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I Disagree Professor, Amazon Is NOT Antitrust8 min read

Amazon has found its way to market headlines yet again in 2021. This time it’s a relatively small surprise, Jeff Bezos is stepping down as CEO, effective later this year. I trust you did not believe that any human, even Jeff Bezos, could run a space exploration organization, build the world’s most profitable company from scratch, and own the Washington Post all at the same time indefinitely. After his resignation, Bezos will stay with the firm as executive chairman of the board. Andy Jassy, who was formerly head of Amazon Web Services (AWS), the massively successful cloud services platform offered by Amazon, will take over as CEO of the company. 

Jassy has quite the challenge ahead of him. Although Amazon is coming off its highest quarterly revenue ever, politicians on both the federal and state level, in addition to many academics, continue to claim Amazon has violated antitrust laws and engaged in monopolistic behavior.

Make no mistake, Amazon is huge. In 2019, in the e-commerce sector, Amazon represented approximately 40% of the entire market. The next largest player was Walmart, at a mere 5.80%. Additionally, Amazon accounted for more than half—57.4%—of e-commerce growth and nearly a third—32.7%—of total retail gains through all modes of sales in 2019. 

All of this alludes to Amazon’s emergence as the dominant force in the consumer retail industry, but does this make it an illegal monopoly? Surely, the two are not one in the same? 

From a philosophical standpoint, I tend to frame anti-trust/monopoly territory from a free market perspective. Forgive my capitalism. So, let’s answer the question of whether Amazon is an antitrust by asking another question:

Can the market compete, or at least, reasonably compete with Amazon’s market power on it’s own, without regulation? 

In my humble opinion, the answer is yes, and the answer is Shopify

If you are not familiar with Shopify, I can almost guarantee in the past year you have purchased from some retailer that utilizes their platform. From a broad standpoint, Shopify offers online retailers a range of services including payments, marketing, and shipping. From a capitalist’s standpoint, Shopify is the market’s natural solution to Amazon. If a business has a product and feels alienated by Amazon for whatever reason and complains it is now incapable of accessing the e-commerce market, Shopify enables it to do so. And better yet, direct to consumer.

I recently saw an interview with NYU’s own Scott Galloway on DCN, speaking about how Amazon has dominated the retail market over the last 5 years. Part of his reasoning, as I understand it, was that the major players in retail outside of Amazon – think Home Depot, Walmart, BestBuy, etc. – have only added about $80-$120B in market capitalization over the last 5 years, while Amazon has added over $550B over the same period. According to Professor Galloway, the market is saturated by Amazon, and no one else has air to breathe (sell), not even large market players.

What I believe Professor Galloway omitted (to be fair, the interview is from January 2020) is the emergence of smaller retailers selling directly to the consumer via Shopify. A retailer does not have to go public in order to be successful, but we can still use Shopify (a public company) to extrapolate that some of its revenue comes from small businesses. Shopify reports that, as of January 2021, it has more than 1,000,000 businesses in approximately 175 countries using its platform. Moreover, according to its annual reporting, the total value of orders processed on the Shopify platform exceeded $61B for the 2019 calendar year. Take note, this is not even last year – the year of Covid – and the biggest year yet for e-commerce. 

Looking to the future, we can also utilize capital markets to see if investors believe Shopify’s model is indeed profitable, and able to withstand Amazon in the future. Last year, the company stock soared over 300% to a total market capitalization of $150B. To give you an idea of how large this is on a relative basis, BestBuy has a total market capitalization of $30B. 

So given that smaller retailers do have an effective natural market alternative to Amazon to penetrate the e-commerce market, what else could be considered an antitrust? Some have claimed that Amazon’s advertising and marketing practices of listing its proprietary and often cheaper product line, AmazonBasics, ahead of competitor branded products and suppliers is an example of antitrust. Amazon sells branded supplies below their own cheaper alternatives- Hey, that’s not fair! 

Forgive my brevity, but my response to this is:

And? So what? You think no one else does this? 

Think of the last time you went to your friendly neighborhood drugstore – Riteaid, CVS, Walgreens, Duane Reade, etc. It’s winter now, there’s a snowpocalypse outside. The wind is blowing all the beautiful city trash around, ruining the transient urban ivory bliss. The wind is not only sabotaging your view, it’s constantly and painfully reminding you how horribly cracked your lips are, even with a mask on (hopefully, you are wearing one, you degenerate citizen). You stroll into the drug store and look for chapstick but are inundated with unbranded CVS alternatives in basically the same packaging, the same flavor, and the same size. You can only identify two differences: the price is cheaper and the visibility is higher. 

Why can CVS, Walgreens, and other retailers do this liberally and continuously for years without question but when Amazon does it, we cry antitrust? What makes them different? I’d be entertained to hear the philosophical difference between physical and digital “shelf space” but in the end, it wouldn’t make a difference. Would it? 

Walgreens is an interesting example. Did you know that in 2017, Walgreens was the 3rd largest retailer in the entire world at $131.50B? Where do you think Amazon ranked? Yes, I will tell you that they had $177.86B in annual sales that same year. And No, that is not number one in the world, by a longshot. According to 2017 revenue, Walmart is the largest retailer in the world at $500.34B.

Let’s remove the potential for outdated data and look more recently. Walmart was still the biggest retailer in 2020, with annual revenues of $525B. Amazon’s revenue, and to be clear this also includes AWS (which is not retail), was markedly less at ~$385B. Why would we regulate Amazon for being too large when they aren’t even the largest retailer in the world…by about ~$140B? Please indulge me. Let’s further compare the two. 

Amazon raised its minimum wage for warehouse workers to $15 an hour in 2018 and also offers regular benefits and 401ks to all its employees (to be fair, they also stopped the stock sharing option with warehouse workers when the hourly wage was increased). 

Walmart also increased its pay for its employees to a minimum of $15/hr, but not until September 2020, after the pandemic had been wreaking havoc on retail for 6 months, and Walmart was one of the only places one could buy essential goods. You could make the argument that we may not have seen this wage increase if Walmart had not been considered an essential business or realized the increased revenues related to Covid. Amazon, on the other hand, did this about 3 years ago. 

For the sake of completeness, given the quantitative arguments presented thus far, let’s conclude with qualitative reasoning. Certain politicians want Amazon, a company that is not the largest player in total retail, to be considered a monopoly. Meanwhile, Walmart is the leader in the industry, has been for years and continues to be, and likely treats its employees worse than Amazon. Yet Walmart can remain unscathed because Amazon is the bad guy- because some politician says so? Hasn’t Walmart been invariably crushing its supplier’s prices and volume for decades “for the sake of the consumer?” I am not claiming these practices are inherently innocent. I’m arguing that if it is ok for one entity to do this then it has to be for all. Maybe there is an existential change in morality when we purchase things online or in person? I don’t know. 

Lastly, one of the best things I think about Jeff Bezos is that he is Jeff Bezos. What I mean by this is that when Bezos created Amazon, his previous employers probably thought he was too ambitious or too much of a dreamer, but he had a vision and wanted to reach for it. He wouldn’t let other people’s opinions influence him. An online bookstore company? What is that worth? Yet he grew his company the first few years, was ridiculed for whether it was a pure “internet” company or not, and whether it could create real long term value. Remember the infamous 1999 interview? When Bezos showed he could create a real revenue generator with future growth, he was again ridiculed for not distributing those profits as dividends, for not seeking to cut costs everywhere he could, and for reinvesting too much into the business, as proclaimed by wall street analysts. Yet he persisted. He had a vision. He understood scale and real long term value, which is more than any financial statement ratio. And look at what he accomplished. 

How do we, as a society that proclaims to be a champion of entrepreneurship, wish to reward such individuals, who build businesses with long term vision and who won’t deter their plan because some Wall Street analyst says you can make 5% more profits next year by doing this instead? I say this, reluctantly as a finance professional, but also as a person who respects Jeff Bezos for his conviction and blatant superiority in his ability to execute. What is the message we want to give young entrepreneurs?

Don’t be too good at what you do because then we will want to take it away from you?  

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