Amazon Prime Day
A day to celebrate, right?
Apparently yes, but maybe not in reality.
Business executives need to know whether Amazon is helpful or harmful to their brands sold on Amazon (authorized or unauthorized).
The titans of technology (Google, Apple, Amazon, Facebook, Microsoft) have created very useful networks for consumers. In the foreground we:
- Browse
- Search
- Share
- Like
- Buy
While we are doing these tasks, the titans of technology are busy in the background looking at the data from our interactions with them. They:
- Uniquely identify each of us as individuals
- Generate, collect, catalogue, and analyze our big data
- Develop and sell targeted engagement opportunities or ads
- Create $billions of economic value for their shareholders
For most companies, this would be considered a success. And for the technology titans it is a success.
But the problem for competitors and business partners is that these companies create networks, which become natural monopolies. Once these natural network monopolies become established, it is extremely difficult for others to gain a competitive foothold.
Unsurprisingly, monopolies act like monopolists. Christopher Mims, from the Wall Street Journal, notes that, “Amazon seems determined to translate its dominance in cloud computing and online retail into dominance in physical retail, delivery of goods, voice-based computing and a half dozen other industries.” WSJ, May 31, 2018 Tech’s Titans Tiptoe Toward Monopoly.
Maybe a new line could be added to Taylor Swift’s song, Shake It Off, “And the takers gonna take, take, take, take, take.” Monopolists don’t stop (and maybe can’t) until they’ve taken all that they can. As a result, these titans of technology keep all of the value they create from their consumer networks, and then they take more by extracting value from other market participants. As they take more, these technology network monopolists consume or transform entire industries and successful companies.
Let us look at retailers for example. They have been devastated by the impact of technology networks. Over the past dozen years, their market value has dropped precipitously, while Amazon’s value has exploded.
Source: Yahoo Finance (peak value in 2006)
Source: Google Finance (values for May 4, 2018)
The impact of monopoly technology networks on traditional product brands is also very costly.
- Brands must bid highest to pay for their own trademarked names on monopoly networks. (Is this even legal?)
- Brands lose control of their message online.
- Brands lose control of their distribution channels.
- A distribution channel for counterfeit products is created.
As an illustration consider how Amazon used its monopoly power to first help, and then harm product brands in AA batteries. These four charts from 1010 Data illustrate the impact.
Amazon has become the online battery monopoly.
It has used its monopoly power to become the most popular battery sold online.
Source: 1010 Data
Not surprisingly, Amazon beats out competitors on its site.
Source: 1010 Data
What can product brands do about these monopoly technology networks?
- Brands need to understand the threats and opportunities to their own products, market channels, and customers from the monopoly technology networks created by the titans of technology.
- Brands need to understand the capabilities of new technologies, especially the Internet of Things (IoT), and how these technologies can apply to their brands and products, especially non-electronic, non-connected physical products.
- Brands need to develop and implement strategies which leverage the strength of their product presence to give them competitive advantage or at least parity vis-à-vis the monopolistic titans of technology.
—Mike Romei contributed to this post.
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