Could Amazon Become a Monopoly?
Bobbie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
By definition a monopoly is an economic advantage held by one or more companies or persons which maintain and exclusive power to carry and dictate a particular business while suppressing the competition allowing for said companies or persons to mandate pricing alternative to that which would be established by a free market. Could Amazon become a monopoly in the future? Let's Examine.
Amazon.com, Inc (NASDAQ: AMZN) made its debut in 1995. After just two short years the company went public and became the first online retailer to secure one million customers. In 1998 Amazon decides to expand their book business to include online music and videos and begins to acquire companies in Germany and the United Kingdom. A year later the company adds toys, electronics, tools, and hardware to their inventory. That same year CEO and founder Jeff Bezos is named Time Magazine’s “Person of the Year”. In 2001, Amazon reports net profits for the first time during the fourth quarter. The company has been highly profitable ever since.
Amazon has started strong and has grown even stronger over the years. In a lot of ways, it can be claimed that Amazon is visionary; especially when it introduced the Kindle in 2007. Since then the company has taken more risks, jumped into more ventures, and have courted new ideas with relish. More recent moves within the company have given cause to look at it in a different light.
Over the years Amazon has maintained a tempestuous relationship with the publishing world. Feeling remained neutral as long as Amazon remembered their place and just sold product without actually aiding the production of the merchandise. When the Kindle came on the market publishing houses didn’t perceive it as a threat, at least not openly.
Industry response to the Kindle was for other major booksellers to launch their own versions; hence the birth of Barnes & Nobles’ (NYSE: BKS) Nook and Apple’s iPad. Amazon was the first to make a deal to distribute books digitally with the big six publishing houses; Random House, Simon & Schuster, Macmillan, Hachette, Penguin, and HarperCollins. The problem that evolved was that Amazon sold most of the digital copies under $10 which rubbed the Big Six the wrong way. The publishing houses felt that they should be able to set the price points at their choosing and were offended by Amazon’s refusal to agree. When Apple (NASDAQ: AAPL) approached the Big Six for an agreement on digital distribution they were thrilled to see the Kindle receive some competition; however, the publishers did not repeat the mistake they made with Amazon. The result was Apple agreeing to agency pricing. While this did cause Amazon to eventually give into the publishing houses and meet in the middle on agency pricing the powers that be thought there needed to be a closer look at how everything had played out. The move between the publishers and Apple has resulted in an ongoing antitrust investigation in regards to possible collusion to raise e-book prices.
Throughout this entire Amazon has emerged with a competitive stance in the publishing world that have caused other to sweat. We have seen the company jump into the tablet business by offering below cost tablets, much to Apple’s dismay. We have seen Amazon make strides into the video streaming business which isn’t sitting well with their competitors.
Amazon offers a Prime Membership for $79 a year and is loaded with perks. Prime members have access to 10,000 free streaming videos makes Netflix seem lacking along with a 5,000 book lending library for the Kindle result is happy customers. They even threw in unlimited free 2-day shipping.
Amazon has elected to participate in several programs that are successful with their customers but ultimately cost the company money; something Bezos is, apparently, okay with.
There are thousands of authors out there who sing praises to the company. Amazon had the foresight to create a self publishing program that has allowed countless writers the ability to publish and market their work despite major publishers. Amazon became a fulfiller of dreams for many. Publishing house see themselves as keepers of the gates and imagine themselves to be more grandiose than they really are. A novice writer trying to get past those gates to become a successful author was often met with scorn and rejection; Amazon showed writers how to jump the fence instead. Allowing people to self publish without an upfront fee opened the door to many now loyal would-be authors and has secured their future patronage.
In 2011 Amazon decided it would be a good time to enter the world of hard core publishing. In May 2011 Larry Kirshbaum was officially asked to run the company’s newest publishing division. He agreed and has since seen his favored son status in the publishing world tarnish due to overwhelming perceptions of Amazon’s secretive and predatory practices.
(Continued in part 2)
Motley Fool newsletter services recommend Apple and Amazon.com. The Motley Fool owns shares of Apple and Amazon.com. BobbieJohnson has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
