The news cycle has been dominated by Michael Cohen, the upcoming North – South Korea summit, and the IRS server issues, but there’s more pressing issues to be had at.
So let’s get started.
Amazon Prime Milestone
Amazon announced earlier this week that its Prime membership count has risen to 100 million. That, in and of itself, is already very interesting. Considering that the company mainly operates in the US, Canada, Western Europe, and Japan, the 100M mark is quite the accomplishment. But what’s interesting is that the company has gone out of its way to declare this to the world.
The company, in the past, has shied away from revealing its Prime membership count, for unknown reasons. It always gave a vague answer, in the manner of “hundreds of thousands”. But, now, they’re giving us a specific number to work with, which is interesting. It may be a sign that Amazon wasn’t confident that its Prime memberships would reach critical mass, and now they do. It may be that Amazon sees this 100M mark as the minimum threshold for the company to use it in its PR campaigns.
Or, maybe it sees this as a chance to leverage a network effect for its Prime memberships.
But, Prime isn’t a social network — there’s no value incentive based on an increase in the number of users. Facebook is the pinnacle of this effect in action, as the number of users on the platform is the very value the platform is looking to deliver to its end users. Amazon Prime isn’t that. It’s a subscription service that’s looking to provide very tangible, monetary value to its consumers by way of free expedited shipping, free streaming video content, free audiobooks, and the like.
The consumer can very well value each service the membership provides in dollars, and compare it to the membership price to make a decision. Which begs the question — why did Amazon publish the membership count?
Is it a ploy to deter potential competitors away from direct competition? Is it really to leverage some sort of network effect? Is it to nudge the consumer to sign up by taking advantage of the bandwagon effect? Or, is it to sign to investors that the company is doing better than what’s being said on Wall Street?
Personally, I think it’s a message for investors, especially as Amazon is seeking to expand beyond its core business of e-commerce, into IoT, smarthome, and content streaming. The Prime membership program is a key part of that overarching strategy. As such, a statistic on Prime membership count could act as a proxy for number of people buying into Amazon’s long term vision.
In a somewhat expected turn of events, Huawei has confirmed its plans to refocus efforts on existing markets and channels. This comes after its US carrier deal fell through earlier this year, along with the rather anticlimactic loss of its only US sales partner in Best Buy. But, most importantly, it’s an admission of defeat to the US government, as it refuses to allow Chinese companies to operate in key, tech industries.
Huawei seems to be an unfortunate pawn caught in the crossfires of a larger war between the US and China, as the former looks to contain the rise of the latter (according to Chinese media). The US, understandably, has a different take on the matter — national security. They don’t want US data to be leaked to the Chinese, fearing corporate, and national, espionage.
NOTE: Huawei was founded by Ren Zhengfei, a former People’s Liberation Army officer, and is currently a part of the Chinese Communist Party.
The fears in the US aren’t totally baseless, especially when the company has been so secretive about its ownership structures, cap tables, and the involvement of the aforementioned Ren Zhengfei in day to day operations. Its refusal to go public just adds to the conspiracy surrounding the firm.
But then, you turn your attention to Europe, and things start to get complicated.
Europe has long been an ally of the US in its struggle to maintain the status quo of global power, and yet, it seems perfectly fine in working with Chinese enterprises, and letting them conduct business as usual within its borders. At the same time, when it comes to big projects, like Huawei’s infamous bid to connect the entirety of London’s Tube, it seems to side with the Americans, at least as an implication.
The point is, there’s definitely more to this story than both these claims. The US may, very well, have security questions for Huawei, and the threat may very well be real. It may also be the case that the US is simply using Huawei to set an example for other Chinese enterprises looking to enter the US market. But, as with most things, it’s probably a mix of both. And, as with most things, it’s probably not going to have an easy fix.
Early Stage Shakeup
This last bit is just an observation of data reported by TechCrunch on the status of early stage deals across the world. According to them, more and more early stage money is going to companies outside the US. There’s 2 things I want to address here.
First, is the new trend of the mega round. Mega rounds are Series A rounds in excess of 100M USD. For comparison, the average Series A round in the US is in the ball park of 10M USD. The spike for 2018 YTD (based on the link provided) may be due to a distortion of data based on small sample size, but it may be a sign of a larger trend towards mega Series A rounds, in line with the Chinese market.
I bring up mega rounds because that may be the largest reason for a surge in overseas early round capital in the market. China seems keen on this idea, especially, with startups raising in the hundreds of millions being a regular occurrence. This trend is worrisome, because startups, by their very nature, are companies that are high risk — sometimes the management teams don’t even know what their business model is. Series A is supposed to be a time for the team to figure out how to create value and generate revenues. These mega rounds may be preventing startups from learning how to become businesses.
Second, and perhaps, more importantly, is a question. What percent of overseas funding is being fueled by US VC firms investing in overseas assets? The general feeling on the field is that investors in North America are looking to diversify their holdings geographically, and are looking, increasingly, overseas for opportunities. Moreover, there’s increased appetite from VCs from Korea, Japan, and China, looking within East and South East Asia for investment leads. The belief that Silicon Valley is the Mecca for quality startups is disappearing, and it’s something that US investors may also feel themselves.
Should you be worried? No. In fact, this may represent the opposite. It may be a sign that international VC funding may, very well, become the norm in the future. It may be the case that your startup in South East Asia may find funding from VCs in, not only China, Korea, Japan, and South East Asia, but also from the US, and even Europe. It may be that US startups may soon raise capital from emerging market VCs from ASEAN and Indian VCs. It may be a sign that the barriers are coming down, for better or for worse.