A Blog by Jonathan Low


Apr 27, 2018

Is Amazon's Endgame a 'Tax' On All Economic Activity?

Do omnivores ever stop eating? JL

Olivia Solon and Julia Wong report in The Guardian:

Tracking an index of 54 retail stocks, known as the “Death by Amazon index” most vulnerable to Amazon  "encapsulates what is going on." Between February 2012 and January 2018, Amazon’s value rose 560%, the S&P index rose 102%, and the Death by Amazon index grew just 42.8%. What’s the CEO Jeff Bezos’s endgame? It could be a “tax on all economic activity.” Without regulation, Amazon will “continue to extract wealth that other businesses are creating.”
he computer on which this article was written is sitting on a laptop stand that tells you everything you need to know about how Amazon does business. At $19.99 (£14.99) a pop, the laptop stand combines everything customers love about Amazon: utility, price and convenience. It’s also a total and complete knockoff – of a laptop stand that the San Francisco-based company Rain Design began selling nearly a decade before Amazon decided to make its own.
Amazon’s innovation with its own version was to replace Rain Design’s raindrop logo with its own smiley arrow logo – and cut the price in half.
“All Amazon had to do was pick the best one and copy it,” said Rachel Greer, a former product manager for Amazon who runs a consulting firm for Amazon vendors.
Rain Design isn’t the first company to fall victim to the aggressive techniques Amazon uses to achieve market dominance. Although its retail site is the most visible of its business strands, the $740bn company has quietly stretched its tentacles into an astonishing range of unrelated industries. Google and Facebook might have cornered the online advertising market, but Amazon’s business successes now include groceries, TV, robotics, cloud services and consumer electronics.“If you try to measure power by how many executives are up at night because of X company, I think Amazon would win,” said Lina Khan, legal fellow with the Open Markets Program at the thinktank New America.
Amazon has a restaurant delivery service, a music streaming service and an Etsy clone called Amazon Homemade. It makes hugely successful hardware and software; it makes movies, television shows and video games. It runs a labour brokerage for computer-based work and another for manual labour. It publishes books, sells books, and owns the popular social network site for book readers GoodReads.com. It sells diapers, baby food, snacks, clothing, furniture and batteries. It sells ads, processes payments, and makes small loans. It is the unexpected owner of a huge number of websites – everything from the gaming livestream site Twitch to the movie database IMDb.
Of the top 10 US industries by GDP (information, manufacturing non-durable goods, retail trade, wholesale trade, manufacturing durable goods, healthcare, finance and insurance, state and local government, professional and business services, and real estate), Amazon has a finger in all but real estate.
And how confident can the real estate industry be right now that Amazon won’t at some point decide to allow people to buy and sell homes on its platform?

“I see them as kind of a great white shark,” said Greer. “You don’t really want to mess with them.”
“It’s basically become a railroad for the 21st century,” added Khan. “It’s existential for so many businesses but also competing with all those businesses.”
What makes Amazon so frightening for rival businesses is that it can use its expertise in data analytics to move into almost any sector.
“Amazon has all this data available. They track what people are searching for, what they click, what they don’t,” said Greer. “Every time you’re searching for something and don’t click, you’re telling Amazon that there’s a gap.”
Amazon knows where you live, who you live with, your current location (if you use an Amazon smartphone app), what TV shows you watch, what music you listen to and what websites you visit.
“It’s obsessed with understanding its customers,” said the Tuck School of Business professor Vijay Govindarajan. “The more you understand every aspect of a customer, the more it can satisfy your needs.”This obsession with knowing its customers means that, while feared by almost every business, Amazon is beloved by customers. It’s viewed as cheap, convenient and reliable.
“Amazon’s north star is to delight the customer,” said Gene Munster, a former Amazon analyst who runs an investment firm, Loup Ventures.
Despite its treasure trove of personal data – the kind that allows retailers to predict if their teenage customers are pregnant before their parents know – Amazon has mostly avoided using that data in ways that unnerve people.
But the consumer trust it has built up does not reflect the damage the company does to competitors, partners and workers, according to Khan
Only looking at a consumer side of a business power is totally ludicrous. It slices the human in half, not looking at them as a worker, producer or supplier.”
Customers might be getting super-fast deliveries of cheap laundry detergent and binge-worthy TV shows, but the same company has also been accused of displacing jobs in the locations where it builds its fulfilment centres, treating warehouse workers like robots, aggressively undercutting rivals and squeezing suppliers and producers.
“The algorithms are designed to serve up things that best serve Amazon, steering us to some books and not others,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance. “You have a company that can shape whether a particular author is able to find an audience, and whether they can even get published.”
That power means that “people don’t know if there’s something they’re missing”.The company doesn’t even shy away from competing with its own investments. After pumping $5.6m into the startup Nucleus and its Alexa-powered video-conferencing tablet, Amazon turned around and released its own suspiciously similar device, the Echo Show.
“They probably copied us,” the Nucleus co-founder Jonathan Frankel said last year. “When they had the opportunity to extend their tentacles into millions of homes, they had to do it, even if it means throwing us under the bus, even if it means putting their whole ecosystem at risk and letting people know that they’re not necessarily a trusted partner.”
Amazon declined to comment on its investment into Nucleus or on the design of its laptop stand, but noted that Rain’s design remained the bestselling stand on the site.
The company’s success has produced panic among investors. When Amazon bought Whole Foods, grocery chains’ stock prices crashed. Two months later, when Amazon announced it would cut Whole Foods’ prices, grocery stocks plummeted again. The meal kit maker Blue Apron’s stock price fell 11% after the news that Amazon was filing for a meal kit trademark. A vague announcement from Amazon that it was collaborating with JP Morgan and Berkshire Hathaway on some kind of non-profit healthcare venture sent healthcare stocks on a downward slide.
Since 2012, Bespoke Investment Group has been tracking an index of 54 retail stocks, known as the “Death by Amazon index”, that it considers most vulnerable to Amazon. “It’s a somewhat melodramatic title, we admit,” said George Pearkes, a macro strategist with Bespoke. “But it encapsulates what is going on in retail quite well.”Between February 2012 and January 2018, Amazon’s value rose 560%, the S&P index rose 102%, and the Death by Amazon index grew just 42.8%.
Amazon still has a lot of room to grow. It dominates e-commerce, but that’s only about 9%, (according to eMarketer) of the total retail market in the US. With the acquisition of Whole Foods and the launch of the concept store Amazon Go – which has no cashiers and no checkouts – the tech giant can start to take on the other 91%.
And it wouldn’t be surprising if Amazon were to sell the technology that powers the futuristic stores to other retailers so that they too could automate their stores and cut jobs. Doing that would allow the company to keep track of the sales made by its competitors – just as it does on Amazon.com – and use that data to inform its decisions about other retail categories to move into.
“Amazon is just getting started,” said Govindarajan.Another huge growth area is healthcare and the pharmacy business, according to Khan, who sees the health insurance joint-venture Amazon launched with Berkshire Hathaway and JP Morgan as a way to “get experience in the sector and then double down”.
The company, which is already taking payments and making loans to third-party sellers, has also laid the foundations to push further into financial services. “It wouldn’t surprise me if they tried to look at the option of obtaining an industrial bank charter,” said Mitchell.
What’s the CEO Jeff Bezos’s endgame? Khan suggests it could be a “tax on all economic activity”.
“If you view it that way it’s difficult to think about what sector he wouldn’t touch,” she said.
Khan believes that Amazon needs to face antitrust regulation, but current law is not equipped to deal with it. “I think a rule that prohibited it from competing with the businesses that use its platforms would eliminate a lot of the core conflicts I mentioned,” she said.
Eliminating this conflict of interest would mean Amazon could provide the Amazon.com marketplace, but not its products, for example.
Without regulation, Amazon will “continue to extract wealth that other businesses are creating”, Khan added.


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