Is the Amazon model sustainable?
My column in Expansión, Spain’s leading financial daily, this week is called “Is Amazon sustainable?” and explores the e-commerce giant’s growth from selling books to just about every kind of product and service.
The company’s competitive advantage is based on its incredible usability, a recommendation system that generates an important part of its sales (a large number of Amazon sales are items that buyers were not originally looking for), tight margins that allow it to offer enormously competitive prices, and a very carefully managed logistics system that now allows it, in some cities, to offer same-day delivery.
Aside from its efficiency, the company is backed by investors whose faith seems absolute, and who have kept the company’s share value on the rise despite its financial results: whether it makes or loses money, Amazon shares have continued to provide value for those who bought on the day it went public.
That said, the company faces growing problems with its workforce. In Seattle, it seems everybody wants to work for Amazon and the company has no problems. But in some other places, for example Germany, where there have been strikes, or the United Kingdom, where there have been accusations of poor working conditions, along with the use of security guards that have behaved like paramilitaries to maintain discipline… it would appear that not all is sweetness and light within a company that is increasingly feared by its competitors. If you are involved in any kind of commerce, you will be sleeping badly at night, worried about when Amazon is going to start selling the same products as you, but much cheaper, and based on a more aggressive and dynamic approach that you cannot compete with.
Here’s the full article:
Is Amazon sustainable?
If one company is able to instill fear into businesses around the world, whether they are online or still selling through retail outlets, that company is Amazon. Since its creation in 1994 by Jeff Bezos, who considered himself a late starter to the internet, it has grown and grown, and diversified: it sells everything, and has an incredible recommendation system, fantastic logistics, and unbeatable prices.
The company started out selling books, for which there remains universal demand. It did so at low prices and offered a wide range of titles. After killing off Borders, which closed in 2011, and licking Barnes&Noble, which is in serious difficult, it extended its activities to selling just about anything: jewelry, art, garden furniture, consumer electronics, shoes… or online services such as storage, broadband, or computing capacity. It does everything, and it does it well, it seems.
Aside from that, the company has an ace up its sleeve: it doesn’t need to make money. Its actions are far and away among those that have best held their value since it went public, despite its occasional poor results. The market has granted it a kind of supreme authority, driving its competitors crazy as they try to compete with a company that seemingly has no need to make a profit to continue funding its growth.
That said, the company has been to experience problems, particularly in Europe. Labor unions have complained about working conditions in the United Kingdom and Germany, and there have even been strikes over alleged poor working conditions, quasi paramilitary regimes, intolerable stress levels, and any number of unhappy former employees. All economic miracles have their other side. The question we need to ask therefore is whether Amazon can continue its ascent, and if so, at what cost?
