Retail

Here's What Amazon Looks Like Broken Into Pieces

The House Judiciary subcommittee on antitrust has disclosed its examination and conclusions of a multimonth probe into the business activities of Amazon, Alphabet, Apple and Facebook. It particularly singled out Amazon.com Inc. (NASDAQ: AMZN) for its power over vendors who sell goods or services at its sites. Amazon, the subcommittee concluded has about half of the American e-commerce market. It also criticized Amazon Web Services (AWS), the company’s huge cloud computing operation for its dominance.

Amazon could be broken into pieces, thus blunting its power in both the e-commerce and cloud marketplaces. It is made of three large business segments, so dismantling it would not be difficult.

There is a precedent for similar actions by the federal government. AT&T, which virtually controlled the American telecom market, was broken into pieces at the start of 1984. The government threatened to do the same with Microsoft, but the two parties reached an agreement in 1994 that limited the way Microsoft operated some of its businesses.

Amazon’s original business was e-commerce, which was started in 1994. Amazon dominates that industry in the United States, and there is much evidence it has contributed to the decline of the brick-and-mortar segment of retail. That, in turn, has triggered the loss of tens of thousands of American jobs, a large number of industry analysts and economists say. The process has accelerated during the pandemic.

E-commerce continues to be its largest operation. Amazon posted total revenue of $88.9 billion in the second quarter, up 40% from the same quarter a year earlier. Of this total, its North American e-commerce business contributed $55.4 billion. Its international e-commerce business added $22.7 billion. Much of these domestic and international revenues are driven by Prime, a set of paid subscription services that have well over 110 million members. Among Prime’s most significant benefits are a free video streaming service, which is among America’s most dominant, and a free shipping program.

E-commerce is the first of the three parts that constitute the operations that comprise Amazon. The company also is the world’s leader in cloud computing, one of the fastest-growing segments of the tech industry. It is the top provider of these services by far. Its share of the public cloud business recently was put a 33%, followed by Microsoft at 20% and Google at 6%. AWS, the cloud division of Amazon had revenue of $10.8 billion last quarter and made $3.4 billion, for an impressive 31% operating profit margin. This is the second part of Amazon that could be spun out into a separate company.

The revenue for Amazon’s third large and dominant business is rolled into its e-commerce operations, so financially, it is hard to identify. Amazon has a strong consumer electronics business that, among other things, dominates the market for artificial intelligence products that consumers use in their homes. Amazon also sells computers, e-readers and streaming media hardware. Amazon’s Alexa software can control home entertainment, communications, shopping and smart home services, including temperature control and light bulbs and cameras that are voice-activated. Estimates are that Amazon has 70% of the U.S. smart speaker market. It is almost certain to move this into the business sector, where voice-controlled artificial intelligence has a number of applications.

Former U.S. Secretary of Labor Robert Reich argues that the four companies should be regulated. He commented, however, “A better alternative is to break them up. That way, the information would be distributed through a large number of independent channels without a centralized platform giving all content apparent legitimacy and extraordinary reach. And more startups could flourish.”

A review of these three parts of Amazon shows that each holds a tremendous lead in its particular business. Each could operate independently from the other two and remain competitive and financially viable.