​Jeff Kagan: Is Amazon.com Growing Too Big, Too Fast?

Jeff Kagan  |


Amazon.com is growing so big and so quickly, the next natural question is will the US Government break them up? This has happened in the past, but we are living through it again, and it is both very good and very bad, all at the same time. So, let’s take a closer look at this question and see how it impacts industries, companies, investors, workers and customers.

As a user, like everyone else, I love Amazon.com. They not only transformed the book industry, but as they expand and move into industry after industry they are doing the same thing. On one hand this is great. However, on the other hand, it is very damaging to competitors and industries.

Breaking Amazon (AMZN) up may stop or at least slow the innovation they have brought to our world. We have lived through many breakups in the past. You remember the break-up of AT&T (T) around 1970 and Microsoft (MSFT) around 2000. Both were significantly impacted, and it took a while to recover. Fortunately, today, both are still once again, king of their hill.

Should Amazon, Google, Facebook, Apple Be Broke Up?

What about Amazon? Is this a problem that needs to be controlled? Also, if we are asking this question about Amazon, what about other players like Google (GOOGL), Facebook (FB) and Apple (AAPL)?

Does success always lead to being broken up? We love the moves and actions of small competitors as they fight for a place in their industry. Then as they grow and become dominant, the same actions we applauded yesterday, we deplore going forward. Why? The company is still doing the same thing.

The reason is simple. When a company is small, they are the underdog, fighting against the established ways of doing business. However, when they grow and become the dominant player, they must change the way they act, talk and do business. They must soften their actions.

Otherwise they are seen as a bully and bullies must be controlled. Bullies keep smaller players from jumping in and changing everything once again. This happens time after time.

Every successful company eventually passes that invisible line in the sand, where the same actions that were applauded when they were a startup, are now seen as predatory.

Amazon Transformed Book Business for Better and Worse

This has happened in the past. There are countless examples, like the horse and buggy industry ending when the automobile was invented. New ideas transform. However, this transformation can be a bumpy road with plenty of pot holes for workers, companies, investors and industries.

We saw Amazon completely transform the book business starting in the 1990’s. Back then the story was how big bookstores like Barnes & Noble (BKS) and Borders were transforming the industry, putting small bookstores out of business. That’s what the movie, You’ve Got Mail, with Tom Hanks and Meg Ryan was all about.

The next wave of change was how Amazon.com put pressure on that sector putting large booksellers out of business or at least severely impacting them. Today, Amazon is the leader in the book business. Within this success story, there is still plenty of good and bad.

Amazon.com Hurts Authors

Example, many readers love the Kindle and eBook innovation, but authors are getting killed. Where they used to be able to make money and earn a living, those days are gone for most, and to make matters worse, Amazon doesn’t seem to care.

This defies logic. After all we need authors. But too many no longer write because they can’t make enough money to do so any more. This is a by-product of Amazon.com actions and dominance.

Today, the book business is just one slice of their massive pie. They are a massive online store for everything you can imagine. They use their software to track customers searches and purchases to target them with ads and offers. They are a leader in cloud services with Amazon Web Services or AWS.

Now, they are moving into the retail world with the acquisition of Whole Foods and the creation of Amazon Go. This is the first steps of transforming the entire retail industry, starting with the grocery business.

Now, we hear Amazon wants to get into banking and checking. This may start with their own credit card, but I predict it will expand and ultimately let them compete with banks, head to head.

The Good and Bad of Amazon Domination

There is plenty of both good and bad with this move. First, the banking industry is broken, and users do not like it. It costs us way too much for simple services. Example, we pay more than $4 to use an ATM machine today. Remember the good old days when this was free? Things change.

So, broken industries that over charge customers and abuse them, have too many potholes, become targets for the reinvention power of technology from companies like Amazon.com.

That’s the good part. Competitive pressure from Amazon puts pressure on existing industries, making them better. This is similar to what Uber and Lyft are doing in the taxi and limousine business. Forcing competitors to upgrade and update is always positive.

The bad part is, Amazon is often so good, they transform the entire industry, drive competitors out of business and own the space going forward. This negatively impacts workers, investors, customers and more. So, they bring plenty of both good and bad.

Is Amazon.com Crossing the Invisible Line in the Sand?

If we move ahead 50 years and look back, this may look like a magical time of reinvention. But today, there is a lot of pain with all the potholes in the road.

If there were multiple Amazon.com competitors, this would not be a problem. This innovation would be welcomed with open arms. However, like Microsoft and AT&T from decades ago, when a company gets too big, and impedes competition, the US Government typically steps in and breaks them up.

That’s what I see happening to Amazon.com if they continue on their current path. They are crossing the invisible line in the sand I mentioned earlier. When that happens, the Government typically steps in. So, based on their currently pace of success, it looks like this is more a question of when, rather than if.

Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, speaker and consultant. He follows wireless, wire line, telecom, Internet, cable TV, IPTV, Cloud, Mobile Pay, FinTech and communications technology. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 153.74 0.39 0.25 25,315,999 Trade
GOOGL Alphabet Inc. 1,120.54 29.80 2.73 2,469,263 Trade
AAPL Apple Inc. 222.11 7.66 3.57 40,354,894 Trade
BKS Barnes & Noble Inc. 6.78 -0.11 -1.60 1,860,703 Trade
AMZN Amazon.com Inc. 1,788.61 69.25 4.03 9,452,848 Trade
T AT&T Inc. 32.25 0.50 1.57 43,155,340 Trade
MSFT Microsoft Corporation 109.57 3.66 3.46 47,758,775 Trade

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