Wednesday, July 24, 2019

Fact: Donald Trump hates Jeff Bezos. Is anything you read and "know" about Inc. true?

Early last year among numerous articles was the one below...

...which, before offering a reprint of an August 2017 article on the subject, explained:

    Yesterday, Amazon's stock fell 4.4%, knocking around $31 billion off the company's value. The possible reason? An Axios report highlighting President Donald Trump's continued desire to "go after Amazon," possibly with anti-trust regulation. The report claims to come from five sources who have discussed the company with him: "he's obsessed with Amazon," said one of them. "Obsessed."

In February 2019 CNN noted: "Trump has long been antagonistic to Bezos publicly. How antagonistic? Very.."

Back in the early period of the 2016 Republican Primaries, there was this  Why is Donald Trump threatening Amazon and Jeff Bezos? which explains that Trump's focus is stimulated by Bezos' ownership of The Washington Post. Of course, it didn't help that in December 2015 Bezos offered to send Trump into space after Trump tweeted an attack on Bezos ownership of the the newspaper.

All of which should make folks skeptical regarding news stories about Amazon. Let's consider some allegations related to popular beliefs about Amazon.

1. Amazon has killed American retail.

Way too many, particularly those in more rural areas, seem to think that the rise of Amazon from its beginning as an online bookstore has killed American retail. Let's consider some numbers.

As the bottom graph indicates, with the exception of the period of The Great Recession of 2008, both ecommerce and retail sales have grown every year in the 20th Century. After factoring out sales of things not usually purchased on the internet such as cars, fuel, etc., ecommerce is 14% of total U.S. retail sales - about 38% of which is handled by Amazon, 58% of which is Amazon merchants' sales. Amazon's own retail sales are 2.2% of U.S. retail sales.

Yes, Inc. last year made a profit of $10+ billion, the highest since it started making a profit which only began in this decade. But it must be made clear that 62% of Amazon's after-tax profit comes from it's AWS cloud computing service. And then there's the advertising revenue. And, yeah, they make money on that ecommerce website.

Appearing to be an insurmountable behemoth in the retail business has its advantages. But the one big disadvantage is that appearing so big makes Amazon a target for every negative result from internet capitalism. Thus Jeff Bezos gets grilled by Congress on privacy issues and the press warns you about Alexa listening. Some worry about it, posting their concerns on Facebook where they post photos and videos of their entire lives for the world to see.

But, no, Amazon didn't kill retail sales - retail sales is holding it own in our economy.

But many exclaim that it just isn't the same as it was in 1959, as the makeup of retail sales has changed over the decades. It's really ironic that there are people in 2019 thinking back 60 years who remember fondly 1959 shopping districts when Macy's first began its national expansion.

Of course they do so without thinking about 1899, an additional 60 years prior. Consider for a moment this Wikipedia discussion of Montgomery Ward:

    Montgomery Ward was founded by Aaron Montgomery Ward and Andrew Ward in 1872. Ward had conceived of the idea of a dry goods mail-order business in Chicago, Illinois, after several years of working as a traveling salesman among rural customers. He observed that rural customers often wanted "city" goods, but their only access to them was through rural retailers who had little competition and did not offer any guarantee of quality. Ward also believed that by eliminating intermediaries, he could cut costs and make a wide variety of goods available to rural customers, who could purchase goods by mail and pick them up at the nearest train station.
    ...He and two partners raised $1,600 and issued their first catalog in August 1872. It consisted of an 8 in × 12 in (20 cm × 30 cm) single-sheet price list, listing 163 items for sale with ordering instructions for which Ward had written the copy. His two partners left the following year, but he continued the struggling business and was joined by his future brother-in-law, George Robinson Thorne.
    In the first few years, the business was not well received by rural retailers. Considering Ward a threat, they sometimes publicly burned his catalog. Despite the opposition, however, the business grew at a fast pace over the next several decades, fueled by demand primarily from rural customers who were inspired by the wide selection of items that were unavailable to them locally. Customers were also inspired by the innovative company policy of "satisfaction guaranteed or your money back", which Ward began in 1875....
    In 1883, the company's catalog, which became popularly known as the "Wish Book", had grown to 240 pages and 10,000 items. In 1896, Wards encountered its first serious competition in the mail order business, when Richard Warren Sears introduced his first general catalog. ...By 1904, the company had expanded such that it mailed three million catalogs, weighing 4 lb (1.8 kg) each, to customers.

2. Amazon treats its employees like slaves.

The year of Amazon's founding in 1998 it had 11 employees. This past year it has over 600,000 employees around the world. In fact, if you look at the graph below, the company appears to have added 600,000 employees in the last 10 years.

If you click on the image above, you can read an article that amplifies the growth story. And yes, in this process of growing, there have been some complaints and concerns about employment conditions and wages. But Amazon attempts to correct problems based on legitimate complaints.

Curiously, there is a tendency to compare Amazon to other tech companies even though the retail arm of Amazon invented no operating systems. Here's how Amazon employment compares to traditionall tech companies regarding providing employment:

Yes, Amazon Web Services (AWS), as well as the ecommerce operation, employs a lot of tech people, probably a number comparable to the number indicated above for Microsoft and Google. Here is a recent report of salaries for such jobs:

But these are not warehouse jobs. And here is where we run into comparison problems. Amazon now pays a minimum of $15 per hour for warehouse jobs. Is that too low? Well, what jobs do you want to compare it to? These jobs require no customer contact skills. But there is a lot of pressure associated with performance as there is on any assembly line job.

Does the ecommerece operation have a large profit margin. Probably not. Does it make a lot of money?

As noted in one article: "With President Trump having recently raised the possibility of antitrust action against Amazon, the true profitability of its retail operations could become a significant issue. (If Amazon is running its e-commerce business at a loss, it could potentially be accused of predatory pricing.)" But in attempting to calculate that "true profitability" the analysis concludes: "If there's one thing that this exercise has shown, it's that any evaluation of Amazon's financial performance involves a lot of interpretation." And what the article points out is: "In 2017, AWS achieved a segment profit of $4.3 billion: more than the entire company's pre-tax profit."

3. Does Inc. represent legitimate Antitrust Issues?

The point here is simple - it is Donald Trump who is threatening antitrust action against Amazon. Does that mean there are economic facts to support the idea? Or is it all political?

Amazon represents 600,000+ jobs, including 500,000+ non-tech jobs. Do we really want Trump messing with that?

Amazon as a merchant that sells 2.2% of all U.S. retail sales. Non-ecommerce U.S. retail sales have made gains in every year of this decade. Amazon is hardly a retail sales monopoly.

On the other hand, regarding the ecommerce sector, Amazon processes about 38% of sales. But about 58% of those are Amazon merchants' sales. Framing this another way, about 22% of ecommerce is handled by an Amazon internet service which competes with eBay which, as a comparable internet service, processes about 6% of ecommerce sales.

Still, as an ecommerce retailer selling stuff from its shelves, Amazon is the merchant with a 16% market share. Still, in terms of all retail sales, that is a 2.2% market share. A monopoly, or at least maybe dominating something? Maybe a 21st Century Montgomery Ward? (And how many Americans today would say "Montgomery who?")

However, sometimes corporations just get too big. Wikipedia notes:

    It is the world's largest e-commerce marketplace, AI assistant provider, and cloud computing platform as measured by revenue and market capitalization. Amazon is the largest Internet company by revenue in the world. It is the second largest private employer in the United States and one of the world's most valuable companies. Amazon is the second largest technology company by revenue.
    The company initially started as an online marketplace for books but later expanded to sell electronics, software, video games, apparel, furniture, food, toys, and jewelry. In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. In 2017, Amazon acquired Whole Foods Market for $13.4 billion, which vastly increased Amazon's presence as a brick-and-mortar retailer. In 2018, Bezos announced that its two-day delivery service, Amazon Prime, had surpassed 100 million subscribers worldwide.
    Amazon distributes downloads and streaming of video, music, audiobook through its Amazon Prime Video, Amazon Music, and Audible subsidiaries. Amazon also has a publishing arm, Amazon Publishing, a film and television studio, Amazon Studios, and a cloud computing subsidiary, Amazon Web Services. It produces consumer electronics including Kindle e-readers, Fire tablets, Fire TV, and Echo devices.

In addition to Amazon Web Services and Whole Foods, the subsidiaries of Inc. include:
Then there is the fact that Amazon's billionaire-founder CEO Jeff Bezos added to his business interests when he founded the aerospace manufacturer and sub-orbital spaceflight services company Blue Origin in 2000 and when in 2013 he bought The Washington Post.

The Washington Post is a money-losing newspaper subsidized by Bezos which is regarded as one of the leading daily American newspapers, under attack by Donald Trump along with The New York Times and other "mainstream" media outlets. The Post has distinguished itself through its political reporting on the workings of the White House, Congress, and other aspects of the U.S. government. Trump hates The Washington Post.

A Blue Origin test flight successfully first reached space in 2015, and the company has plans to begin commercial suborbital human spaceflight in 2019.

The political problem for Bezos is the fact that Inc. created the wealth that permitted him to buy The Post and fund Blue Origin.

Given all of this information, how might it relate to the idea of the goal of antitrust enforcement to promote competition in business?

If it weren't for the fact that Donald Trump is President, this writer might suggest that the Justice Department force to spin off AWS. That would prevent the use of the substantial AWS revenue to fund ecommerce activities, a resource not available to Amazon's ecommerce competitors. And it would seem reasonable to require any future acquisitions by Amazon of other businesses be subject to review and approval by the appropriate federal agencies.

But Donald Trump is President and he has expressed extreme dislike of Jeff Bezos. That's a problem. It is reflected in a headline today Amazon has ‘destroyed the retail industry’ so US should look into its practices, Mnuchin says. Mnuchin's statement is not true.

Yesterday the headline was Watch out, Google, Amazon, and Facebook: the Justice Department just launched a major antitrust review. Be careful Democrats. As economic activities and market space these three corporations have little in common. They just use similar technologies just like auto manufacturers use similar technologies and farmers use similar technologies. Despite all the hype, computing devices and the internet have been around awhile and everyone uses them. In truth, the only thing these corporations have in common is they control a lot of wealth. So do the big banks.

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