Wednesday, May 29, 2024
Business & Economics

Trying To Bump Up Those Margins? Have You Considered… Stealing?

Bezos, what are you, lā-zos?! Those are rookie numbers! At least, that’s what we imagine Amazon’s board must be saying to the world’s wealthiest– maybe second-wealthiest- man about the company’s growth trajectory. There is this whole thing in corporate finance theory that shows that companies toward the end of a bull run tend to get very inventive about how to keep that bull run going as it slows. This plays out by companies offering crazy discounts. Or engaging in wonky accounting practices– to shift profit recognition, for example. Or maybe by, like, you know. Stealing.

Peak Capitalism

A recent Verge article points out that stealing is more or less what Amazon is doing in copying the design of a bag by Peak Design– and selling it for a third of the price. The Everyday Sling, Peak’s product, does indeed appear pretty similar to Amazon’s product, which sells for a third of the price. The Everyday Sling is, indeed, in the URL of the product link

The practice isn’t new. The WSJ published a scathing critique of Amazon in December over how it terminated a relationship with a supplier– and then stole their design. But in this case, Peak has a lot of loyal fans and, evidently, a good market team to boot.

In the context of platform economy

It’s an interesting thing in the context of platform economy at large, if we go back to my last book review. Amazon makes profit off the sale of each Peak bag. But why not undercut Peak by selling their own copy of it? Of course, stealing people’s stuff is only as illegal as your ability to litigate it. So it’s unclear what will happen. But Amazon is getting increased regulatory scrutiny because, well, they deserve it.

I recall that circa ten years ago, I made a completely uninformed prediction that Amazon would probably move away from its major value being in retailing to being a company that would provide distribution and logistics for other retailers. This hasn’t proven to be entirely true, but it’s definitely partly true. Much of Amazon’s retail business actually loses money, as evidenced by razor-thin margins. AWS is the real cash cow, and most of AWS has absolutely nothing to do with Amazon’s retail business. While Amazon is copying companies like Peak, its core business is not making and selling its own stuff. Its core profit is certainly not making and selling its own stuff. Third party retailers will continue to flock to the platform by virtue of its massive volume, even if a number of them continue to get screwed.

An unclear value proposition for a trillion-dollar company

One thing that’s fairly certain from reading hundreds of customer reviews? Amazon’s products vary wildly in terms of quality, whether you’re looking at a well-reviewed, albeit frumpy down vest, or a somewhat ill-fitting polyester sportcoat. It is fairly clear that designers have spent less time thinking about some of these than, say, their Amazon Echo lines, which were, for the most part, small feats of engineering. (Alexa herself is frustratingly dumb– but the sound quality and the continuous fabric on the devices are impressive from design standpoints). So, why does Amazon even bother? Is it market testing? Do they have product designers who are just bored? It’s really not entirely clear what the value proposition is.

Alienating enough suppliers as a platform is a disastrous thing. But if you’ve gotta do it to keep the cash coming, it is what it is, right? Good luck to Peak if they want to take it to court.

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Nat M. Zorach

Nat M. Zorach, AICP, MBA, is a city planner and energy professional based in Detroit, where he writes about infrastructure, sustainability, tech, and more. A native of Lancaster, Pennsylvania, he attended Grinnell College in Iowa, the Kogod School of Business at American University, the POCACITO transatlantic program, the SISE program at the University of Illinois Chicago, and he is also a StartingBloc Social Innovation Fellow. He enjoys long walks through historic, disinvested Rust Belt neighborhoods at sunset. (Nat's views and opinions are his own and do not represent those of his employer).

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