#56 - Amazon Hiring Services
Amazon's Next Revenue Stream?
If Amazon’s workforce were a state, its population would be bigger than Montana and smaller than Maine. Globally, the company employs over 1.2 million people. As one of the primary beneficiaries of the Covid-19 feast or famine economy, it has added over 425,000 new employees during the first ten months of the year. Most are in warehouses or operations. According to the New York Times, the closest historical parallel to this is the mobilization of industries like shipbuilding during World War II.
To execute at this scale, Amazon has invested in HR tech infrastructure, including automated hiring. It's possible to get a job at an Amazon warehouse without talking to anyone. Given the company’s history of eventually selling internally developed capabilities, Amazon Hiring Services is a potential future revenue stream.
Amazon’s First-And-Best Customer Playbook
Amazon isn’t afraid to write big checks. From building Amazon Web Services (AWS) data centers to buying fleets of airplanes for its logistics network, Amazon invests tens of billions of dollars annually. According to Ben Thompson, tech analyst and author of Stratechery, these investments share three characteristics:
High fixed costs and economies of scale
Amazon is the first-and-best customer, justifying the large upfront investments
Scalable beyond Amazon
For example, AWS provides modularized cloud services like computing, databases, and storage. Here’s what it looks like in Thompson’s investment framework:
Initially built to support Amazon’s e-commerce business - its first-and-best customer - AWS is now sold externally. Outside developers get access to world-class enterprise computing infrastructure without needing to invest in hardware upfront. But Amazon is no charity. The company generates revenue leveraging an asset originally built to serve its internal needs. Similar dynamics are at play with Amazon’s e-commerce distribution capabilities, its logistics network, and Whole Foods.
Automating Hiring
Hiring is another area where Amazon has invested heavily in technical infrastructure that could eventually be sold externally. The company has 1,000 technology workers building software for its human resources team, according to The New York Times. For comparison, Etsy had about 1,400 total employees at the end of September 2020.
Automating hiring is a focus area for Amazon’s HR technology team. The vast majority of the company's employees are in roles like delivery driver, package sorter, shopper, or warehouse worker. These are high volume, high turnover positions typically requiring a high school diploma or equivalent.
Given standardized skill requirements, Amazon has automated hiring for some roles, helping to feed its insatiable headcount demands. Getting a warehouse job seemingly requires less documentation than taking out a mortgage in 2007. This process was recorded by Ryan Fan, a Baltimore school teacher, who got a job at an Amazon warehouse this summer:
A few weeks ago, I had just completed an application to work in a warehouse for Amazon. I had watched a video and completed a quiz showing that I knew that to stow items — heavy goes on the bottom, light goes on top. About 20 minutes later, Amazon emailed me that I had the job at the shift I desired...It was the easiest and most streamlined hiring process I’d ever gone through, and I was happier to have the job than to not have the job. At the same time, I got a job at one of the world’s biggest companies without ever speaking to a single human being.
Hiring is a time consuming and inefficient process. As such, Amazon Hiring Services could be a painkiller. About 10% of jobs in the US are in roles adjacent to what Amazon hires for. Retail, trucking, and warehousing all employ millions, suggesting a potential opportunity:
Similar to AWS, Amazon could break down hiring into building blocks (primitives in Thompson’s parlance) like screening and assessment. While Amazon is the first-and-best customer for these services, they could be sold to other companies as well. Applying Thompson’s framework, Amazon Hiring Services looks like this:
Amazon’s internally-developed HR tech capabilities could be valuable tools for other high volume hiring industries like trucking or retail. However, there are a number of reasons why they may not go the same route as AWS. At the moment, Amazon is headcount constrained. Facilitating hiring for others could put them at a competitive disadvantage. Similarly, trucking and logistics firms may feel queasy about Amazon seeing data for parts of their hiring process. Some e-commerce firms avoid using AWS for this reason.
The biggest reason for not selling externally is likely size. Amazon is a huge company looking to win in huge markets. Americans spend about 5% of their disposable income on groceries and nearly 18% of US GDP is goes to healthcare. This helps explain the Whole Foods acquisition and the launch of Amazon Pharmacy. By comparison, hiring is a small market. It’s tough to tell if Amazon would get out of bed in the morning for a market this size. However, given its history and the 1,000 employees it has working on HR tech, it's worth keeping on the radar.
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Great commentary as always !