The Magic of Amazon

With Black Friday and Cyber Monday just over, I’m marveling at how Amazon has changed our buying habits. Not just becoming a substitute for driving to a store, but so much more.

First, you cannot find many of the items on Amazon in other stores, certainly not the depth of choices. Whether it’s a motorized wall bracket for a large screen TV, a digital rearview mirror, or solar powered spotlights, without Amazon we might never know these products even exist.

Amazon has given tens of thousands of companies a new way to sell their products that was never previously available. These products save us money because they utilize a more efficient distribution system, bypassing distributors and middlemen. And many of the products were only created once Amazon provided a new way for them to be sold.

I’ve purchased items that I wouldn’t know where to find, other than on Amazon. For example, I needed a steel collar to add to a 1-3/8 inch diameter shaft, but I didn’t want to remove the shaft. So, on a lark, I searched for a “split ring 1-3/8 inches inside diameter,” and I actually found a product, ordered it and had it in my hands the next day. In preparation for a long transatlantic flight my wife found an inflatable footrest on Amazon.

I can’t count the number of times Amazon let me solve a problem with so little effort. When I discovered that the control panel on the driver’s door of my RAV4 had no illumination for the lock and window switches, I did a search that led me to a part on Amazon that replaced the Toyota part, but was illuminated. I received it a day later and installed it in 15 minutes. The Toyota dealer never knew it existed.

In addition to the availability of millions of products, Amazon has created a website that’s easy to use to search, compare, and purchase and get a delivery date in seconds – no small feat considering its complexity. It’s also become the largest source of customer reviews for millions of products, and now it’s the largest delivery service in the US, surpassing Fedex and UPS.

In spite of all my efforts, I still cannot fathom how they can get any one of millions of items delivered to so quickly, sometimes in the same day.

This past Black Friday I purchased a range of stuff, including a set of charging cables, a grill brush, a phone case for my wife, a backup MagSafe battery, a set of screwdrivers, all about 30-50 percent off. Much of the fun was looking for bargains, much like searching the aisles of a discount store.

Now that my purchases amount to more than a couple of items each week, I opt for deliveries once a week, so Amazon can box and deliver everything all at once and minimize the environmental impact. I also took out a Chase Amazon credit card for just my Amazon purchases; it provides a 5% discount on all items, even groceries from Whole Foods stores. Lastly, I use to check the price history of the item on Amazon. Many prices cycle up and down over time and you can avoid buying at its high.

Amazon has also done an amazing job of driving traffic to its site by offering referral commissions to companies that mention its products. As a result, companies like the NY Times, CNN, and tens of thousands of others get a sizable income whenever they write about a product that’s purchased using a link to Amazon.

The Negative

Yet, as magical as Amazon is, it’s been criticized for how it treats its warehouse employees and its anticompetitive behavior, and has recently been sued by the FTC and 17 state attorneys general. Their complaint states:

The Federal Trade Commission and 17 state attorneys general today sued, Inc. alleging that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power. The FTC and its state partners say Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.  

The complaint alleges that Amazon violates the law not because it is big, but because it engages in a course of exclusionary conduct that prevents current competitors from growing and new competitors from emerging. By stifling competition on price, product selection, quality, and by preventing its current or future rivals from attracting a critical mass of shoppers and sellers, Amazon ensures that no current or future rival can threaten its dominance. Amazon’s far-reaching schemes impact hundreds of billions of dollars in retail sales every year, touch hundreds of thousands of products sold by businesses big and small and affect over a hundred million shoppers.

Many experts believe that the FTC has a very difficult case to prove, and as a non-expert I would agree. Amazon accounts for only 38% of online sales and a tiny fraction of all combined online and retail sales. Much of its success is a result of the incredible, multi-faceted operation it has built – a product delivery machine that excels in all of its elements. Being big has not hurt competition nor caused higher prices, but has benefited us because of its economies of scale, especially with its ability to deliver a $10 item overnight and still make a profit.

And apparently others feel much the same. Amazon consistently ranks among the top ten admired companies in consumer surveys, such as this Axios Harris poll. It save us time and money, provides excellent customer service, and brings us nearly every conceivable consumer product with just a few clicks.

by Phil Baker