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🍂 Happy day #2 of autumn!

This summer, we had the hottest June on record. Then the hottest July. Then, the hottest August.

Feel that? It’s the arrival of crisp fall air. Finally, we can hang out outside without sweating profusely.

Today, we’ll discuss Amazon’s quest for its next big idea, and more, in just 4 minutes to read.

— Matthew

QUOTE OF THE DAY

“It wasn’t just wealth itself that put me in that position; a lot of it was sheer stubborn curiosity. Whenever I served on a corporate board, I was notorious for asking more questions than any other director on that board.

I didn’t give a shit if my question showed how stupid I was.”

— Ken Langone

WHAT ELSE WE’RE INTO

📺 WATCH: Elon Musk’s biographer on his ‘addiction’ to drama and risk

🎧 LISTEN: Valuation masterclass with Aswath Damodaran

📖 READ: Four assumptions to avoid when saving for retirement

AMAZON’S FOURTH PILLAR

‘Dreamy’ business

In mid-2021, Jeff Bezos stepped down as Amazon CEO — 27 years after he launched the e-commerce giant out of a garage near Seattle.

One of Bezos’ final big questions: What will Amazon’s fourth pillar be?

Finding another wildly successful business, which it internally calls “the fourth pillar,” has been at the center of Amazon’s leadership focus for years.

Amazon became a household name with its dominant online marketplace. Its second pillar, Amazon Prime, has driven billions in steady subscription revenue. And its third pillar, Amazon Web Services (AWS), provides cloud-computing services to corporations and governments.

What’s next?

Amazon has become one of the world’s most valuable companies, creating sky-high expectations for the next big thing. There’s a “very high standard” to be a new business pillar, Bezos has said. Bezos also has alluded to Amazon’s need to carve out dominant businesses that last.

A “dreamy” business, he wrote in his 2014 letter to shareholders, is one where “customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time — with the potential to endure for decades.”

In 2021, as Bezos stepped down, he said there were “a lot of contenders” for the fourth pillar to sustain that “dreamy” business of his. But nothing has risen to that level. At least not yet.

“In my opinion, it would be premature to declare anything a fourth or fifth pillar at this time,” Bezos said in 2021. “But we do have a lot of contenders. Just to mention a couple: you can think of things like Amazon Alexa and Amazon Studios, and there are many more.

“You can be sure of one thing: We will be working very hard to turn these things into our next pillars.”

Food & grocery

As Apple searches for another “pillar” like the iPhone, and Alphabet expands Google search, Amazon wants to continue innovating to maintain earnings growth and satisfy investors.

The company’s core online shopping business, Prime and AWS, account for almost 90% of its sales.

CEO Andy Jassy recognizes that a fourth pillar — ranging from grocery to logistics and healthcare — would diversify its revenue and keep the flywheel in motion.

Six years ago, many thought Amazon would be the next king of groceries. When Amazon bought Whole Foods for $13.7 billion in 2017, onlookers thought it’d transform the industry. And while Whole Foods remains popular, Amazon has not dominated the grocery industry.

Amazon’s initial grocery goal included bookstores, Amazon Go cashierless stores, and Amazon Fresh grocery outlets.

But the efforts haven’t panned out as expected: It closed its bookstores, shut down most Amazon Go stores, and paused new Amazon Fresh openings. Whole Foods’ changes have been limited.

Hey, Alexa!

Hey Alexa, why aren’t you better by now?

Kidding aside, many AI experts have said Amazon has fallen behind in the race. For years, Bezos and Amazon wanted to emulate Apple’s success in the hardware space with products like Alexa. But that hasn’t materialized.

Expanding the capabilities of Alexa and integrating it into more aspects of daily life could be an opportunity. But it’s an increasingly competitive space: Since Alexa was released, similar devices have emerged.

The contenders

Other possibilities for a fourth pillar include:

• Healthcare: The industry is huge in the U.S., and perhaps Amazon will crack the code for an industry still dominated by Big Pharma. One possibility would be delivering prescription drugs within hours or other medical care, tapping into its advantages.

• Original content/streaming: Amazon has invested in content production for Amazon Prime Video to compete with other streaming platforms.Bezos cared about getting this segment to par with Netflix and other streaming services, investing billions in Prime Video. Amazon also has live sports rights and spends more on content than anyone but Netflix.

• Advertising: Amazon’s advertising segment — where third-party retailers advertise on Amazon — has shown much promise, generating $37.7 billion in revenue last year. (That’s double from 2020.)

It’s now a legitimate competitor to Google and Meta. Amazon accounted for nearly 12% of U.S. digital advertising revenue in 2022, up from 4% in 2017.

• Logistics/delivery: Could Amazon eat up even more of the shipping industry with faster drone delivery? It’s not just for Amazon products, either. The company could ship packages for other businesses, not just sellers on its site, with one-day and same-day deliveries. 
  

Final thoughts

Amazon doesn’t need a fourth pillar, of course. Some investors say it should double down on its ultra-profitable marketplace and AWS businesses.

Others say it’s pursuing way too many ideas rather than focusing on the disruptive businesses only Amazon can run.

But Bezos and Jassy have emphasized their desire for another big hit. In their minds, experimenting with many ideas might one day lead to Amazon’s next monumental achievement, driving the company’s valuation even higher.

With a fourth pillar, “we’re a completely different company,” Jassy said last year.

Dive deeper

For more, here’s the Wall Street Journal’s video on why Amazon’s next big hit remains elusive.