Wednesday, August 2, 2017

(The Big Disrupt) Amazon: Is Amazon about to be broken up?

It's long been held that the first rule of business is that " the customer is always right" but of late the first rule of business looks like it needs a reappraisal that sounds something like "don't fuck with Amazon" 

with Amazon virtually sabotaging meal kit company Blue Apron IPO coming out party and wiping billions off the market caps off big box retailers with a few well-placed press releases, there has been a lot of talk that Amazon is becoming too powerful to exist in its current state which has led to predictions that the Seattle based behemoth may be broken up. 

Predictions of amazon's fractured future looks ominous as it even begins to make significant inroads on fellow giants Facebook, Google, and Apple (often described as the four horsemen) in key markets particularly cloud and voice where Amazon is beating them. Amazon is even threatening the Google and Facebook ad duopoly with  ad agency WPP and L'Oreal upping their ad spend on the platform as Amazon is quickly becoming the venue where consumers are searching and buying products on the net.  

However, the nature of US antitrust law means Amazon's dominance will largely go unchallenged as unlike the European antitrust tradition, US anti-trust law are geared towards protecting consumers rather than seller or producers from dominant firms who exercise their market power unfairly. 

However, this hasn't stopped Amazon running afoul of the Federal Trade Commission (FTC) which is currently under intense pressure to review Amazon game changing acquisition of high end grocer Whole Foods for just under $14 billion dollars. Whether the FTC succumbs to the pressure or not, it's hard to see what the FTC can do to stop or stall the acquisition given both companies represent a near negligible portion of the massive $700 billion grocery market and with Amazon almost certainly planning to lower Whole Foods notoriously high prices, the FTC have no real grounds to nip the acquisition in the bud. 

But the FTC, as Cleveland State University Law professor Chris Sagers pointed out in an article he wrote for Slate, can probe whether Amazon's dominance in is stifling innovation. Indeed, the FTC could have a field day probing the four horsemen on the grounds of stifling innovation as for all the idealistic rhetoric that comes out of Silicon Valley about disruptive innovation, it has suddenly become very dangerous for budding startups to even mildly challenge the four horsemen dominance, Amazon and Facebook in particular.  

Just ask Blue Apron, who at the time of writing are still trading below their IPO price and Snapchat who are hovering just above it how much it sucks going up against a company that can shamelessly copy your most innovative features or launch their own version of your service sending your stock in a tail spin because they have the reach, cash, and customer base to drive you and your direct competitors out of business before you've even started. 

Even successful and well-run companies such as Spotify and Netflix are feeling the heat of horsemen Apple and Amazon breathing down their necks forcing them spend more and more on content and attracting new customers like they're new players in the marketplace despite being market leaders by some distance.  It's now gotten to a point where startups are finding it hard to even compete without dealing with the four horsemen as they have by far the largest business ecosystems which means startups have often to compete against each other and the four horsemen while becoming part their large business ecosystems. 

The same thing is happening to companies that aren't even part of tech world such as CPG brands who increasingly have to do business with Amazon whether they like it or not even as Amazon embraces private label brands and takes a commanding lead in voice which poses a threat to the idea of brands altogether. We've seen similar relationships develop between publishers and the Google/ Facebook duopoly where publishers are increasingly being pulled into the orbit of Google and Facebook ecosystems just to get revenue they already lost to the duopoly in the open market. 

In sum, whoever Trump decides to lead U.S. competition policy will have tough time bringing a strong case against the four horsemen, particularly Amazon despite their dominance.  

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