A comparison of two Amazons

What started as a Seattle-based internet bookstore is now a behemoth in retail, logistics, consumer technology, cloud computing, and media and entertainment. Indeed, Amazon’s massive $13.7B purchase of grocery chain Whole Foods in 2017, which had a major impact on the grocery industry, was merely a peripheral acquisition for the conglomerate.

As the United States’ biggest online retailer, the company accounts for about 4% of all retail and about 44% of all e-commerce spending in the US. Having been publicly traded for more than two decades, it’s market capitalization has swelled tantalizingly close to a trillion dollars in recent years. Wall Street banks like Morgan Stanley expect Amazon to continue growing at a rate that no company its size has ever done before, estimating 16% average compound growth in sales through 2025.
Morgan Stanley analysts have also set a price target at $2,000/share- or a market capitalization exceeding $1T- within the year. If Amazon is able to satisfy these lofty goals, it will be “the most aggressive expansion of a giant company in the history of modern business.” Amazon’s almost unfathomable success can be attributed to its ruthless expansionism.

Initially, Amazon was founded by Bezos’ money and contributions from friends and family. In 1995, Bezos raised nearly $1M in small checks from 20+ local angels, with a typical check size of $30K – $50K. Among those angels, Nick Hanauer, Eric Dillon, and Tom Alberg (of Madrona Venture Group) were brought on as company advisors. In 1996 Bezos sought outside investment from John Doerr of Kleiner Perkins Caufield & Byers. In Amazon’s only round before IPO, KPCB invested $8M at a $60M valuation for a 13% stake and in 1997, Amazon went public at a $382M valuation.

Just over twenty years later, as of February 2018, Amazon’s stock price is up over 88,000%, while its market capitalization hovers just over $735B. Amazon’s corporate strategy can be described as concentric diversification. This strategy is based on leveraging technological capabilities for business success and following a cost leadership strategy aimed at offering the maximum value for its customers at the lowest price. The primary goal of all of Amazon’s ventures boils down to one simple maxim- to make customers buy more of everything from them. Bezos himself puts it best- “when we win a Golden Globe, it helps us to sell more shoes.”

This strategy can be explained using the Ansoff matrix. Amazon is placed in the Overall Cost Leadership quadrant and its relentless focus on costs is the key to understanding its overall strategy. The specific measures taken by Amazon in pursuit of this strategy include steep discounts, infallible punctuality and an overall strategy based on making the customer experience as seamless and as smooth as possible. Apart from this, Amazon’s strategy is driven by its sources of competitive advantage. A focus on bleeding-edge technology, actualization of the benefits of economies of scale, and the leveraging of efficiencies resulting from the synergies between its external drivers and internal resources have been the cornerstones of its business model.

Amazon also uses Big Data Analytics as a tool to map consumer behavior. Big Data has been embraced to such an extent by the company that it is now in a position to market it as another service offering.
What is significant about Amazon and distinguishes it from others of its ilk such as Google and Microsoft is strategic cohesion. All aspects of its business strategize in tandem, in order to synergize each other’s benefits. Furthermore, Amazon adopts a problem-solving perspective- not a problem avoidant one.

One of the largest causes of our modern ecological quandary is linked to ever-increasing consumption and Amazon is undoubtedly an example of the kind of adversary the environmental movement of the world shall have to face. Thus, the strengths that Amazon has capitalized on to attain its success are lessons that the global ecological movement must utilize as well.

Bezos’ Amazon and the world’s largest rainforest are growing in opposite directions, highlighting the vast discrepancies between the health of the economy and the vitality of the environment. The world’s largest tropical rainforest is faring far worse than the corporation that shares its name. Brazil has had more than 72,000 fires this year- an 84 percent increase in the same period in 2018 according to the country’s National Institute for Space Research.

These twin developments- the extraordinary growth of a cutting-edge company and the clear-cutting of much of the planet’s most biodiverse ecosystem- seem unconnected. However, their juxtaposition offers an opportunity to consider what the global economy values, what it doesn’t, and what this portends for our future. Comparing the two Amazons underscores a duality of contemporary life on our fragile and shrinking planet: At the same moment that technological innovations are bringing us closer together, our unsustainable patterns of production and consumption are threatening the planetary life support systems on which we depend.

NASA recorded that the planet’s average surface temperature has risen about 1.62 degrees Fahrenheit (0.9 degrees Celsius) since the late 19th century, a change driven largely by increased carbon dioxide and other human-made emissions into the atmosphere. Most of the warming occurred in the past 35 years, with the five warmest years on record taking place since 2010. Not only was 2016 the warmest year on record, but eight of the 12 months that make up the year- from January through September, with the exception of June- were the warmest on record for those respective months.

In Squamish, British Columbia, a company wants to stop climate change by sucking carbon dioxide out of the atmosphere. It is called Carbon Engineering, and it uses a combination of giant fans and complex chemical processes to remove carbon dioxide from the air in a procedure known as Direct Air Capture. Direct Air Capture is not new, but Carbon Engineering says that its technology has advanced enough for it to finally make financial sense.

Three major oil companies, Chevron, BHP and Occidental, helped the company raise 68 million dollars in its most recent funding rounds. In May 2019, carbon engineering announced that it is working with Occidental to design its first commercial plant which will capture about half a megaton of CO2 per year, to be used in enhanced oil recovery operations in the Permian Basin in Texas. This means that the captured carbon dioxide will be injected underground in order to extract more oil from petroleum wells.
This seems counter-intuitive for a company seeking to help the environment and many who have studied the challenges of carbon capture are skeptical since a large amount of funding is required and presently the oil companies are the only source. However, learning from Amazon and other major corporations, by being pro-active, using smart strategies, and taking sweeping measures, goals can be met.

For the project to qualify as carbon neutral, Occidental would need to bury not just the same amount of CO2 released when the extracted oil is ultimately used, but an additional quantity sufficient to offset any emissions from its operations at the site as well as whatever amount was produced in the process of direct air capture. Further, making direct air capture as cheap as possible is critical because a growing body of work finds that it’s going to be nearly impossible to prevent global temperatures from rising more than 1.5 C without rolling out some form of the technology on a huge scale. By some estimates, the world will emit enough greenhouse gases to lock in that level of warming within a few years. At that point, one of the only ways to reverse the effects will be to remove carbon dioxide from the atmosphere, where it otherwise persists for thousands of years.

David Keith, the founder of Carbon Engineering and Harvard physics professor, says that the findings should shift the perception of direct air capture from “vaporware” to “something that can be built with current industrial technologies now.” An analysis by the Rhodium Group estimated that the US will need to have nine million tons of annual direct air capture capacity in place by 2030 to achieve necessary reductions by around midcentury. To pull that off, the research group recommends that the US government invest several billion dollars in research and development, enact a federal mandate for fuels derived from direct air capture, and increase the 45Q tax credit for buried CO2 from $50 a ton to $180, among other steps.

The lesson to be learnt here is an epistemological one. It involves the idea that as long as any given entity is moving closer to any overarching goal, new problems will inevitably arise- and inevitability that should only bolster our faith in our ability to fix them rather than abdicating them altogether.

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