Cornering the Market: A comparative look at Amazon's market value

Amazon's dominance has been aided by Bezos's prescient grasp of how the seemingly wide-open web could be turned into a winner-take-all environment. In 2005, Amazon launched Prime, a membership program that provides free two-day shipping and other perks for $99 a year. As a stand-alone service, Prime is a money-loser; Forrester Research estimates that Amazon loses $1 billion a year on shipping alone. The point of getting people to fork over $99 has never been about the money, thoughit's about the psychology. When people pay for Prime, they naturally want to maximize the value in free shipping they derive from it by doing more of their shopping on Amazon. Already, some 80 million Americans, accounting for more than half of the country's households, are Prime members. Studies show they are less likely to comparison-shop, and they spend almost twice as much with Amazon as non-Prime customers.

With Alexa, Bezos has found a way to lure people even deeper into Amazon's ecosystem. Alexa is the voice assistant that powers the company's Echo speaker, and it makes buying from Amazon is as effortless as a passing thought. "The fact that it's always on, you never have to charge it, and it's there ready in your kitchen or your bedroom or wherever you put it, the fact that you can talk to it in a natural wayremoves a lot of barriers, a lot of friction," Bezos has said of the speaker. One such friction is choice: If you ask Alexa for batteries, you won't get to choose Duracell or Energizer; Amazon's brand is the only option. With Alexa, Amazon will "slowly but surely take control of your preferences," predicts Scott Galloway, a professor of marketing at New York University. The digital giant has already sold at least 20 million of these devices.

Although Amazon continues to earn relatively meager profits compared with rivals like Walmart and Apple, its stock price has soared, almost doubling in value over the past 18 months and making Bezos the wealthiest person in the world. Investors see where this is heading. In 2016, Chamath Palihapitiya, a venture capitalist, and owner of the Golden State Warriors, put a name to it: Amazon, he told an audience of fellow investors, "is a multitrillion-dollar monopoly hiding in plain sight."

What Amazon's giddy investors already understand, however, regulators have so far failed to grasp. Last June, Amazon announced its intention to buy Whole Foods. The deal gives Amazon a prominent foothold in the pivotal grocery industry and much else besides. With Whole Foods, Amazon gains new ways to cement its dominance online, including by extending its package delivery infrastructure to 470 stores nestled among millions of urban consumers. And it allows the company to blur the distinction between online and offline retail, accelerating the spread of digitally-driven commerce and, with it, Amazon's power. Yet, just two months after the deal was announced, the Federal Trade Commission gave it the green light, concluding that the merger did not warrant an in-depth review.

As it grows, Amazon is exposing the deficiencies of the Reagan-era changes in how we think about corporate concentration. By collapsing antitrust enforcement to consider only prices, we have lost sight of what earlier generations knew about monopolies: that they can harm us as producers of value, not merely as consumers of it. And their control over our livelihoods and the fate of our communities is inherently political: It's a threat to liberty and democracy.

Economists have recently begun to document a link between corporate concentration and rising inequality. Dominant companies, they're finding, are funneling the spoils to a small number of people at the top. And by reducing the number of their competitors, these companies are also making it harder for workers to get a fair wage and for producers to get a fair price. A particularly troubling data point in this research is the loss of a long-standing pathway to a middle-class life: starting a business. The number of new firms launched each year has fallen by nearly two-thirds since 1980, and many economists believe that corporate power is to blame. This lack of start-ups is fuelling a broader decline in the ranks of small businesses: Between 2005 and 2015, the number of small retailers fell by 85,000, a drop of 21 percent relative to the population.

In this story of concentrated power and wealth, Amazon is a central character. In a 2016 survey, independent retailers ranked competition from Internet retailers like Amazon as the biggest threat to their businesses, more worrisome than big-box stores or rising health-insurance costs. And their decline is having ripple effects up the supply chain. As more of the market shifts to a single gatekeeper, manufacturers say they are having a harder time introducing new products.

Local businesses "are in a much better position as small retailers to do that boot-strapping," says Michael Levins, the founder of Innovative Kids, a book and puzzle producer that's been in business for 29 years.

At the same time that many communities are seeing local businesses disappear, they're also losing retail jobs. This past year, more people lost jobs in general-merchandise stores than the total number of workers in the coal industry. Even as Amazon expands its network of warehouses, it isn't creating enough jobs to make up for the losses it's causing. The basic math of what's underway is startling: Retail accounts for about one in 10 American jobs, and Amazon needs only half as many workers to distribute the same volume of goods as traditional stores require. Plus it's likely to need even fewer workers in the future: Since 2015, Amazon has invited elite engineering teams to compete in an annual robotics challenge. Their mission is to design a robot that can select and grasp assorted items, a task that, for now, only humans can do.

This kind of wholesale upending of an industry happens periodically, and, as a rule, we don't run out of jobs. But today, in the absence of a flush of new businesses creating new opportunities, work for many people has become increasingly precariousand, in the case of Amazon workers, punishing. People who work inside the company's warehouses describe the pace as grueling, with "unit-per-hour" rates set so high that failure and exhaustion are routine. Amazon's approach to work is at once futuristic and a throwback to labor's distant past. Robots zip around, laden with products, while many of the people they interface with are temporary employees. Amazon calls these workers "seasonal," but, in fact, it relies on them year-round.

As it moves into package delivery, Amazon is bringing its labor model along, relying in part on Amazon Flex drivers, who use their own vehicles, take directions from an app, and are paid a piece rate for each batch of boxes they deliver. The impacts are already being felt at the US Postal Service and UPS, whose hundreds of thousands of unionized employees constitute one of the last surviving corners of the working middle class. A few months ago, over the objections of the Teamsters union, UPS began placing ads for drivers who will use their own vehicles.

As a result of the economic shifts that Amazon is helping to propel, the country is being divided into starkly unequal geography. Only a handful of metro areas are gaining significant numbers of good jobs from Big Tech. And as the formation of new businesses declines, they're also being consolidated into fewer places: In contrast with previous recoveries, when new firms were widely dispersed, half of all businesses started between 2010 and 2014 were located in just five metro areas. Even winning cities are marked by disparity: In Seattle, where Amazon is headquartered, the median home value now exceeds $700,000, while the unsheltered homeless population doubled over 10 years. It's not hard to imagine a future in which Amazon's cashier-less supermarkets and nondescript bookstores populate better-off neighborhoods, while other communities become increasingly barren of commercial activity.

In the left-behind towns and neighborhoods, the despair that has set in stems from more than just economic hardship. There is a pervasive sense of powerlessness that is toxic to democracy. In 1946, sociologist C. Wright Mills and the economist Melville J. Ulmer published a detailed study of several matched pairs of cities. The cities in each pair were similar in all respects except for one main difference: One city's economy was composed of many locally-owned firms, while the other's was largely controlled by absentee corporations. The cities that possessed a degree of local economic power had a bigger middle class and a greater variety of jobs, Mills and Ulmer found. But their most important findings had to do with civic health. The cities with a robust local economy invested more in public infrastructure and services, and their residents were involved in community affairs in greater numbers.

Q. With respect to the business model of Amazon Marketplace, identify the distinctive aspects and reflect on its winner-take-all opportunity.