It has upended industries and changed the way the world shops. But it should beware of abusing its power

Amazon has subverted traditional industries and even changed the way the world consumes. But it should now be wary of abusing its dominant position.

WHEN Jeff Bezos left his job in finance and moved to Seattle 20 years ago to start a new firm, he rented a house with a garage, as that was where the likes of Apple and HP had been born. Although he started selling books, he called the firm Amazon because a giant river reflected the scale of his ambitions. This week the world's leading e-commerce company unveiled its first smartphone, which Amazon treats less as a communication device than an ingenious shopping platform and a way of gathering data about people in order to make even more accurate product recommendations.

When Jeff Bezos quit finance and came to Seattle 20 years ago, he rented a belt Houses with garages. Before that, giants like Apple and HP were born from garages like this. Although Jeff started by selling books, he named the company Amazon after the river with the widest basin, which fully demonstrated his ambition. This week, the world's leading e-commerce company launched its first smartphone, but in Amazon's view, its main purpose is not this communication device, but to create a unique shopping platform and create a user data Collection platform to better understand customer needs and launch corresponding products.

The smartphone is typical of Amazon. There is the remorseless expansion: if you can deliver books and washing machines, why not a phone? There is the ability to switch between the real world of atoms and the digital world of bits: Amazon has one of the world's most impressive physical distribution systems, even as it has branched out into cloud computing, e-books, video streaming and music downloads (see article). There is the drive for market share over immediate profits. And there is the slightly creepy feeling that Amazon knows too much about its users already. So far its insatiable appetite has helped consumers; but as it grows in size and power the danger is that it will go too far.

This smartphone is very Amazonian. It has been relentlessly expanding its business: If you can deliver books and washing machines, why not cell phones? It has the ability to alternately jump between the real world and the digital space. Amazon has the most admirable logistics system in the world, while also expanding into cloud computing, e-books, video streaming, music downloads, and more (see article). Compared with immediate benefits, Amazon is more inclined to gain market share. It has to be said that people think that Amazon’s understanding of users is too detailed and even a little creepy. So far, its appetite for data has been helpful, if insatiable. But as Amazon grows in size and capabilities, the company may go too far to turn back.

Customers who bought this item also bought…

Customers who bought this item also bought…

For the moment, admiration should count for more than fear . Many things the world now takes for granted were introduced by Mr Bezos. Typing your credit-card number into a web browser was once considered a sign of insanity until Amazon showed how easy and safe buying things online could be. Once people had bought a book, they tried other things. Today the global e-commerce market is worth $1.5 trillion.

For now, people respect Amazon more than they fear it.

Many things that people take for granted today were created by Mr. Bezos. Entering your credit card number into a browser was once considered crazy, until Amazon confirmed the ease and security of online shopping. Once people successfully buy a book, they want to buy more. Today, the global e-commerce market share has reached US$1.5 trillion.

Amazon also fostered the emergence of customer reviews. From the start it let buyers rate and review books. This still irks some professional critics, and some of the most fulsome five-star ratings may be from spouses of authors . But overall they provide valuable advice to buyers. Today everything from apps to hotels to hoses can be rated online, and retail websites seem incomplete without customer reviews.

In addition, Amazon has also spawned users. Review mode. From its inception, Amazon has allowed buyers to rate and review books. This is still looked down upon by some professional reviewers, and some overly complimentary five-star reviews are likely to come from relatives of the author. But overall, this approach can indeed provide some valuable advice to buyers. Nowadays, everything from apps to hotels can accept user reviews online, and even a web page without user reviews will feel like something is missing.

Then there are the industries it has upended. Books came first. Amazon has changed publishing twice—first by making any book in the world quickly available and then by making e-books mainstream. Before Amazon launched the Kindle in 2007, e-readers were fiddly gadgets that few people used. The Kindle was easy to use, worked anywhere and allowed instant delivery straight to the device (rather than via a PC). Amazon also pioneered a new model for cloud computing. In 2006 it began renting out computer capacity by the hour. The option to rent rather than buy computing power greatly reduced the cost and complexity of launching a new company. Amazon's cloud services have since been used by startups including Netflix, Instagram, Pinterest, Spotify and Airbnb, and have spawned a whole new industry.

In addition, Amazon has disrupted many industries, with books bearing the brunt. Amazon has changed the publishing industry twice. The first time was to facilitate people to purchase books through online bookstores, and the second time was to facilitate people to read at any time through e-books. Before Amazon launched the Kindle in 2007, e-books were just a niche device. Because Kindle is very easy to use, it can be used anytime and anywhere, and books can be downloaded to the device immediately without the help of a PC. Amazon is also launching a new approach to cloud computing. In 2006, it began renting computing resources based on time. This rent-to-purchase approach greatly reduces the company's startup costs and complexity. Amazon's cloud services are also widely used by new companies like Netflix, Instagram, Pinterest, Spotify and Airbnb, and have even spawned some completely new industries.

Apple may be better known as an innovator, but Amazon may have had just as big an impact on the workings of the digital world. And it keeps on experimenting. Unconstrained by a self-image as a company that does a particular thing, Amazon has dabbled in areas from internet search to robotics to film and television development.

As an innovator, Apple is obviously better known, but when it comes to operating in the digital space, Amazon seems to have more Huge impact.

And it continues to explore. But Amazon is not limited to a single business. In continuous attempts, Amazon has developed from Internet search to robots, from movies to TV production.

Indeed, if your glasses are particularly rose-tinted, Amazon seems to have put the “long term” back into Anglo-Saxon capitalism. At a time when Wall Street is obsessed by quarterly results and share buy- backs, Amazon has made it clear to shareholders that, given a choice between making a profit and investing in new areas, it will always choose the latter. While other technology giants sit on record piles of cash, Amazon still has plenty of ideas about where to invest and innovate. And investors seem happy with it: Amazon's price-to-earnings ratio has exceeded 3,500 at times. It aligns top executives' interests with those of shareholders by paying them largely in stock: its highest salary is $175,000 a year.

In fact, if you're optimistic enough, Amazon seems to be bringing the "long-term perspective" back to Anglo-Saxon capitalism. Today, Wall Street generally focuses on quarterly results and stock repurchases, but Amazon has made it clear to shareholders: Whenever faced with a choice between short-term profits and investment opportunities, it will always choose the latter. While other tech giants are amassing cash, Amazon is still struggling to invest in innovation. Investors seem to like this: Amazon's price-to-earnings ratio has exceeded 3,500 times. By using stocks as a means of payment to shareholders, the interests of executives are tied to those of shareholders: the maximum annual salary for executives is $175,000.

Giant selection, tiny tax bill

Giant selection, tiny tax bill

The problem is that many of these virtues come with accompanying vices. Amazon stands accused of unfair competition—of being a lousy employer, dodging tax and bullying its rivals. Amazon says median pay in its American warehouses is 30% higher than in large retail stores. On tax, the picture is a little more nuanced. The main reason its tax bill is so low is that it does not make profits, but Amazon has also been extremely aggressive in (legally) booking profits to low-tax countries. Having campaigned against sales taxes for online transactions for many years, it has lately changed its tune, and now collects sales taxes in a growing number of American states.

The problem is that among these many advantages are many disadvantages. Amazon has been accused of unfair competition, poor labor conditions, tax avoidance and bullying of rivals. Amazon said in response that its median salary in U.S. warehouses is 30% higher than that of large retailers. There may be some subtle situations when it comes to taxation. The reason why Amazon’s taxes are low is because its profits are not high, but it is undeniable that Amazon is also actively adopting legal methods to transfer profits to countries with low tax rates. After opposing online transaction taxes for so many years, Amazon recently changed its attitude and began collecting sales taxes in more and more states in the United States.

As for bullying competitors, most of this is just the savage magic of capitalism. Amazon has crushed local bookshops but only in the same way that Tesco and Walmart crushed grocers—by providing a cheaper, easier way to shop . However antitrust regulators must ensure it is not abusing its market power, on a case-by-case basis. For instance, Amazon's current dispute with Hachette, a large publisher, may largely be a standard tussle between retailer and supplier. But when the dominant seller of e-books removes pre-order buttons and makes delivery times longer for Hachette books, that hardly squares with Mr Bezos's professed emphasis on customer service.

As for bullying smaller competitors, most are just The savage magic of capitalism. Amazon is destroying local bookstores by offering a cheaper, more convenient way to shop just as Tesco and Walmart destroyed grocers. However, on the basis of this case, antitrust regulatory mechanisms must ensure that it does not abuse its market power. For example, Amazon's current competition with the large publisher, Hachette, is likely to be largely a battle between retailers and suppliers. But when major e-book sellers remove pre-order buttons, it will extend Hachette's book delivery times. That hardly squares with Mr. Bezos’s emphasis on customer service.

Perhaps the biggest concern about Amazon is, paradoxically, a consequence of its long-term vision. It is hard to compete with a company whose shareholders do not expect it to make a profit. Its vast scale and willingness to operate at zero or negative margins represent high barriers to entry for potential competitors. This cannot go on for ever. The concern is that Amazon is merely waiting for rivals to go out of business before raising its prices. If that happens, regulators should jump on it hard. That would provide an opportunity for another firm—China's Alibaba, say—and some investors might rue the Amazon earnings that never came. But consumers would once again win, as indeed they generally have done as Mr Bezos's scrappy startup has expanded Its reach into so many aspects of everyday life

Perhaps the most worrisome of Amazon's many contradictions is its long-term prospects. It's understandably difficult to compete with a company that doesn't even want to make money as a shareholder. Its huge scale and business attitude of not hesitating to lose money have set up a considerable threshold for potential competitors. But this situation will not last forever. What people worry about is just waiting for competitors to withdraw from the market one by one before raising prices. If this happens, regulatory authorities should intervene forcefully. But this would create opportunities for other companies, such as China's Alibaba. And some investors may abandon Amazon because profits are far away. But consumers will benefit again, and that's become the norm as Bezos's vibrant startup infiltrates every aspect of our lives.