Jeff Bezos told employees last year that other companies shouldn't be so afraid of Amazon — some rivals are proving him right
- “In real life, there’s room for lots of winners,” Bezos told employees at a March 2018 internal all-hands meeting, when asked about fears of Amazon's growing dominance, CNBC has learned.
- Indeed, some of Amazon’s primary competitors are finding ways to survive and even thrive against Amazon.
- AWS CEO Andy Jassy echoed a similar notion during the March staff meeting, saying, "It’s juicy but it doesn’t usually happen in reality.”
Amazon CEO Jeff Bezos thinks it's wrong to be so fearful of his company's outsize presence. He may have a point.
At an internal all-hands staff meeting last March, an employee asked Bezos about the growing fear over Amazon potentially killing competition in many different industries, according to a recording CNBC has heard.
The questioner noted that as the e-commerce giant has expanded into almost every major business category, some of Amazon's partners and customers have started to express their concerns.
Bezos responded that those concerns are raised "all the time" and often gets exaggerated because it's a "juicy" media story. He laughed at the fact that some company stocks even dropped on rumors of Amazon getting into a new field, shrugging off those effects as "very short term."
"In real life, there's room for lots of winners," Bezos said, in a recording of the meeting that CNBC has heard. "In fact, the sky does not fall for these companies."
He appears to be right.
Fears of Amazon taking over the world have reached a fever pitch in recent years. In the fourth quarter of 2017, Amazon was the most mentioned company on earnings calls of S&P 500 companies. But some of Amazon's primary competitors are finding ways to survive and even thrive against one of the most valuable companies in the world.
Walmart reported strong earnings this week, powered by robust growth in its online business that directly competes with Amazon. On Monday, Amazon's studio boss, Jennifer Salke, acknowledged the challenges in its film business that saw six straight box office flops. Meanwhile, Microsoft is proving to be a formidable competitor in the cloud industry and Google is narrowing Amazon's lead in the voice assistant space.
Companies in some of Amazon's newer businesses — across shipping, healthcare, and groceries — all remain little affected by Amazon's presence so far.
In fact, of the 65 S&P 500 components that mentioned Amazon during earnings calls in the fourth quarter of 2017, 35 outperformed the broader market in 2018.
"There's an overestimation of Amazon's potential to 'crush' competitors," said Charles Hill, a business professor at the University of Washington. "It's kind of an irrational fear of big business."
An Amazon spokesperson noted that the company is diverse, and faces lots of competition in each of the businesses it's in. Even in e-commerce the company's largest business, "we represent less than 1% of global retail and less than 4% of U.S. retail," Amazon noted.
Not a zero-sum market
Hill said this largely speaks to the fact that Amazon is in markets that are big enough for multiple players to coexist.
In the cloud computing market, which AWS created, Microsoft is quickly catching up, while Google is growing its share. In shipping, FedEx and UPS own such a massive logistics network that it's unlikely that Amazon will become a serious threat anytime soon, he said. And while Amazon is the clear leader in online shopping, with roughly half of market share, e-commerce still remains a small part of overall U.S. retail with plenty of room to grow for others.
"It's never a zero-sum game," Hill said. "There's certainly room for both big and niche competitors."
AWS CEO Andy Jassy echoed a similar notion during the March 2018 staff meeting. He said that people once predicted software companies like New Relic, MongoDB, and Cloudera would all go out of business after AWS launched products that directly compete with them — but that hasn't really been the case. Both New Relic and MongoDB's stock prices have more than tripled since going public, although Cloudera is down roughly 20 percent.
"Just because we launch an offering in a new space doesn't mean that another company that's built a great customer experience and who has loyal customers is going to defect," Jassy said. "I think it's juicy but it doesn't usually happen in reality."
A spokesperson added, "If you look at the history of AWS, we deliver what our customers ask us to build. There are times when there is some degree of overlap with what our customers offer, but most of these market segments are quite large and support several successful entries. And, for customers who've built meaningful offerings with significant functionality, we've yet to see these companies struggle to keep growing simply because AWS offers something in that area, too."
Many of the markets Amazon competes in are also at a somewhat nascent stage, allowing for competing offers to co-exist, according to Rahul Kapoor, a business professor at University of Pennsylvania. These markets, including video streaming and voice technology, are still looking for a "dominant design" as different user segments are showing varying preferences.
"Amazon is competing in markets that are still evolving," Kapoor said.
Real losers
Bezos said during the March meeting that the stories that get the most attention are those about Amazon's competitors who also happen to be AWS customers. News reports show a number of retailers, including Walmart, Kroger and Target have started to move off of AWS recently due to their competitive positions in retail.
While those big companies are finding ways to compete with Amazon, the real losers are likely going to be found in medium-sized and small businesses with fewer resources, said Abhishek Nagaraj, a business professor at UC Berkeley.
In particular, the sellers and brands that rely on Amazon's marketplace for a bulk of their sales could face even bigger hurdles, as Amazon launches more private label brands and runs overly aggressive ads that take away sales, although.
"Most of the affected parties are not like your Microsofts of the world," Nagaraj said.
Andrei Hagiu, a business professor at Boston University, said that some of Amazon's business practices warrant further regulatory scrutiny. For example, Amazon's policy preventing third-party sellers from offering lower prices on another site raises legitimate antitrust concerns, he said.
But for the most part, Amazon should remain off the hook since it's using its growing power for the good of customers by offering lower prices and more products.
"Claiming that 'Amazon is gobbling up the Internet' is a wild exaggeration," Hagiu said.
An Amazon spokesperson noted that its private label business makes up "approximately 1% of our sales" and emphasized that Amazon has helped small businesses compete against large brands by taking care of many of the infrastructure and logistics work they would struggle to accomplish on their own.
"There are millions of small and medium-sized businesses around the world selling in Amazon's stores – including more than one million in the U.S. alone – and more than half the items sold in our stores come from SMBs,"" Amazon said.
Amazon may be just experiencing what every big company faces as they grow. Just like Microsoft or Walmart's entry into your space was seen as an automatic death in previous decades, Amazon now happens to be the company people are picking on, said Hill at University of Washington.
"Everybody has their day in the harsh light of public criticism and then somebody else takes the turn," Hill said.