Is ‘the Amazon effect’ more than a catchy phrase? Yes, and it’s likely to be one of the biggest forces in our businesses and lives.
Plug “the Amazon effect” into the Bing search engine and you get an astounding 14.7 million hits. Google produces 307,000, more modest but still substantial. Even Google Scholar, used by academics for scholarly articles, shows 95 results.
It’s a thing.
But what is the Amazon effect?
If someone put a gun to your head demanding the answer, you’d probably say something like: Huge e-commerce company uses the internet to sell stuff cheap, wiping out the competition.
The WhatIs site defines it as “the ongoing evolution and disruption of the retail market, both online and in physical outlets, resulting from increased e-commerce. The name is an acknowledgement of Amazon’s early and continuing domination in online sales, which has driven much of the disruption.”
Yet Seattle’s by-far-largest employer gets credit and blame for far more.
For example, last month The Wall Street Journal reported on logistics companies, retailers and suppliers making deals with software providers to quickly track shipments.
“The need for these services is growing as retailers and shoppers demand faster, more precise delivery,” it reported. “Many Amazon.com Inc. customers have become accustomed to reliable two-day shipping, forcing other retailers to offer similar service.” The headline: “ ‘Amazon effect’ sparks deals for software tracking firms.’ ”
Earlier this year, Forbes published a story headlined “How the ‘Amazon effect’ will change your life and investments.” Beyond the obvious that Amazon has proved a great stock bet and traditional retailers have faltered, it delved into the consequences for real estate, tax receipts, suppliers and jobs.
Back in 2012, The Nation magazine used the term in a takedown of the company for its effect on traditional bookstores and publishing. That seems so quaint today, with Amazon in the cloud, a major defense contractor, astride high-tech. But it echoes a persistent criticism: That the company is too big, with too much market power. The result may be more convenience for customers, but at the price of worse overall employment and wage growth, and fewer competitors.
Here in Seattle, an Amazon effect can be cited in rising wages, increasing software jobs, skyrocketing house prices, more traffic and a city changing fast — too fast for some.
Any ambivalence might change in a hurry after last week’s bombshell announcement that the company is looking to build an “equal” headquarters elsewhere. Amazon says it is responsible for $38 billion in investments here. Tax money from construction alone has helped fund some of Seattle’s most cherished progressive programs. If a second headquarters became the prime spot for decision-making and growth — or rose to prominence during a downturn — the city’s fortunes could quickly sour.
This isn’t the first time that a company’s name has become synonymous with vast economic and societal changes.
Fordism was coined to describe the mass-production revolution pioneered by Henry Ford and his auto company. This was disruption, too, and not only of the proverbial buggy-whip makers. Soon automobiles, helped by government roads, would begin taking people and goods away from the heavily taxed and regulated railroads.
It created millions of jobs, although assembly lines meant dreary, repetitive work. Fordism encompassed that effect on human beings, too. But after bloody battles with organized labor, the auto industry and most huge factory employers compromised with unions and workers saw their pay and living standards reach new highs.
Academics went even further with the term. Fordism, for example, is credited with the post-World War II economic expansion and “virtuous cycle” of mass production and mass consumption. It began to fall apart in the 1970s for many reasons, from the oil embargoes to import competition and complacency by management and unions.
The last gasp of Fordism may have been the housing bubble of the 2000s, with massive debt propping up a remaining enormous manufacturing enterprise of house-building — but one that couldn’t last.
We risk assigning too much to Amazon. For example, just-in-time supply chains that give companies lower inventory costs and high efficiency go back to the 1980s. On the surface, this looks like “the Amazon effect,” at least on some level, long before Amazon’s birth.
Similarly, other companies have brought big changes. Starbucks convinced joe-drinking Americans to lay down four or five bucks for exotic concoctions made by baristas, three bucks for a basic small coffee. The “coffee shop” morphed from the kind of place where the iconic scene in the movie “Pulp Fiction” takes place to “third spaces” where creative types work and friends gather.
It’s also hard to overestimate the effect of Microsoft, bringing software to run personal computers for the masses, as well as offices and factories around the world with ever greater speed and efficiency.
To be fair, the Harvard Business Review published a 2000 article called “The Starbucks Effect.” The gist: “When individual companies increase the perceived ‘premiumness’ of a product through innovations in the product itself or the way it’s delivered, the entire category can reap higher prices and profits.”
“The Microsoft Effect” showed up in a 2011 Wharton article as a cautionary tale for Google. It’s a fascinating read even with Microsoft’s subsequent turnaround.
Wharton professor Kevin Werbach said, “Microsoft’s great fear was always that it would turn into IBM, which it viewed as a bureaucratic organization living off past glories. Google’s fear is that it will become Microsoft, which it views as a company that wins through bullying rather than technical prowess. Microsoft became what it feared. Google’s challenge is to remain open and innovative after achieving Microsoft-like domination of its core market.”
But these titles are mere literary tropes. Cheap columnist tricks, in my trade.
The evidence is abundant that the Amazon effect is as real and profound as Fordism.
It is more than e-commerce and disrupting traditional retailers with price and speed. More even than the Amazon tributaries into cloud computing and so many other areas. Add in market dominance that once upon a time might have brought an antitrust investigation, plus superior use of technology and algorithms, plus first-to-market advantages in hundreds, perhaps thousands of ways small and large.
It has also spawned imitators of various capabilities across industries. Everything from self-driving vehicles to flying drones and robots is measured against its adoption or potential use by Amazon.
Also like Fordism, the Amazon effect will probably run its course. But I suspect that’s a long way off. Until then, it will be one of the most influential forces in business — and, whether we like it or not, in our daily lives.