Analyzing AWS's Supply Chain Ambitions
Welcome to the 112th edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. On Dec. 9, I looked at why a niche aspect of logistics technology - rate management for shippers - has been overlooked. This week I’m closing out the year with another guest post from Jonah McIntire, who examined Microsoft’s fall supply chain solutions announcement for TLL. This time, he’s diving into the recent supply chain solutions announcement from AWS. In next week’s newsletter I’ll be looking ahead to what 2023 holds.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@spglobal.com or on Twitter at @LogTechEric.
Photo credit: Yu Chun Christopher Wong / Shutterstock.com.
A few weeks ago I had written a guest article helping explain what Microsoft’s announced supply chain solution was and how important its arrival could be. On Nov. 29 Amazon Web Services (AWS) announced a new product focused on supply chain management. It seems fitting to repeat the analysis: what unmet problem is AWS trying to solve, how does it expect to create enduring higher margins than competitors, and how likely is this to succeed?
My friend David Landau summarized the new product well: this is inventory optimization via combining inventory data across whatever sources you make the effort to connect. That data sits in a data lake, from which you can do reporting (i.e. show spots on a map, trend lines, and so forth) or forecasting. It competes with tools like Active Inventory from Manhattan Associates, the Planning Suite from E2Open, or Inventory Optimization from BlueYonder.
What they’ve offered here is not an off-the-shelf solution, but it’s not exactly raw tools for developers either. In my understanding this would appeal to a small or medium-sized retailer, independent fashion brand, FMCG company, wholesale importer or distributor. They would need the technical chops and attitude to assemble best-of-breed solutions out of microservices, and the team would likely trust AWS as a brand more than they trust names like BlueYonder, Microsoft, Manhattan Associates, Oracle, or E2Open. What companies are small-to-medium, building their own tech suite, and don’t trust the current major vendors for inventory optimization? Start-ups. Without a doubt, this solution is geared toward the new versus the established.
This is a good segue into their business strategy. AWS is probably the most successful business of my lifetime. The internet is the mega-trend of the last 25 years, and AWS powers the internet, while essentially taking a tax on a double digit portion of its interactions. It arrived here through a strategy of counter positioning and disruptive innovation (in the true Christensen sense). The counter positioning is that it offers a purely pay-as-you-use model in categories of software that are normally sold by B2B enterprise sales teams for six to eight figures as a starting point, and with massive lock-in to the vendor.
When AWS started, they launched with very basic services for data storage and computing: you can imagine these as a computer’s hard drive (to store photos for example) or its processor (to crunch an Excel file for example). Oracle wouldn’t talk to you unless it could sell a server in a rack and make more than $100,000 on it. That was the status-quo. With Amazon you could open an account with a credit card, stand up a server, process some data for an hour, and be charged $0.90. There is no way to say this as emphatically as it should be understood: AWS changed the world. I launched a business in 2011 just on the observation that a change of the base technology layer economics would enable new software ideas above it (in my case, opening new transport optimization algorithms that are so compute-hungry they need 100 servers but only for an hour). Thousands of other businesses formed in the same way via AWS. Counter positioning worked.
The other part of the AWS strategy is disruptive innovation, i.e. start by selling a lower-quality version of some category but for much lower cost. This wins a certain class of customers who couldn’t or wouldn’t buy the status-quo option, and were essentially ignored by the incumbents. Then make the product better until it’s at parity. The combination of economics that worked at low price points along with any scale economies from having more volume will mean the incumbent is dead by the time they get over their inertia and react. The best example of this is Amazon’s QuickSight product. It competes with Tableau as a business intelligence tool. I’ve been a QuickSight customer for four years, and have been an author or implementor of Tableau, SAP Data Visualizer, PowerBI, and QlikView. QuickSight started at perhaps half the features of Tableau but a tenth the price. Four years later I’d guess it has 80 percent of the capabilities and half the price. I have no doubt it will eventually win via their disruptive innovation strategy.
But there is one more point to make about the business strategy driving AWS (and which applies clearly in their new supply chain solution). It is not made for the big incumbent businesses. Remember what people used to say about cloud computing? First it was too dangerous to have data in the cloud. Then it was okay but just for development, not production. Then it was okay for peripheral systems but not for mission critical. It took more than ten years for mainstream business leaders to accept their private data centers were a dead end. The point is that the companies that embraced AWS have been new ones. They needed the pay-as-you-use economics or just wanted to build things fast without waiting for the enterprise sales rep from Tableau or Oracle to call them back.
Not only is AWS cheaper and easier to start, but it also doesn’t need system integration consultants. Think you can just sign-up for E2Open’s planning suite, follow the API documentation or getting started guide, and start running a supply chain? Nope, the consulting fees probably are more than the software. This whole mess is repulsive to the people building next-generation companies, and that’s because AWS let them do it all without the crust left over from earlier eras of software (where you licensed software, modified it with consultants, and installed the final thing in a physical server).
This leaves the last question: can the AWS strategy work in supply chain? Probably everyone reading this works in large, established companies. It sounds crazy to skip this segment. But statistically that overlooks two factors. First, incumbents are replaced much faster than we would seem to guess: go look at the Fortune 2000 lists. As an example, of the top 10 companies from 2002, only one still is ranked as top 10 this year, and essentially it bears only the name of the company since it has gone through so much M&A and divestitures. The second reason to bet on new companies over the incumbents is that even when the upstarts don’t conquer, they often merge into established companies. Throw enough small to mid-sized acquired lines of business into big supply chains and eventually one of them will spread its AWS tech stack rather than being forced to switch to the legacy providers.
In summary, I think the AWS entry into supply chain is significant and likely to eventually displace incumbents. But it will do so from under them: by servicing new ventures with a radically easier-to-start and cost-effective solution with a paucity of features. If you are paying to go to Gartner, this thing isn’t for you. But in a decade it could well be that the next titans grow up on it, or the incumbents have acquired some key businesses and then converted to it. I wouldn’t bet against them.
TPMTech Spotlight
Three years ago, at the TPM20 that never was, we were going to introduce a new set of programming called El Dorado that focused on how technology was reshaping global logistics. Of course, we never got to hold TPM20 or El Dorado, but the idea behind El Dorado eventually morphed into TPMTech. One of the cornerstone sessions at El Dorado was to be a session that included Markus Johannsen, Kuehne + Nagel’s senior vice president of global seafreight. Given the tumult since March 2020, and especially the way in which global 3PLs have both grasped massive demand growth while battling new forms of competitors, it only felt right to revisit that session that never was at TPMTech in February. Can’t wait to discuss with Markus how K+N thinks about technology investment and deployment.
Remember, new registrants can get 25 percent off a TPMTech, TPM23, or bundled pass with the code EJTPM25.
Neal Peart Lyrics of the Week
The guns replace the plow
Facades are tarnished now
The principles have been betrayed
The dreams’s gone stale
But still let hope prevail
Hope that history’s debt won’t be repaid
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
For our upcoming Journal of Commerce Annual Review and Outlook issue, I wrote about how 3PLs face a tricky ‘23, but have some ‘21 and ‘22 profits to cushion whatever rocky shores await.
Last week ECU Worldwide and Freightos both announced US trucking-based digital services intended to extend the value of their global logistics-oriented networks.
A new driver app for LTL carrier Roadrunner was less about the app and more about the operational infrastructure that underpins it, the company’s CTO told me last week.
In mid-December, two eBL providers tested the interoperability of their solutions, a key step as not all entities will gravitate toward the same products.
A comment period to help guide the US Federal Maritime Commission’s detention and demurrage rule-making process ended in mid-December, and the comments largely centered around expediting invoicing and ensuring the correct party is billed.
I spoke to GSBN CEO Bertrand Chen about what the demise of TradeLens meant to his organization and digital infrastructure in the logistics world. Chen will be speaking at TPMTech on the importance of data sharing. You may also want to read this piece, from 2018, from Jonah McIntire predicting that TradeLens was destined to not make it.
Some upcoming events I’ll be involved in:
I’ll be moderating a JOC webcast at 2 pm ET Jan. 5 talking about how the logistics technology industry - and buyers of software - will adjust to a very uncertain 2023. Panelists include Trailer Bridge CEO Mitch Luciano, Janel Group CIO Erin O’Leary, and forwarding consultant Alexander Nowroth. Register for the free event here.
My guest on the Jan. 6 episode of LogTech Live will be Earnest Sweat, venture partner at GreatPoint Ventures. We’ll discuss his thesis for investing in supply chain, what’s going on with the venture market and some of the differences between investing early stage versus growth stage. The best way to keep up with details about my show is to subscribe here.
If you missed the Dec. 16 episode of LogTech Live, where Ryan Schreiber, VP at transportation consultant Metafora, joined me, you’ll want to rectify that by catching the restream here.
I’ll be at Manifest in Las Vegas Jan 31-Feb 1, involved in two sessions, including a kickoff session at noon Jan 31 talking about the process journalists use to decide what we should cover.
I’m also moderating a session at 11:30 am Feb. 1 with execs from Greenscreens.ai, Convoy, Valoroo, and Innovation Endeavors.
Disclaimer: This newsletter is in no way affiliated with the Journal of Commerce or S&P Global, and any opinions are mine only.
