Kernel Bezos.
Money is made at chokepoints, and the most valuable chokepoints are operating systems; Amazon has built exactly that with Alexa.
The concept of an operating system is straightforward: it is software that manages hardware, abstracting it in the process – it is the perennial ‘platform’ play.
Operating systems have a special allure to technology companies and investors because of their unique properties: in the short term they increase competition amongst hardware providers, which benefits the operating system, and in the long run, they effectively commoditise hardware, allowing the operating system to capture the majority of profits in the value chain; they create network effects: the more users there are of an operating system the more software applications that are developed for that operating system – this in turn drives more users which increases the addressable market for developers further still; and, operating systems by definition have a direct interface with end users – owning the user relationship is hugely valuable for the leverage over entire ecosystem the operating system creates.
The most famous operating system, of course, is Windows, which remains the best example of just how powerful owning an operating system can be. Ultimately it was one of the most perfect business models ever: commoditised hardware vendors competed to make Windows computers faster and cheaper, while software developers simultaneously made those same Windows computers more capable and harder to leave. And, all along, Microsoft collected a licensing fee that was basically pure profit.
Amazon is building the operating system of the home – its name is Alexa – and it has all of the qualities of an operating system you might expect: all kinds of hardware manufacturers are lining up to build Alexa-enabled devices; developers, devices and appliances are plugging into Alexa’s easy-to-use and flexible framework.
That leaves the business model, and this is perhaps Amazon’s biggest advantage of all: Google dot not really have one for voice, and Apple is for now paying an iPhone and Apple Watch strategy tax.
Amazon, meanwhile, does not need to make a dime on Alexa, at least not directly: the vast majority of purchases are initiated at home; today that may mean creating a shopping list, but in the future it will mean ordering things for delivery (for Prime customers the future is already here). Alexa just makes it that much easier, furthering Amazon’s goal of being the logistics provider – and tax collector – for basically everyone and everything.
