If You’re Focused On Amazon’s Competition, You’re Missing the Future

– April 5, 2022 Reading Time: 7 minutes

“You have to be kidding me.” Those were the words uttered with obvious incredulity to Martin Eberhard and Marc Tarpenning, the original founders of Tesla Motors. They were at a bar in Woodside, and they were discussing their hope of changing the very definition of the automobile.

As one might expect, the reaction of venture capitalists to their idea was similar to that of their friend in the bar. Funding would be tough. Thank goodness Elon Musk had long envisioned an electric vehicle future. In securing a meeting with Musk, Eberhard and Tarpenning soon had their largest shareholder and Chairman.

Readers know the rest. While Tesla experienced some lean early years such that Musk nearly lost everything, eventually the proverbial ship was righted. By 2012 the Tesla Model S was Motor Trend’s unanimous choice for car of the year. This same car received the highest safety ratings in history, it was both faster and handled better than the competition, plus the cars were beautiful. In the words of Musk biographer Ashlee Vance, the remarkable Model S “slapped Detroit sober.”

Nowadays, seemingly all carmakers around the world have electric vehicle lines, or plan to. A bunch of engineers with no background in automobiles succeeded when it comes to – yes – changing the very definition of the automobile. While the automotive powers-that-be were focused on one another, they missed where the truly disruptive competition was coming from. And miss it they did. Figure that if they’d taken Musk and Tesla at all seriously, they would have either put it out of business, bought it, or realistically done both.

Tesla, and other disruptors much like it came to mind a great deal while watching Frontline’s rather slanted Amazon Empire: The Rise and Reign of Jeff Bezos. Business history suggests that much as established automakers took their eye off the ball somewhat in focusing on traditional competitors, so are Amazon’s critics, including the producers at Frontline, missing the point in fearing Amazon’s dominance in online retail.

Paraphrasing a self-serious Frontline interviewee close to the documentary’s opening, “Are we OK with one company winning capitalism?” The question says so little, which means it says so much. Implicit in the question’s smug sarcasm is that Amazon and the internet represent the frontier of commerce, and since Amazon is the face of what its slow-witted critics think is the frontier, it’s in a sense no surprise that they’re fearful of the Seattle giant’s alleged “market power.”

Of course, that’s why documentarians are best at documenting rather than analyzing. That is so because as history makes plain, Amazon’s “reign” is by its very descriptor, ephemeral. The company’s critics can’t see this truth for the same reason that they didn’t imagine a company like Amazon before there was Amazon, nor did they load up on Amazon shares once they had the opportunity to. To be clear about the previous sentence, it shouldn’t be construed as only an insult.

Extraordinarily rare is the person who can see an entirely different future from the present. Which is why it’s so difficult to imagine Amazon’s reign at the top ending. The internet is presently life, and Amazon is expert at meeting our needs through the internet. Of course, entrepreneurs are just that because unlike the other 99.99999% constrained by the known, entrepreneurs see a different future that we can’t imagine. Which explains why so few of us buy and hold onto shares of genius companies from the earliest of days. We don’t because during the earliest of days, what’s actually brilliant looks anything but.

Frontline acknowledges the above truth about, ironically enough, Amazon. It shows a bemused Jay Leno asking Bezos on The Tonight Show about his company that doesn’t make money. They also quote an interviewee as saying the reaction to Amazon’s online books back in the 1990s was “incredulous.” Away from the documentary, many readers doubtless remember the “Amazon.org” pejorative that lasted well into the 2000s.

The problem for the documentarians is that while they’re perhaps predictably capable of looking into the past and seeing clearly just how skeptical the wise once were, they’re seemingly incapable of looking into the future and seeing that probably as you’re reading this, there are one or many Jeff Bezos equivalents feverishly working on ways to render internet commerce yesterday’s news. Who are these people? If any of us knew, the path to billionaire status would be simple. It’s all a reminder that Bezos and Amazon’s replacements arguably aren’t even worth ridiculing now. Better yet, this person or persons likely isn’t even known inside the world of traditional retail. Think about it.

The simple truth is that disruption rarely comes from within the industry about to see its norms turned upside down. Blockbuster wasn’t felled by Hollywood Video or Movie Gallery, Ford didn’t introduce the electric vehicle to the detriment of GM and Mercedes, and it certainly wasn’t Ericsson and Nokia who invented the must-have modern smartphone on the way to RIM Blackberry’s demise. That which will alter the established order near inevitably comes from outside it.

Which is why the Frontline documentary is so interesting at times, but ultimately so disappointing and misleading. The comments from the talking heads are routinely negative, and the music playing in the background is foreboding. Amazon is allegedly taking us somewhere bad.

Except that it’s not. Though the producers try to present Amazon in a menacing way, anyone with a reasonable understanding of commercial history can see through the insults. It’s noted that Amazon and Bezos have long treasured data about customers, and the latter is predictably presented in “Big Brother” form. More realistically, trying to understand one’s customers is as old as business is. Thank goodness Amazon is relentlessly focused on learning as much as possible about its users. If it didn’t, what we want and what we would want were it available would not be available.

That most of us would quickly go nuts without Amazon is the surest sign that its “obsessive customer focus,” including data collection, actually begets wondrous fruit for its customers. In the old Soviet Union, the customer was quite literally the enemy such that restaurant customers were told what they could order. You hate “Big Data?” Try living without it.

Beyond that, Amazon is the opposite of stasis. It’s learning about us so that it can wisely change, so that it can intrepidly develop new products and services that we might enjoy. Along these lines, how many of us could live without the supposedly invasive Echo (fear not, Frontline bills it as a “brilliant trick”), or two and increasingly one-day delivery as part of our Prime membership? Do we want instantaneous delivery? Amazon is surely eager to find out. The Frontline documentarians unsurprisingly make a case that fast delivery has led to 13 traffic deaths in recent years, and while tragic, they leave out how ever-customer-focused Amazon is eying drones and other once-unfathomable forms of delivery that would reduce the burden on drivers, and by extension miles driven. This will inevitably correlate with fewer car accidents.

After which, the documentary tries to create victims born of Amazon’s endlessly visited platform. Melville House head Dennis Johnson views the company as the proverbial Godfather after Amazon told him it would allow his publishing imprint to sell its books on Amazon, but only in return for a cut. Cue the scary music, except that being able to feature one’s wares on an intensely trafficked retail site is presumably beneficial, right? Well, yes. Johnson eventually replies “Absolutely” when asked if Amazon has been good for his book imprint after creating the impression that a gun was put to his head. Amazon’s 2017 battle over sales terms with publisher Hachette, and which led to Amazon not listing Hachette books for a time, was said to have been “absolutely devastating to first time authors,” and to authors generally reliant on Amazon for 50 to 90% of their sales. But the slanted coverage missed two things. First, nearly every first-time author sells few to very few books as is. Second, the fact that authors are so reliant on Amazon for sales is the surest sign that the company has been manna from heaven for authors precisely because the online giant is not square-foot limited. Please think about this, and then please watch the classic 1987 film 84 Charing Cross Road if you’re still scratching your head about how difficult it was for authors before Amazon…

Okay, but what about Amazon’s warehouse employees? The company has a lot of them, and better yet, the Frontline producers have no choice but to admit that Amazon was hiring when all-too-many businesses were not in 2008’s aftermath. It was also hiring in the locales hit hardest by what the producers described as the “Great Recession.” Sure, but work conditions are said to be bad. Except that they couldn’t be too bad. Americans are free to move about all fifty states in pursuit of any job they want, yet they line up for the opportunities presented by Amazon. Where people go and where they choose to work is a market signal, and an information-pregnant one at that. It seems the real story about work conditions is a bit more nuanced than critics would like to admit.

Even better, Amazon’s relentless automation of its warehouses is a signal that over time the corporation isn’t looking to replace its human capital as much as it’s investing enormous sums in that same human capital. As logic indicates, investment that automates some aspects of human action will greatly enhance the productivity of those same humans. Why is Amazon doing this? It recognizes that low-paid labor is expensive labor. Those not paid big sums don’t take the work as seriously as they could, don’t apply in the first place, and worst of all, they quit with greater frequency. The obvious plan with automation is to make Fulfillment Center work much better, and better compensated. This will ensure much greater worker loyalty, which always and everywhere redounds to customers at a company obsessively focused on customers. Unfortunately, much of this nuance didn’t make it into a documentary interested in shedding a bad light on what is undeniably good.

Neither did the simple truth that online retail is to this day the poorer cousin to bricks and mortar make the cut. Evidence supporting the previous claim is empirical, but also rooted in the actions of Amazon itself. Far from placing all of its chips on the online space, Amazon continues to expand into the bricks and mortar that it had supposedly rendered yesterday’s news.

All of which speaks to a bigger, but unspoken truth about Amazon and “Big Tech” more broadly. While Frontline and other critics would have their viewers and readers believe Amazon et al are at the frontier of commercial advance such that their dominance is a forever concept, those at the top continue to invest tens of billions annually in pursuit of better ways to serve the customer, and more importantly, better ways to lead the customer. The latter in particular is an acknowledgment from Amazon and the present “winners” of the internet race that the internet is decidedly not the frontier. That it isn’t was alluded to by Frontline, but the producers seemingly couldn’t see that in suggesting Amazon has control over “the flow of commerce in the way that railroad barons once did (a slight paraphrase),” they were wrecking their own case made about the alleged horrors of Amazon’s success.

Capitalism is ultimately about capital itself, which means it produces the wealth that inevitably migrates toward visionaries who will replace the existing commercial order. It seems the only entity that understands this simple truth amid this ridiculous debate about Amazon slowly “winning capitalism” is Amazon itself. The business giant’s dominance is paradoxically the surest sign that it will eventually be replaced thanks to the wealth that it and others like it will create.

In short, we despise dominance to our everlasting detriment. Commercial dominance in the present is the surest sign of future progress. This truth was plainly alluded to by Frontline’s producers, but not grasped.

Reprinted from RealClearMarkets