Behind the scenes: Amazon's dual investment logic

Source / Yuanqi capital (ID: Yuanqi capital)

Author / Hong Xiaoqin

According to the arrangement of Yuanqi capital, from 2008 to April 2022, there were 105 foreign investment events of Amazon, involving 83 companies, including 19 companies in the field of cloud services, accounting for 23% of Amazon's foreign investment companies. In addition, the higher areas also include finance, intelligent technology, entertainment, retail consumption, logistics, robots, etc.

In Amazon's past investment history, there are two projects listed in IPO. One is rivian automotive, an American electric vehicle R & D company in November 2021. Amazon participated in three of its eight rounds of strategic financing; The other is grail, an American early cancer screening service provider listed in September 2020 (later acquired by Illumina for $8 billion), and Amazon participated in its round B financing of $900 million. In addition, 25 investment projects have successfully entered the next round.

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Replica AWS model

According to financial graffiti, in April, Amazon just announced the establishment of a $1 billion Amazon Industrial Innovation Fund (hereinafter referred to as "AIIF") to invest in companies that improve supply chain, logistics technology and performance delivery. The five companies AIIF wants to invest in the first round are agility robotics, a manufacturer of logistics storage robots, modjoul, a developer of wearable security technology to improve workplace safety, vimaan, an AI vision solution provider that optimizes inventory management solutions, bionichive, a manufacturer of warehouse shelf container handlers, and mantis, a manufacturer of tactile robot arms. According to tianyancha app, AIIF has completed its investment in the first two companies.

As early as 2012, Amazon began to pay attention to the logistics field. In March 2012, Amazon acquired Kiva, an intelligent logistics robot developer, for $775 million. From 2012 to 2016, logistics almost faded out of Amazon's investment planning. By 2017 and 2018, Amazon had continuously injected a total of US $37 million into its Indian logistics company Amazon transportation services. Then in 2019, Amazon continuously invested in five logistics supply chain companies, including takeout platforms, warehousing robots, logistics infrastructure solution providers, etc. From 2020 to 2021, or due to the impact of the outbreak of the epidemic, logistics has become a problem for the world. At the same time, it has also disappeared in Amazon's foreign investment activities in those two years. So why did it make a comeback this year?

For Amazon, an e-commerce giant, allowing users to successfully pay orders is only half of the whole sales process. Only when these goods are successfully delivered to customers as soon as possible can they be truly completed. In the past, Amazon almost completely relied on third-party express companies such as UPS, FedEx and US postal service, and the logistics business was completely out of the control of the company.

Logistics expenses have always been an important cost expenditure of Amazon. In the first quarter of 2022, Amazon's logistics expenses were US $19.56 billion, up 14% year-on-year, while the revenue of Amazon online stores in the first quarter was US $51.1 billion, down 3% compared with the same period last year. By comparing the financial report data from 2020 to now, we find that, Amazon's logistics costs have been growing much faster than its online retail sales, and the outbreak of the epidemic is also one of the major factors.

In order to speed up distribution, enhance users' shopping experience and transform more users into Amazon Prime, Amazon has to increase investment in logistics and reduce its dependence on third-party logistics suppliers.

CNBC data show that from 2014 to 2018, Amazon's logistics infrastructure in the United States increased by nearly three times, and there was no sign of slowdown by 2020, with a year-on-year increase of 50%. Now more than two-thirds of Amazon's packages are delivered through Amazon logistics. In July 2020 alone, Amazon shipped 415 million packages. As of 2019, Amazon provided one-day or next day delivery services to 72% of users in the United States, which was significantly higher than that four years ago.

This development trend seems familiar, which is similar to the logic of Amazon's AWS (cloud service) development.

In addition to its main retail business, Amazon's AWS (cloud service) business has become its most profitable business. According to the first quarter financial report of 2022 released by Amazon, the revenue from AWS cloud services (Amazon Web services) was $18.4 billion, a year-on-year increase of 37%. In terms of profit, Amazon lost $3.8 billion in the first quarter of 2022, compared with $8.107 billion in the same period last year. The only thing that maintained growth in the first quarter was its AWS cloud service department. In 2021, Amazon surpassed other Internet giants with a market share of 47.4%, firmly occupying the leading position in the global cloud computing market.