Amazon is often described as an e-commerce behemoth — but the company is much more than a place to shop. As America hunkered down under quarantine, the company has touched nearly every part of life in lockdown — household essentials, groceries, streaming, crafts, entertainment. Even the sites that people visit — Netflix, Pinterest, Facebook — are run on its cloud computing arm, Amazon Web Services. Some crucial government sites are also hosted on AWS, including the Centers for Disease Control and Prevention and the Small Business Administration’s Paycheck Protection Program.
The Seattle, Washington-based company reaped $75.5 billion in sales in the first quarter of 2020, the company reported Thursday, compared with $59.7 billion during the same time last year. Its physical store sales, including Whole Foods, grew 8 percent to $4.6 billion; and its cloud computing business crossed the $10 billion quarterly revenue mark for the first time, growing 33 percent in one year.
Amazon has a problem that struggling retailers may envy — its demand is too high for its current infrastructure.
While shopping centers and retailers across the country have seen business come to a standstill, Amazon has a problem that struggling retailers may envy — its demand is too high for its current infrastructure. The company’s website traffic surged to 2.54 billion visitors in March alone, a 65 percent jump from the year before, according to online research company Comscore.
Amazon announced Thursday it will funnel its second-quarter operating profit — an estimated $4 billion — into COVID-related expenses. This includes investments in personal protective equipment, facilities cleaning, higher wages for hourly workers and “hundreds of millions” to develop its own testing capabilities.
“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” Amazon CEO Jeff Bezos said in a statement.
Amazon’s aggressive growth over the last several weeks has only underscored ongoing debates about the company’s size and influence.
As the reality of a pandemic sunk in, customers flocked to Amazon, buying out essentials including face masks, gloves and toilet paper. The company was so overwhelmed with orders that for a month it prioritized essential items such as medical supplies and household goods at its warehouse, pausing new shipments of nonessential items like furniture and toys. The news lit up Facebook and Telegram groups where third-party Amazon businesses convene to share news and tips on how to make it on the competitive selling platform.
“Sellers were caught off guard without an immediate strategy to survive,” said Chris McCabe, a third-party Amazon seller consultant and former Amazon employee. Sellers can lose tens of thousands in sales over just a few days out of business.
“People were calling me trying to figure out how to preserve their business with no end date in sight,” McCabe said.
More than half — 58 percent — of the marketplace is made up of third-party sellers, many of whom are small businesses, according to the company’s 2018 annual report.
Amazon told NBC News that it is “working to help our selling partners during this challenging time and evaluating several ideas to mitigate the impact of different demand patterns we are seeing in light of COVID-19,” it added.
Third-party sellers can use Amazon’s storage and delivery logistics — for a cost that amounts to about half of their sales. Getting cut off would be a death knell.
Getting cut off from the company’s logistics is like a death knell for third-party businesses. Sellers have a better chance of winning a customer’s sale if they leverage Amazon’s storage and delivery for their goods — a cost that amounts to about half of their sales along with advertising. This gives Amazon enormous power to levy a kind of tax on their trade because they have no alternative, said Stacy Mitchell, co-director of the nonprofit organization Institute for Local Self-Reliance.
“Amazon is skimming off a growing share of the revenue and, in many cases, revenue that it didn’t earn just because it’s this powerful gatekeeper and everyone has to pay the toll,” she said.
This relationship between Amazon and its third-party sellers has drawn comparisons to the railroad monopolies of the late 19th century, said Sam Miller, an adjunct professor at UC Hastings Law in San Francisco and a former attorney with the Antitrust Division of the U.S. Department of Justice.
At that time, American farmers, businessmen and consumers were shut out of transporting goods across rail lines because railroad companies privileged their own cars over others and charged exorbitant rates for competitors. Such power amounted to an economic and social threat because a single company could decide who succeeded in business and who failed, according to Miller.
Amazon’s business model has largely eluded any antitrust claims because it has driven prices down — a net good for the consumers, said Lina Khan, an academic fellow at Columbia Law School and critic of Amazon, in a 2017 Yale Law Journal article.
But even with its contributions to the pandemic in hiring 175,000 people and providing much-needed products, Amazon does not get off scott-free when it comes to questions about its size and power. Instead, the pandemic has only highlighted this.
Amazon’s marketplace in particular has come under intense scrutiny this last week after the Wall Street Journal reported that employees have routinely analyzed sellers’ financial details to glean information on how to make Amazon’s own products more competitive. Amazon said it is opening an internal investigation.
Critics, including New York Attorney General Letitia James, have accused Amazon of taking inadequate measures to protect warehouse workers from the coronavirus. Workers at Amazon and its Whole Foods Market subsidiary are expected to stage a national walkout to protest what they say is the company’s prioritization of profit over safety. Congressional lawmakers are investigating Amazon and other tech companies over anticompetitive behavior, including its alleged competition with third-party sellers.
“Absent government intervention, they’re definitely going to be in a more dominant position,” said Shaoul Sussman, a legal fellow with the Institute of Local Self-Reliance. “Brick and mortar has been pummeled by this outbreak and we don’t know in what form they’ll re-emerge … who is going to make cuts? I doubt it’ll be Amazon.”