Xavier Collin/Image Press Agency
Amazon CEO Andy Jassy is seen at the Los Angeles premiere of his company’s show “The Lord of the Rings: The Rings of Power.” The work explains how Sauron tricked the peoples of Middle-Earth by helping them forge magic rings he controlled in secret.
Amazon’s fourth-quarter earnings, released late Thursday, were better than expected, with 9 percent revenue growth year over year. However, 2022 still represented the lowest revenue growth for the company in its history. In a way, this is a bit of a trick, an artifact of the huge run-up in sales in 2020 and 2021 as quarantines and remote work caused e-commerce to soar. Amazon reverting to the mean therefore looks like a real loss of momentum.
But there’s no question that Amazon is at an inflection point. It plans to lay off 18,000 employees, about 5 percent of its corporate staff. Shares are down 25 percent over the past year (though up a bit lately). Its physical bookstores and other brick-and-mortar outlets are closing, warehouse growth is slowing, non-core products like Amazon Care (a telehealth service) are shuttering, private-label products from Amazon Basics are being cut, and Alexa, the smart speaker that at one point was seen as the company’s frontline platform, is seen as a “colossal failure.” Add to that continued workplace safety fines and renewed antitrust pressure from a more aggressive set of enforcers, and you have a company in limbo.
Failures and revenue slashes and layoffs are not always an indicator of failure, of course: Look at Facebook parent company Meta, which cut 11,000 jobs and was rewarded by investors (who were rewarded in turn through huge stock buybacks). But the rumors of Amazon’s demise—of which there are real signs even in its core business—reflects a misunderstanding of the company’s longtime goals.
Amazon has long wanted to become not indispensable, but unavoidable. The key difference there is that a company is indispensable through quality of service and affordability; a company is unavoidable simply by being in the way. Amazon needed to try a lot of different strategies to create this unavoidability, and naturally some of them did not succeed. But their route to the main goal is coming into focus—and it should alarm anti-monopoly critics who believe (rightly in my view) that no company should be de facto mandatory for most consumers and sellers.
At first glance, you might think that Amazon is losing its grip on its core product: letting people buy anything over the internet. Though being “obsessed” with the customer has always been the executive prattle at Amazon, customer satisfaction has shrunk lately, as the company continues to layer on commitments it cannot meet and standards slip. Nearly one-third of Amazon customers in one survey said they “regularly receiv[e] products late or get an item of low quality.”
During the supply chain crunch, “two-day” shipping was on average being fulfilled in as many as six days, and the company still struggles with that commitment, shifting a million packages a day to UPS and the Postal Service even as it added a one-day shipping pledge for some Prime members. But the bigger issue, as John Herrman identified at New York magazine, is that the marketplace interface has become impossible to use.
Amazon wants to make every e-commerce site on the web an Amazon site.
Amazon only became the “Everything Store” by inviting millions of sellers to locate their business there, and more recently they have forced those sellers to buy ads to reach the top of the search list. This has made the website far less user-friendly, with a flood of options that aren’t organized in any useful way bombarding the consumer. Worse, Amazon has created a digital Wild West, with third-party sellers fighting one another for eyeballs and sales by posting a morass of fake reviews, scamming customers with counterfeit or simply fake products, and on and on. It has made shopping at the marketplace confusing and miserable. The real-world implications of this, as Amazon scribe Brad Stone has said, is that Amazon is losing money in retail to a significant degree. And when you have a confusing store where a lot of the products for sale are scammy garbage, that stands to reason.
Keep in mind that Amazon CEO Andy Jassy, in announcing those 18,000 layoffs, said that a good chunk of them would come from the “core retail” department. At a time when Amazon.com is experiencing the phenomenon common to internet platforms that author Cory Doctorow has called “enshittification,” why would the company take away the people most equipped to fix it?
The best answer to this is that Amazon doesn’t see selling things on the internet as its path to domination. Indeed, for years the most profitable sector of the business has been Amazon Web Services, its cloud-based computing infrastructure. The concept of economic infrastructure appears to be more in line with Amazon’s future plans.
Over the holidays, Amazon added fees to its third-party fulfillment service, where it handles shipping and logistics for independent sellers. This is where much of its revenue comes from on the retail side: Seller fees give Amazon four times the margin of typical retail sales, according to a 2018 Morgan Stanley analysis. A December 2021 report from the Institute for Local Self-Reliance showed that Amazon took 34 cents out of every dollar in third-party sales that year, nearly double what it took seven years earlier.
That’s the business model Amazon is trying to build. Last year, it announced Buy With Prime, offering sellers on other websites their shipping and logistics architecture. A Prime badge on those other sites would allow checkouts using Prime accounts and guaranteed (or “guaranteed”) two-day shipping. The service also allows reviews and ratings from Amazon to show up on other sites. Buy With Prime is expanding; where it was invite-only previously, it is now open to all U.S. sellers.
In other words, Amazon wants to make every e-commerce site on the web an Amazon site. And instead of selling its own goods, it wants to be a back-end logistics provider taking a cut of every economic transaction. Sellers already found it hard to avoid putting up a shop on Amazon; the company’s goal is to make it impossible not to interact with Amazon no matter where you sell. And Amazon has shown that it will extract a healthy price from everyone involved.
You can see this transformation to infrastructure in an obscure filing in the Federal Register last month, where the Transportation Security Administration gave Amazon Air—the company’s air shipping arm—an exemption from aviation security at three airports: Cincinnati/Northern Kentucky (CVG), Baltimore/Washington (BWI), and Chicago Rockford (RFD). These exemptions are typically granted when only one airline uses an entire terminal. It reveals Amazon’s push into air logistics.
None of this is particularly new. The Institute for Local Self-Reliance’s Stacy Mitchell wrote in 2018 for The Nation that Amazon didn’t want to just dominate the market, it wanted to become it. Jassy has told staff that his mission is to Invent and Simplify, but we can see that properly as inventing ways to make Amazon unavoidable and simplifying consumer choices for their purchases to just Amazon, even if they don’t know it.
This attempted tollboothing of the entire economy carries dangerous risks for pricing and small-business survival, for obvious reasons. It also, as Moira Weigel explains in an interesting new report, creates a sort of trickle-down monopoly, where the only way to get ahead in retail business is to engage in the same kinds of predatory tactics as the parent leviathan.
Policymakers should be concerned about this, though they must reorient their thinking. For too long, we’ve seen Amazon discussed in the context of a set of older problems: how it steals market share from competitors on its platform, for example, or how it might dominate an array of markets, from groceries to health care. But the real danger from Amazon is that it invisibly takes a cut from everybody: consumers, businesses, even governments. That’s the larger challenge for regulators to understand.
