Is Amazon getting too big?
Seems to be dipping its beak everywhere
SAN FRANCISCO — When Amazon made a bid for Whole Foods earlier this month, a company that’s been a huge but largely online presence for consumers suddenly seemed to be everywhere, raising the question: “Is it getting too big?”
In most of the areas Amazon has recently entered, be they groceries or streaming video or India, Amazon is far from dominant. But some observers fear that, as Amazon’s breadth grows, the power of its ecosystem could stifle competition and erode jobs. “Imagine getting your pay-TV service, groceries, banking, insurance, etc., all through one company. That’s the threat that Amazon poses,” said Michael Greeson, director of research at business analysis firm The Diffusion Group.
To consumers whose seeming every wish can be fulfilled by the more than 400 million products available for sale on the site, its scope can seem enormous. Amazon sells 52 per cent of all books (print, electronic and audio) in the United States. Forty-three per cent of all online commerce goes through Amazon. It’s got 45 per cent of the cloud computing market, meaning it’s the single largest provider of infrastructure that runs thousands of popular websites. It’s not in banking and insurance, though analysts say that wouldn’t be a stretch.
Deep pockets and a growing and sophisticated distribution network mean it’s a fearsome price competitor, worrisome to rivals in any market.
But, in markets Amazon has more recently entered, it’s still small potatoes. To Netflix, it’s a streaming entertainment competitor with a ways to catch up. To Kroger, the No. 2 grocerystore chain in the U.S., it’s still a gnat, though one whose bid to buy Whole Foods for $13.7 billion gives it a potentially outsized sting.
Two decades of acquisitions and heavy investments, in consumer devices such as the popular Amazon Echo to Audible.com to its own freight service, means Amazon is no longer just an online retailer but instead a multinational, though highly compartmentalized, corporation.
It’s this Amazon ecosystem, which increasingly revolves around its Prime subscription plan, that worries detractors. In April it was estimated Amazon had more than 80 million Prime members in the U.S. alone, a doubling over the past two years, according to Consumer Intelligence Research Partners. Once a customer becomes a Prime member, he or she starts to spend more and is more likely to choose Amazon as her go-to provider.
While customers have flocked to its low prices, speedy delivery and customer service, it’s a different matter for suppliers. Even as they benefit from instant access to a massive online customer base, Amazon’s market size gives it the power to inflict increasingly tough terms on its partners, driving down prices and passing on the savings to customers.
“If people thought Walmart was bad, Amazon’s taken it to an entirely new level,” said Mark Coker, founder of SmashWords, an early ebook distributor. “They want to eliminate everyone who stands between the producer of the product and the store.”
Another concern: as more people enter the Amazon ecosystem, that makes it harder for producers to sell to customers outside it.
Lina Kahn, a legal fellow with the Open Markets program at the New America Foundation, worries this will be detrimental to the economy.
“We have to ask whether there are costs to this dominance that we might in the long term regret,” she said. “Amazon has emerged as a gatekeeper. Are we comfortable with one company picking the winners and losers in e-commerce?”
There’s little relief from antitrust law because these laws focus on consumer welfare, which Amazon excels at, she said.
In the U.S., Amazon has become the major funnel through which e-commerce takes place. It’s also well-established in Europe and is working to gain a foothold in India.
An analysis by Slice Intelligence found that 43 per cent of all online U.S. retail sales went through Amazon in 2016, a number that represents both goods Amazon itself sells and the ones from third-party sellers that set up specialized storefronts on the site.
Brendan Watcher, a digital business analyst with Forrester, views Amazon’s role as more like a mall than a mammoth Woolworth’s department store.
“If you buy something at Macy’s you don’t give the mall credit for the sale,” he said.
Amazon says about half of the items sold on its site come from third-party sellers.
All online sales are still dwarfed by the entire U.S. retail market.
According to the Department of Commerce, in the first quarter of 2017, online represented eight per cent of all retail sales.
So far, the primary impact of Amazon has been to drive poorly run players out of the market. That doesn’t mean others can’t compete but, in the Darwinian world of business, the weakest are being weeded out, says Brad Stone, technology reporter for Bloomberg News and BusinessWeek and author of “The Everything Store: Jeff Bezos and the Age of Amazon.”
The end could simply mean a more efficient, Internet-enabled marketplace different but not worse than the one we live with today.
“Borders, JC Penny, Macy’s — these brands failed, or are failing, not really because of Amazon but because they never really responded well to the changes in consumer habits and expectations that the Internet represents,” he said.