This new blog series from IBM quickly dissects the week’s happenings, providing thought-provoking perspectives that separate the noise from what really matters.

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Jul 14, 2017 · 7 min read

This week in brief

“Capacity” is the theme this week, with Prime Day strengthening Amazon’s ecosystem of products and Berkshire Hathaway expanding its energy business by acquiring Texas power transmitter Oncor. The cost of Brexit across complex supply chains will impact U.K. citizens in unexpected ways — such as making the classic “full English” breakfast more expensive.

Amazon is in partnership discussions with Dish about network connectivity so its content and product distribution will remain hiccup free. And American Airlines looks to cloud computing to be more agile and efficient.

Quote of the week:

“Today success in retail is less about what you sell, and more about how you sell it. And television shopping combines the what, often unique proprietary products, with the how, entertainment, in a powerful, imaginative, attention-getting way that no other large-scale retail model has matched.”

— Pamela N. Danziger in Forbes on QVC and HSN Merger

Numbers of the week:

Amazon’s Prime Day: More than just a big sale

Yes, they raked in 60% more in sales than last year, but Prime Day’s impact reverberates beyond driving sales in what has traditionally been a slow month.

Amazon’s strategy is to build a network effect similar to Apple — customers will want to stay within the Prime ecosystem and use Alexa-enabled devices to facilitate their purchases and experience. It’s a superbly coordinated effort to extend Amazon’s reach.

“Amazon’s long-term goal has always been to be more seamlessly connected and fully embedded into the fabric of their customer’s lives. Grocery is an important part of that strategy as food choices are deeply personal.”

— Chris Wong, VP Strategy and Industry Ecosystem, at IBM

THE ANGLE:

• To take advantage of discounts, more new members join Prime on July 11 than any other single day of the year. And these customers spend nearly twice the amount as non-Prime members.
• The impact is wide — Prime Day even increases the sales of its competitors and CNBC’s rough estimates suggest the U.S. could lose $10 billion in productivity from people “shopping on the job.”
• The Echo Dot was the most popular purchase, which is Amazon’s more affordable Echo. Sales of voice-activated devices have increased 39% year-over-year. They are not quite a standard household purchase.
• Amazon leveraged shopper’s interest in groceries, sparked by their purchase of Whole Foods. With 85 million Prime members, traditional grocery stores should be concerned but quickly planning.
• Along with their purchase of Whole foods, this is a wake up call to retailers to be more experimental, agile, and consumer-centric. And to transform their customer engagement across multiple points of their business.

QVC and HSN join forces in deal valued at $2.1 billion (+ free shipping and for a limited time only)

The once fierce competitors and two best-known home-shopping TV networks in America, QVC and the Home Shopping Network, agreed to merge. This would create the largest television commerce company in the world, pending regulatory and shareholder approval.

THE ANGLE:

• The merger creates the third largest ecommerce company in North America, behind Amazon and Walmart, according to eMarketer.
• Together, the two companies have 23 million customers, 2 billion website visits, and 320 million packages shipped annually.
• The merged companies should save between $75 million to $110 million in annual cost reductions within the next three to five years, with the money funding new innovations, says QVC chief executive Mike George.
• How will they keep their customers in the HSN-QVC ecosystem? And stop them from going to competitors like Amazon?
• 45% of QVC’s sales are from online shoppers, most of which are from mobile. The new company will invest even more in ecommerce and mobile.

Brexit breaks breakfast? UK’s classic meal could cost more

According to a report by KPMG, a hard Brexit will hit U.K. consumers directly in their wallets and stomachs — making the “Full English” breakfast 13% more expensive.

This example illustrates how complex supply chains affect even staple ingredients, as tariffs make them costlier. For example, two of the most impacted items of this quintessential English comfort food are juice and beans. Juice is bottled in Ireland from oranges grown in Spain, while beans are imported from the U.S. and cooked in Italy before being brought into the U.K.

“If the U.K. leaves the EU without a trade deal or transitional agreement, we can expect both higher prices and a huge spike in red tape at the borders.”

— KPMG executive Bob Jones.

THE ANGLE:

• How will pricier goods and services impact all British citizens — specifically the underprivileged — at a time when the price of many staple ingredients are already higher due to a weaker pound?
• Soaring food prices and downstream job losses from a recession now disproportionately impact the lower class, straining government social programs.
• Will Brexit drive the U.K. into another recession? A survey by Deloitte showed 72% of chief financial officers think the business environment will be worse when the U.K. leaves the EU.

Amazon and Dish discuss a partnership to enter the wireless business together

Another week, another Amazon deal has emerged; this time, with Dish. How exactly the two companies will mutually benefit from this potential partnership may not seem apparent at first glance.

But there are some fascinating opportunities — from the wireless business to drone delivery.

THE ANGLE:

• Amazon could provide their own capacity when distributing content — providing a one-way broadcast signal for Amazon Prime video on a slice of Dish’s airwaves to avoid sluggish connections.
• Unclogged connectivity is critically important to content companies, especially if “net neutrality” rules are rolled back.
• Prime members could have the option to pay a little more for a connectivity or phone plan.
• Drones (and Internet of Things) could help Amazon deliver packages to customers more quickly and eliminate delivery costs.
• And it could help improve Alexa’s technology by putting the intelligence throughout the nodes of a wireless network.
• Dish has been seeking to enter the wireless business for several years as a way to diversify away from its shrinking core satellite TV business. The deal could also help pay for a network build out.

Want to enter the vast Texas energy market? Well, Berkshire Hathaway does. They’ve acquired Oncor.

Berkshire Hathaway is buying Oncor, which serves about 10 million people and is the biggest regulated utility in Texas. In April, Texas regulators rejected NextEra’s $18.7 billion offer for Oncor, determining that the deal wasn’t in the public interest. Berkshire Hathaway is now racing to get approval.

“When we invest in Texas, we invest big.”

— Warren Buffett, chairman of Berkshire Hathaway.

THE ANGLE:

• Berkshire Hathaway Energy owns electricity and natural-gas utilities across the US, and this deal would add to its portfolio.
• One of the world’s richest men is not resting and will cherry pick value acquisitions that complement his portfolio.
• Investors value regulated utilities for their steady cash flow. The energy unit of Berkshire Hathaway contributed $2.29 billion in profit last year.

The airline industry continues to grow; looks to technology to keep up

A growing airline industry — fueled by lower oil prices and ruthless cost-cutting — has experienced its eighth year in a row of aggregate airline profitability. But this growth has spurred a need to keep up with increased capacity and consumer demands.

Airlines are turning to technology, such as cloud computing, to deliver streamlined passenger services that reduce exposure to frustrating airport experiences. Passengers can get access to new features online or through their phones. Airlines can, for example, instantly update flight schedules across applications.

“Connectivity continues to set new records. Nearly 4 billion travelers and 55.7 million tonnes of cargo in the coming year.”

— Alexandre de Juniac, IATA’s Director General and CEO.

THE ANGLE:

• According to IATA forecasts, the number of passengers will double in 20 years if a 3.7% CAGR scenario holds up.
• The Middle East and Asia-Pacific will continue to lead among all regions, with RPK growth of 9% and 7%, respectively.
• Discover how American Airlines is transforming itself to be more agile and productive by moving to the cloud.
• Brexit will negatively impact passenger growth in Britain’s airline industry, which will only be half as fast as previously forecasted.

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