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January 7, 2016

amazon is its discontent

If 2015 was the year that I solidified a weird interest in business news (and exactly what that sort of news means for non-business people like you and me), then this story from the last day of the year concerning the unending ubiquity of Amazon and how it sells a lot of stuff and no one else sells very much nyah nyah is emblematic of the facet of this business culture — the facet of business even — that most fascinates me.

It's a story hiding in plain sight. I know that I certainly give a disproportionate portion of my retail dollars to Amazon, and the ways that we've changed in how we shop (which we put at the feet of Amazon pretty much because it's the online retailer that made it) is certainly worth the discussion, a discussion that make Amazon canary and coal mine simultaneously.

But How We Shop Now is not the source of my fascination. What I am mildly obsessed with is how Amazon is considered a business success story — and not in terms of its arguably terrible employment conditions, though that's fair game too, whether perm or temp, but on a very basic "What do companies do?" basis:

Amazon's strong results have led to a meteoric rise in its share price, which has more than doubled this year. Its market capitalization of about $325 billion now dwarfs that of Walmart, which shrank by a quarter to just below $200 billion.

Despite that dominance, Amazon's actual profits are still tiny -- or at least they were in the company's most recent quarterly report in October. The company earned just $79 million on $24.5 billion in total revenue in the quarter, and leaned heavily on its surging cloud computing business, Amazon Web Services, for profit.

Profit may not be tiny in the sense of you and I having spent a hundred bucks on a nice meal, but the profit margin is tiny indeed. Cue caveats concerning corporate accounting, etc., but from the back of the envelope, Amazon's simple old profit margin (i.e., how much of the revenue that comes in that Amazon gets to keep) for the quarter referenced above is three tenths of one percent. That's a shockingly low number on the face of it, but illustrations are fun: in order for Amazon to have made one crisp dollar in profit for that quarter, they had to take in $300 in consumer money. So I'm not sure at what point the optimism/regard for Amazon is based on its ubiquity instead of its actual financial prospects.

As usual, this is a longer conversation, but the tenor of business here in 2016, particularly in the tech sector, is a perverse fetishization of innovation and enormity in ways that do not so much glaze over capitalism as they do ignore it completely. This is to say that, in this case, Amazon is doing something (well, among cloud and other digital services) that has been done on a more small-scale hands-on basis, selling stuff to people who want stuff, for centuries. And Amazon is at least on the surface very good at doing so, as consumers all over are opting to fiddle around on a website or an app and wait by the door in lieu of running down to the corner, or to the mall. And the companies that sold stuff on the corner or at the mall (and the people that work for them) have seen markedly better days.

That's all pretty inarguable. The question I have is, is this really what we want success to look like in the 21st Century? I highly-valuated, market-share-devouring, one-stop everything that makes no profits and makes no one even marginally wealthy other than Jeff Bezos and his contemporaries? If the benchmark for success is lowered to "sells the most stuff." where does that leave us?

And for the record, I just renewed my Prime account. None of us have clean hands on this one.

Posted by mrbrent at 7:35 AM