Amazon Is The Company That Changed The World

Amazon has not only changed the way we shop, but also the way we live. The founder of the company, Jeff Bezos, leaves his position as CEO this Monday after a spectacular growth in sales during the pandemic. What started out as a home delivery book distributor called cadabra.com, created as the myth of big technology dictates in a garage on July 5, 1994, became the second in history , only behind Apple, in exceed a stock market value of more than a trillion dollars. Its current market capitalization (1.73 trillion) is greater than the GDP of Spain.

The Seattle-based firm has given a push without turning back to electronic consumption, but it has also been decisive in the so-called Internet cloud, the possibility of storing content online . Without the cloud, a business that Amazon controls 32% worldwide, neither digital platforms like Netflix would exist, nor would most of the applications on our smartphones work.

Although Amazon soon put books in the background, the publishing sector has been one of the most affected by the emergence of this technological giant. Amid accusations of abuses against competition and endangering the fabric of bookstores, it has reached a dominant position in the market: four out of every ten books purchased in the US are made through Amazon.

The firm’s economic data is overwhelming – in 2020 it earned 21.3 billion dollars (almost 18 billion euros) after billing 386 billion dollars – and its exorbitant annual growth – profits rose 84% and revenues 38% -. In this context, with the company on the crest of the wave, Bezos steps aside and ceases to be its CEO on the 27th anniversary of the firm to focus on the company that will make him fulfill his dream of exploring the space: Blue Origin (on July 20 it will make an 11-minute suborbital trip 100 kilometers high).

Andy Jassy, ​​known for creating Amazon’s colossal cloud computing business, AWS, will take the witness(Amazon Web Services). “Andy is brilliant and has the highest standards. I guarantee that he will not let the universe make us typical, ”Bezos assured in his last letter to shareholders, on April 15.

When Bezos turned Amazon into a general store, he applied the principle that for centuries had made Harrod’s stores in London famous: you could buy anything from a pin to an elephant. The pandemic has accelerated its progress more if possible because, in addition, it not only sells products, but, in exchange for a percentage and more or less draconian conditions, it offers its platform (and its online visibility ) to all types of businesses. Home confinement for months spurred e-commerce .

The sector was already growing unstoppably year after year and in this new wave it has taken the definitive leap. “Consumers have lost their fear of buying online and in that Amazon has been one of the mainstays ”, explains Javier Vello, partner in charge of the distribution and consumer products sector at EY Spain.

The businessman who created Amazon in a garage in 1994 hands over the baton and focuses on the company that will take him to space on July 20
Amazon, asked by EL PAÍS, has not wanted to comment on the evolution of the firm and the market and refers to its official communications, from 1997 to today. “We have come a long way since then and we are working harder than ever to serve and delight customers,” he explained to shareholders last April.

And Bezos added about everything achieved in this time: “We have more than 200 million Prime members around the world. More than 1.9 million small and medium-sized businesses sell in our store and represent about 60% of our retail sales.

Customers have connected more than 100 million smart home devices to Alexa. Amazon Web Services serves millions of customers and ended 2020 with an annualized execution rate of $ 50 billion. In 1997, We hadn’t invented Prime, Marketplace, Alexa, or AWS. They weren’t even ideas then, and none were predetermined. We took a lot of risk with each one and put sweat and ingenuity into each one. ”

Carlos Ballesteros, director of the chair of social impact and professor of consumer behavior at Icade, recalls that at the beginning of electronic commerce, customers had many misgivings about buying online, a barrier that has cost to break down. “Now it is seen as an easy service, in which you find all kinds of products to receive quickly at home and with the ability to return, but it was not always perceived that way,” he explains.

Such has been the evolution and penetration that the Seattle-based company has achieved a paradigm shift: “Before you went to Google when you wanted a product and now that search is done in many cases directly on Amazon. In Spain it was traditionally said that what was not sold in El Corte Inglés did not exist, and now the same thing happens with Amazon ”.

The key to success, according to the experts consulted, is not only in the wide range of products available or the prescription and assessment carried out by other previous buyers, but in the use of the vast information it has on customers and its algorithm to improve the user experience.

“They take advantage of all the data to understand the consumer and build trust. Now, for the large platforms, the important thing is not to be the owners of the product, but of the customers ”, adds Vello.

This whole story has a less friendly side. Their labor problems have been sounded, the reluctance in some countries to the rise of Amazon to the detriment of local commerce and the accusation of Brussels of unfair competition due to the use of data from its competitors .

Regarding the labor structure, even Bezos acknowledged in his last letter to shareholders as CEO that the company has to improve its relationship with employees. A few words that come after multiple criticisms of the working conditions it imposes and after the attempt by the workers to create a union organization in the United States, a desire that was truncated, as they denounced, due to pressure from the multinational .

The teacher Lina Khan , recently ratified by the US Senate to sit on the board of the FTC, controller US, believes that Amazon poses a threat to competition because it has been able to build a power structure that has earned him an influence excessive in various spheres of the US economy.

That power has its roots in its pharaonic logistics structure, but also in the size that its digital platform has reached, which in Khan’s words constitutes part of the infrastructure that makes digital commerce possible in the United States.

Threat to traditional trade
Despite these nuances, the new consumer ecosystem cannot be understood without Amazon and the changes it has brought about. Also in the competition. The rest of large businesses (of all segments) have been forced to redouble their commitment to electronic commerce. They had no other choice: either they would invest in the digital business or they would lose part of their market share.

For example, the United States has been talking about the retail apocalypse for years , a concept that gained traction with the bankruptcies of Sears and Toys “R” Us, and for which Amazon is often blamed in part . Spain is not an exception and the big ones of the retailare challenged to transform their business.

An example of this is El Corte Inglés: his model peaked at the beginning of the Great Recession and the pandemic seclusion has left him very touched. Hence the withdrawal plans to reduce the staff and commercial square meters to bet on digital sales.

Small businesses, local businesses, have been another of the big losers. He was already in low hours due to the spread of large establishments and shopping centers and he only had to hold on to the utility of being two steps away from customers.

However, Amazon and its rapid delivery system, which they achieve thanks to its logistics capacity and the 1.3 million employees it has around the world – plus the army of freelancers who collaborate on a daily basis, an external structure also put in place. doubt by the legal part -, has given them the lace. Pedro Campo, president of the Spanish Confederation of Commerce (CEC), sees it as a natural evolution of distribution: “There are very affected businesses and others that have had to close, but it is the law of life.

It is a new channel, that of salesonline , and the same cake has to be shared with more competitors. There is no other option but to adapt and achieve an attractive system for people to go to the physical store ”.

But Amazon’s business, and its importance in transforming lifestyle rather than consumer habits, does not reside only in electronic commerce, and that millions of citizens have changed the click for physical purchase, but in something so important like renting space on the web: the Internet can be infinite, but the servers that store its contents have to be somewhere.

As their international business gained importance, the company executives realized that, if they wanted the platform to remain agile, they had to develop their own online resources , which led to the opening of their own servers in various parts of the globe to that the cloud services it offered to its employees worked without problems.

They called this division of the group Amazon Web Services (AWS) . They soon saw that the product was good and competitive, so they decided to offer these services outside of the company itself. AWS is today the clear dominator of the public cloud business, with a market share of 32% in the first quarter of this year, according to data from the specialized consultancy Canalys. They are followed by Microsoft Azure, with 19%, and Google Cloud, with 7%.

Powerful server network
Because the cloud is far from being ethereal: it is rather a network of servers, millions of powerful computers scattered around the world linked together by thousands of kilometers of fiber optics. All this deployment seeks to free us from carrying heavy equipment on a daily basis. Thanks to the cloud, we can access large amounts of information from any connected device, the storage of which would require lots of hard drives. And benefit from the accumulated computing capacity in that network of servers.

If our smartphones depended exclusively on themselves, if they could not draw on the computational muscle that the cloud treasures, it would be impossible for them to run applications that use artificial intelligence. Voice assistants, translators, object recognition, augmented reality and most video games could not be incorporated into mobile phones. In silver, life today would not be possible.

Businesses are increasingly dependent on this network of servers and cabling. They pay more to outsource the cloud, using the services of AWS or its competitors, than investing in their own. Netflix illustrates this trend well. The company’s great international leap happened in 2016: that year alone it entered 130 new countries. Impossible for your platform to function properly in so many places without first assimilating your data centers with those of AWS.

Although the cloud business is already the one that brings the most income to Amazon, its firm commitment to artificial intelligence places the company as one of the fundamental companies to understand the advances of this technology. Alexa, the home voice assistant with which Amazon surprised the world in 2014, is still a reference today.

As Amazon’s catalog grew, its executives decided they had to develop their own algorithm to orient customers. Its first version, much simpler than the current one, was launched at the beginning of the century and incorporated a novelty for the time: it showed products to users based on other purchases made by those who had already purchased that item in question.

Enemy number one of bookstores
Although it represents a small part of its business, it is the world of books where the company has had the most profound influence and, according to many publishers, damaging . Amazon laid the first stone of its empire with the least commercial imaginable, culture, and the least profitable of it, books.

And perhaps its end as we know it now will also come out there if the bills that the US Congress is finalizing to iron out its dominant position are successful.and you are forced to get rid of what is competing on your platform with what is not yours. Whoever has changed the landscape of the publishing world the most could have to shake off an unusual vertical concentration in the sector.

It includes, among others, Amazon Kindle Direct Publishing, an electronic book desktop publishing platform created in 2007, together with the Kindle reader device; Amazon Publishing (2009), with 15 labels, publishing about 1,100 titles a year; Amazon Original Stories, with names from the best seller Dean Kontz to the most exquisite Chimamanda Ngozi Adichie; o Audible (2008), which according to estimates (the company never gives figures) accounts for at least 41% of audiobook sales in the US.

Despite this business infrastructure, book sales today represent less than 10% of its global turnover for Amazon, according to analysts. The book is still a hook to walk around and buy other things in the Amazon store, as its owner acknowledged, exactly like the series it produces for Amazon Prime Video (2006): “ If we win a Golden Globe, it helps us to sell shoes ”, is the sentence attributed to Bezos.

Amazon immediately became public enemy number one in the entire book chain, from authors to booksellers to publishers and distributors. Two paradigmatic cases: in 2014, the powerful Swedish group Bonnier (34th publishing label in the world, operating in 14 countries) reported delays in the deliveries of its books by Amazon coinciding with tense negotiations with the commercial giant, which wanted to obtain better prices.

Amazon has been accused of tampering with the rankings and their famous rating stars. This same June, the British competition authority has opened an investigation into similar cases in all its products : Amazon has admitted that last year alone it removed more than 200 million false reviews from its website.

But the look and attitude towards Amazon has begun to change in the book sector. At least for a part of him. “They innovate and present challenges, as well as many opportunities… Perhaps more opportunities than threats. Why fight our biggest customer? Complaining is not a strategy, ”Markus Dohle, CEO of Penguin Random House, said last month. And is that four out of ten books are sold in the US through Amazon.

“Their influence on the book market has not been as they believed, through the exponential increase of the e-book —in Spain, they represent 10% in terms of units and 7% in value—, but through the sale of physical books ”, assures a Spanish publisher.

The consequences seem obvious: the best customer demands the best conditions. Thus, if the Spanish publisher would be offering classic bookstores between 25% and 30% discount, Amazon would be obtained slightly more than 40%, according to sources consulted, especially from large groups or powerful labels in the genres that most sells: historical, romantic, self-help and children’s and youth novels.

“In the medium term, they may end up questioning the economic viability of some labels if these draconian discounts are maintained,” says the same editor, who, like other publishers, wonders if “the Amazon algorithm and logistics should have a discount similar to that of of bookstores that pay high rents in the center of the cities ”.

“If they have not finished with the physical booksellers it is because of the existence in Spain of the fixed price,” says another analyst consulted. It is the weakest and most affected link in the chain. “People ask us, but they buy at Amazon, thinking, and with the feeling, that they pay less there,” says an important bookseller in Barcelona. The secret is not in the price of the book, invariable by law, but in the shipping costs, which the online platform either does not charge or does so at very low prices .

To maintain the survival of independent bookstores (in the United States, the rise of Amazon has paralleled their disappearance, today only 5% of the existing ones, compared to 30% in Spain), the French Senate has approved the beginning of June a bill that, under the headingTo improve the economy of the book , it proposes that a minimum price be set by decree for the costs of sending books, which must be charged to the customer. Amazon’s cultural circle closes … and narrows.

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