March 28, 2020
Is Amazon Too Big?

Is Amazon Too Big?

This video is sponsored by Brilliant! The first 200 to use the link in the description
get 20% off the annual subscription. Elizabeth Warren wants to break up Amazon,
Facebook, Google, and Apple. The argument goes, roughly, like this: Tech
companies have gotten really big, really fast. And they’ve abused that power by favoring
their own products over their competitors. Therefore, once a company reaches a certain
size, it shouldn’t be allowed to own both the products and the platform on which they’re
sold. In English, Amazon can’t sell the Kindle
on its own website, and Apple has to pick between owning Music and iMovie and News or
the App Store itself. Now, whether Warren is 100% serious or mostly
just generating publicity for her presidential campaign, she isn’t alone. This is only the latest part of a much bigger
movement. We’re at an inflection point in history,
where new, fast, Silicon Valley is crashing in to slow, old, government. Everywhere, all at once, the power and influence
of big tech companies are being questioned: Google was recently fined $1.7 billion in
Europe for being anticompetitive. Sprint is trying to merge with T-Mobile, despite
significant push back. Facebook has, well, continued to be Facebook. And Spotify has launched an all-out attack
against Apple for what it claims is unfair treatment. So, who’s right – Apple or Spotify? Google, or the EU? Facebook, or, literally everyone else? First, we need to understand why these companies
have such a huge advantage. And how, in just a few years, Amazon went
from being synonymous with “cheap, convenient shopping”, to a scary, political, nebulous
Walmart-like mega-corporation. Let’s say you wanna start a grocery store. Maybe you know a little bit about merchandising. Maybe you come from a long line of grocers
so selling produce is just in your blood. The other kids were playing with fire trucks
and trains but you, you were daydreaming about the retail implications of The Engel Curve. Anyway, the bad news is that the grocery business
sucks. Like, famously so. If you’re lucky, you might manage a profit
margin of 3%. Unless you have some revolutionary way of
arranging bananas on the shelf, you’re just one of a thousand stores, which customers
have no special loyalty towards. You don’t see a lot of “Proud mother of
a Safeway shopper” bumper stickers. But – there is money to be made at the very,
very top. If you can become a Kroger, or a Whole Foods,
or Trader Joe’s, well, that’s a different story. The trick is surviving long enough that you
sell lots of things, so you can, (a), turn around to the companies making those things
and say “Hey, we’d like to buy 3,000 stores worth of your bananas, can you make us a deal?”, and, (b), cut out the middle man by creating
your own generic brand. With size comes leverage, which lets you buy
cheaper, and, ultimately, make more money. But, again, the problem is getting there. Competing with established companies in any
industry usually means losing a lot of money for a long time with only the hope of making
it back in the future. But don’t give up on your dream quite yet. Here’s an idea: Forget groceries for now,
let’s just find some way of making money. Like, I don’t know, selling cloud storage
to enterprise customers! It’s a good business, no one else is doing
it very well, and, in a few years, you’ll have so much money, you can come back to your
dream of starting a grocery store. What does cloud storage have to do with selling
grapes? Is that really the most exciting thing you
could be doing? Pretty much nothing and probably not. But who cares! Money is money, and as long as it makes more
than the grocery store loses, you can afford to slowly grow it into an empire, even while
it isn’t yet profitable. This, if you haven’t noticed, is my very
crude way of describing Amazon. It started as a book company, but Bezos had
no special love for books. That was always just a good way of generating
capital for his real dream. Today, books are a footnote. The new distraction is called Amazon Web Services
– AWS. If you’re already familiar, bear with me
for a sec. A few videos back I said:>A thousand downloads
don’t cost any more than one. Scale is (nearly) unlimited. My point was: it’s a whole lot easier to
sell a thousand note-taking apps than it is a thousand actual notebooks because software
is made of bits, and bits don’t cost money. Which, is mostly true in that context, but,
not totally accurate in practice. Consider the scale at which some companies
operate: Out of all the bandwidth, from every phone
and every computer, in every country, 15% is just people watching Netflix. 15%! Even Uber, which, in theory just connects
the nearest driver to the nearest rider, stores over 100 petabytes of data – or 100,000,000
GB. It also fluctuates dramatically. Every startup dreams of hitting the front
page of Reddit, Unless you’re the engineer, in which case you have a heart attack trying
to keep up with such a huge spike in views. Companies, and, especially, startups with
limited budgets, have a tough choice: Either buy too much capacity, Or save money
and hope they don’t get too popular. At least, until AWS. Amazon realized it could solve this problem
with a service: Only pay for what you actually use. If your business suddenly explodes in popularity,
no problem, just pay a little more. Turn the handle for more data, as you would
water or electricity. Amazon takes care of the rest, the same way
we outsource building windmills to electric companies. Now, if we look at its total revenue, and
then divide it by source, it’s pretty much what you’d expect: Amazon is mostly an online
store and you’re probably wondering why we’re talking so much about AWS. But what about its income? Where is it actually making a profit? This is where it gets interesting. Now, Amazon looks like a cloud storage company
with an online retail business on the side. In the 4th quarter of 2018, AWS accounted
for 58% of the company’s operating income. It alone made more money than McDonalds. So, yeah, it sells lots of USB cables and
bananas, but that’s not where the money is. AWS is camouflage. It makes the company look good overall and
conceals how much money it loses. One business subsidizes another. And this is where it gets tricky. Because, if you’re one of the other grocery
stores, you’re thinking “This isn’t really fair – how can we compete with someone
who doesn’t even need to make a profit?” Safeway and Publix don’t have a $25 billion
a year cloud storage businesses. When they sell bananas, they have to, like,
ya know, make money. This is how, one after another, Amazon enters
and dominates a new industry. It plays by a fundamentally different set
of rules. Turns out it’s a whole lot easier when you’re
not super worried about the whole profit thing. Of course, predatory pricing, when a company
lowers its prices to starve out the competition, isn’t a new idea. But once they’ve done so, companies usually
raise their prices again – that’s the whole point. Amazon, on the other hand, has always kept
its prices low. It’s not playing the long game, it’s playing
the looooong game. Here’s it’s revenue, and here’s it’s
profit. The company touches more money than ever – it
just doesn’t keep it. Profit has stayed around 0 because it’s
more interested in growth. That’s the loophole. In this essay, researcher Lina Khan explains
how, since the ‘70s, antitrust law has used short-term prices to determine whether a company
is being anticompetitive. In other words, sure, Amazon is big, it’s
dominant, and it’s killing lots of competitors. But it’s prices are low, so it flies under
the radar. You might be thinking – so what? If a company uses its size to save you and
me money, isn’t that a good thing? But when products are subsidized, either by
another profitable business like AWS, or, Venture Capitalists burning money for the
sake of growth, they don’t have to compete on their own. Products win not because they’re the best
but because they’re funded by someone, or something, unrelated. For example, on iPhone, Apple has the Platform
Advantage. It controls which apps are allowed on the
App Store, and doesn’t have to give up 30% of its revenue or follow the same rules, as
everyone else. If you’re Clash of Clans, this may seem
like a relatively small price to pay for access to 1.3 billion users. For someone like Spotify, it’s a very different
story. Music streaming is the digital equivalent
of a grocery store – Spotify has such tiny margins that giving Apple 30% breaks the entire
business model. And even if Apple didn’t make a dime from
its Music or News apps, it might still offer them just to attract users to the iPhone. Spotify needs to make money, but Apple Music
just doesn’t. Apple’s apps, therefore, almost certainly
have more users than they “should”. Which is not saying they’re good or bad,
but that some number of people, maybe 1, maybe 1 million, use the service only because Apple
had an unfair advantage in putting it in front of them. Likewise, Amazon has the Platform Advantage
on its website. At some point it realized, hey, wait a second,
if we have all the data, and we control what people see, why on earth are we sending customers
to someone else’s product? So now it competes with its own sellers, on
everything from batteries to backpacks and keyboards. But wait, how is that different than any other
generic brand? Target has Up&Up, and Walmart, Great Value,
but no one’s complaining they have an unfair advantage. The difference is lock-in. It’s much easier to switch grocery stores
than it is between iPhone and Android. Companies like Facebook will always say “Look,
you chose to use our service, you chose to give us your information, didn’t you quit
your job, become a lawyer and read our 3,000-page terms of service?” But that’s not really true. We made one, unrelated choice, like buying
an iPhone or Android, which required that we make a bunch of other choices later on. Nobody knows what they’re getting into. And this will only happen more as companies
get even bigger. Amazon is an extreme example because AWS is
really profitable and groceries are really not, but entering new categories with the
resources you already have is kind of what a company is. You might start by making smartphones but
then use that money to sell refrigerators. Fast-forward a few years and now you sell
life insurance and container ships. Samsung is less a brand and more a Buy-N-Large,
E-Corp conglomerate. Like Amazon, it barely makes sense to think
of it as a single, unified company. One division sells parts for the iPhone. Another fiercely competes against that very
same device. Even Apple is moving in this direction. It may not be in the business of refrigerators,
but you now buy your iPhone with an Apple credit card, download Apple apps, back them
up on Apple’s cloud, and watch Apple-branded TV-shows. But there’s also a benefit to this integration. One of the bests feature of the iPhone is
that it’s all designed by one company, as one, coherent product. Because Apple owns both Music and iOS, they’re
easier to use, more convenient, and more powerful together. And because you have no choice but to use
Apple’s App Store, your phone is more secure and your data more private. Now, of course, you may disagree. For some, having more freedom might be worth
the trade-off for privacy and security. But that doesn’t diminish its value for
the rest of us. In other words, breaking up some of these
companies would actually mean a worse experience for you and me. And if your “consumer protection” proposal
makes our lives worse, it’s probably a bad one. The EU has shown – time and time and time
again – that governments can make technology worse simply because they don’t understand
it – even with the best intentions. So, what’s the solution? I don’t know. If anything, we’ve learned you should be
skeptical of any simple solution to a problem this big. Instead, here are some ideas: First, we need to expand the scope of what
qualifies as anticompetitive behavior. Low prices don’t mean the customer isn’t
being harmed. On the other hand, closed, locked-down markets
like the App Store aren’t necessarily always a bad thing. Second, we need to reexamine some mergers
and acquisitions. It happens all the time: An exciting young
startup gains some traction only to just be bought by a Google or an Amazon. Sometimes we never heard from it again. Founders are incentivized to sell their companies
– to the tune of billions of dollars. But society at large would be better off with
more competition. The key is balancing the benefit we all get
from the scale of companies like Amazon, with the drawbacks of their immense political and
economic power. Many of these ideas to break-up tech companies
are designed only to get headlines. But a real solution requires a deeper, mathematical
understanding of the problem, of the type you can learn on Their pitch is simple: Sure, you can spend
hours reading textbooks, but that’s not how most of us learn. We need examples, challenges, and pictures. Their courses on Science, Math, and Computer
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can quickly do one of their Daily Challenges. I just had to take a 17-hour flight, so I
was glad to see you can now download courses to use offline. Use the link in the description to sign up
for free. The first 200 people will get 20% off the
annual premium subscription so you can view all the Daily Challenges and take all their
problem-solving courses.

100 thoughts on “Is Amazon Too Big?

  1. Why waste your time vaguely explaining the structure of these companies when the concept of vertical and horizontal integration already exists?

  2. Amazon has a vertical monopoly on online resale, they own every level of the supply chain. Even manufacturing for some products.
    Amazon web-services
    Amazon analytics
    Amazon distribution
    –and soon to complete it Amazon stores.

  3. 5:15 “Or 100 Thousand gigabytes!”

    Displays 100 Million gigabytes in the video

    Also, what’s all this about bananas poly?

  4. so, the customer gets a cheaper product and a better deal but it's not "fair" ? but everyone gets a better deal! and the idea that after all the competition is out of business amazon will jack up prices- what's stopping someone from opening a new business and competing with them after they raise prices???
    and about us being manipulated into being prisoners of apple and Facebook- no one is making anyone buy an iphone or having a facebook acount- people do it because they think it better's their life .that's why these companies grow.
    we don't need an all mighty government to save us from the people who are selling us things we love at the best price

  5. Forget breaking up the tech companies, break up the telecom companies! Comcast is a far worse monopoly for the US than Google or Amazon. AT&T still is a massive monopoly that controls alot of infrastructure in the US. There are way bigger fish to fry than these companies, at least for now.

  6. Amazon doesn't only sell amazon basics they also sell other brands, the amazon basics brand is so tiny that they have a few products compared to other brands from second and third party sellers. Amazon does not need to be broken up. Pocahontas does not know what she is talking about.

  7. Technology is supposed to save us money and make life easier, but instead everything has been more inflated. Why are people mad that Amazon actually does what it says it would do.

  8. False. Amazon prices have gotten more expensive. Target has been cheaper than Amazon on many things I buy regularly. Sprouts farmers market is cheaper than Amazon too.

  9. One note on AWS, Amazon charges you for machines to host your services, but then separate charges for bandwidth and it's expensive. Google and Microsoft does the same thing. The reason is because all of these companies have their own multimedia platforms that they don't want you to compete with. Google has Youtube, Amazon has their video and music services, Microsoft has … the Xbox marketplace. As a result, a lot of companies that are in/moving to multimedia spend the upfront cost of having their own servers, but using AWS/other services to scale when their servers can't handle the load.

    Having a regular website is usually fine. Most API calls are factors of 10 smaller than any sort of media streaming.

  10. make a video that's five seconds long. title it "Is Amazon Too Big?"

    the video itself is "YES" played with as much bass boost at the highest possible volume you can.

    you don't need 14 fucking minutes to tell people that the modern-day slave trader is too big.

  11. this guy is just a pro capitalism pig who think the bigger the company is the better and would just like to have the world run by one company dictatorship

  12. amazon doesnt lock anyone in though unlike apple. Also third party sellers are both selling more than amazon and their sales are growing faster than amazon so amazon hardly suppresses its competition. in fact there is no option to filter out non-amazon items even if you specifically want to buy stuff sold by amazon

  13. The answer is yes, but it's super convenient so no one gives a crap that they are working towards a workerless society

  14. As quoted in the video (at 6:50) "This isn't really fair – how can we compete with someone who doesn't even need to make a profit?"
    Can this same statement be made by all of the Western/Capitalist companies when trying to compete against a Chinese-back company? As long as the Chinese GOVERNMENT is supporting the Chinese "company" it can continue to compete with the rest of the World on features/service/pricing but doesn't have to play by the same constraints of employee compensation/working conditions/environmental protections. And given that the Chinese gov't can choose to play the "long, Long, LONG" game it is only a matter of time before the Chinese industrial "machine" will push out the rest of the competition (esp. those that play by the rules)

  15. That's another reason why I support online store platforms like Rakuten or Aliexpress while using nifty apps like LINE for social media. We need more competition.

  16. We have 7 mainstream video game releases with an accompanying movie for 6, multiple game remakes, and several spin off games explaining why large, UMBRELLA CORPERATIONS are a terrible idea. Jesus Christ it's the 'we can clone dinosaurs now' to jurassic park argument all over again!

  17. Heres what i know
    We are all one. Thru the interconnection of all things there is only one self. Everything is everything.

    On a planet with nearly 8 billion people suicide is the 9th leading cause of death.

    Heres what i think
    We should share more.

  18. If you would like to maka vacation in the 90' come to Europe. Low Internet speed and no pollution because the Industry are gone… Sarcasm mode off

  19. At 5:11, you said 100 petabytes of data or 100 thousand gigabytes. It’s actually 100 million gigabytes, which the animation says correctly. 100 thousand gb would be just 100 terabytes

  20. Dagger in Walmart. Amazon purchased Whole foods. They now have an IN to the grocery/produce supply chain. If Amazon can develop a cost effective model to DELIVER both fresh and preserved foods to end costumers…it is over for Walmart. Walmart makes no money/margin on grocery/produce, it' just the draw that brings customers into the store to buy everything else in the store with the bigger margins.

  21. 10:31 bro you literally said in this video that they make so much revenue but little profit, which right there dosent make much sense at all, but here youre now saying that amazon makes “SoOoOo much profit” like bruh make up your fucking mind and stop giving us misinformation to get your little fuckin watch time up

  22. this is just basic business wisdom married with basic capitalism know how, the saying that you make money by spending money; the bad side effects from the business practices of these companies are just inevitable as they come directly from the fundamental of how you do these things.

  23. 100 petabytes = 100,000 terabytes 5:16, I'm sure it was just a reading error, judging by the animation saying else wise.

  24. If it were up to me, each part of the amazon venture had to be profitable on its own in order to keep its segment.

  25. Of course Amazon is too large, growing too fast, and of course forcibly breaking them into smaller pieces and keeping them on a short leash is the way to deal with them, short of forcing Amazon to convert to a worker cooperative.

  26. This is your occasional reminder that aside from phones, memory, and refrigerators Samsung also sells killer robots capable of autonomous action.

  27. America: land of opportunity!*

    *Use of opportunity may result in breaking up your company into several parts because a group that actually has a reason for having power shouldn’t be in charge.

  28. Apple's app store no choice and apple's general direction towards privacy have nothing to do with each other, no? Even if they'd get broken up, it wouldn't be surprising at all to me if you would get more competitors some of which will focus on privacy as key value proposition.

  29. Noticed the Tim Apple reference? 😀
    Thumbs down, I came here expecting a Skillshare sponsored video! 😔 😜
    Amazon will be big enough once I hit "Place Order" at my mailbox and the package is already there! 😀

  30. Great video. Thank you for laying out the competing concerns and issues for all approaches to this problem without trying to force one particular point of view. We need more discussion about these issues by people who understand all the angles. This is also one area where I think Ethics and Philosophy, applied to modern life, can play a crucial role in letting us shape the kind of society we want to live in. Subscribing for more content like this-keep up the good work! 🙂

  31. So when did monopolies become legal? All these big businesses are just doing monopolies because there is always a loophole. I work for Amazon but haven’t bought nothing from amazon in like 5 years. I’ve worked as a delivery driver too. I do work inter fulfillment center and I can say I don’t stow a lot of amazon products like maybe 40% of the product I put away is amazon and the rest is so much more.

  32. As someone who does strategy and financial planning for a software company, software isn’t as scalable as ppl think, especially if you’re dealing with a lot of data.

  33. What about Disney my guy? Disney is legit taking over the world, which sounds crazy but it's true if you actually research it.

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