Jeff Bezos, Amazon and the Quest for Value

By Aidan Roszak · On August 2, 2017

Graphic beautifully done by Ioana Tabra — inspired by Anna Vital

The American experience has largely been shaped by visionaries’ commercial interests and expansive corporate efforts. From Standard Oil and John D. Rockefeller to the rise of IBM and GE, the corporation has always maintained a consistent presence in the life of the average American.

This unique pattern of entrepreneurship and commercial success has translated into the emergence of the United States as the most influential economic powerhouse the world has ever seen. In turn, America has been capable of pioneering unrivaled economic benefits both stateside and abroad.

Presently, there is no company that embodies the idea of American corporate excellence better than Amazon. While originally gaining traction in the mind of consumers as an intermediary for selling books, Amazon has successfully spun off into a multitude of industries and business lines. The technology giant’s product offerings span from cloud computing services to original content creation, all while becoming a one-stop-shop to connect consumers with an unparalleled array of products.

At the centre of this conglomerate is Jeff Bezos, who has guided the business’ impressive growth for over two decades. Whether it be the company’s long-term focus, management, or diversification, it is difficult to pinpoint any one decision that has directly resulted in the company’s success. However it is clear that Amazon’s unique business model is positioned to persist in elevating quality of life for all.

The benefits that Amazon reaps through its exploitation of marketplace inefficiencies flow directly to the consumers, and its ultra-competitive business practices force incumbents in industry to either adapt or fail. In addition to this relentless attitude employed by the company, Amazon also paradoxically supports many businesses. It has built itself out as an essential infrastructure that allows competitors to reach its vast customer audience. As a result, some of Amazon’s largest competitors may rely on its payment processing services or logistical expertise to deliver their products.

As such, Amazon has been lambasted with negative media perception and calls of anti-competitive business practices. Yet at the helm of Amazon, Bezos has been transparent with his shareholders that the strategy was always to establish scale. It is widely known that he republishes his 1997 letter to shareholders each year, explaining the need for the pursuit of aggressive growth, and continues to hold this as a focal point for Amazon’s operations. The reality is that Jeff Bezos, more so than one such individual in recent history, has been able to leverage Amazon’s business model and approach to industry structure to deliver the most tangible commercial value to the average consumer.

Calls for Anti-Trust

While it is hard to argue Bezos ability to deliver concrete value (in the form of favourable pricing trends for consumers), detractors of Amazon largely focus on two negative aspects regarding the company: its scale and reach, resulting in anti competitive behaviours, as well as its role in massive labour displacement.

Critics primarily point to the variety and scope of its operations, as well as its ability to compete on razor thin margins, as unhealthy competitive practices for a vibrant marketplace. Though there are many examples of Amazon wielding its operational might to pressure competitors in a variety of marketplaces (see Blue Apron ), the reality is that Amazon has yet to engage in anti-competitive practices, given the current definition.

Contemporary antitrust regulation is based on the premise that rational firms seek to prioritize profits while forcing competitors out of business and ultimately erode consumer welfare. By this description, it is nearly impossible to categorize Amazon as engaging in unlawful behaviour.

Amazon’s unique willingness, and the market’s surprising tolerance for mediocre financial results, have allowed for the company to build a proprietary competitive advantage. One commenter aptly describes the seeming contradiction that Amazon inspires within the marketplace - “ Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefits of consumers .” The company has largely focused its efforts on growth rather than profit, yet a shareholder that invested at the IPO has seen nearly unparalleled returns over the same period of time.

Additionally, as previously mentioned, Amazon has cemented its place as crucial e-commerce infrastructure. It may compete ruthlessly with its competitors, however it ultimately contributes to a more transparent and functioning marketplace for the end consumer in terms of pricing and selection. This also ultimately means that Amazon’s top line are somewhat aligned with the health of the marketplace, a unique paradox that contributes to its ability to skirt antitrust regulation.

Labour Displacement

The second focal point for critics of Bezos is his role in massive labour force displacement. Amazon has broken new ground in per unit economic output. Whereas a brick and mortar retailer requires 47 workers for every $10M of revenue, Bezos can achieve this same revenue total with less than a third of the workforce. The blueprint for Amazon’s economic success is rooted in the reduction of inefficiencies, and this is thoroughly applied to labour forces.

In this vein, critics mull over recent acquisitions, such as Whole Foods, and point to increased Amazonian automation and logistics to displace a lot of these legacy jobs. However, these fears align better with broader economic trends that are largely out of Bezos’ hands. From this, detractors angle in on Amazon’s increased implementation of temporary labour practices and their impacts on job security and wage growth, especially in their service centres.

Again, automation and globalization are taking place, regardless of Amazon’s contributions. Robotic interference is threatening nearly all professions, ranging from blue collar employment (where its impacts are felt most thoroughly) to white collar professions, such as law and medicine. Globalization has contributed to the free flow of capital and goods - and the consumer has benefitted again in terms of price point and selection. For better or worse, the economy is more dynamic and less entrenched than it was for generations previous. Open markets have eroded economic value-added over the past 30 + years from everyone from executives to janitors.

The remainder of this economic value - added has flowed to the investor class. Ironically, Bezos has been able to exploit this economic change for the benefit of the consumer, potentially more so than any other titan of industry. By hinging returns on growth rather than returning profits to shareholders, Bezos has been able to access capital to build the largest and most cost-effective logistical system in the world to service his consumer base.

Where critics gain credence is that the negative effects of modern economic models (i.e. concentrated labour displacement) are felt more abruptly by a smaller portion of the population than the greater, aggregate economic surplus enjoyed by the remainder of the consumer class. This goes to say that the economic value Bezos has created align with current societal dilemmas felt across the broader economy and thus, it is an intellectual crutch to pin this phenomenon on a single company or person.

Bezos is unfairly painted as a jobs destroyer, when in reality Amazon will likely be one of the top jobs creators for the foreseeable future. Amazon pledges to create 100,000 full time positions in the United States alone by 2018. In addition, there are estimates that labour allocation away from brick and mortar due to the likes of Amazon are offset positively by employment gains in logistical positions throughout the supply chain. Nearly a net 60,000 jobs were added in the past year.

Consumer Welfare

Evidently, calls for antitrust and labour displacement are founded in faulty logic and lack of nuanced analysis of the Amazonian business model. A closer examination points to Jeff Bezos being instrumental in ushering in a world that has become a paradise for consumers and has allowed mankind to enjoy unparalleled living standards.

Today, the average consumer enjoys greater luxuries and conveniences than the wealthiest did in generations past. Big business’ unadulterated determination to serve the consumer has allowed access to a far greater selection of goods at an increasingly low cost. This process is the crux of the market system, and Jeff Bezos serves as the poster boy of consumer service.

In Bezos’ quest to serve the consumer, he has displaced and overtaken many incumbents, either through organic competition or acquisition. This is perhaps most aptly outlined with the examples of Diapers.com and the June 2017 acquisition of Whole Foods . Diapers.com was an e-commerce website for children’s products. After refuting Amazon’s offers to purchase the company, Bezos simply produced a better, more affordable offering for consumers and drove Diapers into bankruptcy, ultimately exposing a faulty business model in favour of a more efficient process.

In turn, the Whole Foods acquisition highlights Amazon’s unique ability to effectively serve the consumer and place additional (and consumer friendly) pressure on incumbents. Amazon’s operational knowhow and zero-profit pricing model will force Whole Foods prices to fall substantially. In other words, Whole Foods will likely become the grocery equivalent of a “Mercedes for the price of a Toyota.” The industry will now be forced to combat with Amazon’s uniquely powerful business model, a reality they did not have to consider mere months ago. The ultimate consequence will be a better service for consumers at a lower aggregate cost, as is shown time and time again in Amazon’s history.

Bezos is the epitome of a forward thinker, and the consumer class benefits from it. He realizes that his Amazon users are only loyal up to the second that a service offers a better service, and drives his organization forward to ensure continual and growing use. Prime membership is matching the average voter turnout in the United States, and arguably prime members receive greater value with their capitalistic choice than their democratic one.

Critics also gloss over the economic reality of a technologically-based company. Bezos employs upwards of 340,000 employees - more than both Google and Microsoft combined. A plethora of businesses use his cloud computing services, and he has established an employment ecosystem which has resulted in countless jobs.

It is easy and somewhat lazy to criticize both Bezos and Amazon, a man and a company that are public-facing and easily susceptible to controversy by those who care enough to criticize their practices, but not enough to gain a fundamental understanding of their methods. When pressed on why, detractors often fumble to explain how a company that has so clearly delivered enormous benefits to consumers - not to mention revolutionized commerce in general - could ultimately damage society. In trying to reason through the contradiction, one journalist commented that critics’ viewpoint appears to be that “even though Amazon’s activities tend to reduce book prices, which is considered good for consumers, they ultimately hurt consumers.”