3 Shifts (Feb 5 2021): Bezos steps back, Big tech struggles in gaming, Exxon’s $3B carbon-capture business unit

(1) Jeff Bezos steps back – what’s next for Amazon? (0:35). (2) Google and Amazon struggle to make video games that people want to play (5:00). (3) ExxonMobil’s $3B investment in carbon capture (9:33). Read this 3 Shifts Edition:  https://6pag.es/dzyqf. Sign up to receive free summaries of our deeply researched briefs: 6Pages.com.

Chapters

• 0:35 (1) Jeff Bezos steps back – what’s next for Amazon?
• 5:00 (2) Google and Amazon struggle to make video games that people want to play
• 9:33 (3) ExxonMobil’s $3B investment in carbon capture

Transcript

Hello and welcome to this week’s 3 Shifts Edition by 6Pages, the source for far-reaching market shifts and what they mean. It’s 2/5/2021. I’m Eric Thompson, and here are the 3 shifts that you need to know this week:

1. Jeff Bezos steps back – what’s next for Amazon?
2. Google and Amazon struggle to make video games that people want to play
3. ExxonMobil’s $3B carbon-capture business unit

1. Jeff Bezos steps back – what’s next for Amazon?

• On Tuesday, Amazon sent shockwaves through the business world when it announced before its Q4 2020 earnings call that Jeff Bezos – who founded Amazon in 1994 – would step down as CEO in Q3 of this year (Jul-Sep 2021). Andy Jassy, who has been with Amazon since 1997 and has led the Amazon Web Services (AWS) cloud division since its inception in 2003, will be taking over the CEO role.
• Bezos will transition to Executive Chair of the Amazon Board, a role which (unlike an independent nonexecutive chairman) includes some operational responsibilities. In his letter to employees, Bezos indicated that, in this role, he will “focus [his] energies and attention on new products and early initiatives” for Amazon.
• Bezos also plans to spend more time on his passions, such as the Day 1 Fund (a $2B fund focused on homelessness and early education, launched in 2018); the Bezos Earth Fund (a $10B fund to combat climate change, launched in 2020); space company Blue Origin (which Bezos has called his “most important work”); and The Washington Post (which is undertaking a major global expansion).
• Andy Jassy, the current CEO of the $45B AWS business, has long been considered a likely choice to be Bezos’ successor. AWS – still the #1 public-cloud player – has been foundational to Amazon’s continued reinvention and technology leadership, and Jassey’s appointment is indicative of Amazon’s cloud-driven future. In 2020, AWS represented 12% of Amazon revenue but 59% of its operating income. In many ways, AWS – as both profit center and infrastructure – is the backbone of Amazon’s ability to invest in far-ranging initiatives such as palm readers in cashierless stores, white-label Alexa assistants, custom apparel, drone delivery, wellness bands, and direct-to-consumer pharmacy.
• Jassy is an Amazon employee of long tenure, who has worked closely with Bezos and has led AWS with a high degree of autonomy. He is known to be similar to Bezos in his data-driven, first-principles thinking and attention to detail. Given that, and the fact that Bezos will remain involved in most of Amazon’s big decisions, many are wondering how much will actually change.
• AWS, already important to Amazon, will likely become even more strategically central to its businesses. Amazon may tilt more towards the B2B and enterprise side of its businesses – including investing in the AWS sales organization to capture more large enterprises and fend off Microsoft Azure. Businesses in big opportunity areas that leverage AWS’ strengths – such as healthcare, edge computing in conjunction with 5G, cloud gaming, and vehicle connectivity – could get even more investment. However, Jassy has generally been more “build” rather than “buy” – which means we’re not likely to see a torrid pace of acquisitions.
• Amazon is facing some of its toughest challenges to date, with multiple antitrust suits brewing and cracks emerging in its 3rd-party seller marketplace model. Jassy, who Kara Swisher has called “polite but firm, reasonable but relentless,” may be better suited to be the face of Amazon than Bezos as it navigates this tricky minefield. He brings both his background selling to large AWS customers and playing hardball against competitors, not to mention his experience in answering tough questions about how AWS customers use its products. 
• It remains to be seen as to whether Jassy will be too busy keeping the ship afloat and heading in the right direction to enact the kind of dramatic, bold moves that have marked Bezos’ career. That said, new CEOs tend to want to put their stamp on the company’s legacy. Bob Iger, for instance, started out as the unexciting internal promotion – until he acquired Pixar, Marvel, Lucasfilm, and 21st Century Fox. Looks like it’s Day 1 at Amazon again after all.

Related Content:

• Jan 29 2021 (3 Shifts): Amazon’s freight partner program and its tightening grip on delivery
• Nov 11 2019 (Brief #12): Why Amazon’s recent challenges are rooted in its business model

2. Google and Amazon struggle to make video games that people want to play

• This week Google announced that it was shutting down its 1st-party game studios dedicated to creating exclusive titles for its Stadia cloud-gaming service. Google had previously revealed the first Stadia Games and Entertainment (SG&E) studio in Montreal in Mar 2019 (ahead of Stadia’s Nov 2019 launch). The Montreal studio was expanded in Dec 2019 with the acquisition of Typhoon Studios, and a second studio was added in Los Angeles in Mar 2020. Both studios – neither of which have ever released a game – are being closed, impacting about 150 people.
• In the announcement, Google Stadia’s Vice President and GM Phil Harrison cited cost as the main contributor to SG&E’s closing: “Creating best-in-class games from the ground up takes many years and significant investment, and the cost is going up exponentially.” Rather than develop games in-house, Google will focus on providing a platform for game developers and publishers (it currently has about 100 3rd-party games on Stadia). It also plans on serving industry partners seeking a gaming solution built on Stadia’s infrastructure and tools.
• Google Stadia has underperformed since its launch, largely due to a limited catalog of content and exclusives, difficulty in attracting publishers, and a confusing pricing model. From the beginning, Stadia sought to operate in the high-end AAA game space. Its promising cloud-gaming technology was built to stream high-end games on low-end hardware. Unfortunately, high-end AAA games can cost $60M-80M to develop and bring to market, and not every game is a hit.
• Google has lately shown a reduced appetite for long-horizon investments, recently shutting down the Loon internet balloon project. SG&E’s “near-term planned games” in the pipeline are still expected to be released, though there will be no further investment in exclusive 1st-party content. Without high-quality exclusive content, Stadia is likely to struggle for differentiation as a game-streaming platform.
• Google’s struggles in gaming mirror those of Amazon, which has its own cloud gaming service called Luna (currently in early access as of Sep 2020). In May 2020, Amazon Game Studios (a $500M-per-year operation) launched its first major game – a multiplayer shooter called Crucible that the studio had been working on since 2016. Within 6 weeks, however, Crucible was pulled back into a closed beta following poor reviews and ultimately shut down in Oct 2020. Big-budget game New World, expected to be released this spring, has had its own challenges with pandemic-related delays and accusations of racism. Despite this, Amazon’s incoming CEO Andy Jassy has said he is committed to making video games.
• In the world of AAA video games (as with video-streaming and podcasting), exclusive high-quality content is king and the owners of the most popular games have enormous negotiating clout. For major public-cloud players with cloud-gaming ambitions like Amazon, Google and Microsoft, there are a few discrete paths. They can invest massive sums over an extended time horizon to become AAA game publishers themselves (which Microsoft has already done and Amazon is trying to do). They can focus on just providing the cloud-gaming infrastructure (which Google seems to be steering towards with Stadia). Or they can try to partner with leading game developers – though exclusives will be expensive and non-exclusives won’t be differentiated.
• Making a top AAA multiplayer video game can be akin to making both a big-budget movie and multi-user software platform in one product. It’s incredibly hard to do, even with the kind of money that big tech firms have. Given how lucrative the video game industry is (especially with digital distribution), game developers with a proven track record have significant leverage. Work environment can be as important as salary – many game developers who joined Amazon reportedly clashed with the organization’s data-driven corporate culture. Those who win out will be the ones with long-horizon commitment – as well as big pocketbooks.

Related Content:

• Oct 2 2020 (3 Shifts): Microsoft and Amazon push forward on cloud gaming
• Nov 5 2019 (Brief #10): Google Stadia – will cloud gaming finally become a big business?

3. ExxonMobil’s $3B investment in carbon capture

• This week, ExxonMobil announced it was investing $3B through 2025 in a new Low Carbon Solutions business unit dedicated to commercializing lower-emission energy technologies. The business unit will primarily focus on carbon capture and storage (CCS) technologies that capture CO2 emissions from industrial activity or the air, and inject them into “deep geologic formations for safe, secure and permanent storage.” The new unit is evaluating 20+ CCS projects (not all new) across the US, Netherlands, Belgium, Scotland, Singapore, and Qatar.
• ExxonMobil’s R&D division has been investing in CCS technologies for 30+ years. ExxonMobil holds equity stakes in 20% of global CO2 capture capacity and represents 40% of all the captured CO2 from human sources globally. It currently has carbon-capture capacity of 9M tons of carbon each year in the US, Australia and Qatar – 7M tons (about 80%) of which is captured at its La Barge, WY facility. 
• At La Barge, ExxonMobil pumps up carbon dioxide (CO2) as a byproduct along with the natural gas and helium it needs. CO2 not used by ExxonMobil is sold to other oil and gas companies to be pumped into oil and gas reservoirs and create pressure to extract more fossil fuels, known as enhanced oil recovery (EOR). When the CO2 is injected underground, 90-95% of it stays there.
• EOR is the only large-scale industrial use for CO2 and the only carbon-capture industry today of scale that makes a profit. However, while EOR can reduce the carbon intensity of oil, it also subsidizes the production of oil. ExxonMobil had previously shelved a $260M project to expand La Barge’s CCS capacity, though a limited expansion of La Barge is now being considered as part of the Low Carbon Solutions investment.
• Through most of 2020, as oil and gas majors Total, BP, and Shell came forward to declare their ambitions to reach net-zero emissions by 2050, ExxonMobil was noticeably quiet. Finally, in Dec 2020, ExxonMobil declared it would decrease “operated upstream greenhouse gas emissions” (Scope 1 and 2 direct emissions) by 15-20%, compared to 2016 levels, by 2025. Scope 3 indirect emissions – the largest category, which includes fossil fuel-burning cars – were not included. (ExxonMobil’s carbon impact would be 5X larger if they were.)
• ExxonMobil’s investment in the Low Carbon Solutions unit comes as the company is facing a reckoning with the direction of its business. In 2020, ExxonMobil lost over $22B and was faced with pressure from activist investors to take action against climate change. In response, the company is considering a board shake-up that may include the addition of activist investors.
• Carbon capture and removal seems to be the best hope for reversing the trajectory of global temperatures to below the Paris Agreement’s 1.5°C target increase. However, all of the world’s carbon-capture facilities today can negate just 0.1% of all emissions in the world. To get below the target increase, companies will have to diversify beyond low-tech CO2 removal tactics (e.g. planting trees and other land-intensive operations) and develop new solutions.

Related Content:

• Jan 29 2021 (3 Shifts): Sustainability comes to the federal vehicle fleet & Boeing airplanes
• Feb 26 2020 (Brief #24): Billions in climate funding from Bezos, Microsoft, KKR & others – Why now?

That’s it for this week’s 3 Shifts Edition. If you’d like to read more content and you’re not already subscribed, head to 6Pages.com to sign up for free summaries of our deeply researched briefs and the 3 Shifts Edition straight to your inbox. Keep an eye out for our upcoming brief on messaging platforms, their trajectory, and their privacy implications. And talk to you again on next week’s 3 Shifts Edition!