Amazon Could Be Broken Into These Pieces
“The U.S. House of Representatives Judiciary Committee voted on Thursday (June 24) to require Big Tech platforms to choose between running a platform and competing on it, wrapping up two days of votes that saw the approval of four measures directly aimed at reining in the power of some of the country’s most successful companies.”–Reuters
Amazon was at the top of this list which includes Google parent Alphabet, Facebook, and Apple.
Amazon could be broken into pieces, thus blunting its power in both the e-commerce and cloud marketplaces, another market it dominates. Amazon is made of three large businesses and, to some extent, discrete segments, so dismantling it would not be difficult.
There is a precedent for similar actions by the federal government. AT&T, which virtually controlled the American telecom market, was broken into pieces at the start of 1984. The government threatened to do the same with Microsoft, but the two parties reached an agreement in 1994 that limited the way Microsoft operated some of its businesses.
Amazon’s original business was e-commerce, which began in 1994. Amazon dominates that industry in the United States, and there is much evidence it has contributed to the decline of the brick-and-mortar segment of retail. That, in turn, has triggered the loss of tens of thousands of American jobs, a large number of industry analysts and economists say. The process has accelerated during the pandemic.
E-commerce continues to be its largest operation. Amazon posted total revenue of $108.5 billion in the first quarter, which was up 44% from the same quarter a year earlier. Of this total, its North American e-commerce business contributed $64.4 billion. Its international e-commerce business added $30.6 billion. These domestic and international revenues are largely driven by Prime, a set of paid subscription services that have well over 200 million members. Among Prime’s most significant benefits are a free video streaming service, which is among America’s most dominant (along with Netflix) and a free shipping program. As Amazon buys MGM, the Prime Video library size will rise sharply and become more attractive to current and potential Prime members.
E-commerce is the first of the three parts that constitute the operations that together make up Amazon. The company also is the world’s leader in cloud computing, one of the fastest-growing segments of the tech industry. It is the top provider of these services by far. Its share of the public cloud business recently was put a 29%, followed by Microsoft at 15% and Google at 10%. AWS, the cloud division of Amazon, had revenue of $13.5 billion last quarter and made $4.2 billion in operating income, for an impressive 31% operating profit margin. This is the second part of Amazon that could be spun out into a separate company.
The revenue for Amazon’s third large and dominant business is rolled into its e-commerce operations, so, financially, it is hard to identify. Amazon has a strong consumer electronics business that, among other things, leads the market for artificial intelligence products that consumers use in their homes. Amazon also sells computers, e-readers and streaming media hardware. Amazon’s Alexa software controls home entertainment, communications, shopping and smart home services, including temperature control and light bulbs and cameras that are voice-activated. Estimates are that Amazon has almost 70% of the U.S. smart speaker market. It is almost certain to move this into the business and commercial sectors, where voice-controlled artificial intelligence has a number of applications.
Former U.S. Secretary of Labor Robert Reich has argued that Facebook, Amazon and Google should be regulated. He added, “A better alternative is to break them up. That way, the information would be distributed through a large number of independent channels without a centralized platform giving all content apparent legitimacy and extraordinary reach. And more startups could flourish.”
A review of these three parts of Amazon shows that each holds a tremendous lead in its particular business. Each could operate independently from the others and remain competitive and financially viable.
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