Happy Space Year

News and commentaries, Technology

Happy holidays and all that but let’s talk rockets, shall we? More specifically, let’s talk SpaceX’s historic vertical takeoff, vertical landing (VTVL)* of Falcon 9 on Sunday, December 21. The questions and comments have centered largely around who really is first to do VTVL (Vertical Takeoff, Vertical Landing) – Bezos’ Blue Origin or Musk’s SpaceX.

Blue Origin 

When I first heard of Blue Origin’s launch and landing, I didn’t even bother to check out the video because I thought SpaceX’s Grasshopper have done that already. I’m actually wrong, Grasshopper did eight successful VTVLs but the maximum height it reached was 744 m (2,440 ft) before it was retired.

So, For the category of VTVL rocket to reach space and successfully land, then yes, Blue Origin is the first of its kind. But when Jeff Bezos tweeted:

A lot of people, including me, was incredulous. What club? Because SpaceX right now is on a league all its own.

Space vs. orbit
First of all, where does “space” begin?

Earth's atmosphere

Conventionally, the Kármán line at 100 km (62 mi) above sea level is used to define the beginning of outer space. And Blue Origin did breach space, reaching an altitude of 100.5 km before descending back to Earth.

But putting something into orbit is an entirely different kind of animal. First of all, the rocket does not just shoot straight up, it goes up and then goes sideways really, really fast after reaching a certain altitude. XKCD has done a great explainer on space vs. orbit here.

SpaceX Falcon 9 vs. Blue Origin’s Shepherd

  • Speed – In order to for a rocket to go into orbit and to stay there, it has to reach horizontal speed of ~8 km/s. The International Space Station hovers above Earth at 330-410 km and it goes around the world every 90 minutes at a  speed of 27,000 km/h or 7.5 km/s. SpaceX Falcon 9 first stage (the booster and the one landed) reached a max speed of around ~5,900 km/h while the second stage (the one that put the payload into orbit) reached a max speed of ~25,990 km/h**. Blue Origin reached a maximum speed of ~3,700 km/h.
  • Fuel – Obviously, in order to achieve those speeds, the engines would need a LOT of fuel. In the case of SpaceX Falcon 9, the first stage booster not only need enough fuel to shoot the rocket into space, it needed enough fuel to reorient to come back down to earth, slowdown from its crazy speed, and maneuver to land in an upright position.
  • Size and weight – SpaceX Falcon 9, at 70 m high, not only had to shoot the rocket into space and go into orbit, it had to carry a payload (or cargo) into space, in this case 11 satellites for ORBCOMM. Blue Origin’s New Shepard had no payload at all.

Space race is heating up
Now that we have that cleared up, it is great to see private companies focusing on space. Competition will yield the best technologies and the best practices and also prod the incumbents into action. And that is already happening.

An omnibus spending bill passed by Congress this month appropriates ~$55M and instructs NASA to develop a “prototype deep space habitation module” no later than 2018. It also requires NASA to submit a status report to Congress within 180 days of the bill’s enactment which could be early 2016.

Furthermore, SpaceX’s accomplishment could push Russia to reassess the costs of their own projects in order to maintain market share. The United Launch Alliance, a joint venture between Lockheed Martin Space Systems and Boeing Defense, Space and Security, uses Russian-built engines for most of its rockets. On December 23, 2015, the ULA announced that it had ordered 20 RD-180 engines to power up to 20 launches of the Atlas V rocket.

So, here’s to a wonderful 2016 and to hopefully more space exploration. And let me leave you with this: 

* VTVL is a term used for a form of takeoff for rockets, not to be confused with VTOL (vertical take-off and landing) for aircraft – helicopters, fixed wing aircraft like the Harrier.
**Speed taken from SpaceX launch video

What the billion-dollar Twitch acquisition means for Amazon’s long-term view

News and commentaries, Technology

Amazon has been unprofitable for years. In a 1997 interview with Inc., Jeff Bezos said:

“We’re going to be unprofitable for a long time. And that’s our strategy.”

Image from International Business Times

Bezo’s long-term view does not equal profits
Kudos on Bezos for such a long term view: always make customers happy, earn their trust, get their business, and offer them even more business beyond what you were originally offering. Investors are more than happy to buy Amazon stock at P/E multiples of hundred times earnings, betting that Amazon’s constant reinvestment and foregoing of profits will allow the company to capture the biggest slice of the retail pie, with e-commerce only set to increase over the years. In 2013, US retail sales reached $4.5 Trillion with e-commerce accounting for 8% of that number. In 2nd quarter of 2014, e-commerce sales accounted for 6.4% of total retail sales.

This strategy comes with a huge price of multi-million dollar acquisitions and infrastructure investments to constantly be ahead of logistics technologies. In the spirit of building new business lines to always keep customers within the Amazon umbrella, the company entered hardware with the Kindle readers and most recently the Kindle Fire Phone, offering these devices at cost and making money with e-book purchases.

Is Amazon Prime past its prime?
As a fervent Amazon Prime member, I can attest to being a very satisfied customer and perfectly willing to pay the recent Prime price hike. Two-day shipping that spans beyond Amazon.com (Prime shipping includes Shopbop.com), excellent customer service, easy payments (Amazon payments can also be used at Diapers.com) and for a long time, tax free purchases. Being a Prime member also meant that I get free access to a selection of Prime videos and e-books.

I have certainly been a great believer in Amazon’s long-term and dominant strategy but I have been having doubts lately. The shopping differentiations that I mentioned as a customer are being whittled down by increased competition from other retailers, new services (eg. Shoprunner which offers 2-day shipping in partnership with hundreds of online stores ) and a lobby to abolish the Internet sales tax loophole. Since May 2014, Amazon started charging sales tax in Florida for example.

To add to all these, Amazon seems to be on a roll of fighting with its suppliers – its fight against book publisher Hachette has yet to be resolved, canceling pre-orders of books from Hachette. Already, the company is in the middle of a dispute with another supplier, Disney; again restricting DVD pre-orders from the supplier.

Amazon’s investments in hardware and digital media content add more costs
Beyond these examples focused on Amazon’s e-commerce portal, I question Amazon’s investments in hardware and content offerings. I am not a believer of the Kindle Fire Phone. It is a cool gadget, yes, but imagine the resources that Bezos spent on developing a device that many consider to be a flop – resources that he could have used elsewhere.

Then, there’s Amazon original programming. The company’s last quarter report ending June 30, 2014 showed worldwide revenues of $19.34B. To get this seemingly impressive revenue, Amazon had to spend $19.3B (Cost of sales at $13.4B and SG&A expenses at $5.93B). The quarterly report was vague on how much the company spent on original programming but they do attribute the increased cost of sales to digital media content.* And the company is far from finished.

This week on August 25, 2014, Amazon bought game-streaming site Twitch after Google/YouTube failed to close the deal. At $970M in cash, the acquisition must surely be hurting Amazon’s cash flow. At least with Twitch, users are the ones who upload the content and with 45 million viewers watching 13B minutes of gaming a month, Amazon reaches a broad, new audience to peddle gaming hardware and software.

Is Amazon losing its focus?
Despite the massive size of Google, its acquisitions and its projects have almost always been aligned with its business model: ads. Build Gmail, Chrome and Maps, offer it for free, serve ads, accumulate data to make those ads even more relevant. Build a driverless car so people can spend more time online; expose them to ads. Buy a satellite company for an even better Maps experience and improve Internet access. Some moves are longer term view than others but they somehow still make sense.

Amazon is blurring the lines between its core business model and new business lines that bolster the core. Amazon means (or maybe meant) e-commerce. The argument with its hardware investments is that they enable customers to shop at Amazon. A new business line such as Amazon Web Services makes sense because Amazon has gotten so good at managing its infrastructure, they might as well offer the service to other companies as well.

Supposedly with the Twitch acquisition, Amazon can take a cut from video game revenues, serve ads, and help Amazon with digital content. But that’s precisely it. I struggle to understand Amazon’s drive for content, rather than remaining as a platform for content. The only thing I can think of is this: offer content to attract customers to Amazon Instant Video and thus pay $100 for Amazon Prime. For a cost that is estimated to reach a billion this year, that’s a very expensive customer acquisition strategy. After all, Amazon already executed a major coup with its multi-year agreement with HBO – the first time HBO content is streamed legally. This alone can already steal customers from Netflix or Hulu and attract a slew of new Amazon Primers. So what gives?

Apple, Google, Facebook and Amazon each want to be THE platform for our lives
The interactions we have with companies like Apple, Google and Facebook are almost constant and continuous. If you have an iPhone/iPad/iWhatever, Apple will work hard to keep you within its walled gardens – iTunes, iCloud, iMessage, etc. Google might be more “open,” but being that it can scan your email and access your web searches, they don’t need to work hard to keep you in. Facebook is the go-to for interacting with friends or almost-friends online for an average of 40 minutes a day, according to Facebook.

But unless you have a problem, shopping is not something you do every minute of everyday. If being THE platform is Amazon’s play then it needs to catch up. The company needs to find a place to engage customers constantly and they may have found it in video content. Nielsen reported in June 2014 that video on demand (VOD) users watch 20% more live TV than non-VOD users; Americans already watch over 5 hours of traditional television per day. Meanwhile, gamers spend an average of 22 hours a week playing video games. These are big chunks out of customers’ lives and Amazon is willing to pay to be a part of that. The question is: how long before investors start balking and lose faith in Bezos’ long-term view?

*This was originally inspired by a blog post here.