It has been slow at the Poiesis blog, as the end of semester duties draw to an end.
Meanwhile interesting operations events have occurred at our horizon of interest. Notes will follow on this topics, but here are some quick thoughts.
- Amazon released its annual report. Now AMZ is a 177B company.
- Looking at Bezos’s letter, there is an emphasized continued focus on the e-commerce challenge in India. In fact, India is the only “geographic” bullet point among the highlighted bullet points in the report. Amazon has moved into India and my prediction remains strong that Amazon is likely to win this battle out and will soon be the biggest retailer in India. (Contrast this with China).
- An interesting tidbit: Bezos explores whether “are high standards intrinsic or teachable?” No points for guessing, but please do read the whole essay.
- Amazon increased its prime subscription price in the US from $99 to $119, a huge 20% bump. For the first time, the arguments of Amazon extracting monopoly rents appear plausible.
- A gentle mea culpa. For a while, I have been arguing prices are sticky are harder to move up. I think that’s still true, but this price raise certainly throws a wrench in the argument.
- I suspect that, similar to Netflix, this price increase won’t make much of a dent into the growth of Amazon Prime.
- Last Fall, Netflix raised the prices of its subscription streaming services, charging $1 more per month for its standard package (from $9.99 to $10.99) and $2 more per month (from $11.99 to $13.99) for premium access. Far from losses, growth in subscribers has been spectacular. In its first quarter this year, Netflix hit 125 million members.
- So, firms raise subscription prices and there is not much drop off? Loyalty, network externalities, or content explosion? It is certainly worth a deeper analysis.
- Last April, Tesla overshot Ford and GM to become most “valuable” American car company. I always thought that the exuberant valuation ignored Operations fundamentals and difficult challenges Tesla inevitably faced in scaling their production line. Recently, just as Tesla’s Operations are finally getting better, it seems that Tesla has come under increased scrutiny for their cash burn. The last earnings call was, to say the least, very interesting.
- The super-optimistic valuations, the exasperation of the analysts linked to recent news, the responses and congratulatory support from CNBC (! Where else?) on how Elon Musk handled it: These are all somewhat tied in with the cult of personality of Elon Musk. Definitely, there is a strong connection between founder and firm, in popular imagination, much more than that can be explained by fundamentals.
- However, on this blog, I have focused on the fundamental Operations. The long-term production problems have always existed on Tesla (or any new car maker). I would argue with some evidence that they are in fact getting better in terms of operations scaling. In the same call, Tesla revealed that the Model 3 throughput has crept above 2000/week for the past 3-4 weeks in April.
- The past super-exuberance and current skepticism from Wall Street have always come from a misplaced idea of assessing the founder instead of the product.