Friday, 28 July 2017

Investopedia/Mrinalini Krishna: 2020 Could See the End Of Amazon as We Know It: NYU Prof.


2020 Could See the End Of Amazon as We Know It: NYU Prof.

By Mrinalini Krishna | July 25, 2017 — 6:00 AM EDT

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That seems like an unlikely prediction of gloom for a company that is on a mission to be the marketplace for everything and is soaring on the back of its technology and logistical might. Yet New York University Professor and founder of L2, Scott Galloway believes that even though Amazon will be the first to cross the trillion dollar market cap milestone, it is also likely to be broken up.
The Case For Breaking Up Amazon

“By 2020 Amazon will be our first trillion dollar market cap company but don’t begin celebrating yet, as soon after a district attorney will realize that the fastest blue line path to the Governor’s mansion will be to go after Amazon and break them up as we begin to connect the dots and realize this amazing is destroying jobs faster than we can recreate them,” Galloway said.

That fear was echoed in the immediate aftermath of the Amazon-Whole Foods deal when the company had to rush to clarify that it is has no current plans to automate cashier jobs, according to CNBC. But the fact the Amazon has already tested Amazon Go, a store with minimal human curation, in Seattle shows those worries are hardly illegitimate.

Bloomberg reported that as of March Amazon employs 351,000 people, up 43 percent compared to last year. Jeff Bezos announced the creation of 100,000 jobs in January.

Perspective On Growth and Potential

That aside, Galloway’s analysis points out exactly the kind of behemoth Amazon has become and the potential it still has to grow.

Market Cap: In just five years, Amazon's market cap has increased more than 360% from close to $107 billion in July 2012 to within striking distance of half a trillion dollars now. Keeping that history and its aggressive expansion through acquisitions in mind, Amazon's market cap doubling to over a trillion dollars in the next three years doesn't seem entirely implausible. (See also: Amazon Hits All-Time High as Analyst Predicts $1 Trillion Market Cap.)

(image source: FactSet)

Grocery: Take the example of the recent Whole Foods deal sporting the hefty price tag of $13.7 billion. As the announcement was made, Amazon stock soared, essentially paying for the deal with its gain while making its competitors very nervous. But the rewards for Amazon have only just begun. “This deal will be for Amazon what Instagram was for Facebook, a genius acquisition that gives them an unbelievable growth vehicle,” he says. The $712 billion grocery industry is the largest consumer sector in the U.S., and Galloway believes it is ripe for disruption. The potential for the e-commerce giant is huge as last year only 1.4% of sales of fast moving consumer goods (like groceries) in the U.S. occurred online. (See also: 5 Companies Amazon Is Killing.)

Media: Whether its original content or its sports broadcasts, Amazon is ramping up its capabilities in content. Netflix has decided to spend $6 Billion on original content this year, and Amazon is close behind with a $4.5 billion budget.This year Amazon also won rights to stream NFL games, not only finding another way to wriggle into the lives of consumers but also adding another sizeable revenue stream to its kitty by charging $2.8 million for a 30-second ad spot. Imagine the reach and the ad revenue traction it could gain if it manages to scale this for larger events like the soccer World Cup or the Olympics.
The Key Takeaway

Amazon's technology and low margins have helped it outpace its competitors in a number of sectors. On one hand, Amazon's increasing presence in more sectors will make it indispensable to customers and create a downward pressure on prices; however, the company's push for technology and automation may have a negative impact on jobs.
The Next Question

The pace of innovation since the turn of the century has brought us a wealth of goods and much convenience. But the cost appears to be in jobs, particularly for traditional sectors. In the end, who will lawmakers favor: the technocratic rich, or newly impoverished and unemployed people?
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