At the moment Bezos and Amazon is being attacked by all sides as a destroyer of small businesses and retail. The is happening through two methods:
- The business model is just too damn effective. As it grows it can start leveraging economy of scales. For example: Maybe the profit margin is reduced by giving free two day shipping, but the volume of the orders is so large it’s able to make a profit. This low shipping rate also serves to attract more customer away from smaller retailers and independent businesses that can’t compete online, giving it an even greater advantage. Much like Walmart and Apple leveraged their supply chain management to gain a competitive advantage in the past, Amazon has been able to do the same in the present. Constantly constructing distribution centers, and now planning to use its network to create their own delivery service were they’ll pick up packages directly from businesses (called “Ship with Amazon”). This of course being combined with Amazons excellent customer service, product recommendation algorithm, convenience of storing financial info from customers, etc.
- The other side of the competitive advantage (which Amazon is mainly being attacked for) comes from supposed tax evasions, tax payers supposedly subsidizing Amazon through the postal service (claimed that the postal service loses an average of $1.50 per package) and government contract deals gained illegally amount other issues (local governments giving Amazon tax breaks in hopes to have their distribution center built in the area for example).
If we look at Amazons quarterly profits, they have been unprofitable for much of their history (despite having huge revenue) and to this day they’re only making about a 1% profit (but they’re also investing heavily in developing new infrastructure and supply chain networks along with buying companies like wholefoods).
A big push for this recent increase of profits has come from their e-commerce side of the business, the new selling of advertising and cloud storage services. One example of this was the $600 million contract Amazon made with the CIA:
While you may be quick to say they’re simply the top performer in their field and were able to gain the contract through the meritocracy of the free market, there have been lawsuits from GAO (Government Accountability Office) and IBM. The issue was that by law there has to be an open bid for these types of government jobs. There wasn’t any for this contract, the CIA went directly to Amazon. Amazon did win the lawsuit however, despite critics to this day pointing out that the law was broken:
To summarize: the criticisms for Amazon point out they’re taking advantage of tax loopholes (specially not paying state tax, but that’s a whole other issues that has already been resolved in court that pertain ALL online sales, making it an irrelevant attack), tax payers subsidizing Amazon when delivering the packages (claims to be losing on average $1.5o per package, but this issue may go away since they won’t be using the postal service soon, and are already using carries like UPS that work Sundays) and supposed illegal deals to promote their cloud services (while there are still criticisms, Amazon ultimately won the court battle).
The final argument is that Amazon has become too big, it’s destroying the economy and small business and retailers, which means that for the sake of the economy Amazon needs to be broken up and brought down in size. Much of this argument is probably being brought up by special interest (those losing against Amazon) while making it a public issues (the whole economy, and therefore the voters are losing to Amazon).
Amazon is causing problems to bigger players also, not just the small businesses that are brought up to morally justify the attack against Amazon (https://www.investopedia.com/news/5-companies-amazon-killing/), but one argument not being addressed in these attacks is that it also helps small business.
In 2017 about 51% of the Amazon sellers came from independent 3rd party merchants. This can be a big manufacturer or some small home based business.
While it’s true that Amazon is causing trouble to retailers, the one big problem retailers face has to do with the fact that Amazon operates through a long tail strategy. Most of the purchased items from Amazon are products that retailers won’t store due to the low sales volume. Retailers will keep the big sellers on the limited shelf space available. This means that most customers (myself included) would simply never find many of the items they purchase in Amazon in a retail store anyways. The other added benefit Amazon provides is for the small businesses selling their products through Amazon (remember that 51% of sellers in Amazon were 3rd party merchants in 2017). While these sellers are often rejected by traditional retail stores by the simple fact that their items don’t sell well enough to justify being placed in the retailers limited shelf space, with Amazon these items can wait in a warehouse and be shipped after purchase.
Small businesses no longer have their product shipped to thousands of retail stores in the hopes that someone will walk in and purchase these long tail products (if they’re lucky enough to be in the retail store in the first place), Amazon provides ONE store were the whole country can find this long tail product. This is the core business model that is driving Amazons success and the retailers failure.
While it’s true that retail is suffering because of Amazon, a big part of it is the simple fact that Amazon is offering customers products that these very same retailers would never offer to customers (and never will). Most of these long tail products are being produced and sold by small businesses that wouldn’t exist without the platform Amazon provides. While there might be some truth to the attacks done to Amazon through tax loopholes and government contract deals, these attacks conveniently ignore the business model Amazon used to attract customers and 3rd party merchants. While it is true that Amazon is making some businesses lose profit and go out of business, they conveniently ignore all the small businesses that exist because they have a platform to sell their long tail products through Amazons 3rd party merchant program. Many of these 3rd party merchants are even home based businesses (the type of business the Amazon critics are claiming Amazon is putting out of businesses and therefore must be stopped).
In my view companies like Amazon should be celebrated, not attack. Amazon is a direct competitor with Chinese companies like Taobao (owned by wholesaler Alibaba), who are gaining global reach. Amazon is already building an international network where American 3rd party merchants can sell their products abroad. Many authors are suggesting that the 21st century geopolitical struggles will be through supply chains. If this is true (which I believe it is) Amazon could be a major competitive advantage to the US as a whole (not the threat that it’s being portrayed at by what is probably special interest groups that can’t directly compete with Amazon), and small 3rd party merchants in particular (assuming we can do better in helping the export and sales of American products abroad through Amazons international network, but these services already exist).
