Amazon Exposed!
What's behind the brand?
Welcome to Polymathic Being, a place to explore counterintuitive insights across multiple domains. These essays take common topics and investigate them from different perspectives and disciplines to come up with unique insights and solutions.
Today's topic explores the monster of an organization that is Amazon. Why an analysis of a commercial enterprise? Because most people don’t fully understand or appreciate what Amazon has done to transform our buying and selling. We’ll dive in and demonstrate how much more revolutionary Amazon is and then step back and consider what that’s done to our daily lives.
What is Amazon Actually?
To many people, Amazon is represented by those ubiquitous gray vans zipping all over the roads bringing us same-day or two-day delivery on almost everything we could possibly imagine. With this persistent presence, there are many who claim it’s a monopoly, forcing small businesses out of the market with anti-competitive practices. But what is Amazon really? Because a look under the surface paints a very different picture.
For instance, Amazon’s strength isn’t in actually being the seller. That’s small peanuts. Their superpower is in transforming… nay, revolutionizing supply chain logistics. Their innovations allow us to have access to goods and materials that only incredibly expensive and quite unreliable special orders could have achieved just twenty years ago.
As this great article in Quillette recently captured:
“At Amazon, for example, Bezos developed innovative supply chain and logistical processes, enabling cheaper prices and faster shipping for a broader range of products than any other store in history. Bezos and his team did not attain their dominant market position by blocking public access to their myriad competitors—who include giants like Walmart, Target, and Barnes & Noble. They simply outperformed those competitors, putting many of them out of business and obliging many more to improve their own services or face the financial consequences.
Far from restricting access to our commons, Bezos and his team invented trading opportunities that previously didn’t exist, replaced the narrower and more expensive product ranges provided by their competitors, and became profitable by attracting customers who voluntarily chose their services over those of less efficient retailers.”
Is Amazon a Monopoly?
Those who think Amazon is conducting anti-competitive practices, need to recognize that Amazon hosts the world’s largest consortium of small business owners in their marketplace. This means that the Amazon Basic USB cable sets alongside offerings from around the world which may even be cheaper or higher quality.
Not only are our options on Amazon not limited, but they are greater than the options that giants like Walmart or Target can even offer today. Instead of limiting competition, they invited it to occur under their roof.
Furthermore, I have a friend who was about to lose their electronics business due to the obsolete nature of a small town carrying limited stock. Instead of closing their doors, they shifted to an Amazon marketplace. Within a year their sales doubled. After two years it was ten times higher.
We’ve only just touched on Amazon’s marketplace. If we get into their Web Services we find that this allows literally anyone to rent space on world-class server systems, supported by their Amazon Well Architected Framework and a plethora of tools and systems, and deploy software solutions anywhere in the world. These new startups have a lower barrier to entry than ever before to compete in the market. (and Amazon competes with Google Cloud and others in the cloud market as well)
Democratizing Writing
The same is true for publishing. As you are all mostly aware, I just published my first SciFi novel on advanced AI and what it means to be human. I was able to write it, load it into Amazon Kindle Direct Publishing, and with their incredibly detailed knowledge center, create eBook, paperback, and hardcover versions for sale. It didn’t cost me anything.
Their print-on-demand means I don’t have to invest in stocking books, I don’t even have to worry about orders, fulfillment, etc. Amazon helps create it, hosts it, and charges me less than anywhere else. Compared to a traditional publisher, I’m making royalties out the gate with as much as 200% greater royalties per sale than a publisher could offer. (I should also add that this allows me to change my book cover quickly too without a lot of burden from old inventory.)
The Challenge
Just like at any time in history, those who did not adapt were eliminated by the market. Just like buggy makers and blacksmiths became auto mechanics or started tire or machine shops so too does the steady drumbeat of technological progress not stop for anyone.
But we have sympathy for those who lose their businesses. Yet is it misplaced? Would you rather go back to 1995 when everything was mail-order? Where you pull a piece of paper from the center of a catalog and mail it in with a check to hopefully get the product in four to six weeks? Let’s not even get into the frustration of making returns or dealing with broken deliveries!
But it’s eating all the small businesses!
Yet when was the last time you went to a small business and they had what you needed, for a reasonable price, that didn’t have you shopping all over town burning gas and time?
But it’s like the Robber Barrons of the early nineteen hundreds!
Now that’s an interesting conversation to dive deeper on but I’ll suffice to say, that what you think you know about the ‘robber barons’ of that timeframe does not hold up to the test of historical analysis. A great book on the topic is The Myth of the Robber Barrons.
Two simple examples:
Standard Oil constantly lowered prices and when it was broken up, prices jumped dramatically.
Vanderbilt made a fortune off of shipping. Yet he was constantly competing against the monopoly of government-subsidized shippers who still couldn’t beat his prices.
The most counterintuitive aspect of this entire essay is probably that, in a capitalist society, the only way you can have a monopoly is with government protection. That’s it. Without the government protecting you, nothing stops a new entrant to the market. And history is replete with the shenanigans of government monopolies from healthcare to aviation, to the current risk of AI. How’s that you ask?
It’s because large companies love to achieve what’s called Regulatory Lock. This means they work with the government to craft protective measures to carve out monopolistic positions. Honeywell does this with aviation safety. OpenAI just tried to do this after releasing ChatGPT4.0. Pfizer is doing this with COVID medication.
Back to Standard Oil. After its breakup, the newly formed Oil Division of the US Fuel Administration made the oil industry a government-protected monopoly. While accusations were made against Standard Oil of anti-competitive behavior, this government monopoly actually did artificially high price fixing, eliminated competition, created major inefficiencies, and was rife with corruption and waste.
Conclusion
While Amazon is a massive company and sometimes feels like it's slowly taking everything over, we have to also recognize that its primary role is that of logistics, not retail. It also has protected itself from monopolistic accusations by actually embracing a competitive landscape that allows anyone to join in selling.
Does this make it a perfect company? That depends on what your own societal goals are for a company. There are certainly a lot of things it could do better and in its logistics strengths, it will challenge and, inevitably, bankrupt businesses large and small. Yet it’s also democratized software development, resale, and publishing in a way that we couldn’t have conceived of just twenty years ago.
It’s just one more example that simple attacks often miss the target and are more likely emotional pleas, as we read in The Myth of the Robber Barons, which inflames opinion. Yet the irony of those fueling that opinion is that they are the ones with the non-competitive, protectionist behaviors we worry that Amazon displays. In the end, it helps to better contextualize what Amazon is so that we can have a better idea of whether it is behaving in a way that needs to be addressed.
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Further Reading from Authors I really appreciate
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Amazon is a little evil but not because it's a monopoly. It's evil because, unlike those small stores of yesterday that never had exactly what us shoppers wanted, it's not a physical place: we don't GO there. In some ways Amazon is an abstraction. It's like pulling out a credit card rather than handing over physical cash or chatting with "friends" on Facebook rather than having people over for dinner. In many ways the world is getting more and more convenient, better and better in objective terms, and all the while the brick-and-mortar interactions that make us human are silently slipping away.
This is a much needed pushback, but of course there are plenty of "yes, but..."s available. The trade-off of democratizing business is that since there is very little barrier to entry, the share of the pie available for an individual business owner is much, much lower today than it was 20 years ago.
My perspective here is unique, for what it's worth: I was selling stuff online 20+ years ago, poorly but better than most. The easier it has gotten, the worse the opportunity to sell has become and the tougher it has become to make a profit. If you had published a book even 10 years ago, you might be much, much better off due to far less competition in the space... but on the other OTHER hand, maybe you would never have published at all.
On the third or fourth hand, the customer experience with Amazon is nothing short of incredible, and anyone who says they don't think so doesn't remember how things used to be.
Spot-on about their logistics business being paramount. I might include cloud computing here as well, and point out that they're slowly becoming an advertising business, further shifting away as a mere retailer.