How is Amazon evolving into a monopoly?
With Amazon’s stock splurging more than 42,000% since its initial public offering 20 years ago as well as its dominance in various markets, it is not far-fetched to predict that the e-commerce giant can evolve into a world-changing monopoly that will either change the economy for the better— or the worse.
While initially starting out as a modest online book retailer in 1995, currently, Amazon’s e-commerce platform sells nearly anything you could ever want or need, from sporting goods to clothing. One might think that Amazon is comparable to an online Walmart, but it is precisely twice as big in comparison. Amazon took 18 years to catch up to Walmart’s market capitalization, and then another 2 years to double that value! The e-commerce giant currently has a market cap of $465 billion, compared to $229 billion for Walmart. It has managed to capture nearly half of all internet retail sales in the United States, meaning it has significant power to manipulate the online retail market in its favor.
The fact of the matter is though, Amazon isn’t just an e-commerce business anymore. It is much more than that. It is a cloud computing provider to clients such as Netflix and the CIA, the world’s largest logistics and marketing platform, a rising apparel retailer, an award-winning movie producer, a food delivery service, and last month’s $13.7 billion acquisition of Whole Foods has now made it a grocery producer!
With the company constantly innovating and investing in projects such as register-free grocery shopping, drone delivery, and solar farms to power its cloud, it doesn’t seem crazy to envision a future where 99% of our lives are reliant on Amazon. Imagine a scenario waking up on an Amazon-brand bed, drinking freshly-squeezed orange juice delivered from Amazon Fresh, and going to work in a driverless, Amazon car. Silicon Valley’s dream could now become a reality.
“It’s interesting that a lot of people think of Amazon just as a retailer because that’s how so many people interact with the company … but really it’s increasingly this multi-headed beast” -LaVecchia
So, the real question is: How has Amazon managed to accomplish all this in such a short period of time? The true answer lies in its marketing strategy. Amazon understands consumer behavior much more than other companies do; in fact, it has such a dominant position that it is able to influence consumers’ tastes and preferences. In the apparel market, Amazon takes advantage of Prime by offering perks such as free shipping, as well as the added convenience of trying out clothing at home rather than a store.
In today’s modern age, few customers enjoy trying out clothes in-store because of the poor quality experience. This inability to provide superior customer experience has partly led to the liquidation and bankruptcy of fashion retailers such as Aeropostale, Payless, and Sports Authority. While other retailers continue to fail to understand their customers and what they want, Amazon is one step ahead of the game and they are able to use this to their advantage.
The hidden consequences of the evolution of Amazon
With Amazon’s expanding market share in a variety of industries, there is extreme fear and pressure by other, large corporations to compete. Even with a relatively low profit-margin business, Amazon is able to aggressively cut prices, simply because they can afford to do so. Retailers like Walmart will then try to cut prices as well, and the cycle continues until Amazon’s competitors are slowly wiped out, one by one. If not wiped out, Amazon will just buy them! Not only does this allow the company to gain access to new markets, supply chains, and consumer data, but it will prevent other small businesses from entering the market because they can’t compete. Just take a look at meal delivery company Blue Apron, whose stock plummeted after hearing the news that Amazon will enter the meal-kit business.
Amazon is a high volume, low-profit business— well, for now. It is willing to operate at very low-profit margins knowing that its shareholders do not expect it to make a profit. Quite frankly, it is waiting for the day that all its competitors are wiped out so it can start charging higher prices. Luckily, the power of monopoly is not exactly legal. If Amazon suddenly raises its prices, regulators will not tolerate this and will ensure that the company is operating in accordance with the law.
You may ask, aren’t there antitrust laws that prevent excessive price cutting from happening? Well, not exactly. Regulations have eased in the United States because of pressures to keep prices low for consumers. This is simply the reality of capitalism—there is a trade-off between consumers’ preferences and excessive competition. Capitalism is not all to blame, however. Businesses need to be creative and learn to adapt to the market; they need to change their strategies and dive into consumers’ minds.
If they don’t, Amazon will. And Amazon isn’t stopping for anyone.