There’s always been an argument about whether Amazon is overvalued. And there’s always been arguments that other companies follow Amazon’s models of foregoing early profits to fuel growth, one of the standard models of XaaS firms these days.
But just how large Amazon has to get to justify its current valuation is mind-boggling, as the Economist illuminates.
But as it grows, so will concerns about its power. Even on standard antitrust grounds, that may pose a problem: if it makes as much money as investors hope, a rough calculation suggests its earnings could be worth the equivalent of 25% of the combined profits of listed Western retail and media firms. But regulators are also changing the way they think about technology. In Europe, Google stands accused of using its clout as a search engine to extend its power to adjacent businesses. The comparative immunity from legal liability of digital platforms—for the posting of inflammatory content on Facebook, say, or the vetting of drivers on Uber—is being chipped away.
Amazon’s business model will also encourage regulators to think differently. Investors value Amazon’s growth over profits; that makes predatory pricing more tempting. In future, firms could increasingly depend on tools provided by their biggest rival. If Amazon does become a utility for commerce, the calls will grow for it to be regulated as one.
How firms of that size, and more generally quasi-monopolies in digital platforms, are regulated is one of the big open questions indeed.