10 Jan 2018 16:23 IST

Amazon’s forces

How they are disrupting life and business

Not too long ago, everyone feared Microsoft was taking over the world. Anti-trust officials were taking it to court, and we thought everyone will be working for Microsoft one day. Well, it is now Amazon. Starting as an on-line book store in 1995, Amazon now is a market place for anything and everything. It employs about 40,000 people at its headquarters in Seattle, and some 450,000 in its businesses around the world.

It owns a major newspaper, The Washington Post, which takes strong liberal positions on major issues. It also owns Whole Foods Market, a grocery store focused on health, natural and organic foods. Other businesses the company is in include: Cloud services, publishing and even film-making.

End of last year, Amazon created a stir by announcing that it wanted a second headquarters and would be spending about $20 billion (about ₹1,30,000 crore) over a 20-year period on the project. The company called for bids from towns who were willing to host the company by satisfying some preconditions: it needed to be a metro area of more than one million population, availability of software and other technical talent, good transportation, recreational facilities, and so on. Some 238 cities and regions, mostly from the US but also some from Canada and Mexico, responded. It takes gumption for a company to pull off something like this. The potential 50,000 new jobs that would be created is attractive enough for many to try.

Some cities are reported to have offered significant breaks: Newark has reportedly offered $7 billion (₹45, 500) over a decade. To attract Foxconn Technology, the Taiwanese electronics assembler to set up a plant in Wisconsin, the state promised $3 billion (₹19,500 crore) in tax benefits.

Amazon’s dominance in the retail sphere by facilitating on-line purchases has already severely shaken up the business. It is estimated that about 40 per cent of on-line spending in the US is at Amazon. Major department stores like Sears are tottering on the edge of bankruptcy, and shopping malls are seeing reduced business. Even the giant Walmart has just about recovered from the Amazon shock. In a recent move, Amazon is considering distributing drugs and providing pharmacy related services. And Amazon’s business model of paying very little taxes, no dividends, and retaining the money just to grow is another story altogether.

What Amazon will do next is a thought keeping many CEOs awake. Many companies in widely different industries, watching Amazon and other technology driven firms, are making their own countermoves. Amazon’s intent to enter drug distribution appears to have prompted CVS, a major pharmacy chain, to try and acquire a health insurance company, Aetna, to strengthen its position in the industry. Disney’s acquisition of major assets of Fox appears to be aimed at countering Netflix’s growth and expansion. AT&T’s acquisition of Time Warner appears aimed at having a better control over both creating content and distribution

The four technology giants in the US today, namely Amazon, Apple, Facebook and Google, have overthrown management theories about the need for focus as they constantly scour new customer needs that they can service and dominate. They have disrupted vast sectors of human activity. At one time, small technology startups hoped to be successful enough to be bought by Microsoft. Now, Amazon’s taken that place.

(The writer is a professor at Suffolk University, Boston. The article first appeared in The Hindu BusinessLine.)