Tag Archives: Amazon

Amazon Alexa Can Now Get You Breakfast at Midnight With Denny’s On-Demand
March 14, 2018 6:24 pm|Comments (0)

If you’re hungry for some pancakes, Amazon’s Alexa has your back.

The restaurant chain Denny’s announced on Wednesday that you can now use Amazon’s Alexa voice assistant to order food through its Denny’s On Demand service. Those who use Amazon’s Alexa on a variety of devices, including the company’s line of smart home Echo devices, can enable the feature for free. Users can then input their Denny’s on Demand account and payment information through the Alexa “skill” and place an order.

Once it’s all set up, users can activate Alexa on an Echo and speak their orders of pancakes, eggs, and anything else they want from Denny’s. Payments will be processed automatically and their orders will be sent to a local Denny’s restaurant. Amazon’s Alexa will alert users to an estimated time when their Denny’s order will be available for pickup.

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Denny’s launched its Denny’s on Demand service last year to boost its digital ordering. Through the service, diners can boot up the Denny’s app to find local restaurants and place orders. All payments can be made through the app, allowing users to simply walk into a restaurant and pick up their food. In a statement on Wednesday, Denny’s said that it’s registered more than 1.3 million orders since Denny’s on Demand’s launch last May.

By launching a new Amazon Alexa skill, Denny’s on Demand is now available to Echo owners in addition to those on a smartphone and tablet. And Denny’s said that users can order via Alexa day and night. The restaurant chain cautioned, however, that the service is available only at participating Denny’s locations. It didn’t list which locations are currently offering the service.


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Trump's Tax Plan: Bad News For Amazon, Tesla, And Netflix Shareholders
February 24, 2018 6:02 pm|Comments (0)

Trump Tax Plan’s Effect on Inflation and Interest Rates

As everyone now knows, President Trump got his corporate tax reduction bill passed in late December, lowering the tax rate on domestic business from 35% to 21%. Thus far, most investors and pundits have focused on how the lower corporate rate is a boon to big companies nationwide. Obviously, lower taxes should lead to higher profits, all else remaining equal. However, what has received a bit less attention is the effect that the tax plan will have on future interest rates and inflation. According to the Congressional Budget Office, the tax plan will add an additional $ 1.4 trillion (yes, that’s $ 14 followed by 11 zeros – or, if one prefers, 1,400 stacks of $ 1,000,000,000 each) to the federal debt over the next decade. Clearly, with the economy already strong and with debt levels already high, the tax bill should almost certainly result in higher levels of future inflation and, hence, higher future interest rates.

Indeed, it took only a month and a half after the tax plan’s passage for investors to feel the first jolts from higher inflation, as CNN reported on February 6th:

Be careful what you wish for.

Wall Street partied hard while President Trump pushed for huge business tax cuts that the economy didn’t really need. Tax cut euphoria carried the Dow a breathtaking 8,000 points to levels never seen before.

Now comes the hangover. Investors are remembering that giving lots of medicine to an already healthy economy can have side effects, namely inflation.

Those inflation fears are suddenly rocking Wall Street. They sent the Dow plummeting 1,800 points in just two trading days. The losses wiped out a quarter of the gains since Trump’s election.

For months, investors basically ignored the threat that the tax cuts might backfire, causing bond yields to spike and raising the likelihood that the Federal Reserve will have to raise interest rates faster to fight inflation.

“We have an infinite capacity for self-delusion as investors,” said Bruce McCain, chief investment strategist at Key Private Bank. “When we feel good, we don’t want to be bothered by reality.”

How Inflation Swindles the Equity Investor

So, what does all this mean for shareholders? Back in May 1977, Warren Buffett wrote an article for Fortune magazine (full article linked here) entitled “How Inflation Swindles the Equity Investor”. Given that we now appear to be heading into an era of higher inflation, it pays to take a look back at Buffett’s thoughts on the subject from nearly 41 years ago. How does Buffett describe the relationship between inflation and equities in the Fortune article? First, he refutes the previously accepted view that equities act as an effective hedge against inflation:

There is no mystery at all about the problems of bondholders in an era of inflation. When the value of the dollar deteriorates month after month, a security with income and principal payments denominated in those dollars isn’t going to be a big winner. You hardly need a Ph.D. in economics to figure that one out. It was long assumed that stocks were something else. For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their value in real terms, let the politicians print money as they might. And why didn’t it turn out that way? The main reason, I believe, is that stocks, in economic substance, are really very similar to bonds. I know that this belief will seem eccentric to many investors. They will immediately observe that the return on a bond (the coupon) is fixed, while the return on an equity investment (the company’s earnings) can vary substantially from one year to another. True enough. But anyone who examines the aggregate returns that have been earned by companies during the postwar years will discover something extraordinary: the returns on equity have in fact not varied much at all.

Basically, Buffett takes the view that equities are disguised bonds that pay around 12% on par value (i.e., book value, or shareholders’ equity). Thus, stocks are hurt just as much as bonds when inflation rises because the price-to-book ratio (and, consequently, price-to-earnings and price-to-sales ratios) for stocks must necessarily decrease just as a bond’s price decreases in inflationary times. Conversely, the lower the relative level of inflation, the higher bond prices rise and the more P/B, P/E, and P/S multiples for stock expand (all other things being equal).

Buffett goes on to identify a key additional characteristic of low inflationary environments: they favor companies that reinvest their earnings (versus paying them out via dividends). Why? Because when stocks are trading at 3.4X book value, as they are today, every $ 1 of cash from operations that gets reinvested in said book value should translate into an incremental $ 3.40 in market value for the shareholder (versus worth just $ 1 when paid out as a dividend, or even less after payment of taxes thereon). Buffett explains further:

This characteristic of stocks – the reinvestment of part of the coupon – can be good or bad news, depending on the relative attractiveness of that 12%. The news was very good indeed in the 1950s and early 1960s. With bonds yielding only 3 or 4%, the right to reinvest automatically a portion of the equity coupon at 12% was of enormous value. Note that investors could not just invest their own money and get that 12% return. Stock prices in this period ranged far above book value, and investors were prevented by the premium prices they had to pay from directly extracting out of the underlying corporate universe whatever rate that universe was earning. You can’t pay far above par for a 12% bond and earn 12% for yourself.

But on their retained earnings, investors could earn 12%. In effect, earnings retention allowed investors to buy at book value part of an enterprise that, in the economic environment then existing, was worth a great deal more than book value.

It was a situation that left very little to be said for cash dividends and a lot to be said for earnings retention. Indeed, the more money that investors thought likely to be reinvested at the 12% rate, the more valuable they considered their reinvestment privilege, and the more they were willing to pay for it. In the early 1960s, investors eagerly paid top-scale prices for electric utilities situated in growth areas, knowing that these companies had the ability to re-invest very large proportions of their earnings. Utilities whose operating environment dictated a larger cash payout rated lower prices.

We note here that the 30-year Treasury bond yield has jumped up recently, appreciating about 45 bps over the past six months to the ~3.20% level (source):

30 year Granted, we are not even remotely close today to the ~15% level of the early 1980s, however, for equity investors, we currently appear to be moving in the “wrong” direction, at least if one buys into Buffett’s thesis. Indeed, looking at the very long view, it appears that the ~35-year bond bull market may finally be ending (source):

Now, we know why investors have been in love with so-called “growth” companies (especially big tech companies) during the recent moderate growth, low interest rate, and low inflation environment. These tend not to pay dividends but rather reinvest all their cash flows into existing or new operating businesses. Consider Amazon (AMZN) for a moment. All operating cash flow is plowed back by Jeff Bezos either into the existing retail business or in newer businesses such as Amazon Web Services. Unfortunately, the higher interest rates rise, the lower the relative benefit of the reinvested dollar for shareholders, and the less attractive “growth” stocks look compared to stodgy dividend payers like AT&T (T) or General Motors (GM) (again, other things being equal).

Buffett notes that a “reversal” phenomenon took hold in the mid-to-late 1960s just after major institutional investors had stampeded into growth stocks at nosebleed valuations:

This heaven-on-earth situation [regarding the superiority of growth stocks in low interest rate environments] finally was “discovered” in the mid-1960s by many major investing institutions. But just as these financial elephants began trampling on one another in their rush to equities, we entered an era of accelerating inflation and higher interest rates. Quite logically, the marking-up process began to reverse itself. Rising interest rates ruthlessly reduced the value of all existing fixed-coupon investments. And as long-term corporate bond rates began moving up (eventually reaching the 10% area), both the equity return of 12% and the reinvestment “privilege” began to look different.

Are we on the precipice of a new downward revaluation of stocks, given looming inflation? Today, stocks trade around 3.4X book value, compared to 2.0X book value in 2009 and just 1X book value in 1980. Let’s take an extreme scenario where interest rates are rising significantly and investors are only willing to pay book value for the S&P 500 again, as they did at the conclusion of the last bond bear market. Obviously, a growth company that trades today at 10X book value pays no dividends and earns 15% return on equity has much more potential downside than a dividend payer trading at 1.5X book value also earning 15% return on equity, since, even if the former were to trade at a consistent 3X the market multiple of book value (as it does now), it would still lose 70% of its value in the adverse scenario (i.e., its valuation would be reduced from 10X book to 3X book). In comparison, the dividend payer now trading at 1.5X book value might trade down to 1X book in the adverse scenario, meaning it would only have 33% downside, or less than half that of the growth stock.

Wither Tech Stocks Post-Trump Tax Reform?

So, how do some recent market darlings trade versus book value? Below are 5-year price-to-book charts for Amazon, Tesla (TSLA), and Netflix (NFLX):

PB 1 PB 2 PB 3

We find that Amazon trades at 26X, Tesla trades at 14X, and Netflix trades at 34X book, or an average for the three of about 25X book value. This represents a multiple of over 7X the overall market’s (already historically high) P/B ratio. Moreover, none of these companies pays a dividend, so they receive maximum credit from investors for the fact that all cash (including cash sourced from incremental debt) gets reinvested in the underlying business at book value. As interest rates have relentlessly fallen during the current 9-year bull market, investors have logically marked up the equity valuations of these three to higher and higher multiples of book value. If Buffett is correct, however, these will be the very companies whose valuations contract the most when inflation and interest rates rise, as should occur in an era of higher and higher government spending and deficits.

Moreover, the likes of Amazon, Tesla, and Netflix are also the type of companies helped the least by the Trump tax cuts. For one thing, they are either unprofitable or marginally profitable, so cutting their tax rate yields minimal to no gain for them in terms of immediate earnings and cash flow. Second, the value of any deferred tax assets on their balance sheets is lower, since going forward, the amount of taxes they will be able to offset with their DTAs will be lower under a 21% tax regime than a 35% tax regime (for example, Tesla had $ 2.4 billion in DTAs on its balance sheet as of the end of 2017). Finally, the current market valuation for all three companies is largely based on investors’ expectations of massive profits many years down the line (under typical sell-side analyst DCF analyses, near-term profits for these companies remains subdued to nonexistent and then explodes to the upside in the out years, similar to a hockey stick effect). Yet if the tax cuts lead to higher interest rates, the present value of these out-year profits will necessarily be less, as the discount factor applied to them will be higher. Thus, we find that the Trump tax cut has a triple negative effect on companies such as Amazon, Tesla, and Netflix.

Indeed, media outlets noted the initial negative tech investor reaction to the tax bill:


Of course, certain highly profitable large-cap tech players such as Apple (AAPL), Google (GOOG) (NASDAQ:GOOGL), and Microsoft (MSFT) should benefit from the Trump tax plan, as their cash taxes should decrease significantly going forward. In addition, they will be able to repatriate billions of overseas profits at favorable rates. Thus, not all tech companies should be put into the same boat.


The passage of the Trump tax plan looks to be a major negative for companies like Amazon, Tesla, and Netflix. Not only do they fail to benefit immediately from the lower corporate tax rate (since they generate minimal to no profits), the present value of their future profits is less if higher government deficits lead to higher long-term interest rates (a process which seems to be already well underway). Not only that, but if Warren Buffett’s analysis is to be believed, higher rates will necessarily cause price-to-book multiples to contract market-wide from the current (historically high) 3.4X level. As a group Amazon, Tesla, and Netflix trade at a massive 7X the overall market’s P/B ratio, indicating that the downside risk from such a contraction could be significant. To be sure, the valuation of any individual company depends on many variables, including the quality of management and products, revenue versus expense growth, market share dynamics, etc. However, the truly scary thing for Amazon, Tesla, and Netflix shareholders about the Trump tax bill is that the negative knock-on effects for these companies, as outlined in this article, are completely outside their and their company managements’ collective control.

Disclosure: I am/we are long GM, AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are also short TSLA and NFLX.


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Exclusive: Amazon eyes new warehouse in Brazil e-commerce push – sources
February 9, 2018 6:01 pm|Comments (0)

SAO PAULO (Reuters) – Amazon.com Inc (AMZN.O) is looking to lease a 50,000-square-meter warehouse just outside Sao Paulo, people familiar with the matter told Reuters, as it steps up its push into Latin America’s biggest retail market, Brazil.

The logistics investment, which would be four times the size of its current book-shipping operation in the country, is a sign the online retailer may soon handle distribution of electronics and other goods sold on its Brazilian website.

That would be the first step of its kind for Amazon in Latin America’s largest economy, where it currently relies on third parties to ship their own goods sold on its marketplace, and it underscores the seriousness of the e-commerce giant’s renewed push into Brazil.

Amazon declined to comment to questions about leasing a warehouse.

While an estimated two-thirds of Brazil’s 209 million people have internet access, online retail was slow to take off at first, amid concerns over security and complications with tax and logistics in the continent-sized country.

E-commerce accounts for around 5 percent of Brazil’s roughly $ 300 billion retail market — about half its share in the United States — but it has doubled in the past four years and is forecast to keep growing annually at a double-digit pace.

Now Amazon, which expanded its Brazil business from books to electronics in October, is gearing up to fight rivals such as Latin Ameria’s homegrown e-commerce champion Mercado Libre Inc (MELI.O) and B2w Cia Digital, (BTOW3.SA) which is indirectly controlled by partners of private equity group 3G Capital.

“You obviously can’t underestimate a company like Amazon,” said Pedro Guasti, CEO of Brazilian online consultancy Ebit. “It has huge capacity to invest and it’s obviously taking a bigger bite of the cake than it did last year.”

Mercado Libre Inc, B2w and local retailer Magazine Luiza SA (MGLU3.SA) have stolen a march on Amazon by storing and shipping goods appearing on their websites even when offered by third-party sellers, to ensure speed and customer satisfaction.

Amazon, by contrast, has been slow to tackle the challenges of shipping in a country where tricky logistics and tax issues have long made online retail an unprofitable venture.


In Mexico, Amazon launched its third-party marketplace coupled with its own shipping service, called “Fulfillment by Amazon,” in 2015.

The contrast has been stark. Nearly 20 percent of reviews on Amazon’s Brazilian marketplace are negative, compared with 10 percent in Mexico and just 4 percent in the United States, according to e-commerce analytics firm Marketplace Pulse.

Complaints in Brazil often focus on delayed or canceled orders – a problem dramatically reduced in other countries when Amazon itself packs and posts orders of third-party goods stored at its warehouse facilities.

In an early sign of Amazon’s Brazilian logistics push, the company posted more than a dozen listings for distribution jobs in the country to LinkedIn last year, including “Site leader, Fulfillment Center”.

The new warehouse site outside of Sao Paulo, in the municipality of Cajamar, looks to be a step in that direction.

There San Francisco-based logistics company Prologis Inc (PLD.N) has offered a 50,000-square-meter space to Amazon in a new industrial park that hosts DHL and Samsung, according to sources, who said adaptation of the warehouse had not begun.

Prologis, which also partnered with Amazon on a mega-warehouse north of Mexico city last year, declined to comment.

The preparations in Brazil come as Luft, the local logistics operator for Amazon’s book business, readies a move into another Prologis site nearby in Cajamar, sources said, leaving its current 12,000-square-meter facility in the city of Barueri.

Amazon registered in October to conduct operations in Cajamar, according to municipal records seen by Reuters.

The new logistics investment could spell trouble for rivals.

Mercado Libre has been a success story among Latin America tech start ups: its shares have nearly tripled since 2014, bringing its market capitalization to more than $ 15 billion.

Magazine Luiza’s stock has risen sixfold in each of the past two years as it shifted its rolled out an ambitious e-commerce strategy built on its brick and mortar stores.

Reporting by Gabriela Mello; Writing and additional reporting by Brad Haynes; Editing by Daniel Flynn and Alistair Bell


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Canada's Trudeau to meet Amazon CEO Bezos during U.S. visit
February 7, 2018 6:24 pm|Comments (0)

OTTAWA (Reuters) – Canadian Prime Minister Justin Trudeau will meet Amazon.com (AMZN.O) Chief Executive Jeff Bezos on Thursday during a tour of three major U.S. cities this week to bolster support for the North American Free Trade Agreement, which is being renegotiated.

Amazon is in the process of identifying a location to build a massive new second headquarters and has shortlisted 20 cities, including Toronto, the only non-U.S. city to make the list.

Trudeau will meet Bezos in San Francisco, the government said on Wednesday.

During his trip, Trudeau will also meet with other technology executives, including eBay Inc (EBAY.O) chief executive officer Devin Wenig.

Amazon founder and CEO Jeff Bezos gives some closing comments after opening the new Amazon Spheres with some help from Alexa during an opening event at Amazon’s headquarters in Seattle, Washington, U.S., January 29, 2018. REUTERS/Lindsey Wasson

“The point of those meetings is to portray Canada as a good place to invest … and to explore opportunities related to job growth with those prominent business leaders who may be interested in expanding their operations in Canada,” said spokesman Cameron Ahmad.

Ahmad declined to comment specifically on the meeting with Bezos.

Amazon’s decision on where to locate its second headquarters is expected this year. The tech giant has promised to invest $ 5 billion and create 50,000 jobs in the city it chooses. The 19 U.S. cities on the list include Chicago, Boston and New York.

Trudeau’s trip also comes as Canada and Mexico strive to address U.S. demands for NAFTA reform, with the fate of the trade pact uncertain. Last week, Trudeau reiterated a tough stance, saying Canada could walk away if he was not happy with talks to modernize the agreement.

Trudeau is due to give a speech in Chicago on Wednesday to sell the merits of bilateral trade.

Reporting by Leah Schnurr and David Ljunggren; Editing by Bernadette Baum


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Google gets into audiobooks as rivalry with Amazon heats up
January 23, 2018 6:00 pm|Comments (0)

SAN FRANCISCO (Reuters) – Alphabet Inc’s Google introduced audiobooks to its online store on Tuesday, making its smart speakers and virtual assistant more competitive with Amazon.com Inc’s Echo devices and Alexa voice assistant.

Listening to audiobooks is among the most popular nighttime uses for smart speakers, a burgeoning type of home appliance that provides audio streams of music, news and other data based on user commands to an embedded virtual assistant.

But Google’s Home speakers have lagged Amazon Echo in terms of audiobook features. Amazon-owned Audible, the top provider of audiobooks, has not been supported on Home and other speakers with Google Assistant.

Google launching an audiobooks store widens the battle, which has also seen Google’s YouTube unit stop supporting an Amazon product.

Greg Hartrell, head of product management for Google Play Books, listed subscription-less buying as the top selling point for the new audiobooks store.

“You can buy a single audiobook at an affordable price, with no commitments,” he said in a blog post on Tuesday.

Audible offers one-off purchases, but promotes a $ 14.95 monthly subscription that includes one free download and 30 percent off further purchases. Amazon and Audible did not respond to requests to comment.

Google began selling ebooks in 2010. Hartrell told Reuters in a statement that audiobooks are being added because “our users are asking for them.”

About 16 percent of U.S. adults own a smart speaker, according to an Edison Research survey conducted in late 2017. The firm in conjunction with Triton Digital also found last spring that 30 percent of frequent audiobook listeners had used a smart speaker to take in an audiobook in the previous 12 months.

Audiobook sales surged nearly 20 percent annually for three consecutive years, reaching $ 2.1 billion in 2016, according to the latest Audio Publishers Assn. data.

Thad McIlroy, an online book industry consultant, said audiobooks represent the only publishing category with “strong growth” so it makes sense for Google to challenge Amazon despite having a weak ebooks business.

Google-purchased audiobooks can be accessed through Google Play Books on the web, apps for Android and iOS devices or through Google Assistant in speakers, Android smartphones and “soon” cars with Android Auto, Hartrell wrote.

Reporting by Paresh Dave; Editing by Susan Thomas


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Amazon boosts monthly fee for Prime by $2, maintains yearly rate
January 19, 2018 6:01 pm|Comments (0)

(Reuters) – Amazon.com Inc (AMZN.O) raised the monthly fee for the U.S. version of its fast-shipping and video-streaming service Amazon Prime by $ 2 on Friday, making the case for subscribers to upgrade to an annual plan.

It was the first increase of Prime fees in almost four years and comes at the end of another bullish year and holiday season for Amazon’s dominant online shopping platform.

The move also follows a rise in fees by video streaming rival Netflix Inc (NFLX.O) in October.

Amazon increased the fee for its monthly plan to $ 12.99 from $ 10.99, while maintaining the annual fee at $ 99. It also hiked the monthly subscription fee for college students to $ 6.49 from $ 5.49.

“That’s good value, over time they’ve raised the price. I don’t think they will lose many members,” Tigress Financial Partners analyst Ivan Feinseth said.

“Those who use it the most get the most value and won’t mind the higher price and those who don’t use it are not the best customers, so even if they drop off it is not a big loss to Amazon,” he said.

As of September, Amazon had about 90 million Prime members in the United States, according to research firm Statista. The company itself does not disclose the number. bit.ly/2Dwhqjw.

Netflix has 52.77 million subscribers in the U.S. and its global tally is 109 million.

Existing monthly Prime and Prime Student members will pay the new price for renewals after Feb. 18, Amazon said on its website. amzn.to/2mRHs6C.

Amazon, which along with Netflix faces competition from Hulu and Alphabet Inc’s (GOOGL.O) YouTube, has been spending heavily to make original shows.

Only Prime has the added dimension of offering subscribers discounts and other benefits from its shopping platform, which help the company lure more buyers.

The company shipped over 5 billion items worldwide via the subscription service in 2017 and revenue from subscription fees that include Prime jumped 59 percent to $ 2.4 billion in the quarter ended Sept.30. The company reports its fourth quarter on Feb. 1.

“We only expect to see 2 percent churn from this price increase with many customers moving to the yearly subscription which is the ‘golden goose’ for Bezos & Co as once on the annual plan customers rarely churn,” GBH Insights analyst Daniel Ives said.

Amazon’s shares rose 0.5 percent to $ 1,300 on Friday.

Reporting by Aishwarya Venugopal and Arjun Panchadar in Bengaluru; Editing by Sriraj Kalluvila


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Don’t leave your Amazon S3 buckets exposed
December 23, 2017 12:57 am|Comments (0)

As long as you know the right URL, anyone with access to the internet could retrieve all the data that was left online by marketing analytics company Alteryx. This is the second major exposure of data stored and improperly managed in the Amazon Web Services S3 storage service.

In the Alteryx case, it was apparent that the firm had purchased the information from Experian, as part of a data set called ConsumerView. Alteryx uses this data to provide marketing and analytics services. It put the data in AWS S3—and forgot to lock the door.

In November, files detailing a secret US intelligence collection program were leaked in the same manner, also stored in S3. The program, led by US Army Intelligence and Security Command, a division of the National Security Agency, was supposed to help the Pentagon get real-time information about what was happening on the ground in Afghanistan in 2013 by collecting data from US computer systems on the ground. Much as in the Alteryx case, the data was exposed by a misconfigured S3 bucket.

Here’s the deal: AWS defaults to closing access to data in S3, so in both cases someone had to configure S3 to expose the data. Indeed, S3 has the option to provide data over the web, if configured to do so. So, this is not an AWS issue, but one of stupidity, naïveté, or ignorance by people running their S3 instances.

Public cloud providers often say that they are not responsible for ineffective, or in these cases nonexistent, security configurations that leave data exposed. You can see why.

In these cases, white hat hackers informed those in charge about the exposure. But I suspect that many other such mistakes have been uncovered by people who quietly collect the data and move on into the night.

The fix for this is really common sense: Don’t actively expose data that should not be exposed. You need to learn about security configurations and processes before you bring the public cloud into your life. Otherwise, this kind of avoidable stuff will keep happening.


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Exclusive: Amazon scraps bundled video service – sources
November 15, 2017 12:00 pm|Comments (0)

NEW YORK/LOS ANGELES (Reuters) – Amazon.com Inc (AMZN.O) has scrapped plans to launch an online streaming service bundling popular U.S. broadcast and cable networks because it believes it cannot make enough money on such a service, people familiar with the matter told Reuters.

The logo of the web service Amazon is pictured in this June 8, 2017 illustration photo. REUTERS/Carlos Jasso/Illustration

The world’s largest online retailer has also been unable to convince key broadcast and basic cable networks to break with decades-old business models and join its a la carte Amazon Channels service, the sources said and has backed away from talks with them.

The reversals come a month after the abrupt departure of Roy Price from his job as head of Amazon Studios, the company’s high-profile television production division, following an allegation of sexual harassment, which he has contested.

They show how difficult it is for Amazon to change entrenched habits in the U.S. entertainment business in the same way that it has done in retail, cloud computing and other areas.

An Amazon spokeswoman declined to comment.

Video has become an important tool for Amazon in generating subscriptions for its U.S. $ 99-a-year Prime membership service. It is on track to spend some $ 4.5 billion or more on video programming this year, analysts estimate.

On Monday it made waves in the entertainment world with the purchase of global television rights to “The Lord of the Rings,” planning a multi-season series to draw more viewers to Prime.

At the same time, Amazon is looking to offer a wide variety of television channels through Prime. It originally aimed to offer a limited bundle of key broadcast and cable networks for a set fee, similar to offerings from Alphabet Inc’s (GOOGL.O) YouTube and Hulu.

Such an offering, known in the industry as a “skinny bundle,” is a way of capturing younger viewers who are dropping traditional, expensive cable or satellite TV packages in favor of channels watchable on smartphones and tablets.

But in recent weeks, Amazon decided not to move ahead with a service on the grounds that it would yield too low a profit margin and did not necessarily indicate the direction the TV business will eventually go, the sources told Reuters.

Amazon could still decide to change course and introduce a skinny bundle, but the talks are over, the sources said.


Instead, Amazon has decided to focus on building out its Amazon Channels service, where Prime customers can subscribe to HBO, Showtime, Starz and other networks on an a la carte basis, according to the sources.

Those networks have standalone subscription services, but the advantage of Amazon Channels is that it groups together separate subscriptions and makes them available through the Amazon Video app.

Amazon has built up Amazon Channels to include more than 140 television and digital-only networks in the United States, but its efforts to get the most-watched TV channels have stalled, the sources told Reuters.

Sources familiar with the talks said Amazon has run up against the same obstacle that has stymied firms such as Apple Inc (AAPL.O) and Verizon Communications Inc (VZ.N) in their efforts to launch TV services: the traditional cable bundle.

Twenty-First Century Fox Inc (FOXA.O), Viacom Inc (VIAB.O) and other media firms typically require cable companies or other partners to take their weaker channels along with their stronger ones, to prevent the weaker ones withering on the vine.

Amazon did not want to do that. It also asked networks for provisions that are foreign to the entertainment business, including discounts based on the volume of subscribers it brings in. “That might be standard in selling, but it is not how it works with content,” said one industry source.

The Seattle-based company, known for taking a long-term view of businesses, is willing to wait, sources told Reuters. It is working on the assumption that as pay-TV subscriptions decline over time, more TV networks will be tempted to go direct to consumers online and therefore be available for Amazon Channels, they said.

TV executives say Amazon is a top-notch marketer of video programming and could eventually help their bottom lines.

“They market our theatrical library better than we have because they have the data,” said an executive at one premium channel, who declined to be named.

Some programmers, including Discovery Communications Inc (DISCA.O), are already using Amazon to test their own streaming services before selling them to the public.

“They are an excellent petri dish,” said Paul Guyardo, chief commercial officer of Discovery.

Reporting By Jessica Toonkel in New York, Lisa Richwine in Los Angeles and Jeffrey Dastin in San Francisco; Editing by Jonathan Weber and Bill Rigby

Our Standards:The Thomson Reuters Trust Principles.


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Justin Trudeau Sends an HQ2 Love Letter to Amazon
October 20, 2017 12:02 am|Comments (0)

No tax breaks, but Canada offers a valuable perk: Universal healthcare.

Canadian cities are going all out to woo Amazon’s second headquarters, including a “Dear Jeff” letter from Prime Minister Justin Trudeau to the company’s CEO Jeff Bezos.

In his letter, which comes on the final day of a competition for cities to make their case to Amazon, Trudeau reminds Bezos that “it is in one other that Canada and the United States have found their closest friend and ally.”

If that’s not enough to tell Bezos where Amazon’s loyalties should lie, Trudeau adds “[W]e enjoy the longest, most peaceful and mutually beneficial relationship of any two countries in the world.”

The Prime Minister did not, however, specify exactly where in Canada that Amazon should set up shop, though most of the country’s major cities—including Toronto, Ottawa, Montreal, Vancouver and Calgary—have put their hat in the ring.

Amazon set off a frenzy among city governments this summer when it announced it was seeking to open a second headquarters outside of Seattle, and could create as many as 50,000 high paying jobs in coming years.

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As the competition came to a close on Thursday for cities to make their case, one research firm cited Atlanta, Boston, Chicago, Dallas, New York, and Washington D.C.—but not one of the Canadian ones—as the leading candidates.

Nonetheless, Trudeau’s letter makes some strong economic arguments, along with the sentimental ones, for Amazon to make its second home north of the border.

“Canadians enjoy a universal health care system and a robust public pension plan which help support our excellent quality of life and lower costs for employers,” he states, while also talking up the country’s universities and policies to attract high-skilled immigrants.

Trudeau’s letter also appeared to include a subtle swipe at the nativist policies of the Trump Administration:

“As the first country in the world to adopt a policy of multiculturalism, we have shown time and again that a country can be stronger not in spite of its differences but because of them. Diversity is a fact but inclusion is a choice.”

One other notable feature of the Canadian cities’ pitch is they don’t offer tax breaks, which have been a controversial feature of the bids of a number of U.S. cities. Instead, the suitors have Canadian have emphasized the savings Amazon would incur from Canada’s public health system.

You can read Trudeau’s letter in full here.


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EU orders Amazon to repay $295 million in Luxembourg back taxes
October 4, 2017 12:00 pm|Comments (0)

BRUSSELS (Reuters) – Amazon (AMZN.O) on Wednesday was told to pay about 250 million euros ($ 294.38 million) in back taxes to Luxembourg, the latest U.S. tech company to be caught up in a European Union crackdown on unfair tax deals.

The fine was much lower than some sources close to the case had expected and is only a fraction of the 13 billion euros that Apple Inc APPL.O was ordered to pay to Ireland last year.

EU Competition Commissioner Margrethe Vestager, who has other big U.S. tech companies in her sights, has taken a tough line on multinational companies’ approach to tax.

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed,” Vestager said.

Amazon said it was considering an appeal.

“We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law,” Amazon said in a statement after the announcement.

Though the EU has taken on several U.S. tech companies, both in antitrust and in tax avoidance cases, Vestager said that her approach was not biased against foreign companies

“This is about competition in Europe, no matter your flag, no matter you ownership,” Vestager said.

She also welcomed the debate kicked off by French President Emmanuel Macron who called for more integrated corporate tax regimes in Europe, aiming to close the loopholes used to reduce tax bills.

The Commission said the exact amount of tax to be reclaimed from Amazon would still need to be calculated by Luxembourg authorities.

The 250 million euros is significantly less than the 400 million euros which sources close to the matter told Reuters a year ago was under consideration by Vestager.

The Commission said Luxembourg allowed Amazon to channel a significant portion of its profits to a holding company without paying tax. The holding company was allowed to do this because it held certain intellectual property rights.

“The Commission’s investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality,” the Commission said in a statement.

Amazon, which employs 1,500 in the grand duchy, is one of the biggest employers in the country of half a million people. The U.S. company, which has a Europe-wide staff of some 50,000, in 2016 made a $ 2.4 billion profit on global revenues of $ 136 billion.

Amazon’s corporate set up with subsidies in Luxembourg construction was also subject of a $ 1.5 billion court case with U.S. tax authorities, which Amazon won in March.

Luxembourg, whose tiny economy has benefited from providing a European base for multinational companies, rejected the finding and said it was looking at its legal options.

European Commission President Jean-Claude Juncker was prime minister of Luxembourg for almost two decades until 2013 and has been criticized for his role in enabling the many tax deals which are now being unraveled. He denies doing anything wrong and says the Commission is committed to ensuring fair taxation.

In 2014, Luxembourg made international headlines in the wake of the publication of “LuxLeaks”, documents which showed how large accounting firms helped multinational companies channel proceeds through the country while paying little or no tax.

Luxembourg is also under EU scrutiny over tax deals with fast food chain McDonald’s (MCD.N) and French energy company Engie (ENGIE.PA). Luxembourg has appealed against a ruling in 2015 that carmaker Fiat (FCHA.MI) should pay it back taxes. As well as Ireland, tax for multinationals in Belgium and the Netherlands have also come under Commission scrutiny.

Vestager also said on Wednesday that she was taking the Irish government to court for failing to recoup the taxes from Apple which she had ordered over a year ago. [L8N1MF25V]

Amazon revamped its European tax practices in 2015 so that it can book sales and pay taxes in Britain, Germany, Spain and Italy instead of channeling all sales through Luxembourg where it is headquartered, a move which may raise its tax bill.

($ 1 = 0.8493 euros)

Editing by Alastair Macdonald and Jane Merriman

Our Standards:The Thomson Reuters Trust Principles.


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