Ama­zon isn’t tech­ni­cally dom­i­nant, but it per­vades our lives

Ama­zon is al­ready a huge part of many peo­ple’s lives. And its $13.7 bil­lion deal for the or­ganic gro­cer Whole Foods will likely bind its cus­tomers even more tightly.

The Denver Post - - FEATURES - By Anick Jes­da­nun

“It kind of feels like they’re tak­ing over so much com­merce in our life,” said Erica McGivern, a Whole Foods and Ama­zon cus­tomer who lives in Seat­tle, where Ama­zon is head­quar­tered. “It’s in­tim­i­dat­ing.”

The ac­qui­si­tion eas­ily could hurt Ama­zon’s ex­ist­ing ri­vals and fu­ture star­tups that might one day chal­lenge it. Yet ex­perts don’t be­lieve U.S. an­titrust reg­u­la­tors will op­pose the deal. That’s largely be­cause it doesn’t cre­ate any­thing re­sem­bling a tra­di­tional mo­nop­oly.

In­stead, it merely ex­tends Ama­zon’s long quest to make shop­ping so con­ve­nient that con­sumers won’t even think about step­ping away from its em­brace. The more suc­cess­ful that strat­egy, the more Ama­zon can mo­nop­o­lize the at­ten­tion and shop­ping dol­lars of its cus­tomers — which, of course, is per­fectly le­gal.

A ques­tion of price

Ama­zon is just one of sev­eral ma­jor tech com­pa­nies — such as Google and Face­book — fac­ing new scru­tiny over their mar­ket power, which doesn’t map neatly onto tra­di­tional no­tions of mo­nop­oly.

When a com­pany dom­i­nates a mar­ket, it typ­i­cally pushes up prices to boost prof­its — some­thing U.S. an­titrust law is geared to pre­vent. Ama­zon, how­ever, has a track record of keep­ing prices low and lock­ing cus­tomers in to sell more stuff. For in­stance, the com­pany typ­i­cally sells gad­gets like its tablets for lit­tle or no profit — but then pushes peo­ple to buy dig­i­tal movies they can watch on the tablet.

“Ama­zon’s strat­egy has al­ways been a vol­ume strat­egy, not a profit strat­egy,” said Lau­ren Bei­t­elspacher, a mar­ket­ing pro­fes­sor at Bab­son Col­lege in Mas­sachusetts.

In a tra­di­tional sense, Ama­zon still faces lots of com­pe­ti­tion. Wal­mart re­mains the lead­ing re­tailer over­all, with more than three times Ama­zon’s re­tail rev­enue. Even with Whole Foods, Ama­zon will have less than 3 per­cent of the U.S. mar­ket share in gro­ceries, ac­cord­ing to Kan­tar Re­tail. Wal­mart is the leader, with a 22 per­cent share last year.

And while Ama­zon is the clear leader in e-com­merce, 90 per­cent of world­wide re­tail spend­ing is still in brick-and-mor­tar stores, ac­cord­ing to eMar­keter.

Rather than dom­i­nate in mar­ket share, Ama­zon dom­i­nates “in reach­ing into cus­tomers’ lives,” Gart­ner re­tail an­a­lyst Robert Hetu said.

Ama­zon has got­ten some com­plaints that its most prom­i­nent re­sults in shop­ping searches aren’t al­ways the cheap­est. But for many fre­quent cus­tomers — the more af­flu­ent ones who tend to be mem­bers of Ama­zon’s $99a-year Prime loyalty pro­gram — Hetu said Ama­zon just needs to be more con­ve­nient.

Bank­ing on loyalty

Con­ve­nience can come in the form of Dash but­tons, which put re­orders of baby wipes or cof­fee beans a fin­ger-press away. Voiceshop­ping ca­pa­bil­i­ties in Alex­aen­abled Echo speak­ers make it pos­si­ble to shop while do­ing house­hold chores.

Ama­zon also offers dis­counts for shop­pers who sign up for reg­u­lar de­liv­ery of fre­quently pur­chased items. Free ship­ping with a Prime mem­ber­ship makes it tempt­ing to check Ama­zon first, even if ri­vals also of­fer free ship­ping for larger or­ders. And of course, Ama­zon offers bonuses and cash back when us­ing its gift cards and credit cards.

Mean­while, the Prime mem­ber­ship offers not just TV shows and movies but also music from such artists as Cold­play, Adele and Bruno Mars. It’s a cinch to watch on an Ama­zon Fire TV de­vice or lis­ten on the Echo.

Add to that a new fea­ture re­sem­bling the so­cial net­work Pin­ter­est. Cus­tomers share their fa­vorite de­signs, recipes, books and other items. But whereas Pin­ter­est users can buy what they like any­where, Ama­zon Spark would di­rect cus­tomers to Ama­zon’s own store.

“They are per­va­sive in the fun parts of life, shop­ping and en­ter­tain­ment,” Bei­t­elspacher said. “You have all these things that evoke pos­i­tive feel­ings. So when they in­tro­duce some­thing new, it’s much eas­ier for them to over­come the bar­ri­ers of en­try be­cause they have this pos­i­tive brand equity.”

De­mands on sup­pli­ers

The ease of Ama­zon de­liv­er­ies may evoke good­will among con­sumers, but it has has­tened the de­cline of sev­eral brick-and­mor­tar re­tail­ers — in par­tic­u­lar, book­store chains.

Ama­zon’s size also gives it tremen­dous buy­ing power. Just like Wal­mart and other big com­pa­nies, Ama­zon can use that power to wring low prices from sup­pli­ers of prod­ucts and ser­vices that Ama­zon sells. While Ama­zon can pass those sav­ings onto cus­tomers, an­a­lysts say smaller sup­pli­ers might have to re­duce qual­ity or staff to cut costs. Some might even go out of busi­ness.

On July 17, a union rep­re­sent­ing food-in­dus­try work­ers called on the Fed­eral Trade Com­mis­sion to scru­ti­nize Ama­zon’s deal for Whole Foods, cit­ing the im­pact on sup­pli­ers, among other things.

But U.S. an­titrust of­fi­cials tend to block deals only when they com­bine di­rect com­peti­tors — say, if Ama­zon were to buy Wal­mart, or the other way around. Ama­zon doesn’t cur­rently have a big gro­ceries busi­ness, and Whole Foods doesn’t have a huge on­line or de­liv­ery op­er­a­tion, so they likely won’t be con­sid­ered di­rect ri­vals. Reg­u­la­tors typ­i­cally look for con­sumer harm — and might have trou­ble find­ing any.

Some sup­pli­ers are even look­ing for­ward to reach­ing Ama­zon’s large cus­tomer base. In a state­ment, Ama­zon said it wants Whole Foods to con­tinue work­ing with “small farms and pro­duc­ers” to bring nat­u­ral and or­ganic food to shop­pers. The com­pany declined fur­ther com­ment.

Rut­gers law pro­fes­sor Michael Car­rier said he ex­pects reg­u­la­tors to even­tu­ally say enough is enough. But he said that “still could be a while. Cer­tainly in a Repub­li­can ad­min­is­tra­tion, these ar­gu­ments would fall on less re­cep­tive ears. Even in a Demo­cratic ad­min­is­tra­tion, this is a bit of a reach.”

Elaine Thomp­son, The As­so­ci­ated Press

Whole Foods Mar­ket Chef Hay­den Smis­sen, left, hands a grilled chicken dish to Ama­zon worker Pan­dong Zhang, on lunch break from his of­fice nearby, in Seat­tle. Ama­zon, al­ready a pow­er­house in books, shoes, stream­ing video, elec­tron­ics and just about ev­ery­thing else, will bind its cus­tomers even more closely once it com­pletes its $13.7 bil­lion bid for the or­ganic gro­cer Whole Foods.

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