The False Tale of Amazon's Industry-Conquering Juggernaut

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Dewayne Hendricks <dewayne () warpspeed com>
> Date: July 20, 2018 at 3:06:09 AM GMT+9
> To: Multiple recipients of Dewayne-Net <dewayne-net () warpspeed com>
> Subject: [Dewayne-Net] The False Tale of Amazon's Industry-Conquering Juggernaut
> Reply-To: dewayne-net () warpspeed com
>
> The False Tale of Amazon's Industry-Conquering Juggernaut
> By Felix Salmon
> Jul 18 2018
> <https://www.wired.com/story/the-false-tale-of-amazons-industry-conquering-juggernaut/>
>
> AMAZON IS ONE of the largest and most formidable companies in the world. It’s run with brutal efficiency, a keen 
> focus on keeping its customers happy, and a deep thirst for innovation. Its $50 billion of revenue per quarter makes 
> the company worth more than $850 billion, which is enough to buy Walmart three times over and still have more than 
> $100 billion in change. (It’s also enough to make founder Jeff Bezos the richest man in modern history.) There’s no 
> industry that Amazon feels incapable of taking on — not even the Google and Facebook fief of advertising, where 
> Amazon is already bringing in some $2 billion in revenues every quarter.
>
> Still, it’s really nothing to be scared of.
>
> The rest of the world doesn’t see it that way. If you’re a Wall Street speculator who’s shorting a stock, betting on 
> its decline, then one of the best things that can happen is for Amazon to enter that business. When Amazon gets 
> involved in anything from supermarkets to pharmaceuticals, the market knee-jerks in a very predictable way, wiping 
> billions of dollars off the valuation of every other company in the industry. The logic, such as it is, is that 
> Amazon is such a formidable competitor that no company can do well while competing with them.
>
> Except, that logic isn’t really borne out by any kind of evidence. Amazon was founded as a bookstore in 1994, and it 
> really did disrupt the business of bookselling. Publishing, too, is much less profitable now than it was 20 years 
> ago, thanks to Amazon’s formidable monopsony power. Amazon is by far the largest buyer of books in the world, all 
> publishers need to sell to Amazon, and Amazon forces them to accept terms they would never accept from anybody else.
>
> It’s a testament to the cultural salience of the publishing industry that the books precedent looms so large in the 
> mind of the public and stock traders, because today, 24 years after Amazon was founded, the company has failed to 
> achieve similar market power in any other sector. Quite the opposite, in fact. By opening up its platform to 
> third-party sellers, Amazon has ensured that it will nearly always face competition, even on its own website. And as 
> Amazon has become one of the most valuable companies in the world, it has taken increasing pains to avoid doing 
> anything that antitrust authorities might disapprove of. Amazon’s book monopsony is valuable, but it also comes at 
> significant reputational cost; it’s not at all clear that building a similar monopsony in some other market would be 
> a net positive for the company.
>
> Not that it’s threatening to do so. When Amazon bought Whole Foods, it gained no particular control over the food 
> industry: it merely went from having 0.2 percent of the groceries market to having 1.4 percent. When it bought 
> PillPack, for all that it wiped $11 billion off the market capitalization of the likes of CVS and Walgreens, it still 
> acquired a company that only has $100 million in revenue. (Walgreens, by contrast, has over $100 billion.) However 
> Amazon intends to compete in such markets, it’s not going to do so by being the dominant player. Even Amazon’s 
> attempts to become a book publisher have been pretty small-scale and unimpressive.
>
> In fact, I can’t think of a single industry, other than bookselling, that Amazon has entered with significant 
> negative repercussions for the incumbents in that industry. Amazon makes fantastic TV shows, for instance, but it has 
> hardly damaged Disney or Netflix in doing so; for the producers of TV shows, its entry into the business has been an 
> unalloyed boon. Its music-streaming service hasn’t hurt Spotify, even as Apple has proved that there was more than 
> enough room for a new competitor. Its Fire phone, of course, was an unmitigated disaster. And while the so-called 
> retailpocalypse has decimated the ranks of American shopping malls, it’s hard to blame Amazon for that when in-store 
> retail sales continue to rise. (The real reason for shopping malls closing down is, simply, that developers built far 
> too many of them, and that no country on earth has ever been able to support America’s per-capita number of shopping 
> malls.)
>
> Amazon is great at inventing new categories, from online bookselling to cloud-computing services to voice-commanded 
> personal assistants. It’s a genuinely innovative company, which is willing to take risks and fail. By allowing 
> third-party sellers onto its platform, it regularly surfaces fantastic merchants who would otherwise be very hard to 
> find; increasingly, it’s becoming a search engine in its own right, one of the very few companies that can take on 
> Google at its own game.
>
> Still, there’s a world of difference between Amazon starting to sell ads, and Amazon being a potentially disruptive 
> force to the advertising duopoly of Google and Facebook. Amazon had an impressive $2 billion of advertising revenue 
> in the first quarter of this year; Google’s year-on-year increase in ad revenue was more than twice that sum. Between 
> them, Google and Facebook had over $38 billion in ad revenue in the first quarter. Is it possible that Amazon might 
> become a real competitor to them, if it keeps its ad revenue growing at current rates? Well, anything is possible. 
> But it’s not likely any time soon.
>
> [snip]
>
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