Home' Trinidad and Tobago Guardian : June 26th 2014 Contents BG28 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt JUNE 2014 • WEEK FOUR
Twenty years ago, when Jeff Bezos left his job
in finance and moved to Seattle to start a new
firm, he rented a house with a garage, because
that was where the likes of Apple and HP had
been born. Although he started selling books,
he called the firm Amazon because a giant
river reflected the scale of his ambitions.
This week the world s leading e-commerce company unveiled
its first smartphone, which Amazon treats less as a commu-
nication device than as an ingenious shopping platform and
a way of gathering data about people in order to make even
more accurate product recommendations.
The smartphone is typical of Amazon. There is the remorse-
less expansion; if you can deliver books and washing machines,
why not a telephone? There is the ability to switch between
the real world of atoms and the digital world of bits: Amazon
has one of the world s most impressive physical-distribution
systems, even as it has branched out into cloud computing,
e-books, video streaming and music downloads. There is the
drive for market share over immediate profits, and there is
the slightly creepy feeling that Amazon knows too much about
its users already.
So far its insatiable appetite has helped consumers. As it
grows in size and power, however, the danger is that it will
go too far.
For the moment, admiration should count for more than
fear. Many things the world now takes for granted were intro-
duced by Bezos. Typing your credit-card number into a Web
browser once was considered a sign of insanity until Amazon
showed how easy and safe buying things online could be. Once
people had bought a book, they tried other things. Today the
global e-commerce market is worth US$1.5 trillion.
Amazon also fostered the emergence of customer reviews.
From the start it let buyers rate and review books. This still
irks some professional critics, and some of the most fulsome
five-star ratings may be from the spouses of authors. Overall,
though, they provide valuable advice to buyers. Today everything
from apps to hotel rooms to garden hoses can be rated online,
and retail Web sites seem incomplete without customer reviews.
Then there are the industries it has upended. Books came
first: Amazon has changed publishing twice, first by making
any book in the world quickly available and then by making
e-books mainstream. Before Amazon launched the Kindle in
2007, e-readers were bug-ridden gadgets that few people used.
The Kindle was easy to use, worked anywhere and allowed
instant delivery straight to the device, rather than via a PC.
Amazon also pioneered a new model for cloud computing.
In 2006 it began renting out computer capacity by the hour.
The option to rent computing power, rather than to buy it,
greatly reduced the cost and complexity of launching a new
company. Since then Amazon s cloud services have been used
by start-ups including Airbnb, Instagram, Netflix, Pinterest
and Spotify, and have spawned a whole new industry.
Apple may be better known as an innovator, but Amazon
may have had an equally big impact on the workings of the
digital world. It keeps on experimenting. Unconstrained by a
self-image as a company that does a particular thing, Amazon
has dabbled in areas from Internet search to robotics to film-
Indeed, if your glasses are particularly rose-tinted, Amazon
seems to have put the "long term" back into Anglo-Saxon
capitalism. At a time when Wall Street is obsessed by quarterly
results and share buybacks, Amazon has made it clear to share-
holders that, given a choice between making a profit and
investing in new areas, it always will choose the latter.
While other technology giants sit on record piles of cash,
Amazon still has plenty of ideas about where to invest and
innovate, and investors seem happy with it: Amazon s price-
to-earnings ratio has exceeded 3,500 at times. It aligns top
executives interests with those of shareholders by paying
them largely in stock: Its highest salary is US$175,000 a year.
The problem is that many of these virtues come with accom-
panying vices. Amazon stands accused of unfair competition,
of being a lousy employer, of dodging taxes and of bullying
Amazon says that median pay in its American warehouses
is 30 per cent higher than in large retail stores. On taxes,
however, the picture is more nuanced. The main reason its
American tax bill is so low is that it does not make profits,
but Amazon also has been extremely aggressive in legally
booking its profits to low-tax countries. Having campaigned
against sales taxes for online transactions for many years, it
lately has changed its tune and now collects sales taxes in a
growing number of American states.
As for bullying competitors, most of this is simply the savage
magic of capitalism. Amazon has crushed local book stores,
but only in the same way that Tesco and Wal-Mart have
crushed grocers: by providing a cheaper, easier way to shop.
However, antitrust regulators must ensure, on a case-by-case
basis, that it is not abusing its market power. For instance,
Amazon s current dispute with Hachette, a large publisher,
may largely be a standard tussle between retailer and supplier.
When the dominant seller of e-books removes pre-order
buttons and makes delivery times longer for Hachette books,
however, that hardly squares with Bezos professed emphasis
on customer service.
Perhaps the biggest concern about Amazon is, paradoxically,
a consequence of its long-term vision. It is hard to compete
with a company whose shareholders do not expect it to make
a profit. Its vast scale and willingness to operate at zero or
negative margins represent high barriers to entry for potential
This cannot go on for ever. The concern is that Amazon
is merely waiting for rivals to go out of business before raising
its prices. If that happens, regulators should jump on it hard.
That would provide an opportunity for another firm---China s
Alibaba, say---and some investors might rue the Amazon earn-
ings that never came.
Consumers would once again win, though, as indeed they
generally have done as Bezos scrappy start-up has expanded
its reach into so many aspects of everyday life.
@2014 The Economist Newspaper Ltd. Distributed by the New
York Times Syndicate
How far can Amazon go?
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