아마존의 번영, 대재앙
A Catastrophe : the Prosperity of Amazon
Amazon is growing tremendously. Their total market value is almost twice that of Samsung’s, and 5 times the market value of McDonald’s’. The way Amazon grows its brand is reminiscent of colonial expansion. They have established the kingdom of Amazon by investing in lots of industries, such as delivery, fulfillment, and payment. All these colonies cooperate with each other and this interaction make their services more valuable, competitive, or less expensive as usage increases.
< Amazon’s Virtuous Cycle>According to Amazon’s virtuous cycle, the growth of the company results in reduced cost structure and increased customer benefits. However, this theory becomes less logically cohesive when all competitors have disappeared. Amazon uses a predator strategy that eliminates all competitors from the market by maximizing efficiency. In this case, one might ask ‘how does a lower cost structure guarantee a lower consumer price? How can we trust them to do their best to provide the best customers experience?’ I will explain two possible reasons why this predator can be a disaster for all of us, as consumers and as service providers.
Consumers in the Amazon kingdom become blind. Amazon approaches the consumer with the lowest price policy and delivers a level of service that no competitor can offer. The reason they can provide this level of service is that they make almost no net profit. In fact, if you look at the data comparing their sales and net income over the last 5 years, you can see how they have absorbed a huge amount of consumers into their kingdom. Amazon generated sales of $ 116,860 million and a net income of $ 1,207 million on average (the net income margin is 1.03%). Apple. Inc showed $206,459 million, $44,796, and 21.7% comparatively in the same period. This shows how much Amazon returns their earnings margins to their customers. They are running a business that barely leaves a margin for profit. Under these conditions, there is no reason for customers not to use Amazon.
< Amazon’s financial report >The real problem begins now. The predator who does not consider net profits so much as it considers the goal of forcing its competitors bankruptcy is bound to create a monopoly which can be exploited by Amazon. In a monopolistic situation, Amazon can manipulate products’ or service’s prices at will to maximize the interest of shareholders. Since there is no longer a comparable price in the market, any no customer can judge whether the manipulated price is appropriate or not. Despite this situation, no competitor is able to enter the market again, due to the entry barriers that Amazon has set. In other words, the free competitive market will completely collapsed, and consumers will be placed in a situation where their purchasing power is limited.
Providers in the Amazon kingdom become slaves. Amazon has the authority to control buyers to discover specific providers’ products in their platform. They run A9, a search engine that determines the order in which sellers are exposed. In order to be selected by A9, sellers must understand how A9 operates, and follow its guidelines. Following these detailed guidelines includes micromanaging the size of the image, the appropriate keywords, and the amount of information to be included in each advert or product article. Individual sellers lose their personality and creativity in their business and the original strategy approaching the customer disappears. They become merchants optimized for Amazon first, rather than optimized for their real customers.
< First screen when searching for hockey sticks on Amazon >In addition, there are a lot of things to do to be an allegiant slave of Amazon. Unless sellers pay additional advertising costs to the Amazon kingdom, they can never expose a product to the top. Only by buying Amazon’s advertising products, can sellers place products in the first slot. Its billing method is PPC(Pay Per Click), which means that regardless of whether the customer buys the merchandise or not, Amazon charges advertising costs every time a click occurs. Furthermore, every time the sellers’ items are sold, Amazon collects a certain amount paid by buyers. All of these costs were originally budgeted for marketing and promotions. For these reasons, as consumers are blinded by Amazon’s monopoly, the seller has no other choice but to devote a significant portion of their budget to Amazon's usage and advertising costs.
For the reasons mentioned above, it is most important to take preemptive action. Many consumers have already lost the right to compare and choose products, and sellers are losing their right to focus on the real consumers. In this way, our market ecosystem will completely collapse soon. Once it has collapsed, it will not be easy to re-establish. The size of the misfortune may be enormous. Thus, we need goodwill intervention by the government. It seems that the American judiciary already knows how to stop them running alone. There is a clue to solve the monopolizing problems in the federal constitution; Every person who attempts to monopolize any part of the commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. We must diagnose clearly whether Amazon violated anti-trust laws or not, and if so, take appropriate actions to limit the spread of their monopoly. Let us defend the benefits of free competition.
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[2]“Amazon Flywheel”. Sam Seely. May 2, 2016.
[3]“Selected Consolidated Financial Data, Annual Report 2017”(p.18). Amazon Investor Relations. April 18, 2018.
[4] “Selected Financial Data, 10-K Annual Report 2017”(p.21). Apple Investor Relations. April, 2018.
[5] “A9, What we do”. A9.com. May 1, 2018.
[6] “Amazon SEO guide: How to Get Found On Amazon”. Bryan Wescoe. March 2, 2018.
[7] “Advertise on Amazon, How it works”. Amazon Services. May 1, 2018.
[8] “Advertise on Amazon, Selling Fees”. Amazon Services. May 1, 2018.
[9] “15 U.S. Code § 2 - Monopolizing trade a felony; penalty”. Cornell Law School. 2008.
