This is Jeff Bezos. No this is Jeff Bezos. Sorry this is Jeff Bezos. His net worth will soon surpass $150 billion. And
this is his home. Amazon. The second company in the world to pass the
$1 trillion mark. But did you know that during more than two
decades of existence, Amazon has struggled to make any profit? In fact, the company has been regularly operating
at a loss, especially on international markets. This is despite its exponentially growing
revenue stream peaking at $232 billion for the last year. In the final quarter of 2018, Amazon reported
profits of $3 billion with the revenue 24 times bigger. And it wasn’t until the late success of
Amazon Web Services, the world’s leading cloud computing service, that Amazon began
reporting consistent profits. So what is happening with all this revenue? It has everything to do with the business
model of Jeff Bezos. In his own words, Bezos believes in shareholder
supremacy, which means everything is justified as long as the share value is growing. The key metric for Bezos is the ability to
lock customers in their Amazon ecosystem. Bezos reassures his shareholders that Amazon
“has invested and will continue to invest aggressively to expand and leverage their
customer base, brand, and infrastructure as they move to establish an enduring franchise”. The revenue growth is the manifest of this
very expansion. Amazon absolutely dominates e-commerce – controlling
roughly half of all online sales, more than all of their competition combined. In five different categories, Amazon claims
more than 90% market share. Jeff Bezos pushed Amazon great lengths to
claim this dominance. From undercutting competitors with predatory
pricing, through forcing itself into their business, to vertically integrating into strategic
markets across the business line, Amazon is on track to gradually take over every aspect
of e-commerce and to control and decide what we shop and what is allowed to be sold. One of the first key steps for Jeff Bezos
was to lock Amazon’s grip on consumers. To lure more customers to stay with Amazon,
the company launched Prime membership subscription for a flat annual fee of $79. By offering free two-day delivery and e-book
renting along with music and video streaming, about half of Amazon customers have been converted
to Prime membership. On paper, this was an immediate success, because
on average, Prime members spent more than twice as much as non-Prime customers. But by 2011, estimates showed that the average
annual cost of each Prime membership ranked up to $55 in shipping and $35 in streaming. This left Amazon losing about $11 per Prime
customer. All in all, Amazon was losing about $1 to
$2 billion a year on Prime alone. Not to mention that the expansion of Prime
was happening right in the middle of the deepest recession since the Great Depression. But Jeff Bezos managed to persuade shareholders
to stick with Amazon and their stock prices went up by almost 300% in two years, when
everyone else in retail was failing. So what made Amazon investors so loyal to
the company that was losing profit during a heavy recession? It was Amazon’s ability to lock down their
grip on customers and claim monopoly position on the market. In the words of a former member of Prime development
team, “It was never about the $79. It was really about changing people’s mentality
so they wouldn’t shop anywhere else.” And this strategy really succeeded in its
mission. When Amazon finally raised the fee to $99
in 2014, 95% of Prime members claimed to stay loyal and renew their subscriptions. Studies found that less than 1% of Amazon
Prime customers would consider competitor retail sites during the same shopping session,
while non-Prime customers were 8 times more likely to shop between different retailers. Investors back Amazon when it’s losing profits,
because sacrificing short-term profit for aggressive long-term expansion pays off. Amazon did this with e-books, when it began
selling Kindle devices below its manufacturing cost. Like with Prime, the goal of Kindle was to
lock book readers in the Amazon ecosystem. Amazon did this with digital rights management,
DRM, that locked its e-book formats to Kindle, so they couldn’t be read outside of Kindle. With this strategy, Amazon also succeeded
in dominating the e-book market, claiming around 83% of e-book sales in the US and the
only real competitor left is Apple. Undercutting competition with below-cost prices
and locking users in its ecosystem is a classic strategy of predatory monopolization. It gives monopolies opportunities to unfairly
raise prices and enjoy the cash flow in a market with only that competition left which
they can contain or control. In ideal circumstances, antitrust regulators
would have stepped in long before such dominant positions could have been acquired through
anti-competitive practices. However, purposefully operating at a loss
with the aim to price out competitors is not viewed as an anti-competitive practice on
its own under the new anti-monopoly regulatory view in the US. In order for the FTC or the courts to step
in, there has to be an intent to raise prices for consumers once the dominance is taken. And this is what Amazon has been extraordinarily
clever at hiding. Every new service Amazon rolls out allows
them to track user behavior and collect personal and usage data of their customers. Amazon then deploys algorithms to personalize
pricing on individual scale, and even goes as far so to use bots to monitor prices of
their competition and match them with Amazon prices in real time. This mechanism obfuscates the baseline from
which it could be possible to observe price fluctuations and so if there is no body, there
is no murder. Obfuscating its true intentions allowed Amazon
to vertically integrate into the markets on which its competitors were dependent on. It’s not a coincidence Jeff Bezos turned
Amazon into a marketing platform, a network for logistics and delivery, a book publisher,
a hardware manufacturer, a fashion designer, a film and TV producer, a payment service
and a cloud service provider. Every industry domination is a step in the
Bezos’ plan. Amazon expands to these different markets
by either acquiring key businesses or undercutting them with below-cost pricing if they refuse
to sell. A company called Quidsi used to be one of
the fastest growing e-commerce businesses in the world, overseeing Diapers.com, Soap.com
and BeautyBar.com. First, Amazon offered to buy the whole company
in 2009. When Quidsi refused, Amazon bots began tracking
Diapers.com and cut their own prices for baby products by up to 30%. But unlike Amazon, Quidsi was a new venture
and didn’t have investors backing their losses while they competed with Amazon’s
monopolistic ambitions. Amazon then began rolling out subscription
services for care takers and significant discounts on diapers, which cost Amazon additional $100
million per quarter. Quidsi was bleeding and had no option but
to sell. Both Walmart and Amazon made an offer. When Bezos found out Walmart offered a higher
bid, his deputies went to Quidsi founders with threats that Amazon would cut their prices
even further if Quidsi sells to Walmart. The FTC investigation found no evidence of
anti-competitive behavior, and in 2010 Quidsi sold to Amazon. What happened to the generous offers and discounts
on baby products? They were discontinued or significantly reduced. Many users who converted to Amazon from Diapers.com
because of those discounts, wanted to go back after they were abruptly scraped. But there was no Diapers.com anymore. Amazon doesn’t just compete with their competitors. It forces itself into their business. As a dominant online retailer, Amazon had
enough bargaining power to secure discounts of up to 70% on deliveries from fulfillment
companies like UPS and FedEx. Amazon then used these discounted deliveries
to pack them in its own delivery service called Fulfillment by Amazon. Because Amazon was almost bigger than the
whole e-commerce industry combined, UPS and FedEx didn’t have enough negotiating power
over Amazon. To make up for the excruciating discounts
requested by Amazon, UPS and FedEx began hiking their prices to other independent sellers. This created a paradox – Amazon’s strategy
effectively directed sellers to use Fulfillment by Amazon as it was cheaper than to use UPS
and FedEx directly. And now Amazon is investing hundreds of billions
of dollars to establish its own physical delivery capacity to completely eliminate reliance
on UPS and FedEx and it will succeed in doing so. Controlling e-commerce infrastructure enables
Amazon to build a marketplace where it discriminately favors its own products without getting punished
for it. As a marketing platform, Amazon opened its
door to third party sellers to reach customers in exchange for fees ranging from 6% to 50%. What these third party vendors also unwittingly
gave up was the valuable data of their businesses and their customers. Amazon is using this data to study purchasing
patterns and trends to undercut third-party merchants on price or give their own products
a featured placement. Another benefit none of Amazon’s retail
competitors enjoy, is Amazon world leadership in cloud computing. Amazon Web Services is on track to control
half of the cloud infrastructure market share with Microsoft as the only strong competition
currently standing. Many new startups rely on Amazon cloud service
to deliver their services without committing to build expensive infrastructure on their
own. But this also serves as an ultimate tool of
industrial espionage that Amazon can use to learn about new emerging competition to acquire
or undercut on price before it endangers its business. It gives Amazon a control over data none of
its competitors have, and thus Amazon can enter new markets much more quickly and effectively
than any other retailer out there. There is no real competition to Amazon left. There is no company quite like it. Amazon’s path to become a global monopoly
across different markets isn’t just an anomaly. It was Jeff Bezos’s intention from the very
beginning. Monopolies destroy free markets, and with
them the freedom to choose not just as a consumer, but as a small business owner, a worker, an
Internet user, and a citizen. The best solution users of the Internet can
do right now is to support merchants, authors, developers, entrepreneurs and vendors by purchasing
their products directly from them, rather than going through an intermediary like Amazon. Sure, you might be getting a better bargain
on Amazon, but the long-term cost of saving few bucks now is unbearable. Decentralizing our economy away from monopolies
back to middle class and small businesses is the only sustainable solution and is a
responsibility of every individual participating in this economy. The story of Amazon domination isn’t unique
but rather reflects the nature of the business model that’s become a standard in Silicon
Valley. It leads towards market domination and monopolization
within the hands of the most aggressive corporations. The little convenience of economic centralization
comes at the cost of small businesses, middle class jobs, wealth distribution, privacy,
free speech and free market as a whole. Should we let Amazon monopolize one market
after another? Or should we step in with drastic measures
to protect what allowed Amazon to exist in the first place? It’s time to have this conversation now.
so what viable alternatives are there? i've been a fan of open bazaar for years, since it was called dark market, but it's still a long way from being usable
Corporate nation-states are becoming a reality. It's kind scary that Cyperpunk is prophetic.
We could use a Teddy Roosevelt type right about now...