*As of 2:20 PM E.T

Since its founding in 1995, Amazon has completed 102 acquisitions and spent $20b on its 10 biggest acquisitions. The 6-year period from 2014 to 2020 accounted for 47 of these acquisitions. Despite the many moves, Amazon’s acquisition strategy had historically been viewed as conservative with the 2017 acquisition of Whole Foods being the sole multi-billion dollar investment. 

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades. When you find one of these, don’t just swipe right, get married” - Jeff Bezos in Amazon's 2014 shareholder letter

Amazon’s 10 biggest acquisitions:

1. Whole Foods: $13.7b in 2017, a brick-and-mortar grocery chain
2. Ring: $1.2b in 2018, a maker of smart home security devices 
3. Zappos: $1.2b in 2009, an online shoe retailer with Wi-Fi enabled doorbells
4. PillPack: $1b in 2018, an online pharmacy that delivers drugs
5. Twitch Interactive: $970m in 2014, a video game streaming service
6. Kiva Systems: $775m in 2012, a robotics and automation systems business
7. Souq.com: $580m in 2017, an e-commerce platform in the Middle East
8. Quidsi: $500m in 2011, a portfolio of e-commerce sites like Diapers.com and Soap.com
9. Annapurna Labs: $370m in 2015, a semiconductor startup in Israel
10. LOVEFiLM International: $312m in 2011, a DVD rental and streaming service for Europe

As you can see, Amazon rarely pays more than $1b for acquisitions. After its latest $1b+ acquisition of Ring in 2018, Amazon CFO Brian Olsavsky noted three factors they looked for in acquisitions:

• Well-run companies
• Highly differentiated customer experience
• Real sense of customer obsession that matches Amazon’s

Perhaps nothing speaks clearer to Amazon’s acquisition strategy than Jeff Bezos’ 1997 shareholder letter that has been attached with every succeeding annual shareholder letter. The core parts of this letter include a relentless view for the long term, a lean culture, and an obsession over customers. 

Bezos notes the sole focus of any investment is to extend and solidify Amazon’s market leadership position. He continues to emphasize the importance of balance growth with long-term profitability where he will choose an investment in scale over meeting any short-term Wall Street metric. This naturally sets a tone for acquisitions to take time to bear fruit in the Amazon ecosystem. 

Consistent with Amazon’s public perception of a conservative acquirer that does not pay large sums is its lean culture. Bezos notes the importance of building a cost-conscious culture at Amazon. This is evident in many ways: Amazon doesn't serve free lunches to employees, Bezos upgraded to a Honda Accord after becoming a billionaire, and employees using doors as desks in 2013. Such frugality in the company’s culture brings greater scrutiny to any large purchase price the company makes on an acquisition. 

Bezos’ obsession over customers is clearly evident from the consumer surplus Amazon stores provide with its low prices. Constantly working backward from the customer’s needs has been a strategy for identifying future investments internally and externally for Amazon. This has been a key factor that Bezos addressed when Amazon acquired Twitch and one Whole Foods CEO John Mackey noted as an opportunity to improve upon through Amazon’s acquisition.

In 2017, Amazon acquired Whole Foods Market for $13.7b and has since seamlessly integrated the retailer into the e-commerce giant's business model. Whole Foods was critical to giving Amazon the brick-and-mortar platform that internet retailers now realize is essential to minimizing the costs of returns, delivery, and marketing. 

The acquisition of Whole Foods Market was Amazon’s largest deal to date and the $13.7b price tag was ~12x the company's second-largest acquisition. 

Whole Foods Market Timeline:

• 1978: Whole Foods opens its first store in Austin, Texas
• 1992: Goes public at $2.21 per share. 
• 1997: Whole Foods hits $1b in annual revenue. 
• 2016: $16b in annual revenue
• 2017: Acquired by Amazon for $13.7b

By 2018, Amazon had fully integrated its Prime membership program into Whole Foods stores and added some members-only discounts and an extra 10% off all purchases. Whole Foods also rolled out pickup-at-locker and delivery services through Prime Now, something that has been especially important this year due to COVID-19. 

Amazon and Whole Foods by the numbers: 

• Prior to the Amazon acquisition, Whole Foods' same-store sales fell for eight straight quarters, falling 1.9%, and 2.5% in the two quarters leading up to the Amazon deal. Since then, same-store sales have increased by 1-2% per year, but online store sales have grown by about 15% per year. (tweet this)
• In April 2019, Amazon led its third round of price cuts on hundreds of items at an average of 20% and introduced new weekly and monthly deals on select goods for Prime Members. Overall, prices had fallen about 2.5% in the previous year, and about 3% six months prior to that due to earlier price cuts. 
• When Amazon purchased Whole Foods, it had a ~20% price premium compared to other regional supermarkets, meaning it was about 20% more expensive on average. As of August 2019, the Whole Foods price-premium gap had fallen to only 12% not including discounts or sales given to Prime members. 
• In 2017, Walmart was ranked number one in the U.S. grocery market with a 26% market share, while Kroger sat at number 2 with a 10.1% market share. Amazon, through Whole Foods, was ranked 9th with 1.6%.
• In 2019, Walmart and Kroger remain the leaders but Walmart is down to 21.3% and Kroger is down to 9.9%. Whole Foods is up to a 2.2% share of the U.S. grocery market. 

In yesterday's survey, we asked our readers which streaming service they spend the most time on.

• Netflix - 43.31%
• YouTube - 17.52%
• Amazon Prime - 12.74%
• Other (Apple, CBS, HBO) - 9.55%
• Hulu - 8.60%
• Disney+ - 8.28%

Twitch is an online streaming platform focused mainly on live streaming video games that Amazon bought for $970m in 2014. Today, it has at least 1.5 million viewers globally at any point in time and has 17.5 million visitors daily. 

Last year, Twitch generated revenue of $1.54b compared to YouTube’s gaming revenue of $1.46b. Twitch was founded in 2007 to broadcast Twitch’s CEO Justin Kan’s life around the clock and was later relaunched to others to create their own channels. Though Google almost bought Twitch in 2014 for ~$1b, the deal didn’t go through due to concerns about antitrust violations. 

Twitch's business model:

Twitch generates most of its revenue on subscriptions and advertising. It also sells merchandise and viewers can buy Twitch’s digital currency which contributes to its revenue. Twitch shares 50% of its revenue with its content streamers (a mix of gamers and commentators).  

Some data on Twitch viewers:

• Twitch had 3.8 million unique broadcasters as of February 2020
• Twitch’s share of total hours of game streaming and viewing for Q1 2020
  • Views - 65%
  • Streaming - 72%
• Hours watched on game streaming platforms as of Q4 2019:
  • Twitch - 2.3 billion hours 
  • YouTube gaming - 0.9 billion hours
  • Microsoft’s Mixer - 0.1 million hours
• On average, Twitch users watch 95 minutes every day
• The U.S. contributes to ~25% of Twitch's viewer traffic.
• Last year, 42% of 16-24-year-olds said that they watched a game streaming event recently.

Twitch subscription:

Amazon recently renamed Twitch Prime to Prime Gaming, and it is offered as a bundle along with Prime membership.

Amazon's six acquisitions to augment Twitch: 

• Goodgame manages ad deals and brand for content creators in e-sports
• Bebo was a social network acquired for ~$25m for working on Twitch Rivals  - a competitive series for Twitch users 
• IGDB (Internet Games Database) was acquired by Twitch to improve its search capabilities.
• Pursuit (formerly Revlo) enabled Twitch streamers to offer virtual currency to their viewers – it was acquired by Amazon in Dec 2018. 
• Twitch acquired Clipmine, a video indexing platform to help users get more relevant content during searches.
• Curse - a game database and VoIP provider acquired by Twitch in 2016

Microsoft Mixer:

• Microsoft acquired game streaming service Beam in August 2016 and renamed it, Mixer. After failing to attract a large audience, it officially closed Mixer in July 2020 and moved the partners to Facebook Gaming. 

The global gaming market is expected to exceed $180b by 2021. Amazon also recently launched its own game Crucible on May 2020, and it was rolled back into beta version last month, after failing to attract an audience. With renaming Twitch Prime to Prime Gaming and other investments in gaming, Amazon is looking to create a solid business in the gaming industry by providing both games (like Crucible) and a streaming platform. - Nat

Other companies in the gaming ecosystem:

Microsoft will launch its subscription-based game streaming platform xCloud for Android devices on Sept. 15. xCloud will be available as a part of the Xbox Game Pass Ultimate subscription plan (that was previously available only for Xbox One consoles and Windows 10 PC), which costs $15/month. The service is being launched in 22 countries, including North America and Europe. 

Gaming in the last quarter:

• Microsoft's Xbox content and services generated $1.8b in revenue in the last quarter, an increase of 65% YoY.
• Sony's gaming division reported a revenue of $5.7b, up from $4.3b during the last year.
• In the last quarter, game app spending in the App Store reached $11.6b, and Play Store reached $7.7b, with an overall YoY increase of 27%.

Cloud gaming and Subscription services:

• Google released cloud gaming service Stadia in Nov. 2019 for $11.99/ month.
• Nvidia launched GeForce Now in Feb. 2019 (for $6.49/month). Multiple game publishers weren't satisfied due to licensing disputes.
• Sony has a cloud platform, PlayStation Now ($9.99/month), but the games can be accessed only through its consoles or on PC. 
• Apple launched its subscription platform Apple Arcade ($4.99/month) in Sept. 2019. 
• Microsoft's gaming and Xbox head Phil Spencer said the company isn't considering Sony and Nintendo as rivals due to the lack of cloud infrastructure. He added that Amazon and Google would be its main competitors due to its infrastructure capability.
• The global gaming industry is estimated to generate $160b in 2020.

A version of this section previously appeared in the Aug. 4 issue of Inside Business.

QUICK HITS

• Apple became the first U.S. company to reach market capitalization of $2 trillion. 
• President Trump showed support for Oracle to purchase TikTok. Larry Ellison, co-founder of Oracle, is a supporter of President Trump. 
• Johnson & Johnson acquired Momenta Pharmaceutical for $6.5b to enter a new market for drugs that can treat rare immune-mediated diseases.
• Vidyard and Hubspot have partnered to create an in-depth guide with proven video scripts and email templates for selling remotely.*

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