An Esports Ponzi Scheme, A Big Bet on Contractors, and Amazon’s Purge of Smaller Suppliers

E-COMMERCE

Amazon may be preparing to eliminate most of the smaller companies it buys from: “In the next few months, bulk orders will dry up for thousands of mostly smaller suppliers, according to three people familiar with the plan. Amazon’s aim is to cut costs and focus wholesale purchasing on major brands like Procter & Gamble, Sony and Lego, the people said. That will ensure the company has adequate supplies of must-have merchandise and help it compete with the likes of Walmart, Target and Best Buy.

“The mom-and-pops that have long relied on Amazon for a steady stream of orders will have to learn a new way of doing business on the web store. Rather than selling in bulk directly to Amazon, they’ll need to win sales one shopper at a time. It’s one of the biggest shifts in Amazon’s e-commerce strategy since it opened the site to independent sellers almost 20 years ago. While the plan could be changed or canceled, it’s currently moving forward, the people said.

“‘This is the kind of change that will scare the living daylights out of brands selling on Amazon,’ said James Thomson, who organizes the Prosper Show, an annual e-commerce conference focused on Amazon. ‘Amazon usually doesn’t give a lot of lead time and brands will be left scrambling.’”

THE ECONOMY

A split has developed between American companies that sell primarily in the US and those that sell globally: “At companies in the S&P 500 that draw more than half their revenue from abroad, first-quarter profits fell about 12 percent, according to data from John Butters, the senior earnings analyst at FactSet. By contrast, earnings at firms that generate most of their sales within the United States grew about six percent. …

“During the first three months of 2019, Apple’s profit fell 16 percent as sales from China, Hong Kong and Taiwan dropped 22 percent. Earnings at American semiconductor manufacturers, which rely on production networks in China and generate a large portion of their sales there, fell 20 percent during the first quarter. And the profits of energy companies have also suffered, as lower oil prices left earnings from the sector down 27 percent in the first quarter.”

HUMAN RESOURCES

Google now employs more temp and contract workers than full-time employees: “The reliance on temporary help has generated more controversy inside Google than it has at other big tech outfits, but the practice is common in Silicon Valley. Contingent labor accounts for 40 to 50 percent of the workers at most technology firms, according to estimates by OnContracting, a site that helps people find tech contracting positions.

“OnContracting estimates that a technology company can save $100,000 a year on average per American job by using a contractor instead of a full-time employee. … Google usually pays staffing companies, which find the workers and provide them with salaries and benefits as their employer. But the current and former contract and temp workers, as well as four Google employees, said Google was the employer in all but name. It decides what jobs they do, dictates where and what hours they work, and often decides if and when to fire them.

“Google’s contractors are barred from company events like holiday parties and all-hands meetings. They are not permitted to look at internal job postings or attend company job fairs.”

PRICING

With prices for legal marijuana dropping, growers are pushing the “organic” label: “But it’s a bet that hasn’t yet paid off. Low-quality marijuana sells wholesale for as low as $300 a pound, while higher-quality cannabis can wholesale for upwards of $1,800 a pound. But retailers can sell that low-quality pot for roughly the same price as the high-quality stuff and pocket the difference. ‘There’s a reason that Walmart sells organic produce, and it’s not because the company thought it was the right thing to do,’ said Amy Andrle, the co-founder of Denver’s L’Eagle cannabis dispensary. ‘That reason never comes from the top. It comes from the consumer.’”

Startups selling sexual-wellness drugs and treatments for baldness over the internet are convincing customers to pay heavily marked-up prices: “Hims Inc. and Roman Health Medical LLC, two of the most popular of those startups, sell erection and hair-loss drugs. They’re following the pharmaceutical version of a common retail startup strategy: take a pedestrian product category—sheets and mattresses, furniture or, in this case, generic drugs—and attempt to turn it into internet riches with fashionable packaging, social media-driven marketing and plenty of venture capital.

“At Roman, a 20-milligram dose of sildenafil, the generic ingredient in Viagra, costs $2. Hims charges $3 a pill. The pills are sold to pharmacies for about 15 cents, according to a government survey, and a patient can find them at some regular drugstores through online discount programs for as little as 41 cents a pill. … Investors have shoveled money at the startups. After a new fundraising round in January, Hims was valued at about $1 billion, according to PitchBook. Last month Roman raised $85 million, valuing the company at $500 million, according to PitchBook.”

FOOD AND BEVERAGE

Impossible Foods’ meatless burger gave Burger King a much-needed boost in foot traffic in the Impossible Whopper’s test market: “Locations in Burger King’s test market St. Louis outperformed the chain’s national foot traffic average by 18.5 percent in April, according to a report from inMarket inSights released Thursday. Burger King has seen slowing same-store sales growth. During its first quarter, the chain reported same-store sales growth of 2.2 percent, down from 3.8 percent a year earlier. The lure of the Impossible Whopper could change that.”

MARKETING

Has over-hyping turned eports into a bubble? “The mainstream narrative of esports has been lovingly crafted by those who benefit from its success. There’s big money in esports, they say. You’ve heard the stories. Teenaged gamers flown overseas to sunny mansions with live-in chefs. The erection of $50 million arenas for Enders Game-esque sci-fi battles. League of Legends pros pulling down seven-figure salaries. Yet there’s a reason why these narratives are provocative enough to attract lip-licking headlines in business news and have accrued colossal amounts of venture capital. More and more, esports is looking like a bubble ready to pop.

“‘I feel like esports is almost running a Ponzi scheme at this point,’ Frank Fields, Corsair’s sponsorship manager, told an audience at San Francisco’s Game Developers Conference last March. He smirked. The crowd laughed uncomfortably. The smile dropped from Fields’ face as he continued. ‘Everyone I talk to in this industry kind of acknowledges the fact that there is value in esports, but it is not nearly the value that is getting hyped these days.’ Later, Fields would clarify that this value, and future value, ‘as of now, is optimistic at best and fraudulent at worst.’”

REAL ESTATE

Companies buying homes in gentrifying neighborhoods are enlisting Uber and Lyft drivers to spot the telltale signs of a house ripe for a flippiled-up mail, warning notices plastered on the doors, tall grass and abandoned cars in the backyard: “They pay drivers to take pictures of dilapidated properties during their downtime, betting that some owners of these homes will be eager to sell. Eric Richner, the 31-year-old co-founder of CORI, said he has about 100 drivers working for him but aims to have 1,000 by the end of the year.

“Participants in the increasingly competitive house-flipping market say using drivers as their eyes and ears cuts down on time and money wasted cold-calling whole neighborhoods. ‘It’s a great way to be able to reach areas that I can’t drive around town all day,’ said Scott Sekulow, who runs a HomeVestors franchise in Atlanta that has hired several drivers. ‘You don’t need a lot to know the house needs repairs.’”

INTERNATIONAL

For many regions in Africa, being educated and a farmer is considered an embarrassment. But a number of college-educated Millennials are breaking that stigma by becoming “agripreneurs.” “[These] agricultural entrepreneurs hope both to make money and to tackle the confounding calculus of a continent that holds about 65 percent of the world’s most arable uncultivated land, but which imports over $35 billion in food a year, according to a report by the African Development Bank. …

“‘I was really angry with our country,’ said [Emmanuel] Ansah-Amprofi, 39. ‘How can we be importing this much vegetables, and have a lot of youth on the street? How can we have all this land, good weather, a lot of water bodies, but we still are importing onions?’… [In] 2016, he started a farm growing a variety of fruits and vegetables, and also helped to found Trotro Tractor, an app that lets farmers who once tilled by hand locate and rent shareable tractors.”

SUSTAINABILITY

Waste management facilities in Colorado are struggling to deal with vape products: “Because of the materials that make up vaping product and the dangers they pose, pens and pods cannot be thrown into either a recycling bin or a trash can. Instead, they need to come to hazardous materials facilities … ‘For us, we are mostly concerned about the nicotine. Nicotine is considered a P-listed waste, so an acute hazardous waste,’ [Shelly] Fuller said. Because of that designation, the pods that hold the nicotine need to be put in a toxins bin and shipped off with other poisons or pesticides to a facility to incinerate it.”

OXFORD STRATEGIC ADVISORY DEALS OF THE DAY  

Kapost, a B2B content marketing platform was acquired by Upland Software, a business application software company for $50 million.

VENTURE CAPITAL

Betterview, a drone-based property inspection company raised $4.5 million in a Series A Round.

CardioFocus, a medical device company based on atrial fibrillation raised $55 million in a Late Stage Round.

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SPOTLIGHT

Here’s a reminder to RSVP for the next Entrepreneurial Briefing Friday, June 7 at the Porsche Experience Center. Cliff Oxford will kick things off by talking about the pros, cons and costs of either writing a book yourself or having one ghostwritten. As it happens, Cliff has just done both and both books will be available on Friday the 6th. One is called “LAMBS (Liberal Arts Majors in a Business Society) to Leaders. Day One on the Job,” and the other is “Know, Grow, Exit: How Entrepreneurs Start and Finish Fast.” And Steve Palmer, whose company, The Indigo Road, was recently named a Forbes Small Giant, will talk about his own journey from homelessness and addiction to owning a growing empire of restaurants with more than $50 million in revenue. Contact events@oxfordcenter.com to RSVP. Space is limited!

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com.