Business Amazon. The problems that lie in wait for...

Amazon. The problems that lie in wait for one of the most valuable companies in the world


In the summer of 1995 Jeff Bezos was an obsessive skinny guy who worked in a basement with his wife, packing softcover books in cardboard boxes. Today, after 25 years, he is perhaps the most important magnate of the 21st century: a muscular divorcee who finances space and daily missions for fun and who receives flattery from Warren Buffett and insults from Donald Trump. His firm Amazon is no longer just a book seller but a $ 1.3 trillion digital conglomerate that consumers love, politicians love to hate, and that investors and rivals have learned never to gamble against him.

Now the pandemic has fueled a digital boom that shows how important Amazon is to daily life in the United States and Europe, due to its crucial role in e-commerce, logistics, and cloud computing. In response to the crisis, Bezosha cast aside her secondary interests and returned to everyday driving. At first glance it couldn’t be a better time, but the firm that is the fourth most valuable in the world faces problems: a fraying social contract, financial swelling and re-energized competition.

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The digital boom began in the pandemic with the rush to fill the cupboard with online wholesale orders for toilet paper and pasta. First quarter Amazon sales increased 26% year-over-year. When the stimulus checks arrived in mid-April, Americans pounced on a larger variety of products. Two rivals eBay and Costco say online activity accelerated in May. There have been difficulties in responding to demand, with Bezos doing daily inventory checks once again. Amazon has hired 175,000 new workers, outfitted its people with 34 million gloves and leased 12 new cargo aircraft, bringing its fleet to a total of 82 units. The rise of e-commerce is underpinned by a cloud computing infrastructure and payment systems. Amazon also owns a portion of that, through AWS, its cloud arm, which saw a 33% increase in sales in the first quarter.

A question is whether the digital boom will reverse. There are stores that reopen, even if customers have to pay in outlets protected by plastic panels. But there are signs that part of the boom will be lasting, because it has involved not just the same people doing the same thing. A new cohort has been launched to buy online. In the United States, “silver” customers over 60 years old have created digital payment accounts. Many physical retail chains have suffered fatal damage. Dozens have fallen into default or are on the verge of it, including J. Crew and Neiman Marcus. In the last year, the shares of deposit firms, which thrive on electronic commerce, have performed better than companies that own commerce centers, surpassing them by 48 percentage points.

All of this seems to fit the script that Bezos has written over the years in his letters to shareholders, which are now studied by investors as meticulously as Buffett’s. He maintains that Amazon is in a perpetual virtuous circle in which it spends money to gain market share and expand to adjacent sectors. From books, he leaped to e-commerce, then opened his cloud and logistics programs to third parties, turning them into vast new businesses in their own right. Customers are kept loyal with benefits such as Prime, a subscription service, and Alexa, a voice assistant. According to this point of view, the new digital boom confirms the inexorable rise of Amazon. That’s what you think on Wall Street, where Amazon shares hit their highest point of all time on June 17.

But from his ranch in West Texas, Bezos has to deal with difficult problems. Starting with the fraying social contract. Some common criticism of Amazon is simply wrong. Unlike Google in search, it is not a monopoly. Last year, Amazon had a 40% share of U.S. e-commerce and 6% of all retail sales. There is little evidence that it reduces employment. “Amazon effect” studies suggest new warehouse and delivery jobs offset the decline in store employees and the firm’s hourly minimum wage is $ 15 in the United States and above the industry average commercial.

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But Amazon’s strategy involves a great creative disruption in the labor market at a time when the economy is shaking. In addition, viral outbreaks in its warehouses have sparked new fears regarding working conditions: 13 US state prosecutors have expressed concern. And Amazon’s role in a multitude of digital sectors creates conflicts of interest. For example, does your platform treat third parties on an equal footing with your own products? Congress and the EU are investigating this. And to what extent should other firms feel comfortable giving their sensitive data to AWS, considering that it is part of a larger conglomerate that competes with them?

Amazon’s second problem is bloating. Bezos has expanded into sector after sector, his firm has shifted from asset adjustment to a heavier balance sheet than a Soviet tractor factory. Today it has a plant worth US $ 104 billion, including leased assets, which is not far from the US $ 119 billion of its rival in the old economy, Walmart. As a result, earnings excluding those of AWS are very low and the pandemic is reducing margins in e-commerce even further. Bezos says the firm can become more than the sum of its parts by harvesting data and selling advertising and subscriptions. So far investors have accepted this. But the low margins of e-commerce make it difficult for Amazon to separate AWS. This would end the harassment of regulators and free AWS, but would deprive Amazon of the money-generating machine that finances everything else.

Bezos’ last concern is competition. It has long said that it is attentive to customers, not competitors, but must have warned that its rivals have been energized by the pandemic. Walmart, Target and Costco digital sales likely doubled or more in April, comparing year-over-year. Independent digital firms are thriving. If a clone of Amazon-like companies including Shopify, Netflix and UPS were created on the exchange, it would have outperformed Amazon this year. In much of the world, regional competitors reign, not Amazon; Among them are MercadoLibre in Latin America, Jio in India and Shopee in Southeast Asia. China is dominated by Alibaba,, and bold new contenders like Pinduoduo.

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Thus, the world’s most admired company is forced to solve several puzzles. If Amazon raises wages to placate politicians in a populist era, it will lose its low-cost advantage. If you separate AWS as a stand-alone film to appease regulators, what remains will be financially fragile. And if you raise prices to satisfy shareholders, your new competitors will gain market share. After 25 years, Bezos’ vision of a world that buys, watches and reads online is becoming reality faster than ever. But the job of driving to Amazon hasn’t gotten easier, even if it’s no longer about packing cardboard boxes.

Gabriel Zadunaisky Translation


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