It’s not hard to understand why Americans love Amazon. An estimated 60 percent of households subscribe to Amazon Prime and almost half of all online dollars are spent on Amazon’s platform. Hitting Amazon’s “buy now” button kickstarts a cascade of complicated algorithms that deliver products to millions of American households in less than two days, sometimes in less than two hours. No other online retailers can match Amazon’s combination of product selection, price and delivery speed.
How is Amazon.com Possible?
Amazon’s entire business model is to lure consumers in with very low prices, establish market dominance and crush (or buy out) competition and once competition has been eliminated, raise prices as much as they want.
Here’s how it works:
Aside from well-established merchants, everyone else basically has to either use Amazon Web Services or the Amazon storefront in order to reach customers. Amazon can take up to half a merchant’s sale on the Amazon platform as a fee. If the merchant still manages to sell products at a decent profit and become successful on the Amazon platform … well then they just become an acquisition target and Amazon buys them out … sometimes by withholding access to their platform as a threat until they sell. Or Amazon uses its deep pockets and control over the distribution and manufacturing process to sell a competitive product at a deep discount (all those Amazon Basics cables you buy) which eventually drives the competitor out of business. Once the competition is decimated, prices on those cheap Amazon-branded products are then increased.
So … Amazon isn’t winning over consumers by building better products but by selling acceptable products at cutthroat prices … reducing competition, consumer choice and product quality along the way. That’s bad for everyone but Jeff Bezos.
The Amazon Way Has a Cost
This is where you ask: “How are they able to lower prices so much that they drive competitors out of business?” and where I tell you that the cost of these low prices is borne primarily by the people who work at Amazon.
When a product you buy becomes cheap overnight, it’s because something (like the environment) or someone (like an Amazon contract worker) has borne the cost. Amazon’s goal to reduce prices, eliminate competition and control the online economy results in a workplace where:
Warehouse workers’ every move is monitored, down to the second.
Workers are fired if they miss their delivery quotas, even by a small amount.
Most workers don’t even survive one year, and quit frequently.
Workers make significantly less than other similar personnel (and in fact, when Amazon moves into a new town, wages drop for all workers by as much as 30%).
And to help out Amazon even more, cities offer tax breaks and all kinds of incentives to get Amazon to build warehouses in their towns. These financial incentives are taken directly from public funds that could have gone to help those workers who’s wages decrease when Amazon comes to town, further exacerbating community resilience and driving down the broader economy.
Yes, But That’s What Taxes Are For
But that’s OK you say because Amazon pays lots in taxes to help communities they operate in. Wrong. In 2017 YOU paid more in income taxes than Amazon did - because Amazon paid ZERO dollars in corporate income tax. Since roads still have to be built and schools still have to be funded, Amazon’s exploitation of the tax code just increases the tax burden on smaller (usually more innovative) companies as well as ordinary Americans.
Don’t get me wrong. Tax breaks are a legitimate way for governments to incentivize economic growth. The problem with Amazon and other tech giants is that hardly any of the public funds handed over to Amazon go back to the government. In fact, today many large tech companies like Apple funnel profits through foreign countries like Ireland and Luxembourg instead of paying their fair share in taxes.
Meanwhile, non-tech companies pay far more taxes per worker. For instance, Apple hires a small fraction of the employees a more traditional company like GE does. Which means that not only does Apple pay less in taxes than GE, it also contributes less to the local and national economy because it hires less workers and those it hires are far better paid. These better paid workers tend to invest their money (often overseas) rather than contribute to their local economy.
Big Tech’s Tactics Hurt Us All
Amazon’s anticompetitive, monopolistic and anti-labor practices increase economic and social inequality in troubling ways.
For instance, many tech companies have created a massive underclass of workers. Those at the top are the venture capital investors and white collar engineers and executives who “run” the company and at the bottom are the millions of contractors and “part-time” workers who actually run the company. Uber and Lyft are prime examples. Those at the top have full benefits and excellent wages, but the nearly four million ride-share workers who drive for Uber and Lyft have no paid time-off, no benefits or healthcare, and no job security. Moreover, they often end up making less than minimum wage - and this is before you factor in wear and tear on the car and fuel expenses.
Aside from the impact on individual workers, the communities in which tech companies operate are starting to fall prey to deepening inequality as well. As more of these white collar workers and investors have moved to places like Silicon Valley over the last decade, home prices have skyrocketed as has homelessness - which recently hit record highs per capita in San Francisco.
Why Doesn’t the Government Intervene?
Perhaps because the government now receives so many lobbying dollars from big tech that it exceeds those of the traditional lobbying industries.
While tech companies like Amazon go ignored, they continue to grow - getting larger and creating vast monopolies and oligopolies:
Google now accounts for 90% of all online searches … worldwide. Its Android OS runs on more than 80% of smartphones in the world.
Apple has $300 billion in cash - more than the gross domestic product of all but the richest countries and double that of any other US company.
Meanwhile Facebook, like Amazon, either copies or buys out its competition, now owning the four most popular apps in the world - including Instagram and WhatsApp. These apps count 1/3 of the world’s population as users who willingly share their data creating the world’s most effective and comprehensive surveillance apparatus - unmatched by any government agency.
These companies have amassed so much power, quitting them may well be impossible.
So What Can You Do?
Encourage your elected representatives to investigate the increasing power tech companies are acquiring at consumer expense. Bring to light the funding tech companies provide to congressional campaigns. Encourage lawmakers to apply the fundamental antitrust laws of the United States and investigate whether some companies should be reduced in size. Even a threat of breaking up companies can have a major competitive effect that’s good for business: it was the threat to breakup Microsoft that cleared the way for companies like Google to exist. In many ways applying antitrust laws to big tech is one of the most capitalist things we can do, and also one of the best for our communities.
Finally, if you can afford to do so, consider putting your money where your mouth is: patronize small businesses that create innovative products that compete with Amazon and other tech giants. Be bold. Support indie developers and craftspeople so that they don’t feel like their only path to profitability is to get bought out by Amazon.