About a week ago, Amazon joined an exclusive club. Its market value ticked over $2tn, putting it in the company of only four other firms: Alphabet, Apple, Microsoft and Nvidia. In its 30 years, Amazon, which began life as an online bookseller in Seattle on 5 July 1994, has been astonishingly successful. Its network of warehouses and vans delivers more packages each year than FedEx or UPS, equivalent to $850bn-worth of goods worldwide. Its pioneering cloud-computing business is used by millions of customers and generates annual revenues of $100bn. Beyond its core operations, it is investing in delivery drones, satellite networks and self-driving cars.
This success is the result of the company’s tireless focus on customers and its enthusiasm for experimenting. Activists may complain about how it kills off brick-and-mortar stores. But punters are delighted with their sackfuls of smiling cardboard boxes; Amazon routinely tops customer satisfaction surveys. In its quest to please shoppers, it diligently ploughs its profits back into its business. Last year, no firm spent more on research and development or capital expenditure than Amazon. Plenty of companies say they are customer-obsessed. But for Amazon, that claim actually rings true.
What lies in store for the company as it enters its fourth decade? In recent years Apple and Microsoft have joined a more rarefied club still; both have a market capitalisation above $3tn. Whether Amazon manages to catch up with them will depend on how well it navigates three tricky areas: slowing e-commerce, increasing competition in artificial intelligence (AI), and an onslaught from antitrust regulators.
During the pandemic, the firm’s e-commerce operation went into overdrive, with global revenues surging by 40% in 2020. In the past 12 months sales grew by 5%, a third of their pre-COVID pace. That is a problem because, when you include shipping and other services sold to vendors, retail accounts for two-thirds of Amazon’s sales. Worse still, analysts reckon it is barely profitable and is propped up by the cloud-computing and ads businesses. In response, Amazon has tried to move into groceries, a market worth $2tn in America, but in which only a tenth of spending takes place online. It is also making inroads into pharmaceuticals. Yet so far, it has little to show for its investments.
The next challenge is generative AI, in which Amazon ought to excel because much of the demand associated with the technology is for cloud-based services. But, thanks to its partnership with Openai, Microsoft has grabbed the lead. As a result, Amazon’s dominance in cloud computing is waning. In 2022, its market share was 13 percentage points higher than that of Microsoft. Today, the difference is just six points.
There are signs that Amazon is tackling these problems. In March, it invested $3bn in Anthropic, an Openai rival. This week, it hired part of the senior team from Adept, another AI startup. Its capital spending will probably jump by a fifth this year as it splurges on AI gear to fill its data centres. In e-commerce, meanwhile, the company is trying to extract more value by tying the retail business more closely to its advertising units and video-streaming services.
Yet this closer integration may sharpen a third threat: antitrust. Regulators everywhere have become wary of big tech, and Amazon’s plethora of different businesses makes it a natural target. Knitting them together more closely may attract even more scrutiny.
Take, for example, the complaints brought against the firm by America’s Federal Trade Commission last year. One was that sellers who wanted their products to be eligible for free delivery to shoppers with Prime subscriptions were being forced to use Amazon’s logistics networks. Regulators elsewhere have disrupted its plans to expand. Those in the European Union blocked the company’s ambition to buy iRobot, a maker of automated vacuum cleaners.
All told, the company’s fourth decade will be harder going than its third. It will have to factor antitrust scrutiny into its decisions, which could impede growth. There may come a time when it will need to pull the plug on groceries as ruthlessly as it did with the Fire phone. In AI, cut-throat competition from startups will test the giant firm’s ability to keep pace.
Yet Amazon’s focus on its customers and innovation should stand it in good stead throughout. People often counted Amazon out over the years; in the build-up to the dotcom bust commentators nicknamed it “Amazon.bomb”, and many jeered when the firm launched its cloud-computing service. To dismiss Amazon again today would be a mistake.
