Is Amazon really dominant, or is it just intimidating?
new york — 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.
“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 could easily hurt both Amazon’s existing rivals and future startups that might one day challenge it. Yet experts don’t believe US 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 monopolise the attention and shopping dollars of its customers — which, of course, is perfectly legal. 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 US antitrust law is geared to prevent. Amazon, however, has a track record of keeping prices low and
Amazon’s strategy has always been a volume strategy, not a profit strategy Lauren Beitelspacher, Marketing professor at Babson College in Massachusetts
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 three per cent of the US market share in groceries, according to Kantar Retail. Walmart is the leader, with a 22 per cent share last year.
And while Amazon is the clear leader in e-commerce, 90 per cent 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 $99-a-year Prime loyalty programme — Hetu said Amazon just needs to be more convenient. —