Amazon is on its way to becoming the next Standard Oil, amassing inordinate market power to set the terms by which goods are bought and sold in the United States.
Reminds me of the old saw: build a better mousetrap and the world will beat a path to your door and beat you to death. That last part, like the second verse of the National Anthem, tends to be forgotten.
Ironic that, not so long ago, everything Diane Francis blames on Amazon.com was being blamed on Wal-Mart’s brick and mortar, especially the decline of other brick&mortar stores. The more recent decline has more to do with a combination of creative destruction – Linens & Things comes to mind as a failed copy-cat, and the economy. After moving back south in 2016, I continue to be astonished at the variety and health of so much retail. Every national chain, regional chain, and local stores thrive, because the job market thrives in a metropolitan area with a normal income distribution.
The better mousetrap in this case is Walmart.com. It adds a vast world of retailing to their brick and mortar store offerings – products that even amazon.com does not offer, at lower prices, without subsidizing overt politics. After decades of ‘east of the Hudson’ programming to oppose Wal-Mart, my epiphany came when I needed Larabar chocolate coconut chews. My options were out-of-stock. I checked Larabar’s website, and was advised to go to Wal-Mart.com. Since I then discovered European-made air purifiers and whatever, free shipping, and easy returns of anything to the store. I advise everyone to shop Wal-Mart.com, and B&N for books, and Home Depot.com, and Overstock.com, and Staples.com…absolutely no need to use Amazon for anything. The backlash from what they are doing to Whole Foods may work faster than ‘trustbusting’.
Concerns about “inordinate market power” are not currently in vogue in the USA except maybe among Amazon’s smaller competitors.
Citizens are distracted by and tended toward other worries.
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Amazon is already showing some growing pains, though.
While they may have a massive dominance in the market, their inventory and stock issues are starting to hit. They used to have much, much broader stocks of many different items, but they’re reducing the number of SKUs – and I’d bet it’s because they just flat can’t manage the number of different items. Not physically, but in the acquisition sense. Someone has to decide what Amazon sells, and they’d have to hire a lot more people they can trust for that sort of decision.
That “undercut their retailers” issue only works for items that are going to stay in stock for some time – an item with short-term popularity will end up sitting in their various warehouses until they dump it off at a loss.
The churn is what’s going to stop them, not any government action.
“Unfortunately, Amazon is on its way to becoming the next Standard Oil, which gained a stranglehold on the oil industry and related sectors so severe that capitalism itself was threatened and the company had to be busted up into competing companies in 1911.”
The problem with this oft-repeated platitude is what Standard Oil did. It did indeed dominate the oil industry, and used this dastardly power to…run things more erriciently and charge lower prices. How evil!
Sure, SO or Amazon could use monopoly power to gouge customers – but are we going to base all our laws on things that MIGHT happen?
There was nothing remotely astute about Queen Elizabeth I not granting a patent to the knitting machine. What a preposterous judgment! The disruption of new inventions and new market powers is real – but so are the long term benefits. We are wealthier society today as a result of machines. MUCH wealthier. ALL of us. I live better, in some respects, than Queen E I did because of my automobile, my store-bought sweaters, and my Ikea-furnished office. I do not mean to disregard the temporary disadvantages to knitters. But, they are temporary.
The fact that the author recognizes no trade-offs between short and long term makes me wonder what on earth this article is doing on The American Interest site, which is normally much more balanced and insightful. Yes, think seriously about how to help those who have suddenly lost their way of earning a living – but not by suppressing innovation and not by sacrificing the long term benefit of society. You are not doing us any good by keeping us all poor.
Unfortunately, that example demonstrates the muddled thinking at work in this article. It doesn’t automatically follow that one innovator prospers “at the expense” of everyone else. Everyone else may be at some disadvantage because they didn’t think of the innovation, but it isn’t necessarily “at their expense.”
An innovator may prosper disproportionately, which can arguably be fair because of the greater benefits that they are introducing, which will soon be available to everyone. This may, in fact, represent the greater good.
Or, an innovator may prosper unfairly by, as the article suggests, selling platform space but using the information gained by the exchange to undercut its suppliers. That’s the serious, but not seriously argued, issue in this article: that Amazon uses its platform, which competitors must use, to disadvantage those competitors.
Then there’s the author’s vague reference to “nasty price disputes involving book publishers.” Yeah, nasty. As in THE PUBLISHERS & APPLE got in trouble with the DOJ for price fixing. And this price fixing RAISED the price of books to readers (consumers) – not something for the greater good. See: https://www.theguardian.com/technology/2016/mar/07/apple-450-million-settlement-e-book-price-fixing-supreme-court
“The Justice Department said the scheme caused some ebook prices to rise to $12.99 or $14.99 from the $9.99 price previously charged by market leader Amazon.com.”
The publishers were waging war to keep the price of ebooks high, while keeping the royalties to authors low. (they pay lower royalties to authors for ebooks.) The fact that the author doesn’t appear to know this – but just flings out the mud of “nasty price disputes” is only one of many things undermining the credibility of the article.
Also: what planet is this author living on that she believes that Amazon is not the innovative player in this hockey game? After all, it’s Amazon’s Kindle (an invention – a DIFFERENT WAY OF DOING BUSINESS) that is disrupting publishing and “causing” those nasty price disputes. It’s Amazon’s innovative approach to other retail sectors that is disrupting that sector.
Amazon may happen eventually fail to innovate – the history of organizations is they get big, sclerotic, complacent and fail to adapt. There’s no reason why Amazon is immune to the laws of gravity. But, they’re not there yet. The author can’t both complain about the results of Amazon’s innovation, which is putting other competitors at a disadvantage, and also complain that Amazon will stifle innovation. That is not the current state of the market. The current state of the market is that slow, unadaptive companies are struggling to compete with Amazon.
That may or may not be unfair and is reasonably likely to be some of both.
I’ve got news for the author: retail is changing – this will/is entailing some death/disruption. Someone will get hurt. We need to think clearly about it in order to minimize the number of people/amount of hurt. We do not want someone who thinks eliminating knitting machines is a good idea doing the thinking on this one.
Concern about Amazon’s e-commerce dominance is valid. But, that doesn’t make these arguments valid. Again, I wonder how on earth such poorly argued, poorly substantiated material got published on The American Interest.
It is interesting how history repeats itself, and this same article above was written in the past about Microsoft and Walmart. You could replace every “Amazon” word with “Microsoft” and this article would be relevant to what was written about Microsoft in the 1990s. Or, you could replace “Amazon” with “Walmart” and this article would be relevant to everything that was said about Walmart in the 2000s.
All of these companies eventually get prideful and start trying to treat their employees bad and treat their suppliers (or ecosystem partnerts) bad.
For example: Microsoft became notorious for treating its PC suppliers terribly, then they started treating their ecosystem of developers badly by always changing their APIs and interfaces, and finally treated their users badly by putting out disasters like Windows Vista and Windows 8! All along, they were treating their employees badly with the internal performance ranking systems and creating chaos inside. Then Microsoft eventually had to start cost cutting and layoffs and spiraled downward until they got a very smart CEO to help save them.
These same scenarios will happen to Amazon and they will not dominate forever…
When Amazon actually does have a monopoly in a significant segment of the US economy and when it is shown that they are abusing their monopoly power then it will be time to do something about that – they appear to be a many years away from either of those possibilities. In the meantime I find that Amazon makes my life considerable easier and less frustrating and I use a number of Amazon products and services every day. Diane Francis’ article appears to have a hidden agenda that has nothing to do with the benefit or harm of Amazon’s products or services to the American people – I wonder what it is?
If she is looking for harm to American’s from technology companies I think she should focus on the monopoly power of Google and Facebook in advertising and the harm that has been done to provide verifiably true news to all of us. Perhaps Amazon’s drive to take away a considerable part of that advertising revenue from Google and Facebook will be a net benefit to all of us – it’s hard to see how it could make the news industry any worse than it already is.
Such aggressive “vertical integration” is precisely why Standard Oil had to be busted up. Like Amazon, Standard Oil controlled all its marketplaces and forced all its competitors out of business or to become captive buyers and sellers of its goods and services.
In point of fact, Standard Oil commanded a declining market share when the federal government finally decided to attack it under the Sherman Act in 1906. In 1890, SO’s market share was 80%; in 1906 it was already down to 64% and sinking fast. That gives the lie to much of Miss Francis’s argument.
You wrote: “Amazon, in just 23 years, has gone from a website offering books at a discount to a behemoth with revenues that now surpass all of America’s department, grocery store and restaurant chains combined.” This is NOT Correct. Walmart and several other companies have much higher revenues…The strange thing is that its market value is huge, considering its revenue that are not that huge and the profit which is very small (considering its revenues and its market value). The point is that Amazon is destroying the competitors without needing to make any profit (Amazon Profit comes just from its web services and now, MAYBE, from Whole Food) cause its shareholders continue to buy shares even without getting any dividend.So, Amazon doesn’t need to make profit to grow (Strange thing cause if it was not Amazon, its share should drop down as a stone….cause investors, usually, want DIVIDEND….) So, Amazon is like a Snake that is poising all the retailers cause the retailers need to make profit to grow but Amazon…doesn’t need…cause investors continue to buy shares and support this grow…. Amazon p/e is just crazy…Amazon Stats are unique…Considering ALL the other retailers, its market value doesn’t make any sense …Comparet to Walmart, Amazon value should be 10 times less than now…Wall Street is pushing this snake….who knows where it will arrive….Amazon looks to me like the “Babel Tower”….