How Amazon Wins: By Steamrolling Rivals and Partners

This content has been archived. It may no longer be accurate or relevant.

Note: PG doesn’t always agree with the items he posts on TPV.

From The Wall Street Journal:

Jeff Bezos built Amazon.com Inc. from his garage with an underdog’s ambition to take on the establishment. He imbued staff with an obsession to grow fast by grabbing customers using the biggest selection and lowest prices. Today, he has more than 1.1 million employees and a market valuation around $1.6 trillion.

But Amazon never really grew up. Mr. Bezos still runs it with the drive of a startup trying to survive.

That ethos helps keep Amazon booming. Aggressive competition—including wresting market share from rivals—is often a hallmark of a successful business. It’s also why the tech-and-retail giant is the target of rivals, regulators and politicians who say its tactics are unfair for a company its size, and potentially illegal. As the company has grown, so has its capacity to take on an ever-growing array of competitors.

To keep customers happy, which Mr. Bezos has long said is Amazon’s fixation and growth strategy, executives behind the scenes have methodically waged targeted campaigns against rivals and partners alike—an approach that has changed little through the years, from diapers to footwear.

No competitor is too small to draw Amazon’s sights. It cloned a line of camera tripods that a small outside company sold on Amazon’s site, hurting the vendor’s sales so badly it is now a fraction of its original size, the little firm’s owner said. Amazon said it didn’t violate the company’s intellectual-property rights.

When Amazon decided to compete with furniture retailer Wayfair Inc., Mr. Bezos’s deputies created what they called the Wayfair Parity Team, which studied how Wayfair procured, sold and delivered bulky furniture, eventually replicating a majority of its offerings, said people who worked on the team. Amazon and Wayfair declined to comment on the matter.

. . . .

From its start as an online bookstore 26 years ago, Amazon has expanded into an online retailer with a presence in nearly every major category. It is also the leading provider of cloud-computing services, a gadget maker, a major entertainment player and a rival to United Parcel Service Inc. and FedEx Corp. Mr. Bezos is the world’s richest man, with a net worth Forbes estimates at $187 billion.

He still exhorts employees to consider Amazon a startup. “It is always day one,” he likes to say. Day two is “stasis, followed by irrelevance, followed by excruciating, painful decline, followed by death.” Mr. Bezos originally considered calling his company Relentless, and www.relentless.com still redirects to Amazon’s site.

. . . .

Some rivals and partners say Amazon’s competitive zeal looks like unfair practices. The Journal this year reported that Amazon employees used data about independent sellers on its platform to develop competing products and that it has used the investment and deal-making process in ways that entrepreneurs and others said helped it develop products that competed with its would-be partners. Journal reporting showed how Amazon has limited some competitors’ ability to promote rival streaming devices and other gadgets on its dominant e-commerce platform.

Mr. Bezos in July testimony to the House Antitrust Subcommittee about the Journal’s private-label article, said: “I can’t guarantee you that that policy has never been violated.” The Amazon spokesman said the company doesn’t use confidential information that companies share with it in the mergers-and-acquisitions and venture-capital processes to build competing products. Amazon didn’t directly address the question of whether it hobbles rivals’ marketing, saying it is common practice among retailers to choose which products they promote.

Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)

PG says that US antitrust law is designed to protect competition, not competitors. The beneficiaries of antitrust law are intended to be consumers.

For as long as people have been making and selling products with a view toward improving their material conditions, other people have decided they might be able to improve their material conditions by doing the same thing.

No one forces a company, large or small, to sell on Amazon. No one forces a company selling on Amazon to keep selling on Amazon.

Absent patent, copyright or similar intellectual property protections, nothing protects any manufacturer or seller from a competitor, small or large, making a similar or identical product and selling it in competition with the earlier vendor. It happens every day of the week.

Per the OP, as an amateur photographer, PG can assure one and all that there are a zillion different tripod manufacturers in the world selling tripods of all different shapes, sizes and prices.

If PG is shopping for a tripod (no, he really doesn’t need another tripod, but . . .), he can find cheap tripods, expensive tripods, knock-offs of expensive tripods, etc., from all different types of manufacturers. A new idea for tripods appears approximately once every thirty years and manifests itself as a tweak, not a revolution. Certain brands appeal to photographers who want to impress others and have money to spend in order to do so.

If PG were to start a tripod business, he wouldn’t waste his time trying to interest camera stores (a rapidly disappearing phenomenon) in purchasing his tripods at a wholesale price for resale. He would sell online and almost certainly sell via Amazon because that’s where people go to buy tripods these days.

It would be easy for PG to set up his own online tripod store, but getting anyone to come to PG’s tripod website would be another challenge entirely.

What Amazon offers is people — eyeballs with credit cards. That is a very, very hard thing to do. Look at all the other etail websites and compare them to Amazon. PG suggests you’ll see why Amazon is the preferred destination.

Apparently, lots and lots of tripod manufacturers and sellers want to reach Amazon’s customers. PG just checked and there appear to be 400 pages of tripods (with 8-10 tripods per page) for sale on Amazon.

So, the small tripod manufacturer that the WSJ mentioned in the OP was in a very, very competitive world long before Amazon decided to make its own tripods.

From Amazon’s Beginner’s Guide to Selling on Amazon:

When you start selling on Amazon, you become part of a retail destination that’s home to sellers of all kinds, from Fortune 500 organizations to artisan vendors who make handcrafted goods. They all sell here for a reason: to reach the hundreds of millions of customers who visit Amazon to shop.

  • Since third-party sellers joined Amazon in 1999, they’ve grown to account for 58% of Amazon sales
  • Third-party sales on Amazon are growing at 52% a year (compared to 25% for first-party sales by Amazon)

9 thoughts on “How Amazon Wins: By Steamrolling Rivals and Partners”

  1. Let’s not forget, either, exactly what “industry” Amazon is in.

    It’s more than one. And lumping across industries is inappropriate, and in fact prohibited by antitrust law (US or European; it’s impossible to say exactly what either Japanese or Korean antitrust law really prohibits!).

    As always, the definition of the market is pretty much outcome-determinative when deciding if an actor has “monopoly power.” As one conversation in Apocalypse Now! (the properly-edited theatrical release, not any of the self-indulgent “director’s cuts” since) might have said:

    KURTZ: They said my methods were… unsound. Do you think my methods are unsound, Captain?
    WILLARD: I don’t see… any method. Sir.

    The only “industry” definition for Amazon that makes sense is “order fulfillment” — and even the most-rabid proponents of the HHI (the standard used to measure “industry concentration”) concede that it doesn’t work for or apply to services and logistics, but concerns products.

    So this is very much an instance of gathering one’s arguments and handwaving to reach the result that is in one’s own (unenlightened) self-interest. One wonders what the statements made would be if these individuals had instead been present or former (left on good terms) Amazon executives.

  2. Keeping customers happy: I have learned the hard way to be extremely wary of buying merchandise from third-party sellers. As good as it is with stuff from its own -warehouses, Amazon accepts no responsibility for third party items it promotes and takes its cut from.

    The point of the tripod story is that Amazon has full access to sales data from third-party sales. It knows exactly what sells well, and will happily raid sales from its “partner.” Doing business with Amazon as a third-party seller is a terrible deal. That it may be the only possibility doesn’t make it a better deal. It is the old joke about yes, the game is rigged, but it is the only game in town.

    We were having the same discussion a quarter century about Walmart. Amazon is worse. Walmart was never actually the only game in town, however much it wanted to be.

    • So, Amazon is the only game in town? Then Rakuten, eBay, and AliBaba aren’t real billion dollar companies?
      Network effects help Amazon but they don’t lack for competitors.

      Also, last I saw, both WalMart were going like gangbusters during the pandemic after years of ignoring in-store pickup as a viable tactic, which by the way goes back to the 90’s. I used it at BestBuy, Circuit City, and CompUSA. The latter two gone but because of self-inflicted wounds, not Amazon.

      • We’ve had good luck buying certain types of items from Target, delivered even. The selection is somewhat more “curated” and easier to examine, and the good items have been very good. My wife will also use Walmart and Costco from time to time. Purchasing physical goods from Amazon is not always the end-all and be-all. Their “we’ve got everything” approach is a double-edged sword.

        • Agreed. Target’s search function for many items is MUCH better than Amazon or Walmart. I’ve found their order online / in store pick up works well.

          Also had some recent good Walmart experiences, with better delivery time than Amazon.

          The USPS, OTOH, hasn’t been covering itself with glory, with a book taking a week to get from NY to NJ (it took less time to finally cross the country to me) and a package from LA to SF stuck in LA for a week so far…

  3. The US retail market is worth over 5 Trillion.
    The Global market is over 25 Trillion.
    Amazon still hasn’t even caught up to WalMart’s $500B.
    There’s plenty of room for everybody willing to fight for their piece of the pie. But many prefer to whine.

  4. Amazon has, from the reviews, a serious problem with counterfeit merchandise.

    I have found myself going to a particular company’s named site to buy a couple of things lately, because I was worried about the quality of things offered on the Amazon pages, and I wanted the item to be as advertised, not a cheap knock-off.

    If I’m going to buy from the company, I also assume they will make more money from my sale if I don’t buy it from them on Amazon.

    But I keep wondering if the shipping problems wouldn’t have happened – because it took weeks to get the product, and, on one occasion, months to get a repair from the company, on a very expensive chair.

    I suppose it depends on whether the shipment comes directly from an Amazon warehouse (fulfilled by Amazon) or whether the sale will still come from the company. You have to dig to get some of this information on the product’s Amazon page.

    • A chair is expensive for a company to deliver through Amazon fulfillment. The seller has to ship it to one or more Amazon warehouses, then pay for Amazon to ship to the consumer. A seller tells Amazon how many units he has, and Amazon tells him how many go to each warehouse destination.

      All shipping is done via Amazon’s very favorable rates. The economics have to be figured for each item, and it’s a function of size, weight, selling price, margin, and the rate the seller can get from UPS if he ships himself.

      A seller has to pay for shelf space in the Amazon warehouse as well as shipping.

Comments are closed.