What I Wish I Wrote ~ June 2, 2017

This is a great twitter thread on how Amazon is disrupting consumer brands and which items are most likely to be disrupted.

And as a follow-up, the presentation from the 2017 Ira Sohn Conference on why Energizer Holdings (ENR) is a short. (Ira Sohn)

The Invest Like the Best Episode with Royce Yudkoff and Rick Ruback focuses on buying small highly profitable businesses in a model they call Really Private Equity. The criteria they look for in an acquisition candidate are equally applicable when looking for a publically traded company. Especially when they talk about recurring versus repeating revenue.

“More money has been lost reaching for yield than at the point of a gun.” If you’re investing in a high yielding retail stock, how safe is that dividend? (A Wealth of Common Sense)

Which would you rather own a Ferrari or a Tesla? Now, which stock RACE or TSLA? If you’re a Return on Invested Capital fan then Ferrari is your pick for both. Plus, RACE pays a dividend. (Intrinsic Investing)

Autonomous cars are coming. When exactly? I don’t know. But LIDAR will the be key. A brief introduction to LIDAR (Voyage)

Pepsi (PEP) dividend growth analysis (The Dividend Groth Investor)

The iPhone has a tremendous loyalty and retention rate in the U.S. and around the world. Except in China. The Chinese smartphone user is driven by WeChat and Apple needs to find a solution to this issue. (Stratechery)

On position sizing in your portfolio (Covenant-Lite on Medium)

Got 11 hours to listen to some music? The complete history of Punk Rock in 200 tracks. (Open Culture)

4 Sources of AWS’ Business Moat

Amazon Web Services is the leader in cloud computing. Providing cloud computing infrastructure would at first seem to be a commodity-like business but Amazon has built a moat around AWS. Below are the four factors we see creating the business moat around AWS.

First Mover Advantage

The first reason for AWS’ business moat is its first-mover advantage. Amazon has invested in and built the most cloud infrastructure. You could start a business to compete against AWS but it will take a lot of capital to get to the size, scale, and quality of AWS.

First mover advantage doesn’t mean anything unless the company also has product market fit. Amazon Web Services was built to suit Amazon’s needs. Once Amazon built AWS they saw they had what other cloud-based based businesses needed. It was an easy sell. If AWS could handle everything Amazon needed then it was likely to handle any other business’ needs.

Low-Cost Provider & Economies of Scale

The second reason for AWS’ business moat is it is also the lowest cost producer. This flows from its first mover advantage. The quote below from Barron’s explains AWS’ low-cost provider advantage.

But “you are never going to get greater economics than Amazon,” says Ferragu, because the company is able to spread the cost of AWS across all its cloud customers. Hence, there’s very little economic or strategic advantage, says Ferragu, for most people building tech companies to do anything other than hand over their credit cards to AWS. Consequently, he says, “Amazon and Google have won the cloud war.

Network Effect

AWS also has a slight indirect network effect working for it. From The Economist

But they are also platforms that benefit from “network effects”—the more people buy from them, the better they get. As more firms use AWS, more developers know how to use it, giving Amazon more data with which to optimise it, which makes it more attractive in its turn.

Switching Costs

AWS offers cost effective leading cloud computing capabilities. The time, cost, and labor alone to switch from AWS to someone else are immense. To lure a company away from AWS, a competitor has to offer equal or better services and large financial incentives to induce the switch. Once a company is built on AWS we don’t think a competitor can offer enough financial incentives to make the switch worthwhile to them.