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How Big is Amazon? Is Amazon Too Big to Fail?

Editor, TRANSFIN.
Jun 6, 2020 2:35 PM 6 min read
Editorial

It’s hard to imagine a world without Amazon. The company began as a humble e-seller of books in 1994. But since then it has become the online marketplace for virtually any product you may want, from smartphones to trousers to gold. It has also diversified – Amazon is now a leader in AI tech, cloud computing, logistics and video streaming. To say nothing of its numerous other sister projects and acquisitions, from grocery retail to digital health services! 

All in all, one could say that Amazon has become “a business empire that is without precedent in the history of American (and even global) capitalism”.

But the Amazon business model - one could call it an ecosystem - has its share of critics. And not that this debate had died down or anything, but Elon Musk sparked renewed interest on this topic when he tweeted yesterday that it’s “Time to break up Amazon. Monopolies are wrong!” 

How Big is Amazon? Is Amazon Too Big to Fail?
Elon Musk recently tweeted in support of breaking up Amazon.

 

So we thought we might as well use this opportunity to shed some light on if Amazon is actually a monopoly i.e. If Amazon is actually that big and what’s being done to address such concerns.

 

 

So How Big is Amazon Really?

If you ask Jeff Bezos or any of Amazon’s executives, the company isn’t very big. One statistic that is often cited by Amazonians is that Amazon is less than 1% of global retail (and less than 4% of US retail). And that in nearly every country Amazon has a presence, it has significant competition from “much larger retailers”.

Read between the lines, though, and you’ll see what the fine print is conveniently missing. The company is not only big: it’s gigantic.

How Big is Amazon? Is Amazon Too Big to Fail?
E-commerce remains the main source of Amazon's revenues, but its cloud computing business is quickly growing in clout with each passing quarter.

Amazon’s e-commerce operations are unrivalled in virtually every country. It is the largest online marketplace in the world. Amazon.com is one of the most-visited websites on the internet and is the premier destination for online shopping (and this includes 330m products sold by other companies).

Amazon is also the dominant cloud service provider globally via Amazon Web Services, which also happens to be its most profitable vertical. And its subscription service (Amazon Prime) crossed 150m paid members this year.

As a company, it is one of the world’s most valuable and only one of the handful to have reached a market cap greater than $1trn. In 2019, it reported $280.5bn in revenue and $11.58bn in net income. And it is one of the few firms that have continued to grow despite the COVID-19 pandemic and lockdowns, having reported 26% revenue growth in the recent quarter.

And speaking of employment, in 1994 when it began Amazon had fewer than a dozen employees; today, it employs 840,000+ people the world over.

Fun fact: Physically, too, Amazon is enormous. It has more than 288m square feet of warehouses, offices, retail stores and data centres. (FYI, retail operations account for only 20m square feet.)

 

Is Amazon’s Size a Threat?

As one business analyst put it, “Imagine getting your pay-TV service, groceries, banking, insurance, etc. All through one company. That’s the threat that Amazon poses.”

Critics of Amazon point to fake products sold on its platform, its environmental impact i.e. Massive carbon footprint, poor record of tax-paying, involvement in facial recognition technology, misuse of data and questionable working conditions.

Then there are the numerous allegations of anti-competitive practices. These include removing/restricting competitors’ products, price control and acquisitions that might be in violation of antitrust laws. Above all is the concern regarding Amazon’s role as a dominant online marketplace and a major seller on that same marketplace (through AmazonBasics and various private-label brands). 

These are serious allegations as they are. But factor in Amazon’s power and influence and the problem escalates immensely. Thus, Amazon’s criticisms become all the more relevant to address and resolve simply because of Amazon’s size. After all, one-size-fits-all business monopolies aren’t competition’s (or capitalism’s) best friend (Hello, WeChat).

 

Have Regulators Tried to Investigate Amazon?

Size isn’t the only thing peculiar about Amazon. It is also unique in that it unites politicians and regulators from across the political spectrum in their opposition to its policies (and the same is true for all Big Tech companies).

Steven Mnuchin, the US Treasury Secretary, thinks that Amazon has “destroyed the retail industry across the United States”. Joe Biden, the presumptive Democratic nominee in this year’s US Presidential election, said of Amazon: “I don’t think any company, I don’t give a damn how big they are, should absolutely be in a position where they pay no tax and make billions and billions and billions of dollars.” Donald Trump’s dislike of Amazon is well-documented (and has even resulted in a court case involving Microsoft and the Pentagon).

Regulators are already taking action to contain Amazon. The US Federal Trade Commission (FTC) is investigating the company for potential antitrust breaches. The European Union (EU) is probing whether it uses “sensitive data from independent retailers who sell on its marketplace” to unfairly promote its own goods or to create imitation products. The Competition Commission of India has announced a large-scale inquiry of its own.

 

But What Exactly Does “Containing Amazon” Mean?

Okay, let’s say all these investigations come through. How might Amazon be penalised?

One way would be through fines. The EU has already taken this route with Facebook, Apple and Google (which was slapped a hefty $1.7bn penalty).

But say the regulators want more. The way forward may be for the US government to break up Amazon once and for all.

Think this is wishful thinking? It’s not. The head of the FTC has said he is prepared to break up Big Tech if necessary.

Okay, but how would breaking up Amazon go about exactly? Let’s use a plan outlined by US Senator Elizabeth Warren (a former Presidential candidate who ran on reining in Big Tech) to fathom what that could mean.

Warren posited that competition could be safeguarded in the tech industry (i.e. Amazon could be broken up) by taking two major steps:

  1. Passing legislation that would require large tech companies to be designated as “Platform Utilities”. So, Amazon would be designated an online marketplace platform and its subsidiary businesses that sell their products on this platform would be broken apart. To put it simply, Amazon and AmazonBasics would not be the same entity anymore.
  2. Reversing “illegal” and anti-competitive mergers that have consolidated the tech industry. So, Amazon would be forced to sell Whole Foods and Zappos to increase competition in the industry.

This might sound simple, but breaking up giant corporations takes a lot of time and effort. So even if the US government were to take this road, it would take a fair amount of time before Amazon as we know it ceases to exist.

 

 Is Amazon Too Big to Fail?

Could Amazon actually cease operations, be unable to meet expenses, file for bankruptcy and fail - and would it be allowed to fail? 

That is, has Amazon become so vital in our lives and so inter-connected across business verticals that a fall in its fortunes would spell disaster for the larger economic system?

Jeff Bezos certainly thinks Amazon isn’t too big to fail. In fact, in 2018 he told his employees he thought one day Amazon would fail and go bankrupt. This was likely a comment to avoid complacency in his organisation, but several big companies have indeed failed over time for various reasons - we’re thinking of Thomas Cook, Enron, Lehman Brothers, Kodak, Kingfisher Airlines, Sears and Toys R Us.

But then again, Amazon isn’t like any other company. Like its Big Tech peers, it’s everywhere. We’ve already seen how it’s a leviathan in e-commerce, logistics, cloud computing, entertainment and AI. And its clout will only continue to grow. 

If Amazon does happen to fail, the tremors would be felt in several sectors, many businesses that rely on Amazon.com to sell products would be affected, the countless entities that use Amazon Web Services (the list includes everyone from Netflix to the CIA) would be impacted, and the hundreds of thousands who depend on Amazon for their paychecks would go jobless. So it is more than likely that Amazon won’t fail because the government won’t allow it to. The repercussions would be just too dire.

But if something is too big to fail, then maybe it’s too big in the first place?

FIN.

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