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Background of the Company
It is hard to believe that the company, which is currently viewed as one of the titans of e-commerce, was born only twenty-five years ago and made its first steps in a small garage of its founder and CEO, Jeff Bezos. Amazon was founded in 1994, and its initial services were focused on online book sales (Schneider). Soon after that, Bezos diversified his organization’s options and added clothes, DVDs, video games, and music items to the list. The initial funding was provided by Bezos himself, who spent $10,000 to buy some furniture and arrange a small office in his garage (DePillis and Sherman).
After only five years of Amazon’s existence, Bezos was awarded the title “Person of the Year” by Time magazine. To a great extent, the award was given to Bezos for his achievements in promoting online shopping (Schneider). In 1997, Amazon went public by offering its shares for $18, which gave the company a valuation of $300 million. Amazon warned its prospective investors that it expected substantial operating losses in the nearest future because it needed to contribute to marketing and technology (DePillis and Sherman). Marketing expenses were necessary to beat the competition from Barns & Noble, a bookselling giant at the time. Also, in 1997, Bezos opened a second facility in New Castle that gave a start to the network, which would soon touch almost all states in the country.
Much attention in Amazon is paid to corporate culture, which is highly customer-centered. In fact, the organization believes that if it does not satisfy its clients’ needs, it will fail (Schneider). Along with viewing customers as its largest asset, Amazon believes in ownership from its team members since owners are more likely to think long-term and use opportunities to their advantage. With this in mind, it is logical that becoming a member of Bezos’s team is not an easy matter. Unlike Google, which offers a variety of perks to its workers, Amazon puts emphasis on frugality, considering it as a source of self-sufficiency and resourcefulness (Schneider).
Within years of operation, Amazon has offered its customers a variety of products and options. In November of 2007, Kindle, the electronic reading device, was unveiled (DePillis and Sherman). With its help, users became able to download books and other reading materials wirelessly. Soon after that, in December of 2007, the company announced new headquarters in Seattle. In the next few years, Amazon purchased a variety of important assets: the audiobook program, Audible in 2008, the shoe shopping site Zappos in 2009, the robotics company Kiva Systems in 2012, and others.
The development of new technologies and marketing options required new acquisitions and partnerships. Thus, in 2013, Bezos offered to pay $250 million to help The Washington Post that was struggling financially at the time (DePillis and Sherman). In 2014, Amazon unveiled its first smartphone, but the production stopped in a year. Also, in 2014, Amazon purchased Twitch Interactive, a video game streaming company. In 2015, the first physical shop was opened in Seattle (DePillis and Sherman). The company constantly evolves and seeks opportunities for productive partnerships. However, its success does not come without difficulties: recent scandals associated with the retreat of building headquarters in New York and suspicions of violating antitrust laws are the most widely known negative processes related to Amazon.
Amazon and Antitrust Laws
Despite Amazon’s success with millions of customers, there are growing concerns on the part of legislators as to the company’s treatment of antitrust policies. Amazon’s CEO is trying to convince the public that the organization’s first and foremost duty is to meet the needs of its clients. Meanwhile, critics remark that the low level of profit is a sign of Amazon’s politics aimed at underpricing its rivals and becoming a monopoly in the long run.
To its customers, Amazon looks like a highly beneficial company allowing people to buy products for low prices. However, such activity, which seems too good to be true, has raised concerns among policymakers. The company that started almost from nothing is repeatedly accused of abusing the competitive advantage and progressively establishing a dominant marketing position (Lewitt). A popular opinion on this issue is that Amazon is underpricing its competitors in the hope that when clients face the absence of alternatives, they will have no other choice but to use Amazon’s services (Dayen). The technical definition of such practice is predatory pricing, and it is deemed illegal by the country’s laws.
The reason for concerns among legislators is that Amazon’s profits are reported as extremely small while its sales increase impressively every year. The lack of a logical connection between “staggering growth” and “meager profits” raises questions and increases doubts about the organization’s true intentions (Khan 713). Rather than demonstrating its earnings, Amazon frequently puts emphasis on its cash flow, which allows potential investors to notice that it is profitable. For instance, in 2018, the reported cash flow was about $30 billion (Dayen). It is noted that the positive cash flow is the only thing holding back a legal basis for considering that Amazon’s activity is violating antitrust laws.
Predatory pricing, of which the company is accused, presupposes that one sets the price on one’s services or products too low so as to attract customers who otherwise might have considered using someone else’s services. As Khan mentions, Congress considers predatory pricing as “a tactic used by highly capitalized firms to bankrupt rivals and destroy competition” (722). In other words, such a strategy may be defined as the attempt to “concentrate control” (Khan 722). However, it is rather difficult to prove that Amazon is employing the tactic of predatory pricing (Dayen). To validate one’s accusations of such practice, a plaintiff would need to show that Amazon’s prices are lower than the production costs. However, it is not possible to prove this without having access to the company’s internal books (Dayen). Hence, despite many suspicions, no one has succeeded in confirming anything yet.
There is one more issue increasing concerns about Amazon’s violation of antitrust laws: vertical integration. Khan considers Amazon as the “titan” of the 21st century that incorporates such entities as a retailer, a delivery and logistics network, a credit lender, a marketing platform, and many others (710). Therefore, the concept of vertical integration suits Amazon perfectly since the company combines a variety of production and distribution processes under its sole control.
While suspicions concerning Amazon’s profitability are increasing, some time must pass before (if at all) anything can be proved. So far, the organization relishes success and loyalty among its customers and keeps one of the leading positions in the list of tech giants. However, the company needs to be cautious of its further activities since the paradoxical ratio between its profits and growth is raising more and more questions.
The Refusal to Build Headquarters in New York
The most recent scandal involving Amazon concerns the company’s decision to cease the attempts to erect a new headquarters building in New York. Under the pressure of local opposition, Amazon reconsidered its intention, which it had announced in November of 2018. The major driver of altering the decision was the unexpected disapproval of activists and lawmakers who found the conditions arranged for Amazon by the New York government unfair.
Amazon had been considering the place for their new headquarters building since the end of 2017. By the end of 2018, the company announced two prospective East Coast headquarters locations: Long Island in New York and Arlington in Virginia (Salinas). Each of the two headquarters was supposed to house 25,000 employees. However, almost immediately after the announcement, which took place at the beginning of February 2019, the organization was bombarded with protests from New York citizens and officials (Salinas). Concerns were largely focused on the idea that Amazon might take over the neighborhood of Queens and create difficulties for local people.
However, there was one more rather significant aspect of the problem. The State of New York made an agreement with Amazon, according to which the company guaranteed $27 billion in revenue for the city. Out of this sum, $3 billion were supposed to be returned to the company in tax credits (Salinas). The agreement exacerbated the dissatisfaction of some lawmakers, union leaders, and activists who considered that public services and subway repairs needed and deserved incentives more than Amazon did (Salinas). The growing dispute led to the company’s CEO’s decision to reconsider the initiation of the project.
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The major negative outcome of Amazon’s change of plans was that the city lost an opportunity to diversify the economy of New York. Mayor Bill de Blasio and Governor Andrew M. Cuomo were the ones most severely impacted by Amazon’s decision to retreat, which was announced on February 14, 2019 (Goodman). Both the mayor and the governor put much effort into the project and worked hard to promote it. With Amazon’s decision not to proceed, politicians could no longer rely on the company’s help in making New York a favorable location for the development of the technology industry.
While Amazon announced its decision to retreat the construction works in Long Island, it did not give up the idea of developing its business in New York altogether. The company’s representatives noted that some local and state politicians opposed Amazon’s presence in Long Island and were not ready to build the relationships the organization conceived for productive cooperation (Barro). However, Amazon still has a goal to expand its possibilities in New York City.
Particularly, the company supposes to advance the workforce of its 5,000 Brooklyn, Staten Island, and Manhattan employees. Barro argues that the deal with the new headquarters in Long Island was not much prospective from the beginning since the city did not need as many as 25,000 new employees, and Amazon did not need to create an anchor in the city. So far, it is hard to predict the company’s next steps in this direction. What is clear is that New York lost some crucial opportunities for development, and Amazon’s reputation suffered due to the opposition of activists. Prior to engaging in similar projects in the future, the organization will need to evaluate all the aspects rather thoroughly.
Barro, Josh. “Why Amazon Bailed on Its New York Headquarters.” Intelligencer. 2019, Web.
Dayen, David. “Is Amazon Violating U.S. Antitrust Laws? This Law Student Has Evidence.” In These Times. 2019, Web.
DePillis, Lydia, and Ivory Sherman. “Amazon’s Extraordinary Evolution: A Timeline.” CNN Business. 2019, Web.
Goodman, David J. “Amazon Pulls Out of Planned New York City Headquarters.” The New York Times. 2019, Web.
Khan, Lina M. “Amazon’s Antitrust Paradox.” Yale Law Journal, vol. 126, no. 3, 2017, pp. 710-805.
Lewitt, Michael. “How Long Can Amazon’s Ingenious Antitrust Avoidance Last?” Forbes, 2018, Web.
Salinas, Sara. “Amazon Could Be Reconsidering Its NYC Headquarters Site Due to Local Opposition.” CNBC. 2018, Web.
Schneider, Laura. “Overview of Amazon.com’s History and Workplace Culture.” The Balance Careers. 2018, Web.