Xi Jinping has grasped a fundamental truth in his quest to win the technology race – that internet companies are all ultimately disposable

Writing at the Guardian John Naughton wonders if  there are lessons for the west in the way China deals with its tech giants. 

This is story of two parallel universes. Over in the western one, neoliberal capitalism rules. In the other – the Chinese universe – a different system presides. In both universes, government concern over the growing power of giant tech companies has been growing for a while, but there the similarities end.

None of this should be taken as an endorsement of the Chinese regime, but to raise two serious questions.

The first is an exam question: does the contrast between western feebleness in reining in our tech giants and Chinese effectiveness at controlling theirs imply that only authoritarian regimes can bring swaggering corporations to heel? Discuss. Do not write on both sides of the paper.

The other question is whether Xi Jinping and co understand something that we seem unwilling to accept – that social media companies, no matter how large and apparently powerful, are ultimately disposable.

Let’s deal with the last question first.

Social media companies are disposable. Closing them would be disruptive but it would do little long term harm to the economy.

Unhealthy dependence

Many business depend on aspects of social media. Yet every one of those dependencies could transfer elsewhere.

Take the companies who put all their marketing eggs in, say, the Facebook basket. There are other, often better advertising options available elsewhere.

Groups or families who use Facebook for communications can find other forums. It’s not as if there is a lack of choice.

Making the adjustments would take time. But, on balance Naughton and the Chinese Communist leadership are right: Social media is disposable.

What about the West’s inability to rein-in the worst aspects of tech giant’s abusive behaviour?

For now there is not the political will to act. That will not always be the case.

It will start with Facebook which is the worst offender by some distance.

Now the awful truth about Facebook’s cynical behaviour and its arguably evil business model is out in the open there will be fewer and fewer prepared to defend the company against regulation and even accountability.

There will be a fight. The results may be imperfect and often unsatisfactory, yet change is on the way.

Amazon Web Services says it will build a Region in New Zealand. AWS plans to start operating local cloud data centres by 2024.

An official press release telling us about this runs to more than 3200 words. It’s long, wordy, poorly written and hard to understand.

Despite the torrent of words, it is light on details.

Mystery

It doesn’t answer key questions.

Such as: “Where will Amazon locate its promised data centres?”

That’s not mentioned anywhere in the 3200 plus words.

It’s an important question. New Zealand is on a fault line. That has implications.

Our biggest city, Auckland, is closest to the submarine cables piping in data from around the world. That’s handy. Yet because it sits on an active volcanic field it may not be the best site for a $7.5 billion investment.

Auckland has a large workforce, although the construction skills needed to build a data centre are in short supply. Does Amazon propose to bring that expertise in?

Electricity

There’s an undersupply of electricity in the Auckland region. In winter Huntly’s dirty old coal-based power plant kicks in to top up the power supply.

Will AWS be using that power?

Meanwhile, at the other end of the country there is, or soon will be, an oversupply of low cost, clean, green power. Is that in the plan? It should be.

New Zealand’s south has a cool climate. Cooling is a major operational cost for data centres. Locating in a cooler climate not only reduces costs, it smartens up green credentials, an important part of any cloud marketing programme.

Data transit

If Amazon locates in or around Auckland, it won’t have to pay much in the way of transit charges for data travelling up and down the nation’s backbone.

Nor will it pay for the cost of bringing in the power needed to run a hyper-scale data centre.

New Zealanders subsidise moving power around the country. There is a limit to how much of that is possible without network upgrades. Who pays for that?

AWS’ numbers look as they have been polished up for maximum press release impact.

From the press release:

AWS released an economic impact study (EIS) that estimates it will create 1,000 new jobs through investment of NZ$7.5 billion (US$5.3 billion) in the new AWS Asia Pacific (Auckland) Region with an estimated economic impact on New Zealand’s GDP of NZ$10.8 billion (US$7.7 billion) over the next 15 years.

Jobs for who?

We can assume many of the 1000 jobs will be temporary roles for people building the data centres. It’s rare for a giant data centre to employ more than a handful of people and that includes security guards.

Once the ball is rolling there won’t be many data centre jobs. There could be development work piggybacking off the data centre. AWS doesn’t say. Nor does it say where the people to fill those roles will come from.

Amazon doesn’t tell us enough about its plans for any sensible analysis of its $7.5 billion investment claim.

We know AWS is a worldwide hyper scale cloud business. Any comparison with Spark is always going to look odd. Yet, Spark operates New Zealand’s largest existing data centre at Takanini. That makes it the closest we have to a benchmark.

Spark’s original project cost $60 million. Subsequent expansion means that price will be a lot higher. It won’t be anywhere near $7.5 billion. It won’t be one tenth of that amount.

Market share

IDC Research says Spark and Datacom have a 43 percent share of New Zealand’s Infrastructure as a Service market. Amazon has a 23 percent market share. Microsoft is a touch behind on 19 percent. In other words, the four are all roughly the same size.

As a rule, the large, hyper scale cloud providers AWS and Microsoft Azure take 70 to 80 percent market share in any territory.

Their lateness to build here is one reason they have less share at the moment. The lure of winning that additional market share could be part of the reason both Microsoft and AWS have made big New Zealand cloud announcements in recent months.

Sure, there is more to cloud than IaaS. Yes, the market is expanding fast. Yes, Amazon is hyper scale. Does it need to spend 20 or 50 times as much as Spark?

Datagrid

Datagrid is a $700 million project to build what may still be New Zealand’s first hyper-scale data centre. The business is headed by Remi Galasso and Callplus founder Malcolm Dick.

The pair know a thing or two: they got the Hawaiki cable off the ground.

Datagrid has chosen a Southland site.

Interestingly, Amazon has invested in Hawaiki. It’s likely the Datagrid team has talked to AWS about potential cooperation1.

Part of Datagrid’s plan is to build a new submarine cable connecting Invercargill to Australia. There will also be a domestic submarine cable linking the site to major New Zealand cities.

Will Amazon build a similar cable to distribute its data?

Scale

At first Datagrid will be a 60 megawatt, 25,000 square metre data centre. Over time it will grow to 100 megawatts and 40,000 square metres. That’s a lot of data centre.

Assuming data centre costs scale better than linearly and Amazon can call on its worldwide economies of scale, its project will build more than ten times Datagrid’s capacity.

Which brings us to another question. How big is New Zealand’s cloud market?

In March Spark told Computerworld’s Sarah Putt it estimates total cloud revenue at around $730 million.

That figure doesn’t square with AWS’s $7.5 billion build budget over 15 years unless AWS anticipates the market continuing to grow at a fast rate.

Assuming AWS doesn’t capture the entire market and intends its New Zealand operation to be profitable, either the local market would need to grow at about 40 percent a year for the next decade or the company expects to host a huge amount of international business here.

Unknowns

There are plenty of unknowns. Too many unknowns to make a careful analysis of AWS’s plans. Yet there are four possible conclusions one could make about the $7.5 billion announcement.

The first is the most cynical: that it is pure public relations hype.

Mentioning a big enough number and promising lots of jobs is a sure fire way of seeing off any resistance and buying-in political good will. AWS can rest assured no-one is going to look back in 15 years to check it spent $7.5 billion.

Big technology companies like AWS have plenty of form when it comes to talking things up.

Efficient

A second conclusion, is that Amazon throws money around like water and is hugely inefficient. It overpays for everything.

This is implausible. It doesn’t square with anything we know about Amazon which is famous for trimming costs to the bone. Operational efficiency is key to making money from the cloud.

The third possibility is that AWS expects to scythe through the local cloud market. It has done this before. It’s possible, but wise cloud customers are wary of dealing with a single international ecosystem. Many will seek alternative service providers as a back-up.

That’s going to limit AWS’ potential market share. And even 100 percent share of a $730 million market doesn’t justify spending $7.5 billion even with heroic growth rates.

A more likely story is that AWS has bigger plans for New Zealand that serving local markets. It has hinted at this without explicitly saying anything. New Zealand gives, say, Australian AWS users a viable alternative location with, if not always similar, at least readily understood local conditions.

One last point. Until now, the big global cloud companies stayed away from New Zealand. They didn’t like it when there was only one submarine cable network. They didn’t like what they saw as a hostile and monopolistic telecommunications market. It took ten years of industry reform.

As far as technology is concerned, no-one thinks of us as a smug hermit kingdom.


  1. A speculating person might wonder if Datagrid will become part of AWS. ↩︎

On Tuesday the Amazon Australia website began taking orders from New Zealand customers.

If the Australian experience is anything to go by, things won’t change much in New Zealand.

At least not at first. But Amazon is happy to take a long term view.

Amazon Australia experience

Amazon’s first year in Australia was not a success. Sales were behind the company’s expectations.

The AFR reports that last year Amazon Australia had sales of A$1.2 billion. That’s double the figure for a year earlier.

Yet as the AFR notes, it is a long way behind the A$4 billion that analysts forecast for 2020 when Amazon first opened in Australia in 2017. UBS, an investment bank, now forecasts it will hit the $4 billion figure in 2023.

The number looks huge. But A$4 billion is about one percent of total retail sales and two percent of total non-food retail. This leaves plenty of room for local retailers.

Now in New Zealand

Amazon issued a press release about the Australian business selling to New Zealand. It says you should see is lower shipping prices, easier returns and quicker delivery.

All these are likely. But we need to put them in context.

Take delivery times. Dispatching a parcel from New South Wales to New Zealand will take less time because a plane takes three hours or so to travel across the Tasman. This compares with 14 hours from a US airport.

But the flight is only part of the journey. There’s packing and getting the parcel to the airport at one end. When it gets here local parcel carriers handle distribution.

If, say, that takes four days from the US. Then, unless Amazon Australia has speeded up processes, it will take three and a half days from Australia.

That’s not a huge difference.

Likewise freight prices are lower, but in most cases this is a small part of the total shopping cost. A 30 percent cut in freight costs might make a shopping order a few percent cheaper.

Amazon’s Australian store advantages are marginal when compared to shopping from Amazon US.

There are two things that could make a difference. The first is if Amazon’s Australian business opts for predatory pricing. It could undercut local retailers by a margin.

Second Amazon’s Australian operation has a section for New Zealand products. That could be useful for some local companies. Products won’t travel twice across the Tasman, Amazon will use local companies to handle distribution.

Slow pressure

While this puts extra pressure on local retailers, it is not as though they don’t already face competition from Amazon.

The immediate effect will be marginal.

Amazon already has the second largest share of online shopping in New Zealand behind Countdown.

New Zealand retailers account for 71 percent of online sales in New Zealand. In 2020 we spent NZ$5.8 billion online. Online is 11 percent of total New Zealand retail.

Amazon accounts for 11 percent of overseas online shopping from New Zealand. That is around three percent of the total.

Small but threatening

Let’s say Amazon doubles its New Zealand sales now it has an Australian store. The rest of the market continues to grow. Which means a year or two from now Amazon might be 5 percent of total online retail, not even one percent of all retail.

Amazon has always been happy to play a long game. Over time more retail will go online and, if Amazon uses its market clout, it could win a growing share. It has yet to offer a Amazon Prime service to New Zealand with ultra short delivery times and other lures.

There’s no room for complacency. Local retailers will have to work ever harder to earn a crust. That would be the case regardless of Amazon. Opening an Australian business serving New Zealand increases the pressure, but the serious threat lies a few years in the future.

I’m back on the NZ Tech Podcast.

Bill Bennett and Paul Spain discuss – Slack+Amazon vs Microsoft Teams, Amazon UK free football, UK alliance to compete with Huawei 5G, iPhone sink or swim, Crown Infrastructure update, Vodafone & CoreView, Brave missteps, Time to stop hating Microsoft? Hosted by Paul Spain and this week’s guest: Bill Bennett. Listen to the Podcast here:       […]

Source: Slack+Amazon vs Teams, iPhone beached for >14-months, UK vs Huawei, Time to stop hating on Microsoft? – NZ Tech Podcast

Neilsen says New Zealanders buy almost five million hard copy books a year. Meanwhile the Book Depository says out of the 160 countries it sell to, New Zealand is second only to Australia. We are ahead of the UK and the US.

These numbers come from a media release put out by the Book Depository. This may not seem remarkable, but the Book Depository is owned by Amazon.

The shopping giant may have started out as an online bookshop, but it has poured millions into developing the e-book market. Amazon still sells its own Kindle brand of ebook reader; the most popular standalone reader.

In other words, the world’s largest retailer of ebooks is happy to let everyone know that hard copy is still more popular with readers.

Scratch the surface and it seems the e-book market topped out about a decade ago. It hasn’t grown significantly since then. Meanwhile hard copy book sales continue to climb.

As far as it can go

I wouldn’t say this means Amazon has thrown in the towel on e-books, but it seems the market has gone as far as it is going to for now and hard copy sales are rising. Microsoft killed its Reader e-book. Hard copy books have some practical advantages over e-books.

Neilsen’s New Zealand specific market research found 80 percent of people in this country only read hard copy books. A mere five percent only read digital books. The rest read a mix of the two.

Books are still popular online. Almost 600,000 New Zealanders bought a book from a website in the last year.

Book Depository says orders to NZ have climbed 45 percent in the past three years. Although this might be because buyers are switching from other sources both online and offline. Still 45 percent represents significant growth, remember e-book sales are static.

A third of the books sold here by the Book Depository are for children. So the next generation is already invested in print rather than digital.

Part of this could be parents wanting to prise kids away from digital devices for a few moments, but there’s also more pleasure in reading a hard copy book together than sharing a screen.

Books expensive in New Zealand

I suspect one reason New Zealanders are enthusiastic online book buyers is because prices are far higher than elsewhere in the world.

This is particularly true for popular fiction books which are often discounted in large stores overseas. In some cases we pay more than twice the price paid by UK or US readers.

There are a few crumbs of comfort in this for local bookstores. While huge sales are going to offline online booksellers, the fact that readers continue to buy hard copy books in such large numbers means there is still a worthwhile market here. It’s doubtful that books will die in out lifetimes. Whether they can compete on price is another matter.

Amazon FireAt first sight the Amazon Fire Phone is a pricey 4.7-inch Android that looks like an iPhone. But wait, there’s more…

Most of the media coverage on the Amazon Fire Phone launched overnight New Zealand time focuses on the camera with its f/2.0 lens and optical image stabilisation. On paper that’s slightly better than the Apple iPhone 5S.

There’s also talk of the Firefly image recognition that means you can walk into a shop, take a snap of an item you like, then buy it for a cheaper price from Amazon. Retailers are going to love that. I expect to hear gnashing of teeth over that feature.

Amazon Fire Phone includes depth perception that gives the screen a 3D look without the need for special glasses.

However, it seems Amazon hasn’t impressed everyone: