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  • This is Jeff Bezos.

  • No this is Jeff Bezos.

  • Sorry this is Jeff Bezos.

  • His net worth will soon surpass $150 billion.

  • And this is his home.

  • Amazon.

  • The second company in the world to pass the $1 trillion mark.

  • But did you know that during more than two decades of existence, Amazon has struggled

  • to make any profit?

  • In fact, the company has been regularly operating at a loss, especially on international markets.

  • This is despite its exponentially growing revenue stream peaking at $232 billion for

  • the last year.

  • In the final quarter of 2018, Amazon reported profits of $3 billion with the revenue 24

  • times bigger.

  • And it wasn't until the late success of Amazon Web Services, the world's leading

  • cloud computing service, that Amazon began reporting consistent profits.

  • So what is happening with all this revenue?

  • It has everything to do with the business model of Jeff Bezos.

  • In his own words, Bezos believes in shareholder supremacy, which means everything is justified

  • as long as the share value is growing.

  • The key metric for Bezos is the ability to lock customers in their Amazon ecosystem.

  • Bezos reassures his shareholders that Amazonhas invested and will continue to invest

  • aggressively to expand and leverage their customer base, brand, and infrastructure as

  • they move to establish an enduring franchise”.

  • The revenue growth is the manifest of this very expansion.

  • Amazon absolutely dominates e-commercecontrolling roughly half of all online sales, more than

  • all of their competition combined.

  • In five different categories, Amazon claims more than 90% market share.

  • Jeff Bezos pushed Amazon great lengths to claim this dominance.

  • From undercutting competitors with predatory pricing, through forcing itself into their

  • business, to vertically integrating into strategic markets across the business line, Amazon is

  • on track to gradually take over every aspect of e-commerce and to control and decide what

  • we shop and what is allowed to be sold.

  • One of the first key steps for Jeff Bezos was to lock Amazon's grip on consumers.

  • To lure more customers to stay with Amazon, the company launched Prime membership subscription

  • for a flat annual fee of $79.

  • By offering free two-day delivery and e-book renting along with music and video streaming,

  • about half of Amazon customers have been converted to Prime membership.

  • On paper, this was an immediate success, because on average, Prime members spent more than

  • twice as much as non-Prime customers.

  • But by 2011, estimates showed that the average annual cost of each Prime membership ranked

  • up to $55 in shipping and $35 in streaming.

  • This left Amazon losing about $11 per Prime customer.

  • All in all, Amazon was losing about $1 to $2 billion a year on Prime alone.

  • Not to mention that the expansion of Prime was happening right in the middle of the deepest

  • recession since the Great Depression.

  • But Jeff Bezos managed to persuade shareholders to stick with Amazon and their stock prices

  • went up by almost 300% in two years, when everyone else in retail was failing.

  • So what made Amazon investors so loyal to the company that was losing profit during

  • a heavy recession?

  • It was Amazon's ability to lock down their grip on customers and claim monopoly position

  • on the market.

  • In the words of a former member of Prime development team, “It was never about the $79.

  • It was really about changing people's mentality so they wouldn't shop anywhere else.”

  • And this strategy really succeeded in its mission.

  • When Amazon finally raised the fee to $99 in 2014, 95% of Prime members claimed to stay

  • loyal and renew their subscriptions.

  • Studies found that less than 1% of Amazon Prime customers would consider competitor

  • retail sites during the same shopping session, while non-Prime customers were 8 times more

  • likely to shop between different retailers.

  • Investors back Amazon when it's losing profits, because sacrificing short-term profit for

  • aggressive long-term expansion pays off.

  • Amazon did this with e-books, when it began selling Kindle devices below its manufacturing

  • cost.

  • Like with Prime, the goal of Kindle was to lock book readers in the Amazon ecosystem.

  • Amazon did this with digital rights management, DRM, that locked its e-book formats to Kindle,

  • so they couldn't be read outside of Kindle.

  • With this strategy, Amazon also succeeded in dominating the e-book market, claiming

  • around 83% of e-book sales in the US and the only real competitor left is Apple.

  • Undercutting competition with below-cost prices and locking users in its ecosystem is a classic

  • strategy of predatory monopolization.

  • It gives monopolies opportunities to unfairly raise prices and enjoy the cash flow in a

  • market with only that competition left which they can contain or control.

  • In ideal circumstances, antitrust regulators would have stepped in long before such dominant

  • positions could have been acquired through anti-competitive practices.

  • However, purposefully operating at a loss with the aim to price out competitors is not

  • viewed as an anti-competitive practice on its own under the new anti-monopoly regulatory

  • view in the US.

  • In order for the FTC or the courts to step in, there has to be an intent to raise prices

  • for consumers once the dominance is taken.

  • And this is what Amazon has been extraordinarily clever at hiding.

  • Every new service Amazon rolls out allows them to track user behavior and collect personal

  • and usage data of their customers.

  • Amazon then deploys algorithms to personalize pricing on individual scale, and even goes

  • as far so to use bots to monitor prices of their competition and match them with Amazon

  • prices in real time.

  • This mechanism obfuscates the baseline from which it could be possible to observe price

  • fluctuations and so if there is no body, there is no murder.

  • Obfuscating its true intentions allowed Amazon to vertically integrate into the markets on

  • which its competitors were dependent on.

  • It's not a coincidence Jeff Bezos turned Amazon into a marketing platform, a network

  • for logistics and delivery, a book publisher, a hardware manufacturer, a fashion designer,

  • a film and TV producer, a payment service and a cloud service provider.

  • Every industry domination is a step in the Bezos' plan.

  • Amazon expands to these different markets by either acquiring key businesses or undercutting

  • them with below-cost pricing if they refuse to sell.

  • A company called Quidsi used to be one of the fastest growing e-commerce businesses

  • in the world, overseeing Diapers.com, Soap.com and BeautyBar.com.

  • First, Amazon offered to buy the whole company in 2009.

  • When Quidsi refused, Amazon bots began tracking Diapers.com and cut their own prices for baby

  • products by up to 30%.

  • But unlike Amazon, Quidsi was a new venture and didn't have investors backing their

  • losses while they competed with Amazon's monopolistic ambitions.

  • Amazon then began rolling out subscription services for care takers and significant discounts

  • on diapers, which cost Amazon additional $100 million per quarter.

  • Quidsi was bleeding and had no option but to sell.

  • Both Walmart and Amazon made an offer.

  • When Bezos found out Walmart offered a higher bid, his deputies went to Quidsi founders

  • with threats that Amazon would cut their prices even further if Quidsi sells to Walmart.

  • The FTC investigation found no evidence of anti-competitive behavior, and in 2010 Quidsi

  • sold to Amazon.

  • What happened to the generous offers and discounts on baby products?

  • They were discontinued or significantly reduced.

  • Many users who converted to Amazon from Diapers.com because of those discounts, wanted to go back

  • after they were abruptly scraped.

  • But there was no Diapers.com anymore.

  • Amazon doesn't just compete with their competitors.

  • It forces itself into their business.

  • As a dominant online retailer, Amazon had enough bargaining power to secure discounts

  • of up to 70% on deliveries from fulfillment companies like UPS and FedEx.

  • Amazon then used these discounted deliveries to pack them in its own delivery service called

  • Fulfillment by Amazon.

  • Because Amazon was almost bigger than the whole e-commerce industry combined, UPS and

  • FedEx didn't have enough negotiating power over Amazon.

  • To make up for the excruciating discounts requested by Amazon, UPS and FedEx began hiking

  • their prices to other independent sellers.

  • This created a paradoxAmazon's strategy effectively directed sellers to use Fulfillment

  • by Amazon as it was cheaper than to use UPS and FedEx directly.

  • And now Amazon is investing hundreds of billions of dollars to establish its own physical delivery

  • capacity to completely eliminate reliance on UPS and FedEx and it will succeed in doing

  • so.

  • Controlling e-commerce infrastructure enables Amazon to build a marketplace where it discriminately

  • favors its own products without getting punished for it.

  • As a marketing platform, Amazon opened its door to third party sellers to reach customers

  • in exchange for fees ranging from 6% to 50%.

  • What these third party vendors also unwittingly gave up was the valuable data of their businesses

  • and their customers.

  • Amazon is using this data to study purchasing patterns and trends to undercut third-party

  • merchants on price or give their own products a featured placement.

  • Another benefit none of Amazon's retail competitors enjoy, is Amazon world leadership

  • in cloud computing.

  • Amazon Web Services is on track to control half of the cloud infrastructure market share

  • with Microsoft as the only strong competition currently standing.

  • Many new startups rely on Amazon cloud service to deliver their services without committing

  • to build expensive infrastructure on their own.

  • But this also serves as an ultimate tool of industrial espionage that Amazon can use to

  • learn about new emerging competition to acquire or undercut on price before it endangers its

  • business.

  • It gives Amazon a control over data none of its competitors have, and thus Amazon can

  • enter new markets much more quickly and effectively than any other retailer out there.

  • There is no real competition to Amazon left.

  • There is no company quite like it.

  • Amazon's path to become a global monopoly across different markets isn't just an anomaly.

  • It was Jeff Bezos's intention from the very beginning.

  • Monopolies destroy free markets, and with them the freedom to choose not just as a consumer,

  • but as a small business owner, a worker, an Internet user, and a citizen.

  • The best solution users of the Internet can do right now is to support merchants, authors,

  • developers, entrepreneurs and vendors by purchasing their products directly from them, rather

  • than going through an intermediary like Amazon.

  • Sure, you might be getting a better bargain on Amazon, but the long-term cost of saving

  • few bucks now is unbearable.

  • Decentralizing our economy away from monopolies back to middle class and small businesses

  • is the only sustainable solution and is a responsibility of every individual participating

  • in this economy.

  • The story of Amazon domination isn't unique but rather reflects the nature of the business

  • model that's become a standard in Silicon Valley.

  • It leads towards market domination and monopolization within the hands of the most aggressive corporations.

  • The little convenience of economic centralization comes at the cost of small businesses, middle

  • class jobs, wealth distribution, privacy, free speech and free market as a whole.

  • Should we let Amazon monopolize one market after another?

  • Or should we step in with drastic measures to protect what allowed Amazon to exist in

  • the first place?

  • It's time to have this conversation now.

This is Jeff Bezos.

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Amazonによる独占およびジェフ・ベゾスのビジネスモデルの問題 ( The Amazon monopoly and the problem with Jeff Bezos' business model )

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    up1217home   に公開 2019 年 09 月 08 日
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