How stand-up comedy helps Amazon win at e-commerce
How stand-up comedy helps Amazon win at e-commerce
On Attention Conglomerates and Internal Attention Markets
Amazon Prime Video has powered the rise of stand-up comedy in India. Why does Amazon care about stand-up comedy and how does this tie in with its e-commerce ambitions?
Comedy, as we’ll note shortly, is a critical lever to improving Amazon’s economics on e-commerce.
Let’s dig into this one!
The Attention Conglomerate
Industrial economy conglomerates brought together multiple, different, independent businesses for diversification, capital efficiency and cross-leverage.
The key input organizing these conglomerates was capital.
Attention economy conglomerates bring together diverse – seemingly unconnected – businesses to gain scale, efficiency, and cross-leverage in managing and harnessing user attention.
The key input organizing these conglomerates is attention (and data harvested as a consequence).
We’ve got many good examples of industrial economy conglomerates. What’s a good example of an attention conglomerate?
Amazon runs the world’s most successful membership program. It’s called Amazon Prime. Prime users spend much higher than regular users.
Prime is uniquely defensible for three reasons:
Offering 2-day delivery is non-trivial. It requires a warehousing footprint informed by data on where users are shopping from.
Prime delivers high-margin profit to the balance sheet (in the form of membership fees), all of which is reinvested in expanding the warehousing footprint. This creates a virtuous cycle.
Prime’s value constantly increases as a bundle. It is no longer simply about 2-day deliveries. It also bundles movies and music. JP Morgan estimates that the value users get from Amazon Prime is worth at least 6 times what it costs.
Prime is Amazon’s attention factory where Amazon harnesses attention and converts it into value through its marketplace.
How Amazon values attention as an input is entirely determined by how Amazon converts it into business value as an output.
Prime delivers an attention premium into Amazon’s e-commerce business.
Amazon and Netflix are in fundamentally different businesses, despite having similar products and despite competing for the same customers.
“When we win a Golden Globe, it helps us sell more shoes” – Jeff Bezos
Unlike Netflix, Amazon is an attention conglomerate.
Just another day for the modern family at the Attention Conglomerate
It harvests attention from multiple sources (Ecommerce, Video, Ebooks etc.) and invests that attention in multiple destinations (Ecommerce, Video, Ebooks etc.).
Internal attention markets
Industrial-era conglomerates relied on internal capital markets, creating cash flow through one business and investing it into another. These internal capital markets allowed them to share resources and finances across businesses, share costs, and improve capital efficiency.
Amazon is an attention conglomerate. It creates an internal attention market, acquiring attention through one business and converting it into value through another.
One of the primary modes of generating attention for these ‘internal attention markets’ at Amazon is Amazon Originals.
Leaked internal documents reveal that Prime Originals – shows created exclusively by and for Amazon Prime Video – account for as much as 25% of total Prime sign-ups.
In Amazon’s internal attention market, Prime Video is a strategic point of attention acquisition. By harnessing attention into the Amazon conglomerate, it plays a role similar to a cash-flow generating business in an industrial conglomerate.
Come for the video, stay for the commerce
This is a crucial insight. A lot of industry analysts see Prime Video as a retention mechanism. Their interpretation of Amazon Prime is:
Come for the commerce, stay for the video.
This line of reasoning suggests that users primarily sign up for Prime to get two-day delivery. Video is just one of many things that sweetens the deal.
But if you look at Amazon as an attention conglomerate, the reality is not quite as straightforward. Amazon’s strategy is, in equal parts, or perhaps more so:
Come for the video, stay for the commerce.
Video is a key acquisition point. And one which delivers the lowest CAC.
In a way, this it the digital counterpart of the offline mall strategy – come for the multiplex, stay for the shopping.
Cost-per-first-stream: The logic of a loss-making movie studio
Prime Video is strategic to Amazon’s internal attention market in churn reduction as well. As Bezos himself claimed, film and TV customers renew their Prime subscriptions “at higher rates, and they convert from free trials at higher rates” than members who do not stream videos on Prime.
This begs the question – Is audience acquisition through Prime strategic or incidental?
Does Amazon actually view Prime Video as a critical part of an internal attention market or is it merely looking to create a better product than Netflix?
The answer to this lies in a metric designed by Amazon called “cost per first stream”. Amazon rates TV shows internally based on the cost per first stream.