a platform for sharing economic thoughts
a platform for sharing economic thoughts
Jinat Jahan Khan, Shahran Hussain
Amazon is considered as one of the Big Four Technology Companies which has a market value of $833 billion and briefly topped $1 trillion last year. It earns $75 billion in annual revenue. It is becoming the most valuable company in the world and one of the most powerful one. Some experts are warning that too much reliance on Amazon will lead it to have complete monopolistic power. Let’s see how it became so big, what factors are making it a monopoly and the working conditions of it.
How Amazon Became This Big:
Amazon was started as an e-commerce selling books by Jeff Bezos. Seeing the reach and power of the World Wide Web, he set up this company which was initially known as Cadabra. His first investors were his parents, and they asked him to explain his business idea. Bezos warned them that there was a 70 percent chance to lose their investment. However, his parents were quite smart to make the right choice. Amazon has come a long way to reach this position. It made its first sale in July 1995. It began trading on NASDAQ under “AMZN”. On that year, Amazon allowed customers to expedite their online experience by introducing one-click shopping.
After getting amazing responses from consumers, it launched its first international sites, Amazon.co.uk (UK) and Amazon.de (Germany) in October 1998. Now, Amazon is serving customers through at least 11 different retail websites across the globe. It has taken some tactful decisions to expand this company more. Like shipping cost can be a deciding factor for a consumer to purchase anything from an online shop. Therefore, Amazon attracted customers by giving super saving shipping offer in August 2002. It lowered its threshold from $100 to $25. It today offers free shipping to those consumers who purchase $35 or more of eligible merchandise. One more incentive to the customers is Amazon’s Prime Service which was first introduced in 2005. In this service, those customers receive free two-day shipping who pay an annual fee.
In 2003, some new categories such as gourmet food, sporting goods, outdoor equipment, health and personal care products were added by this company. And it ultimately made Amazon a super store. It has also a cloud-based suite of business tools called Amazon Web Services (AWS). AWS is a $12-billion business which rents servers, bandwidth and computing power to other companies. Sales at AWS climbed to $7.43 billion from $5.11 billion a year ago. AWS revenue represented 10 percent of Amazon’s total quarterly sales. AWS beat the companies such as Microsoft and Google to the market which use cloud infrastructure to outsource their computing and data storage needs.
Besides delivering products and web services, Amazon launched Amazon Studios in 2010 which develops movies, comics and television shows based on crowd feedback. “Transparent” has been the biggest hit of Amazon Studios.
Why Is Amazon A Monopoly?
Controlling Book Industry:
Today, Amazon controls about 75 percent of online sales of physical books, 65 percent of e-book sales, more than 40 percent of new book sales, and 85 percent of sales by self-published e-book authors. According to economist Paul Krugman, it has a large market share in the entire book business as Standard Oil did in 1911. Because of its dominance in the book industry, publishers are forced to deal with its bullying tactics. Like it delayed the delivery of many popular books from Hachette's imprints in order to get the terms it wanted from the company. Amazon also ask for payments from publishers to promote their books. Big publishers pay five to seven percent of a year's gross sales while small houses sometimes sell their books to Amazon at a 60 percent-plus discount.
Controlling Food and Other Industries:
In 2017, Amazon bought USA's sixth-largest grocery store, Whole Foods Market which led it to participate in $700 billion grocery-store business. To run this new service, Jeff Bezos launched Amazon Fresh and opened several Amazon-branded bodegas in Seattle. Investors now believe that this controlling economic power has led Amazon to stifle competition in the retail sector.
Amazon is also the owner of the web's biggest online shoe store, biggest independent online diaper store, and biggest independent online comic store. In 2016, Amazon sold six times as much as Walmart, Target, Home Depot, Best Buy, Nordstrom, Kohl's, Macy's and Costco did. Amazon also generated about 30 percent of U.S. retail sales growth, offline and online. Its dominance extends far beyond retail. It also lends credit, designs clothing and manufactures hardware. It bought Twitch.com a $1-billion business of e-sports. We know AWS is also operated by Amazon. It's used by many famous and powerful companies, including Netflix, Dropbox, Tumblr, Slack, Pinterest and the federal government.
Using Market Power to Eliminate Competition:
It can be easily observed that Amazon is taking control of one industry after another, and making the country’s economy less diverse and innovative. It's also taking some wicked strategies such as underselling the competition. It is using its financial resources to sell some products below its own cost to eliminate less well-funded competitors. On the other hand, Amazon Prime has left rival manufacturers and retailers with little option but to become third-party sellers on its platform. One more thing, it extracts more fees from suppliers which reduces their ability to develop or invent new products. Meanwhile, it is also expanding its own product lines.
Amazon uses data about customers' buying habits to raise prices. It has even started charging prices, blocking access to certain products, delaying times for customers who don't join its Prime program.
Amazon denies that it is a monopoly. There is a debate among the experts whether it should be called a monopoly or not. Brittain Ladd, an expert in e-commerce, retail, strategies and supply chain management stated that Amazon is not a monopoly according to the official definition of monopoly. According to Merriam-Webster, “A monopoly occurs when complete control of the entire supply of goods or of a service in a certain area or market rests with a single entity.” So amazon can't be called monopoly yet. However, the real cost of a monopoly is not about price. It's also about stifling new business. Amazon is damaging the ability of earning or having freedom as producers. It is stunting job creation and worsening income inequality.
Poor Condition of Amazon Workers:
The work condition inside Amazon warehouses is not satisfying at all. After reviewing 911 calls, the Daily Beast, an American news and opinion website revealed that this tech company's work conditions are so difficult that many workers face physical and mental issues. Some of the workers even want to take their own lives. The workers of Amazon noted that they can't even take bathroom breaks whenever they want. Generally, workers work for 10 hours in Amazon warehouses where there is no window or proper air conditioning. Amazon workers are not allowed to talk or interact with one another in this long period. East African Amazon workers in Minneapolis complained as they are not getting fair religious treatment. They said that this company just allots them two 15-minute break and one 30-minute break which are not enough time for Muslims to pray. They also rallied for this. Amazon workers across Europe have participated on Black Friday 2018 to protest work conditions.
There is no doubt that Amazon is one of the most powerful companies in the world which is becoming a monopoly day by day. However, it is leading customers in a darker future.
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