Can Anyone Stop Amazon?
As I combed through Amazon’s first-quarter earnings report, I couldn’t help but think: how does anyone compete with these guys? The behemoth in Seattle has kept the gas pedal firmly on growth since 1993, reinvesting just about every dollar they have back into the business.
And what a business it has become. Operating cash flow for the trailing twelve months was $34.4 billion, up 89% YoY. Net income for the first quarter? Up 125% to $3.6 billion. And from the looks of it, things are just getting started for this $960 billion tech conglomerate.
Alexa, the burgeoning voice assistant that has creepily penetrated millions of households, now has 90,000 skills under its belt. They also introduced the ability for developers to build skills that allow customers to track baby activities. Just a few more steps and Alexa will start making decisions about where to send your kid to school. What truly individualistic lives we have.
Amazon cut prices at Whole Foods again, further undercutting competitors in the high-end grocery space. Two hour delivery from Whole Foods is also available in 75 metro areas, with a plethora of other deals for Prime members.
Amazon Web Services (AWS) grew sales 41% to $7.7 billion in the first quarter, continuing to post astonishing numbers that show no signs of slowing down.
Lastly, the true shot to the heart for any e-commerce competitor was the announcement of one-day shipping for all Prime members. Target, Wal-mart, and others were probably crushed when they realized the billions they invested in two-day shipping was just made, through one announcement, utterly meaningless.
But Isn’t Amazon Great for Consumers?
As of now, Amazon’s offerings are unbeatable. As CEO Jeff “show you with my body” Bezos likes to say: “The No. 1 thing that has made us successful by far is obsessive compulsive focus on the customer as opposed to obsession over the competitor.”
And I can’t deny, Amazon saves me more time and money than I can count. So why do I feel fed up with them? Why do I feel hate toward an entity that has brought ease to many parts of my life?
Simply, Amazon is bad for everything but consumers and investors.
Take this scathing piece from the Verge about Amazon automatically tracking and firing warehouse workers for being unproductive. Their fulfillment centers, the grease that keeps the e-commerce engine running, push employees to work at frantic rates, so fast that some don’t even risk taking bathroom breaks for fear of being fired.
From the article:
Critics see the system as a machine that only sees numbers, not people. “One of the things that we hear consistently from workers is that they are treated like robots in effect because they’re monitored and supervised by these automated systems,” Mitchell says. “They’re monitored and supervised by robots.”
Don’t expect this to stop anytime soon. Amazon continues to invest heavily in automation as they hope to “optimize” (i.e. get rid of as many workers as possible while simultaneously making current employees more miserable) their order-flow. The company also touted the recent increase in wages to $15 an hour. I’m all for wage growth and think many Americans are criminally underpaid, but don’t forget with this wage increase came sharp cuts to bonuses and stock options, cuts that some workers say will cost them thousands of dollars every year.
Let’s not forget that Amazon didn’t pay a lick of taxes in 2018. I don’t fault them for this. Dodging taxes isn’t illegal, and, truthfully, it’s what I would have done if I was in their position. Corporations, whether you agree with it or not, have a fiduciary duty to return as much money to shareholders as possible. It still doesn’t make it morally right though.
So What Happens From Here?
I believe if left unfettered, Amazon will turn into an unstoppable $5 trillion nightmare in 10 years, leaving hundreds of squashed companies in its wake. Some might say this isn’t a bad thing. That letting one company control all aspects of retail (among other industries) is fine since they aren’t directly hurting consumers. The “let capitalism run its course” argument does have some merit, but I’d argue politicians need to look at the bigger picture.
Do we really want one company, one person, charting the course of American industry? Competitive markets breed innovation, and right now, Amazon is building increasingly uncompetitive ones. That is why I believe politicians need to grow a pair and start seeing Amazon for what they truly are: a monopoly that runs an unfair marketplace.
The only problem is, I’m not sure Congress or the DOJ wants to or has the ability to stop Amazon at this point. It’s clear how Facebook or Google could be broken-up, you just separate the core platforms into their own entities. But with Amazon, it would have to be a little more nuanced, possibly hurting consumer choice in the short-run.
I’m not going to expose my opinions on how Amazon should be broken up. That has already been done on numerous occasions from people a lot smarter than me, like Scott Galloway and Elizabeth Warren. Just know that if we don’t do something now, this problem (yes, it is a problem) will only get harder to solve.
I wrote (probably a little prematurely) in December of last year that we hit “peak big tech” in September of 2018. I truly hope I am right on my prediction, but am starting to believe the opposite is the case. Big tech and Amazon will likely continue their ascent to unfettered power, leaving competitors, the middle-class, and American democracy in its wake.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed