The most powerful company in the world? How big can Amazon get?
The country’s biggest online retailer is also the master of logistics, a streaming company, and has a series of grocery chains… so what’s next for the house that Bezos built? Center director Jeffrey Cole explores the options.
By Jeffrey Cole
When I was a kid, I didn’t know anything about monopolies (except the board game), anti-trust laws, barriers to entry, or restraint of trade. Why, I wondered, didn’t a successful, well-run company (GM in the 50s, IBM in the 60s, AT&T in the 70s) take all that management experience and branch out into other related and unrelated businesses: a Swiss Army-knife of companies?
GM could run an airline; IBM could manage department stores, and AT&T could make television sets. They could have gone on to run dozens of disparate businesses.
Only later did I learn about laws preventing any one company from completely controlling an industry, making it impossible for others to enter the field and compete. Consumers needed to be protected from such large companies that could, without fear, raise prices as much and often as they liked.
It is the role of the Justice Department to protect consumers from predatory, anti-competitive practices if companies grow too dominant. They fulfilled that role in the last quarter of the twentieth century by going after AT&T, IBM, and (a bit later) Microsoft. The lesson was clear: hugely successful companies become too large at their own peril.
Anti-trust suits from the federal government took years to litigate, were immensely expensive, and rarely worked out well for the companies.
In 2021, Amazon is bigger than GM, AT&T, or IBM ever were (even adjusted for inflation). Its market cap today, $1.71 trillion, is larger than the GDP of Canada, South Korea, or Russia, and it’s closing in on Brazil.
The pandemic has been generous to Amazon. Already a colossus before COVID, with most people in total or partial shutdown, the company truly became indispensable. As competitors were shrinking their reach and work force, Amazon became the lifeline for millions of customers to the outside world.
Amazon Prime members (who pay $119 a year for no goods but significant privileges and benefits) grew by 30 million to an estimated 142 million. That growth led to Amazon adding over 250,000 people to its work force bringing the total to 1.13 million by the end of last year. In 2018 it was 575,000.
Amazon is now the largest employer in several of the states in which it operates.
In 2020, the trillion-dollar company saw its revenues climb 40% and its profits soar 200%. That’s a number that will forever be revered in business schools.
Amazon is already a giant, which is what Bezos was going for when he named the company. It’s rapidly growing even bigger. This has attracted notice from government regulators who feel it may be time to slim down the company.
Many critics point out it would be easy to break up Amazon by peeling off Amazon Web Services (AWS), the leading cloud services provider in the world. Divorced, both the retailer and cloud parts would remain market leaders and huge companies. Serious critics argue even that would not be enough.
In another sign of Amazon moving in the direction of the companies I envisioned when I was younger, it is rapidly moving into many new businesses. No established industry may be safe.
Ask anyone what’s Amazon’s business and they will answer: retail. A few might also mention video streaming or the cloud. Of course, they are correct. Amazon has disrupted retail moving much of it from physical stores to online. Their delivery trucks and distinct marking on packages are part of the topography of our cities and lives.
But Amazon’s true core competency is not retail: it’s logistics. What is revolutionary about the company is its ability to keep massive numbers of products moving from warehouses to homes through a complex network of trucks and airplanes managed by over 1 million employees.
The logistical numbers all belong in the record books.
Amazon sells 12 million different products, 353 million if secondary sellers through its marketplace are counted. All these products are stored in 100 and counting warehouses in the U.S., with another 100 worldwide. Its largest warehouse is over 1 million square feet. A 3.8 million behemoth will open in the fall.
To move products from distribution centers to homes and businesses, Amazon maintains a fleet of 75,000 delivery vehicles. That number will soon more than double as Amazon just placed an order with Rivian for 100,000 electric delivery vans that will be on the road next year.
Amazon’s fleet of 80 airplanes rivals some of the best-known airlines.
What has made Amazon a household name and Jeff Bezos the richest man in the world is its masterful ability to keep all these balls in the air while delivering over 6 billion packages a year, almost always on time. The company moved logistics to a new level.
Amazon is so successful at moving things around that last December, as COVID vaccines were stuck in warehouses rather than people’s arms, many called on the government to get Amazon to distribute the vaccine to hospitals, community centers, and pharmacies. No one is better at moving things from one place to millions than Amazon.
It is that expertise rather than retail knowledge that is moving Amazon into so many new and varied businesses far afield from where it began.
What will Amazon disrupt next?
Over the last four years, the Center has done powerful work demonstrating how major industries, particularly health care and banking, are ripe for disruption.
Ask anyone what’s Amazon’s business and they will answer: retail. A few might also mention video streaming or the cloud. But Amazon’s true core competency is not retail: it’s logistics. What is revolutionary about the company is its ability to keep massive numbers of products moving from warehouses to homes through a complex network of trucks and airplanes managed by over 1 million employees.
In health, we asked consumers if a non-traditional company were to offer medical coverage, which companies would they trust? The list had fifteen names including Walmart, Facebook, Google, Starbucks, McDonalds, Costco, and others. The number one choice was Amazon.
In banking, we asked about a non-bank entrant offering financial services and provided the same list. Once again, the number one choice was Amazon.
Our COVID Reset Project across seven segments of life is about to be released, and we asked again about new players in banking and health care. Amazon came out even higher than the earlier work.
In two industries unrelated to Amazon’s core competency (logistics), consumers see it as the company they most want to enter the field. When asked why, they almost unanimously stated it is a company I know and trust, associate it with value and great service, and it is completely reliable.
Not surprisingly, Amazon is moving into health care and financial services. I often joke that Bezos has a list in his upper shirt pocket listing all the industries he plans to disrupt and in which order. Although I try to say it in an amusing way, I am serious.
So is Bezos.
Amazon has already mastered retail, a $5.3 trillion dollar sector.
Health care in the U.S. is a $4 trillion business with 17% of GDP. Banking and other financial services is a market with over $5 trillion. If Amazon manages to quickly become a leader in these industries, as it has in almost everything else it touches, its current market cap of $1.7 trillion could soon seem trivial.
Banking and health care are just two of the industries into which Amazon is moving. Bezos’ list contains many more: travel, car sales, manufacturing (it is dabbling with Alexa and other products), and others we will learn about in time.
Amazon’s extraordinary success raises a difficult question for regulators: while it unquestionably dominates the market and makes it difficult for new entrants to thrive without an Amazon alliance, it is also good for consumers. It provides the largest selection of products anywhere and is able to deliver them quickly and reliably at low cost (or free if you don’t count the Prime membership fee).
That benefit to customers could lessen or even disappear in the long run as Amazon puts smaller stores out of business (everyone is smaller to Amazon) and controls the marketplace even more than today.
Amazon is the Swiss Army-knife of companies that I envisioned as a kid.
Jeffrey Cole is the founder and director of The Center for the Digital Future at USC Annenberg.
See all columns from the center.
April 21, 2021