man from Minnesota drove to the store, demanding to see a manager,

  • His teenage daughter was receiving coupon after coupon for baby clothes and diapers

  • and strollers - what were they trying to encourage?

  • So Target called him a few days later to apologize, but by then, he had his own apologizing to

  • do, his daughter was pregnant, and Target knew before he did.

  • You might say they hit the bullseye.

  • The other benefit of all this data is predictive stocking, not the creepy kind, well, depending

  • on who you ask, It's being able to order and ship products in anticipation of their

  • demand.

  • Walmart began doing this back in 2004, Guessing which items it should order in preparation

  • for Hurricane Frances.

  • The answer was strawberry pop-tarts, of course

  • Today, this isn't just handy information, it's an essential part of the business model.

  • Consumers expect faster delivery and wider availability.

  • As free shipping becomes 2-day shippingbecomes 2-hour shipping, the dynamics of retail

  • change dramatically.

  • There isn't enough time to ship your bananas from Colombia, they have to be waiting in

  • a local warehouse before you decide to buy, but without wasting valuable space.

  • And that means predicting which items will be ordered and when.

  • Here Amazon has the advantage, It doesn't just know what products you buy but what device

  • you use, what you search for, how long you spend looking, all that and a whole lot more,

  • at much bigger scale than someone like Walmart.

  • It doesn't have to guess how shoppers behave, it knows.

  • Of course, there's also a downside.

  • Amazon has always been the magic way to make stuff show up at your door.

  • Walmart, well, controversial.

  • Criticism of Walmartisn't exactly the shortest Wikipedia page.

  • Part of which is just distance.

  • Walmart is visible.

  • With Amazon, you see only the results.

  • But public perception may start to change - more stores, more warehouses, more people

  • concerned about their privacy.

  • The seeds are already planted, there's even talk of regulating Amazon as a monopoly.

  • But it has a built-in defense against those arguments: Low prices.

  • It may control huge portions of many huge industries, but it uses that scale to save

  • money for consumers.

  • It even competes with its own sellers.

  • Amazon can find which products are selling well but whose brands people don't care

  • about, things like batteries and knives, analyze their return and review data, and manufacture

  • a cheaper version without the normal marketing expenses.

  • It's their version of generic brands, with the power of data.

  • Their most successful is AmazonBasics, which, if you search for something likeiPhone

  • charger”, is practically all you see, here, here, here, here, here and here.

  • Many of its brands you wouldn't even know were Amazon's, like Rivet and Presto.

  • It knows how to rank first on its own website, which allows it to sell more products, therefore

  • manufacture them cheaper, lower their prices, which, again, sells more products.

  • And the beauty of being in so many different industries, online storage, movie production,

  • music distribution, print publishing, organic groceries, personal electronics, and so on,

  • is more data and more uses for it.

  • That's why investors are so confident, Scale, long-term investment, customer-focus, and

  • data are all universal - they give Amazon an advantage in any business they enter.

  • In other words, if your business sells, well anything to consumersthere's a good

  • chance you should be worried.

  • Amazon isn't alone, the future of many industries is using algorithms to predict and analyze

  • big sets of data.

  • With Brilliant, you can learn those valuable computer science skills in a very approachable,

  • intuitive way.

  • Say you have a list customers and their purchases, and you want to guess what one of them will

  • buy next.

  • One way to do that is called Collaborative Filtering, noticing that many people who buy

  • a backpack also look for school supplies.

  • Some patterns are invisible to you and me, so we use a neural network.

  • For example, retailers might want to automatically classify their shoppers in different categories.

  • So you train the network with data you already have, which it can use to understand completely

  • new information you give it.

  • Those are the kinds of topics you can learn with Brilliant.

  • To get started or dive deeper into the world of computer science and learn more about Brilliant,

  • go to brilliant.org/Polymatter and sign up for free.

  • The first 200 people to use that link will get 20% off the annual Premium subscription.

This video is sponsored by Brilliant.

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Why Amazon is Worth $1 Trillion

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    Samuel posted on 2018/10/01
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