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I agree with your points, but I've also found another one that is far more common: They sell products at a loss to gain income in other places. For example, if

• nitrogen 6y ago
  If they really are dumping, then I look forward to the lawsuit from all of their would-be competitors. That would help the increasingly centralized industry figure out what can be independent and what can only be done by monopolies.
  • polskibus 6y ago
    I'm not sure if it can be called out as dumping if they are not dumping across all their services.
  • zbobet2012 6y ago
    Amazon paid 7 billion in content costs this year, I would estimate it cost another 1.5billion to do the distribution. That doesn't include internal development costs, advertising costs, etc. Prime all together only made 14 billion. Considering that prime almost assuredly doesn't cover its 2day shipping we can be very sure, the video unit is _certainly_ not positive. What's even more important is this quote from Bezos, which directly states it's their strategy: "We get to monetize [our subscription video] in a very unusual way," Bezos said. "When we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members, and one of the reasons they do that is once they pay their annual fee, they're looking around to see, 'How can I get more value out of the program?' And so they look across more categories — they shop more. A lot of their behaviors change in ways that are very attractive to us as a business. And the customers utilize more of our services" https://www.businessinsider.com/amazon-ceo-jeff-bezos-said-something-about-prime-video-that-should-scare-netflix-2016-6 https://www.businessinsider.com/amazon-ceo-jeff-bezos-said-s... It's a _publically stated strategy_.
    • tinyhouse 6y ago
      Very common practice everywhere. When you sit at a bar and only order food, they usually lose money. Profits come from drinks.
    • xoa 6y ago
      That's just describing the strategy of likely the majority of retailers in existence, from grocery stores to theaters though isn't it? Grocery stores have lead products that get people in the stores (like cheap roast chicken) and then make more margins elsewhere. Fast food sells burgers and hope people will buy fries. When theaters have movies that have won awards and have big buzz, it helps them sell more snacks. Department stores, classic electronics stores, and so on all have window display items and major flashy things that they hope will get people to come inside at all, at which point they may get those, get add-ons, or something else entirely. Maybe for subscription video specifically Amazon is more unusual, but it's certainly not because Bezos came up with some wild strategy. Movie and TV producers themselves aim for far more monetization than just the sticker; merchandizing, product placement, ancillary media (sountracks/interviews/tie-ins), etc are all things commonly aimed for. And even for subscriptions there are players like Apple, who clearly are interested in selling more Apple hardware. I guess what bothers me about what you're saying is that I don't think it makes sense that every single unit in a company needs to "pay its own way", and on the contrary that sort of reasoning in management is the source of a lot of horrors many of us have experienced in IT. Security say gets cut to the bone because it's "not a revenue generator" and down the road systems get broken into causing tons of costly damage (infuriatingly often externalized too to add salt to the wound). Outsourcing sometimes can be an answer, but that sometimes creates its own major headaches as well. Amazon's size and weight certain give rise to concerns that might be lower elsewhere, but some of the bonuses they bring represent quite genuine economic value, and either way I don't think justify what seems to be a general argument against vertical integration.
      • TeMPOraL 6y ago
        It's a different strategy. Prime is an investment up front, so it puts people in the mindset of wanting to come up ahead. By buying full Prime, you've essentially prepaid $120 in shipping costs, so you want to take advantage of it and order more than $120 worth in free shipping. Which means you'll likely shift your non-Amazon purchases to Amazon (especially with free shipping making it a cheaper option for some of your orders), and as a result order more there than you would have otherwise. My guess is that Prime Video exists as a "gateway drug"; you get it for the videos and then realize that extra $4/month or $11/year will get you free shipping, and then you're back to "if I order $120 worth of shipping, it'll pay itself back" thinking.
  • clairity 6y ago
    > "...what can only be done by monopolies." nothing requires a monopoly. monopolies are manipulative (cross-)market distortions.
• softwaredoug 6y ago
  Yeah I agree. A lot of large companies can invest deeply just to drive out their competition. WalMart famously did the same to drive out other businesses in the 90s and 00s. I think though we need to recognize that Amazon is succesful for a reason, and those reasons are why they are in a position to invent even deeper and more relentlessly...
  • SolaceQuantum 6y ago
    I don’t think Amazon is inventing anything new in the space of driving out competition using a technique derived by gilded age industrial revolution
    • theplague42 6y ago
      I think he meant "invest" in the last sentence.
  • rhizome 6y ago
    The thing to recognize (or at least something I feel is under-recognized) is that Capitalism prefers monopolies or monopsonies, whichever the case may be. Capitalism talks a big game about the benefits of competition, but history tell us that it is actually their enemy. It reminds me of a Big Lie: https://en.wikipedia.org/wiki/Big_lie https://en.wikipedia.org/wiki/Big_lie
    • Wowfunhappy 6y ago
      This is precisely why we need capitalism as well as strong, enforced antitrust laws.
      • uoaei 6y ago
        GP does nothing to justify or address why we "need" capitalism...
      • som33 6y ago
        No thanks, the internet has fundamentally changed society. Software companies can now steal software and hack everyones machine on an unprecedented scale. The last 20 years of PC gaming has been one of theft and grand larceny by steam, valve, EA and co. We used to get dedicated servers and level editors in games. The internet allows companies to steal software from the point of production, because 2 or more computers in a network act as a single machine. So that means the internet is one giant world sized computer that companies de-facto own and control because they now "issue commands" to other nodes in the network. We now live in a digital authoritarian society where we must get permission to use our software and have no privacy if we want to participate in the culture. AKA the internet has been the greatest force for software theft and dispossession in all human history. Because of the criminal way in which IP law was coded the public never got any property rights and this has created the greatest human rights disaster in all of history. DRM in the OS, apps or games is literally you living in an open air prison and CEO's and government orgs can literally spy on everything you do. Windows 10 is a case in point. There's no reason for client-server software anything for a home user.
• polskibus 6y ago
  don't forget they are also cannibalizing sellers that use their own platform by launching cheaper competition - Amazon basics etc.
  • spaced-out 6y ago
    All the large retailers have their own store brand. Grocery stores like Safeway have a bunch (Lucerne, Open Nature, Safeway Select).
    • woodgrainz 6y ago
      The large retailers are not monopolies though. Some would argue Amazon is, and therefore must be treated differently.
      • scarface74 6y ago
        Last time I checked, Amazon doesn’t have a monopoly on servers, payment systems and shipping...
        • uoaei 6y ago
          And what qualifies as a "monopoly" to you?
          • spaced-out 6y ago
            Would you consider a company that controls 1/3rd of the market share a monopoly? Because that's how much of the cloud market AWS controls. https://www.statista.com/chart/18819/worldwide-market-share-of-leading-cloud-infrastructure-service-providers/ https://www.statista.com/chart/18819/worldwide-market-share-...
            • scarface74 6y ago
              So now we are calling “33%” a monopoly? But even AWS admits that only 5% of Enterprise workloads are using any cloud provider. Also that includes IAAS and PAAS and private cloud services not companies like Linode that offer just a VPS nor places like Rackspace. If you want a simple group of VPS’s to setup your own website to sell goods and you’re hosting on AWS (outside of Lightsail), you’re doing it wrong. I’m a cloud true believer, know the ins and outs of AWS well, etc and I wouldn’t use AWS - besides Lightsail maybe - if I just wanted a VPS.
• xoa 6y ago
  >That is a strategy only available to... monopolies. I'm not sure I agree with your characterization of that as a monopoly strategy, and I'm also genuinely curious how you know those are "negative margin" services. To the first, the strategy seems more about vertical integration than monopoly per se. Plenty of businesses aim to make a profit overall, but either have an outright strategy of loss leaders or more commonly have individual services that are absolutely necessary to the rest of the business yet are not profitable in and of themselves. And if the opportunity comes to leverage some of those internal divisions to some degree it can be completely reasonable. To the first, the console market would be an example of a competitive sector (at least since the mid-90s) where players have quite fairly run one part at an initial loss (hardware in the first few years) with the plan to make it up on add-ons. They can further average break-even or profit over the product lifespan, because the hardware functionality is fixed but will be vastly cheaper to manufacture in Year 7 vs Year 1. To the second, it's not uncommon at all for a business to require a certain amount of internal hardware or services for operations that is sitting idle a fair amount of the time, generates no direct revenue, or both. This is part of the whole logic behind cloud computing, or the constant tension of critical IT being seen as a "cost center". There isn't much minimal size for that to be the case either, even a small company may easily have a share of underutilized kit. In those cases, the marginal cost can be extremely low, even near-zero. If it can be turned into any sort of useful service or value-add at all with low enough overhead then it's still of value. So I'm concerned your formulation is overly reductive of any company to its parts. The vertical strategy has real advantages as well as disadvantages, gains that are quite genuinely win-wins which is why they work. For AWS for example, that's a core business for Amazon and also something they require for their own activities. How much of the capacity is sitting idle at any given time so they can be prepared for when actual high priority customers need to spin things up? They certainly require significant margin to respond to variations in demand. Video encoding seems like a great way to fill troughs and average things out, since it can easily be run low priority, and the marginal cost is going to just be the electricity running chips at full vs power saving. Compared to all the cost of having the datacenter and hardware and staff supporting it at all, even just sitting around doing nothing, that's probably a pretty low fraction. Is video coding actually costing Amazon money vs what value they gain, or is it simply an area where they quite genuinely can do it for less, putting otherwise idle necessary capacity to use? And what about Azure or GCP, or even someone just running dedicated encoding hardware? How does Amazon have a monopoly on compute? If they're merely able to do it cheaper thanks to scale, what exactly is the problem? If they raised prices above what competitors or someone could do themselves where is the lock-in for video encoding?
• poxrud 6y ago
  >>Amazon is killing video encoding business by selling a negative margin video encoder to sell through AWS compute. What product are you referring to? I'm in this industry and based on my experience their video encoding+storage+streaming offerings are actually higher priced than their competitors. The reason their services are popular is the integration with the rest of AWS (which is true for most of their offerings).
  • joefourier 6y ago
    I often hear this repeated with Amazon, that it's pointless to try to compete with them because they can just undercut you on price, but I have seldom seen any evidence for it. AWS is one of the most expensive cloud/hosting services for compute, data, bandwidth, etc., the products sold on Amazon are almost always more expensive than buying them from alternate sites or directly from the source. The only cheap thing that Amazon offers is fast shipping for low-cost products, e.g. buying a $3 cable and getting it shipped for free the next day (assuming you have Prime). But for anything above $50-$100, Amazon is almost always the more expensive option.
    • SubiculumCode 6y ago
      I agree. Amazon store products used to be the cheapest available, but as they have become the "default" e-comerce site, I find their prices are frequently not the best. Pair that trend with the current uncertainty in product quality/authenticity at Amazon, I choose to buy directly from the brands website (i.e. buy a Jansport backpack from the Jansport website.). Funnily enough, I mainly use Amazon as a search to compare products.
    • pydry 6y ago
      The story of diapers.com is probably as clear cut an example of predatory pricing as you could get: https://slate.com/technology/2013/10/amazon-book-how-jeff-bezos-went-thermonuclear-on-diapers-com.html https://slate.com/technology/2013/10/amazon-book-how-jeff-be... The whole point of predatory pricing is that you jack the price up if you don't currently face any competition and use the threat of plunging prices to scare off competitors, so of course they're going to be more expensive by default.
• scarface74 6y ago
  Video encoding is definitely more expensive with AWS if you know how to do it yourself and you spend the money up front on hardware.
  • pc86 6y ago
    Name one thing on the cloud that isn't more expensive compared to owning the hardware and having the expertise to do it yourself?
    • scarface74 6y ago
      It depends on both what you are optimizing for. People cost money. If you can trade enough of your time by having a cloud provider do the “undifferentiated heavy lifting” to focus on your core competency, then it makes sense to use a provider. For instance it didn’t make sense for DropBox to stay on Amazon but it did make sense for Netflix.
    • qvrjuec 6y ago
      If time=money, scaling your hardware.
  • zbobet2012 6y ago
    Your home built video compression software does _not_ achieve the compression ratios of commercial software. Differences can be between 20-50% pretty easily. It also does _not_ have the reliability. x264 is good but not the benchmark. x265 is simply mediocre. That aside, as others have pointed out, there is the whole "in the cloud" thing which has to do with global TCO. Also the pricing you can get of the AWS site doesn't look a thing like what an actual content distributor with 100 of thousands of hours of content gets.
    • scarface74 6y ago
      I didn’t say I could do it cheaper. I’m not an expert, I’m sure that BAMTech could. Also, “the others” that pointed out TCO - was me.
• tootie 6y ago
  My last retail employer had multiple billions in revenue and had a really nice niche where they could apply a negative margin service to sell more goods. And a lot of their product catalog is far enough from Amazon's wheelhouse that they had room to operate. That being said, their ecommerce org was still a complete mess. They were spending a ton of money operating a homemade ecommerce platform based on 2007 technology. They even had a mainframe running some critical features that they couldn't manage to deprecate. They ran everything focused on costs and didn't even do it right because they never considered the long-term benefits of investments. The architecture was multiple balls of mud. Teams were all aligned horizontally. Meeting customer needs wasn't never a factor in any decision making that I saw (and I spoke regularly to the CTO).
  • DelightOne 6y ago
    > Teams were all aligned horizontally. What does this mean?
    • tootie 6y ago
      They are aligned by system instead of by feature set. Anyone running a lower level system was disconnected from anything customer facing.
• scrimps 6y ago
  You mean a like a loss leader? https://en.wikipedia.org/wiki/Loss_leader https://en.wikipedia.org/wiki/Loss_leader
• ThrowawayR2 6y ago
  > "You can't afford to compete with them, because they are not _even trying_ to make a profit in your sector." GIMP hasn't killed Photoshop. It's all about giving value for money, or at least the perception thereof.
• ignoramous 6y ago
  > They sell products at a loss to gain income in other places. A practice neither invented by nor exclusive to Amazon, but they tend to get called out on it often, anyway: https://en.wikipedia.org/wiki/Loss_leader https://en.wikipedia.org/wiki/Loss_leader
• theptip 6y ago
  > That is a strategy only available to... monopolies. I don't think this is the case. The strategy is called a "loss leader", and it's a very common business strategy. https://www.investopedia.com/terms/l/lossleader.asp https://www.investopedia.com/terms/l/lossleader.asp > Loss leading can be a successful strategy if executed properly. A classic example is razor blades. Gillette, for example, gives their razor units away for free knowing that customers must buy their replacement blades, which is where the company makes its profit. It's true that big companies can find profitable loss-leaders where small companies can't -- though this isn't always true; my startup uses a loss-leader B2B product to unlock a more attractive B2B2C offering. I think what you're observing is that monopolists tend to be more able to use loss-leaders, since their monopoly power gives them the ability to charge a premium on their monopolized good(s), which would increase the scope of profitable loss-leaders. However loss-leading is certainly not a monopoly-only strategy.
  • dforrestwilson 6y ago
    What is the difference between the behavior of a company which holds all the market share and a company, which thanks to VCs, holds all the cash? Both exhibit the same behaviors with the same explicit goal. You are debating semantics when the intent in both cases is the same. In new markets we tolerate monopolies because we want to reward entrepreneurs. The question to ask is whether the cost of rewarding Amazon with monopolies is beginning to outweigh the benefits.
    • Nasrudith 6y ago
      Ask WeWork or the ride sharing companies. Mountains of cash is no guarantee of success. And again - Amazon is not a monopoly.
  • uoaei 6y ago
    The "loss leader" behavior, in typical and non-monopolistic circumstances, does not typically last the whole year without interruption and is only performed during periods of intense consumerism such as Black Friday.
  • zbobet2012 6y ago
• hkmurakami 6y ago
  There are many companies that give out Software for free with their hardware. We sold sensor chips with sw solution included. The SW was free and our team has negative margins but was essential to present a competitive product vs the low cost leader. We were hardly a monopoly.
• Wowfunhappy 6y ago
  This is the definition of Predatory Pricing, is it not?
• Loughla 6y ago
  >That is a strategy only available to... monopolies. Wait. And this is 100% not meant to be snide, it's a real question. Isn't that the actual strategy for tech startups? Work with investor capital long enough to get established and own the market by selling at negative margins, then increase the price once you own the market?
  • c3534l 6y ago
    It's not a new concept, either. It was something I learned about in introductory business courses: https://en.wikipedia.org/wiki/Loss_leader https://en.wikipedia.org/wiki/Loss_leader
  • TheGallopedHigh 6y ago
    Yes this this is a very common strategy, not only in tech but many businesses
  • nemonemo 6y ago
    I think the difference might be in that startups often do not have their own dominant & profitable products that they can leverage to undercut the profit in complements.
  • ses1984 6y ago
    I think most tech startups would aspire not to increase prices, but increase market share such that selling a high volume at the original price is enough to cover the investment and start to turn a profit. Of course you might price your product less, but from a certain point of view it's less predatory than it is just fair market price. When you are a startup with no customers, your first customer is taking a chance on you. They have no idea what the quality of your product is. They have no idea if you're going to be around to support it in 6 months. All that uncertainty should be factored into the price. If you are a more established startup then the fair market price for the exact same product all other things held equal, should be higher.
  • SuoDuanDao 6y ago
    There's a school of thought that because digital goods have no cost per additional unit created, that they will always tend towards being free in a free market. Hence, the only way to get people to pay for a digital good is to have a monopoly.
• darkerside 6y ago
  Vertical integration, even to the point of being a vertical monopoly (which they aren't, because you're not locked into other services, they're just cheaper and more convenient) isn't necessarily anticompetitive.