Jeff Bezos’s business genius could be Amazon’s downfall

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Is Amazon becoming consumed by its desire to own the world?

Deep in the Fortune magazine archives from 1999 lives one of business journalism’s most prophetic headlines: Amazon vs. Everybody. Nearly two decades later, it looks like “everybody” barely stands a chance.

Morgan Stanley believes Amazon has a path to be worth $1 trillion by late 2018, making it the clubhouse favorite to be the world’s first trillion-dollar company. The company’s market capitalization already doubles Walmart and exceeds the GDP of nations such as South Africa, Austria and Thailand. With $100B to this name, Jeff Bezos personally is worth more than 129 countries.

After announcing Q3 earnings, Amazon’s value increased $60B in one day, enough to buy Macy’s 10 times. In a few minutes, Bezos made more money than Foot Locker makes in an entire year.

While Amazon has enjoyed some cozy legal advantages,the company’s success is due almost entirely to a maniacal focus on their vision:

“Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.

At every key inflection point in the company’s history, Amazon’s obsession with doing right by the customer has helped it prevail. Amazon Prime makes our lives fundamentally easier, placing time back in our days previously lost to mundane chores and petty inconvenience.

As a result, the public has maintained a steadfastly positive view of Amazon and all its associated properties.  Amazon has been able to avoid the vampire Goliath image that consumed Walmart in the 1990s and is beginning to nip at the heels of Facebook and Google. For all of Amazon’s advantages over traditional retailers, its most powerful competitive edge is its brand and public reputation. It’s the evil empire that nobody seems to hate; a Leviathan that is welcomed by the masses.

For years, nearly every Amazon acquisition and entry into new markets from CPG to cloud computing was a net positive from the user perspective. Amazon would inject its operational mastery to solve market inefficiencies, ultimately helping consumers get a quality product at a lower price.

Along the way, some of the brand’s Machiavellian tactics have been met with little market backlash. Few buyers care that Amazon has a penchant for using its economy of scale to crush erstwhile upstarts into submission. A potential PR scandal arising from a New York Times story about harsh working conditions at Amazon HQ caused little more than a fleeting ruckus.  

But as Bezos’ biceps have grown, so too has the scale of his ambition and determination to vanquish all competitors. And sadly, it appears that recent acquisitions have been driven more by pride and a desire to win than an effort to deliver real value.

Take Amazon’s announcement that it was filing for a meal-kit trademark, which sans any additional context sent Blue Apron shares immediately tumbling by 19%! Unlike many of the industries Amazon has disrupted, there is minimal consumer demand for a new player to enter the market. With Blue Apron, HelloFresh, Plated and others sparring, the industry is almost a case study in perfect competition. Prices have been depressed close to as low as they can go and consumers already have a banquet of options.

By virtue of their brand equity and the resources they can ostensibly throw at meal-kit delivery, Amazon CAN certainly beat Blue Apron. But to what end? Why is Amazon choosing to dive into an already saturated space with notoriously awful unit economics?

To this point, betting against Amazon has been the ultimate fool’s errand. As the head of content at an eCommerce technology company, I consistently talk to companies of all sizes that are terrified of what Amazon can do to them simply by issuing a press release. The company can simply tease entering a new industry and put a competitor into a death spiral or have a $13B acquisition paid for by the market. If Bezos so much as gets coffee with the CEO of Leesa, it will dock the valuation of Casper by 25%. This kind of power is downright scary.

The sheer magnitude of Amazon means it can afford to enter an entire sector at a loss and chuckle at the red lines.  This competitive advantage cannot be understated- every company Amazon competes with actually has to make money in the industry in which they operate. Amazon does not. Bezos can burn enough resources to own any corner of the eCommerce world he desires.

But one can’t help but wonder if smashing the competition has become a goal unto itself rather than a means to delivering better experiences for the customer. It is in this blind ambition that Amazon is vulnerable.

Though Amazon enjoys goodwill nearly unprecedented for a company of its size, its hold on the hearts of the public is not ironclad. Bezos’ own newspaper, The Washington Post, called the Amazon Key “Silicon Valley at its most out of touch and has openly opined about whether the company should be trustbusted. Opposition to the overreach of Amazon is one of the few areas where staunchly liberal senators find common ground with President Trump. As Amazon’s pursuit of every corner of commerce puts more mom and pop shops out of business, and more retail employees out of work, grassroots opposition to the Amazon overlord will rise considerably.

But even if consumer sentiment turns somewhat against Amazon, will people respond by cancelling their Prime accounts or taking their business elsewhere?  After all, hundreds of millions of people use Facebook daily despite the fact that most Americans wouldn’t trust the social media company to watch their goldfish.

While it may not immediately hurt top-line revenue, a shift in public opinion could awake Amazon’s only existential competitive threat, one that theoretically responds directly to the sentiment of the people. More than Walmart, Apple or even Alibaba, Amazon’s long term competition is the United States government and a little law around trusts it passed back in 1890.

At the time of its dissolution in 1911, Standard Oil only owned 64% of market share. This Black Friday, half of all goods bought online were purchased on Amazon.

Taking on massive corporations on behalf of main street America is a great path to a governor’s mansion or loftier political aspirations, with an ambitious Missouri attorney general already taking on Google.  If Amazon starts to lose hearts and minds in its quest to own everything, expect far more serious legal challenges to come for the retailer in the years ahead.

In an era before Amazon Web Services redefined sexy operating margins, Bezos was a pariah to many on Wall Street as he sacrificed short-term profitability to continually enter new markets.

“Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers,” wrote (then) Slate columnist Matthew Yglesias, a quip Bezos directly cited in a 2013 letter to shareholders.

What the market largely failed to realize at the time was that this was Amazon’s greatest strength. Among the retailers that had a few great quarters while Amazon consistently lost money were Blockbuster and Circuit City. But any strength taken too far to the extreme inevitably becomes a weakness.

Besides the fact that we can get an Xbox One for a few bucks cheaper on Amazon, why should we even care about what the company is up to? Because in a tech ecosystem littered with paxos alogrithms for consesus protocols companies that promise to “make the world a better place”, Amazon actually possesses the ability to deliver on that promise.

What if we applied the Amazon standard of convenience to healthcare? To finance? To government? Several legacy industries plagued by asinine processes could stand to be disrupted.

Amazon now has wholesale licenses to sell prescription drugs in 12 states, hinting that they plan to take a shot at America’s most broken market. But if Amazon is going to control more and more aspects of our lives, we need to know that its commitment to the end user remains steadfast.

The American public will feel a lot more comfortable with a monopoly if it continues to be Earth’s “most customer centric” company. Waver from this path and the ghosts of Teddy Roosevelt will come calling sooner rather than later.