In July 2016 Amazon was trading at around US$745. Yesterday it closed at US$1,765. Just a couple of months back it punched through US$2,000. It had been through the US$2,000 mark before, around August 2018. This represented a 168% gain in a touch over two years. And even today it’s still 136% higher than three years earlier.
Simple question — with the benefit of hindsight — would you have bought Amazon in mid-2016 if you knew it would deliver 168% in two years?
I guess it’s a rhetorical question. No investor ever said ‘no’ to a 168% gain in two years.
But we’re sure many passed on Amazon then as they likely have today. We all know the Amazon story. We all know it scraped through the dotcom bubble. We all know it became one of the best performing stocks of all time in the decades since.
And as I wrote yesterday:
‘[Amazon has] infiltrated every facet of life.
‘And the direction I see them going, I think there’s even more to come. Amazon has the capacity to be a standalone economy. Not just an ecommerce company…a global separate economy.’
Right now Amazon is a fascinating business. What started off as on online bookstore is now a fully-fledged global economy.
And the way I see it, that expansion is not about to slow down any time soon.
The power that Amazon wields lies in a few critical elements. The first is the ability to get anything to anyone, anywhere fast. That kind of network power is unrivalled.
The second power centre they have is immense data on users. This is a critical piece of the puzzle. You see, you might think that a company like Facebook knows more about you than perhaps your own friends and family do. But that’s not exactly the case.
The banks know who you really are
Facebook misses one key element of the data puzzle. Financial data.
When an organisation know what you spend, where you spend it, and what you spend it on, they know everything. Your bank has a far greater idea of who you are than Facebook ever will. This is also why Google Pay has become such a focus for Alphabet too.
Facebook knows the person you pretend to be. Your banks…and subsequently Amazon and Alphabet know the person you really are.
Banks have sat on this data for years. They’ve never really put it to great use, because they know it’s a sore subject with users. Trust is already at a premium when it comes to banks, to then use their data hoards to influence you…that’s a likely step too far.
But a company like Amazon, they know where you spend and how you spend it. That’s because more and more people are using them as the central point of the online e-commerce adventure.
Have you noticed that there are sites now where you don’t even need to enter card details? Where you can simply check out using ‘Amazon Pay’? You might also note Amazon having a pay by instalments option.
No credit, just a monthly payment amount spread over a few months for the more expensive purchases. And sometimes the not so expensive purchases too.
Amazon are acutely aware that if they can dial the customer experience for e-commerce up to 11, they can also do it for payments and finance.
But the real diamond in the rough is when Amazon decides to issue their own ‘cryptocurrency’. Now I’m going to admit, this is a little out there for some to consider. But not many people thought Facebook would go down the crypto rabbit hole either.
At its essence it wouldn’t be a crypto. Much like Facebook’s attempt at Libra isn’t really a crypto either. But these would be interchangeable mediums of exchange that you could use within the giant networks these companies operate in.
It’s not a new idea to me. This has been on my radar for years. It only makes perfect sense for Amazon to issue their own ‘stable coin’ within their global ecosystem. I’d suggest it would be something like the ‘Prime token’.
It would function as a global medium of exchange across all their jurisdictions. It would also function as a rewards mechanism. It would be used for ‘Prime’ benefits, perhaps discounts, and likely access to special events, broadcasts or new streaming releases.
There’s advantages to Amazon for this kind of system, namely keeping financial transactions within their own network. It would allow the expansion of Amazon payments into the real world. They would use ‘Prime’ as a real-world medium of exchange.
Need some groceries? Pay with ‘Prime’. Need to fill up your car? Pay with ‘Prime’. What about those flights or holiday you’ve been saving for? Pay with ‘Prime’ you’ve earnt throughout the year and get a discount when booking through Amazon.
Facebook runs the screen
The heat right now is squarely focused on Facebook. That’s because they were the first to propose the idea of a digital currency through the Libra project. And as I write this Mark Zuckerberg is getting grilled by uneducated, antiquated politicians.
It’s astonishing how narrow-minded politicians are when it comes to innovation and new technology.
Nonetheless, while this rambles on, Amazon continues their press towards global domination. You don’t hear about controversy (not much at least) with Amazon. You don’t see Jeff Bezos sat in front of the US Congress.
It’s like Facebook is running a screen and Amazon is lining up for the easy three-pointer.
In my view Amazon is only heading in one direction. And that’s bigger, more influential, and more profitable. They will work their way into more industries, building a global economy of Amazon.
It might be simple advertising. It might be e-commerce. It might be payments, entertainment, delivery services, maybe soon enough your money. They already hold great power, and that I believe is set to get bigger. When this comes, you’ll know you heard it here first.
To maintain global leadership these big tech companies need to do more, and be more, to the end user. The next step for them is frictionless money and payments. They can’t do that with the bureaucracies of government, so they’ll do it themselves.
Editor, Money Morning
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