The Economy

Consumer Favorite Destroys Businesses, Jobs

Amazon exerts both good and bad effects on society and business, but the net result is decidedly negative, an ex-CFO says.
Heidi PozzoDecember 22, 2017

Say “Amazon,” and almost everyone today thinks immediately of the online retailer. And they love it. Amazon has been ranked number one in customer satisfaction by the American Customer Satisfaction Index for the last nine years. Why? Because the company obsessively puts the customer at the center of everything it does.

Heidi Pozzo

Heidi Pozzo Heidi Pozzo

Leveraging its Prime membership and the ease of one-click ordering, Amazon has captured almost 44% of all U.S. internet retail sales. But Amazon isn’t just about selling stuff online. It has a much broader business model that touches nearly every aspect of life.

For years Amazon has been investing in a network of distribution facilities, services, and data to support its customer-centric business model. At the core of its business is machine learning and artificial intelligence. Because of its scale, Amazon is able to understand buying habits of its customers and make recommendations with great accuracy.

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And it isn’t just customer buying habits that Amazon understands. Amazon Web Services (AWS) offers cloud computing, artificial intelligence, and data services, aimed at helping businesses run better. AWS is also the largest worldwide provider of private cloud storage. With this business, Amazon understands how companies are looking at data to make better decisions.

Amazon’s impact on business is so pervasive that 10% of U.S. earnings calls now mention the company. While some of these calls mention partnerships, more look toward the potential disruption in their business and declining market share.

The one-click convenience that consumers enjoy comes at a price, though. Amazon has eliminated more than 149,000 jobs. Wages are typically lower in warehouses run by Amazon than in other comparable local warehouses. Many businesses that competed with Amazon have gone out of business.

Even as it continues to eliminate local businesses, cities and states are clamoring to be selected as the site of Amazon’s announced second headquarters. The 238 cities that have placed bids have offered up massive incentives. The company has already received more than $1.24 billion in incentives related to its current facilities. It even has an internal department that specializes in getting deals from taxpayers.

A study by the Institute for Local Self Reliance published a scathing report on Amazon’s impact. By controlling infrastructure, data on buying habits, and access, and setting the terms for conducting business, Amazon is creating a system of winners and losers. Selling below cost and putting companies out of business has become its hallmark. Those that participate in Amazon’s world get access, those that don’t are blocked or see their ability to buy or sell diminished.

With so many stores closing, the brick-and-mortar retail industry is slowly dying. Businesses will continue to struggle to compete with Amazon’s scale, infrastructure, incentives, and buyer data.

The scales do not balance between the pros and cons. In the era of technology, the link between businesses and flourishing communities is being broken. As long as customers continue to appreciate the convenience of the one-click purchase, Amazon will continue to grow with its impact on jobs and businesses largely unseen by consumers. Unfortunately, that will mean more job losses and lower wages to come.

Heidi Pozzo, a former CFO, is the founder of Pozzo Consulting, which is dedicated to helping C-suite leaders and boards increase their organization’s value.