Is Amazon Too Big?
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Is Amazon Too Big?


This video is sponsored by Brilliant! The first 200 to use the link in the description
get 20% off the annual subscription. Elizabeth Warren wants to break up Amazon,
Facebook, Google, and Apple. The argument goes, roughly, like this: Tech
companies have gotten really big, really fast. And they’ve abused that power by favoring
their own products over their competitors. Therefore, once a company reaches a certain
size, it shouldn’t be allowed to own both the products and the platform on which they’re
sold. In English, Amazon can’t sell the Kindle
on its own website, and Apple has to pick between owning Music and iMovie and News or
the App Store itself. Now, whether Warren is 100% serious or mostly
just generating publicity for her presidential campaign, she isn’t alone. This is only the latest part of a much bigger
movement. We’re at an inflection point in history,
where new, fast, Silicon Valley is crashing in to slow, old, government. Everywhere, all at once, the power and influence
of big tech companies are being questioned: Google was recently fined $1.7 billion in
Europe for being anticompetitive. Sprint is trying to merge with T-Mobile, despite
significant push back. Facebook has, well, continued to be Facebook. And Spotify has launched an all-out attack
against Apple for what it claims is unfair treatment. So, who’s right – Apple or Spotify? Google, or the EU? Facebook, or, literally everyone else? First, we need to understand why these companies
have such a huge advantage. And how, in just a few years, Amazon went
from being synonymous with “cheap, convenient shopping”, to a scary, political, nebulous
Walmart-like mega-corporation. Let’s say you wanna start a grocery store. Maybe you know a little bit about merchandising. Maybe you come from a long line of grocers
so selling produce is just in your blood. The other kids were playing with fire trucks
and trains but you, you were daydreaming about the retail implications of The Engel Curve. Anyway, the bad news is that the grocery business
sucks. Like, famously so. If you’re lucky, you might manage a profit
margin of 3%. Unless you have some revolutionary way of
arranging bananas on the shelf, you’re just one of a thousand stores, which customers
have no special loyalty towards. You don’t see a lot of “Proud mother of
a Safeway shopper” bumper stickers. But – there is money to be made at the very,
very top. If you can become a Kroger, or a Whole Foods,
or Trader Joe’s, well, that’s a different story. The trick is surviving long enough that you
sell lots of things, so you can, (a), turn around to the companies making those things
and say “Hey, we’d like to buy 3,000 stores worth of your bananas, can you make us a deal?”, and, (b), cut out the middle man by creating
your own generic brand. With size comes leverage, which lets you buy
cheaper, and, ultimately, make more money. But, again, the problem is getting there. Competing with established companies in any
industry usually means losing a lot of money for a long time with only the hope of making
it back in the future. But don’t give up on your dream quite yet. Here’s an idea: Forget groceries for now,
let’s just find some way of making money. Like, I don’t know, selling cloud storage
to enterprise customers! It’s a good business, no one else is doing
it very well, and, in a few years, you’ll have so much money, you can come back to your
dream of starting a grocery store. What does cloud storage have to do with selling
grapes? Is that really the most exciting thing you
could be doing? Pretty much nothing and probably not. But who cares! Money is money, and as long as it makes more
than the grocery store loses, you can afford to slowly grow it into an empire, even while
it isn’t yet profitable. This, if you haven’t noticed, is my very
crude way of describing Amazon. It started as a book company, but Bezos had
no special love for books. That was always just a good way of generating
capital for his real dream. Today, books are a footnote. The new distraction is called Amazon Web Services
– AWS. If you’re already familiar, bear with me
for a sec. A few videos back I said:>A thousand downloads
don’t cost any more than one. Scale is (nearly) unlimited. My point was: it’s a whole lot easier to
sell a thousand note-taking apps than it is a thousand actual notebooks because software
is made of bits, and bits don’t cost money. Which, is mostly true in that context, but,
not totally accurate in practice. Consider the scale at which some companies
operate: Out of all the bandwidth, from every phone
and every computer, in every country, 15% is just people watching Netflix. 15%! Even Uber, which, in theory just connects
the nearest driver to the nearest rider, stores over 100 petabytes of data – or 100,000,000
GB. It also fluctuates dramatically. Every startup dreams of hitting the front
page of Reddit, Unless you’re the engineer, in which case you have a heart attack trying
to keep up with such a huge spike in views. Companies, and, especially, startups with
limited budgets, have a tough choice: Either buy too much capacity, Or save money
and hope they don’t get too popular. At least, until AWS. Amazon realized it could solve this problem
with a service: Only pay for what you actually use. If your business suddenly explodes in popularity,
no problem, just pay a little more. Turn the handle for more data, as you would
water or electricity. Amazon takes care of the rest, the same way
we outsource building windmills to electric companies. Now, if we look at its total revenue, and
then divide it by source, it’s pretty much what you’d expect: Amazon is mostly an online
store and you’re probably wondering why we’re talking so much about AWS. But what about its income? Where is it actually making a profit? This is where it gets interesting. Now, Amazon looks like a cloud storage company
with an online retail business on the side. In the 4th quarter of 2018, AWS accounted
for 58% of the company’s operating income. It alone made more money than McDonalds. So, yeah, it sells lots of USB cables and
bananas, but that’s not where the money is. AWS is camouflage. It makes the company look good overall and
conceals how much money it loses. One business subsidizes another. And this is where it gets tricky. Because, if you’re one of the other grocery
stores, you’re thinking “This isn’t really fair – how can we compete with someone
who doesn’t even need to make a profit?” Safeway and Publix don’t have a $25 billion
a year cloud storage businesses. When they sell bananas, they have to, like,
ya know, make money. This is how, one after another, Amazon enters
and dominates a new industry. It plays by a fundamentally different set
of rules. Turns out it’s a whole lot easier when you’re
not super worried about the whole profit thing. Of course, predatory pricing, when a company
lowers its prices to starve out the competition, isn’t a new idea. But once they’ve done so, companies usually
raise their prices again – that’s the whole point. Amazon, on the other hand, has always kept
its prices low. It’s not playing the long game, it’s playing
the looooong game. Here’s it’s revenue, and here’s it’s
profit. The company touches more money than ever – it
just doesn’t keep it. Profit has stayed around 0 because it’s
more interested in growth. That’s the loophole. In this essay, researcher Lina Khan explains
how, since the ‘70s, antitrust law has used short-term prices to determine whether a company
is being anticompetitive. In other words, sure, Amazon is big, it’s
dominant, and it’s killing lots of competitors. But it’s prices are low, so it flies under
the radar. You might be thinking – so what? If a company uses its size to save you and
me money, isn’t that a good thing? But when products are subsidized, either by
another profitable business like AWS, or, Venture Capitalists burning money for the
sake of growth, they don’t have to compete on their own. Products win not because they’re the best
but because they’re funded by someone, or something, unrelated. For example, on iPhone, Apple has the Platform
Advantage. It controls which apps are allowed on the
App Store, and doesn’t have to give up 30% of its revenue or follow the same rules, as
everyone else. If you’re Clash of Clans, this may seem
like a relatively small price to pay for access to 1.3 billion users. For someone like Spotify, it’s a very different
story. Music streaming is the digital equivalent
of a grocery store – Spotify has such tiny margins that giving Apple 30% breaks the entire
business model. And even if Apple didn’t make a dime from
its Music or News apps, it might still offer them just to attract users to the iPhone. Spotify needs to make money, but Apple Music
just doesn’t. Apple’s apps, therefore, almost certainly
have more users than they “should”. Which is not saying they’re good or bad,
but that some number of people, maybe 1, maybe 1 million, use the service only because Apple
had an unfair advantage in putting it in front of them. Likewise, Amazon has the Platform Advantage
on its website. At some point it realized, hey, wait a second,
if we have all the data, and we control what people see, why on earth are we sending customers
to someone else’s product? So now it competes with its own sellers, on
everything from batteries to backpacks and keyboards. But wait, how is that different than any other
generic brand? Target has Up&Up, and Walmart, Great Value,
but no one’s complaining they have an unfair advantage. The difference is lock-in. It’s much easier to switch grocery stores
than it is between iPhone and Android. Companies like Facebook will always say “Look,
you chose to use our service, you chose to give us your information, didn’t you quit
your job, become a lawyer and read our 3,000-page terms of service?” But that’s not really true. We made one, unrelated choice, like buying
an iPhone or Android, which required that we make a bunch of other choices later on. Nobody knows what they’re getting into. And this will only happen more as companies
get even bigger. Amazon is an extreme example because AWS is
really profitable and groceries are really not, but entering new categories with the
resources you already have is kind of what a company is. You might start by making smartphones but
then use that money to sell refrigerators. Fast-forward a few years and now you sell
life insurance and container ships. Samsung is less a brand and more a Buy-N-Large,
E-Corp conglomerate. Like Amazon, it barely makes sense to think
of it as a single, unified company. One division sells parts for the iPhone. Another fiercely competes against that very
same device. Even Apple is moving in this direction. It may not be in the business of refrigerators,
but you now buy your iPhone with an Apple credit card, download Apple apps, back them
up on Apple’s cloud, and watch Apple-branded TV-shows. But there’s also a benefit to this integration. One of the bests feature of the iPhone is
that it’s all designed by one company, as one, coherent product. Because Apple owns both Music and iOS, they’re
easier to use, more convenient, and more powerful together. And because you have no choice but to use
Apple’s App Store, your phone is more secure and your data more private. Now, of course, you may disagree. For some, having more freedom might be worth
the trade-off for privacy and security. But that doesn’t diminish its value for
the rest of us. In other words, breaking up some of these
companies would actually mean a worse experience for you and me. And if your “consumer protection” proposal
makes our lives worse, it’s probably a bad one. The EU has shown – time and time and time
again – that governments can make technology worse simply because they don’t understand
it – even with the best intentions. So, what’s the solution? I don’t know. If anything, we’ve learned you should be
skeptical of any simple solution to a problem this big. Instead, here are some ideas: First, we need to expand the scope of what
qualifies as anticompetitive behavior. Low prices don’t mean the customer isn’t
being harmed. On the other hand, closed, locked-down markets
like the App Store aren’t necessarily always a bad thing. Second, we need to reexamine some mergers
and acquisitions. It happens all the time: An exciting young
startup gains some traction only to just be bought by a Google or an Amazon. Sometimes we never heard from it again. Founders are incentivized to sell their companies
– to the tune of billions of dollars. But society at large would be better off with
more competition. The key is balancing the benefit we all get
from the scale of companies like Amazon, with the drawbacks of their immense political and
economic power. Many of these ideas to break-up tech companies
are designed only to get headlines. But a real solution requires a deeper, mathematical
understanding of the problem, of the type you can learn on Brilliant.org. Their pitch is simple: Sure, you can spend
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100 Comments

  • sarah howard

    So when did monopolies become legal? All these big businesses are just doing monopolies because there is always a loophole. I work for Amazon but haven’t bought nothing from amazon in like 5 years. I’ve worked as a delivery driver too. I do work inter fulfillment center and I can say I don’t stow a lot of amazon products like maybe 40% of the product I put away is amazon and the rest is so much more.

  • Greg Belcher

    As someone who does strategy and financial planning for a software company, software isn’t as scalable as ppl think, especially if you’re dealing with a lot of data.

  • Jan Pelleboer

    What about Disney my guy? Disney is legit taking over the world, which sounds crazy but it's true if you actually research it.

  • Francisco J. Herrera

    This is clearly an add for Amazon because it made me think that I should check for new discounts on Amazon.

  • DJ DarkGift

    One of the reasons Amazon is as large as they are is because of the wallets of its consumers, deceptive/shady practices and either buying up the smaller competitors or running them out of business. Shady or deceptive, what do you mean, I'll touch on it lightly. First off, when they opened up their arms to Third Party Sellers/Vendors, they started making income without doing a thing but being an avenue for these vendors to sell their merchandise. This means that they only had to either stock, fulfill and deliver some orders, or just act as the webstore & payment collection merchant for the others. You can see this on their site when looking at an item and it will tell you that it's sold by so and so and fulfilled by Amazon or Sold & Fulfilled by whatever merchant is selling the items. OK, so you're probably thinking to yourself, what's so bad with that, and I'm going to get to my point right now. There are tons of goods sold via third-party sellers on Amazon every single day, and there is a portion of those that can be found with terrible reviews attached to them. In this example I will use a few companies I've seen selling Apple's iWatch as to where the customer usually paid the fair market price for the device and they were either received as a reconditioned model or one that could never be synced up with their Apple ID because someone else bought it, returned it without logging out of that ID so now you can't obviously then more times than I'd stomach to see, people had a very hard time getting their money back as some were outright told that the device was returned damaged or that the return window had passed. I've actually read a few reviews myself from customers who spent good money to get the watch as a present for either a child or spouse and if they bought it well in advance wouldn't know about the logging in issue to their Apple ID till some time after that persons special day. They are extremely painful to read. So, My point here is that one would think that Amazon would either somehow punish the seller, whether from selling that type of item for a period of time, or banning that seller altogether, which would be my suggestion. They totally turn a blind eye because they are getting a commission on that sale so if they were to ban that seller, well I'm sure you can figure out the rest. This isn't the only thing they screw you over on, I'll just ask that if you do have to use them, please make sure you do your homework first.

    There were actually a few other things I wanted to touch on as far as Amazon goes, but I can see that I've already typed way too much so I'll just drop it here. If anyone else would like to know more, just throw me a comment and I will reply for sure. I was also going to rant on a few things about Apple, but maybe I'll save that one for another time.

    I hope that all of you are having a great week and remember to pay it forward and help out someone less fortunate than yourselves.

    My Three Cents.

  • JoeAceJR

    Most Democrats are simply stupid like AOC, but some are very dangerous like Warren. If I was a tech giant and Warren came into office, I would INSTANTLY move my company out of the country before my company got broken up. Nice job Warren, you could make millions of people lose jobs and make our country lose hundreds of billions of dollars simply because you dont know technology…

  • Rafael Barret

    If companies are grinding to own there platform and there apps calm tf down and leave them like damn it wasn't easy for em

  • Mendel Lipszyc

    Market place companies such as Amazons e-commerce business and Apples app store. Should have to pay a tax to match the fees of the merchants or developers on their platform. This isn't anti capitalist or undemocratic because when they compete on their own platform they essentially told a white lie.
    When a merchant or developer joins a platform they are doing it under the mutual understanding. That the platform isn't going to rip off their product, service, or idea then use 3rd party fees as a price leverage against them.
    Otherwise platforms are just laboratories where 3rd party's sponsor all the user research to find out what people want. Then the platform just goes ahead and makes their own version of all the profitable products, services, or ideas. It's leveraging businesses against themselves, there is no success just proof of concept. It's diabolical.
    The problem of using uncorrelated revenue streams as a point of price leverage is an issue on a much broader more complex scale. Still an issue though, definitely needs to be addressed. It should definitely be classified as an anti trust practice being that it uses resources from out side the vertical industry to artificially reduce prices.
    Great Video!

  • ngede nkiondalle

    Let them try to sway elections in Europe like they do in the US and they will regret it. I like the EU.they May take a little time but they have a spine and won't just sit down

  • The Chosen One

    If you split them up it'll piss off the owner and they're smart enough to find a way to go around it and grow all the pieces that you split up and they'll be 10 times bigger

  • painful catnip

    Warren is stupid, shes pretty much saying if your company grows too big then you shouldn't be able to sell your own stuff/merchandise

  • Freak80MC

    I think all companies or entities beyond a certain size should be broken up. Why? Well because I think government should be the only thing allowed to get that large, and not from a "I love government" standpoint, but from a "government already sucks because its too big to properly have a voice in, and it becomes corrupt so easily… buuuuut its a necessary evil, so nothing else should be allowed to get that big because one entity of such size is bad enough".

  • Apple Person

    I feel like breaking up companies into hard and soft ware would cut a bunch of jobs and make everything go bankrupt but ok

  • ctchrisf

    Need an open source alternaitve,
    No idea why Amazon is only option, the website is horrible.
    Post office should run an Amazon alternative.

  • Corey Louie

    Can Amazon please make some sort of program that helps the (burning) Amazon Rainforest somehow. They have the resources and stuff. Idk petition or something???

  • Mole

    8:24 OR subsidized by GOVERNMENT. You really should ad this to your equation. They Sanders and Warren are going to do EXACTLY the same as Amazon, they will subsidize businesses THEY want with tax money and super high taxes.

  • Speed Demon

    Jeff Bezos becomes president changes united states of America into united states of amazon

    and alexa is the vice president

  • Adi Lapic

    Amazon is a stupid invasive idea. I say shut it down & let's go shopping & enjoy exercising our own choice of purchase.

  • AJ Fiore

    My girlfriend now works for ATS (amazon transportation services) at Amazon, which is basically a new sales team/division trying to basically undercut Fed ex & UPS & USPS. My gf thinks she’s good at sales bc all she has to do is sell someone a price slashed service. Any time you can offer the same or similar service for half the price it’s unfair. This is Amazon’s game though, price cutting while being non profitable. Mind you she was working in a division called Amazon Restaurants at first which just recently got shut down bc amazon couldn’t compete with doordash and Uber eats, just saying.

  • Jason Baldauf

    Apple did not hinder Spotify, Google and Amazon did. Apple was criticized in the past for clinging on to the old Itunes model, the music industry really wanted Apple to create its own music streaming which they eventually did. Amazon prime members have access to Amazon music. Think of how many people have Amazon Prime? The popularity of Alexa has integrated prime features into a neat magical voice command device. I wonder how many Alexa users use Amazon prime for their music.. nearly all of them, seriously, Alexa without prime is like a computer without internet . Google has countless of Youtube subscribers, i mean we all watching this on youtube right now. People can watch countless number of music videos on demand via youtube for free with ads or pay for no ads. Google recently released its own music channel. Spotify just is becoming irrelevant. It's not that Apple prevents them from succeeding.

  • Luke Carlson

    Everyone has a relationship with big tech companies. They cannot relate to Government. Politic priority is re-election not the peoples interest. Seriously wtf is govt nowadays.

  • Nerd Nek

    you cant stop companies like Amazon from growing! its just the beginning! i hate politicians because how the fuck are you going to worry about how large a company is getting when you can't keep money out of politics!!!! come talk to me when you fix politics

  • Afeez Awowole

    Very informative video. The graphics and illustrations are excellent but the side talks often make me forget what exactly is the main theme of the video.

  • Wings of Purity Official

    Breaking up Amazon, Google, Facebook, and Apple would result in a power vacuum. One of resulting fragments would eventually re-consolidate, or another company will fill the void. The economy needs to be re-balanced to make being at the bottom more fair.

  • Alicat Gtz

    Honestly I love Amazon and I'm happy as a customer so…. I don't mind it. Other companies out there however need to put cork in it.
    Mostly because customer service sucks

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