As newspapers and tech journalists work themselves into a frenzy over Monday's sale of the Washington Post to Amazon (NASDAQ:AMZN) founder Jeff Bezos, a few common themes have emerged in the ensuing media coverage.
Theme One: Traditional Newspapers are Dying
At this point it should come as no great surprise that the omnipresent Internet has systematically pillaged all three pillars of the newspaper industry.
First, subscribers are no longer willing to pay for quality journalism when near-quality journalism is readily available for free. This may change in the years ahead, but for now it is an operating reality.
Second, advertisers are no longer willing to pay for untracked eyeballs, when trackable eyeballs are just a few cents per click. Some have argued that "algorithms cannot give people goose bumps" or "tell a story," but tell that to Google (NASDAQ:GOOG) shareholders as the stock nears $1000.
Finally, readers are no longer interested in stale news, stained fingers and smudgy recycled newsprint. They just invested $500 in a shiny new tablet and they want to use it for everything, in real time, in three languages, with video, text-to-speech, and a built-in dictionary.
Theme Two: Bezos is a Rare Breed of Innovator
Only a handful of tech titans have ever sustained the type of innovative momentum that Bezos has achieved - both within and outside of Amazon. He has more in common with the Teslas and Edisons of the Electrical Age than with most of his high-tech contemporaries. The Economist described in a 2012 profile, "it is the challenge of reaching for distant horizons that really makes Amazon's boss tick."
Support for ideas like the 10,000 year clock ("a special Clock, designed to be a symbol, an icon for long-term thinking") and Blue Origin (a privately-funded sub-orbital launch system for passengers and payloads into space) are brief glimpses into his longer-term vision.
Nowhere is that long-view more evident than at his day job as Chief Everything Officer at Amazon, where a long string of transformative acquisitions like Kiva Systems (warehousing robots) and Zappos (pioneers of two-way free shipping), plus home-grown investments like Amazon Web Services (cloud hosts for Netflix streaming movie service, among countless others) and the Kindle (the company's #1 selling product) have expanded the scale and scope of the world's largest retailer.
If size matters, Amazon could be one of the single most important institutions on the planet. That said, some shareholders have argued that profits matter too.
Theme Three: Amazon's Margins Under Pressure
Bezos has managed to deflect criticism of Amazon's razor-thin operating margins on the grounds that the company is constantly investing in the future. "Society is the beneficiary" of the company's relentless approach to innovation. His meager $81K salary is a testament to this lean operating approach, and so far investors have been rewarded for their patience.
The company's stock is up over 17,000% since it first went public in 1997, and has climbed nearly 300% over the last five years alone, outpacing the NASDAQ by a multiple of 5. Investors are cautiously optimistic about the rare alchemy of the Amazon brand, and are willing to look past the astronomical metrics by which conventional companies are valued - at least for now. At some point all of this investment will need to start generating economic value, of both the balance sheet and cash flow varieties.
In the context of a CEO who thinks in such sweeping long-term arcs, and for whom virtually every decision is connected to a strategic longer-term vision, this casts a slightly different light on the Post acquisition that hasn't yet surfaced in the mainstream press.
What seems to be missing from all the digital chatter is the one strategic asset that newspapers still wield: infrastructure for local distribution.
Missing Theme: "Last-Mile" Distribution
Where the media has fallen conspicuously silent is around the strategic opportunity to Amazon. There is an argument to be made for the deeply discounted distribution network that Bezos just purchased from The Washington Post Company (WPO) - along with all of the other intellectual property, subscriber base, etc.
Since their earliest days of home delivery, newspapers have invested in proprietary distribution systems capable of beating the mailman to your doorstep every day of the week (including Sundays). From the earliest paperboy to modern fleets of vehicles, warehousing, mechanical and fueling infrastructure, newspapers have relied on their own assets to get fresh content into the hands of readers.
As technology (in particular low-cost broadband internet access) becomes ubiquitous, end users continue to shift more of their consumption online. Newspapers (and traditional bricks-and-mortar retailers) have struggled to adapt their legacy delivery systems (and business models) to accommodate this transformational shift. Counter-intuitively, this resistance to "creative destruction" (in the Schumpeterian sense) may have been a blessing in disguise.
To put this opportunity in perspective, there are a limited number of distribution channels for getting finished goods to your doorstep at scale:
- US Postal Service: Slowest and cheapest form of delivery; Amazon will inevitably be a major player in any USPS turnaround
- National Courier: FedEx (NYSE:FDX) and UPS (NYSE:UPS) are both natural partners, but also natural competitors
- "Last Mile" Delivery: AmazonFresh is already taking aim at hyper-local distribution
- Newspaper / Flyer Delivery: Earliest daily delivery available with full municipal/suburban coverage
Amazon is already strategically engaged in the first three distribution channels, and the fourth could be a natural complement to the nascent AmazonFresh platform. Think about how underutilized the trucks are once they've run their morning delivery. In a recent interview with Wired, Bezos admitted that "AmazonFresh is actually a Trojan horse. It's not about winning in grocery services. It's about dominating the market in same-day deliveries." Newspapers could seem like a natural fit, and where better to test that commercial hypothesis than in the nation's capital.
The strategic importance of managing distribution logistics is clear with a quick glance at a recent Amazon financial report. Fulfillment represent roughly 10% of sales, or more than $6 billion in 2012 on sales of $61 billion. Considering the company's razor-thin margins (a paltry $82 million net profit in Q1, followed by a $7 million loss in Q2, both on over $15 billion in sales), any improvement in fulfillment will flow straight to the company's struggling bottom line.
Simply as a philanthropic project, Bezos can be commended for rescuing the Post from the fate of the once-mighty Boston Globe (and other regional papers consumed by the digital revolution).
Perhaps more interesting is the prospect that this acquisition was an experiment in the evolution of mass distribution - both for physical goods and intellectual property.
The implication for Amazon, the New York Times (NYSE:NYT) and other publicly-traded stakeholders is relatively limited for the time being, though as with Bezos's other entrepreneurial hobbies, the longer-term potential is immense.
Today the headlines are abuzz with how Bezos is saving the Post. In hindsight, financial historians may argue that it was this legacy newspaper business which provided the catalyst for the next great shift in the Amazon distribution model. At the very least, the Washington Post has regained some much needed relevance in the digital age, and futurists have received another rare glimpse into the mind of The Man With The Long-Term Plan.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.