What is Bezos’ legacy?
“Even in a tech industry that accords founders near mythic status, (Jeff ) Bezos was in a world of his own.” — Bloomberg News, on Feb. 2 reports that Jeff Bezos was stepping down as CEO of Amazon.com Inc. later this year, after running the company he founded for almost three decades.
Sorry to rain on the parade, but the Jeff Bezos legend, widely celebrated in the financial press this week, is somewhat exaggerated.
Yes, the erstwhile McDonald’s shortorder cook is worth about $241 billion on paper. That’s the current stockmarket value of Bezos’ 10.6 per cent stake in Amazon.
With about $380,000 borrowed from his parents, the Albuquerque, N.M., native launched an online bookstore in his garage in 1994, and it’s now among the world’s biggest merchants, with 2020 sales of $386 billion (U.S.).
Bezos relentlessly widened his product line to embrace bedding, appliances, lawn furniture and sex toys, creating the world’s biggest online general store.
In choosing Amazon as the name for his business, Jeffrey Preston Bezos signalled that he would not limit himself to selling Jane Austen novels and Marilyn Manson CDs.
Instead, Bezos, now 57, got Amazon into voice assistants. (Alexa was inspired by Bezos’ interest in a similar feature in “Star Trek.”) Amazon dominates cloud computing, a $58-billion business for the company. And Bezos steered Amazon into traditional grocery retailing, buying Whole Foods Market.
Bezos’s Amazon became a prodigious maker of filmed entertainment (Amazon Studios). And Bezos is personally invested in space travel (Blue Origin), life-sciences research and newspaper publishing (the Washington Post), exhibiting the fecundity of his doppelganger Elon Musk.
Long before he adopted it as the mission statement for his space-travel venture, gradatim ferociter, or “step by step, ferociously,” was Bezos’ personal mantra. His ever-more-powerful selling machine pushed traditional retailers to the sidelines — and more than a few into the grave.
The Wall Street Journal, awestruck at the uninterrupted soaring trajectory of Amazon’s sales, described the firm’s revenue growth as “gravity free.”
But a peculiar thing happened during Bezos’ journey to business superstardom.
Bezos did not learn how to turn a decent profit in online retailing.
Amazon is among history’s greatest profit-lite enterprises. After losing money for much of its history, Amazon has generated only meagre profits since it finally began posting black ink on its bottom line.
And the bulk of Amazon’s operating income today comes not from retailing, but from cloud computing (Amazon Web Services). Without AWS, Amazon, as a retailer only, would be back in the red.
With a modest return on assets of 5.2 per cent, including AWS, Amazon trails fellow retailers Costco Wholesale Corp. (7.2 per cent) and Walmart Inc. (6.7 per cent).
It also lags the tech giants whose superficial similarity to Amazon helps account for Amazon’s sky-high stockmarket valuation, including Facebook Inc. (14 per cent), Apple Inc. (13 per cent) and Netflix Inc. (7.8 per cent).
An explanation for that oddity lies with another peculiar development at Amazon.
Bezos’ conception of newworld retailing was that it be “contactless,” or relatively untouched by human hands. Orders placed and fulfilled at the speed of light on the fibreoptic trunklines of the internet would keep human staffing to a minimum unprecedented in retailing.
Early on, Bezos made clear his contempt for retailing’s little people. “I don’t know about you,” he said, “but most of my exchanges with cashiers are not meaningful.”
The promise of creating low-cost touchless retailing is another factor in the meteoric rise in Amazon’s stock-market valuation.
And Amazon is also, ostensibly, the antithesis of bricksand-mortar merchandising.
Yet in 2021, Amazon is one of the world’s biggest privatesector employers, with 1.3 million people on the payroll, up 63 per cent in the past year.
And Amazon is heavily committed to bricks-and-mortar, dotting the North American landscape at a rapid clip with warehouses and fulfilment centres. That doesn’t include Whole Foods’ 470 bricks-andmortar stores, either.
Amazon is also an old-fashioned trucking company, with about half a million contract drivers delivering its packages.
That is not the space-age model of retailing that Bezos, who grew up on sci-fi magazines, first had in mind. It is not the high-tech image of Amazon that Bezos has peddled to investors for decades.
A company’s stock-market valuation is, or is supposed to be, based on its potential to turn ever higher profits.
To justify its $2.2-trillion stock-market valuation, Amazon will have to crank out the $27-billion profit it reported in 2020 each year for the next several generations.
Either that, or everyone will have to make all their purchases on Amazon, the last retailer standing, in a totally cashless society.
The cashless society is a possibility.
But the e-commerce competition to Amazon is growing exponentially. Already, Amazon is fighting for business with the sophisticated e-commerce sites of Walmart, TJX Cos. Inc. (Winners, T.J. Maxx, HomeSense), Canada Goose Holdings Inc. and Lily’s Garden, a busy florist in Ann Arbor, Mich.
Bezos helped push a notoriously hidebound retail world into e-commerce, with a big assist from pandemic store closures. That part of his legacy is secure.
However, that legacy is otherwise under fire, from antitrust regulators accusing Amazon of monopolistic practices; from union organizers at Amazon’s sweatshop warehouses; and from small-business vendors selling on Amazon who say the firm is driving them under with Amazon knockoffs of their bestselling goods. (Amazon denies the allegations.)
Resolving those issues will raise Amazon’s already high cost of doing business, and allow more space for competitors.
Amazon’s unflattering income statements over the past decade suggest that the endgame is a split-up of this unwieldly conglomerate, with AWS, Amazon Studios, Whole Foods and the like going their separate ways.
In that scenario, the core Amazon online retailing business that made Bezos a celebrity tycoon might fail, since it is currently subsidized by its siblings.
At the height of their fortunes, it seemed that the sun would never set on the empires of Sears, Roebuck and Co. and T. Eaton Co. With more than 50 per cent of their markets in the 1950s, they dominated retailing then more than Amazon does today.
Yet eventually their size and complexity made it impossible for those now-bankrupt firms to adjust to a changing world.
In his 26 years at the helm, Bezos has only made Amazon bigger and more complex. As is not uncommon with business visionaries, profit — which is to say, long-term viability — has been a secondary consideration at Amazon to empirebuilding.
Bezos will stay on at Amazon, kicking himself upstairs from CEO to executive chair in the company’s third quarter.
He won’t be the one to remake Amazon into a sustainably profitable online retailer, when it becomes clear that the business requires that to survive.
He has been a remarkably innovative tycoon. But as Bezos has shown at considerable length, he doesn’t have it in him to do that.