Embrace, extend, extinguish — it’s the strategy that got Microsoft Corporation (NASDAQ:MSFT) into the antitrust doghouse in the 1990s, leading to a host of lawyers and flacks destroying its advantages from the inside by telling management what it could not do. Amazon.com, Inc. (NASDAQ:AMZN) has now invited that kind of attack through its pending purchase of Whole Foods Market, Inc. (NASDAQ:WFM).
It’s something no analyst is talking about, because the idea that the Trump administration might enforce antitrust laws sounds ridiculous. But Amazon’s strategy this century has always been based on offering its infrastructure to competitors, watching what they do with it, and then crushing them with its own offerings.
Amazon’s rivals in technology are doing the same sorts of things. AMZN is bringing this strategy into the “meat space” of shopping that could get the company into trouble.
AMZN Stock: The Strategy
Amazon is buying media because it sees how Netflix, Inc. (NASDAQ:NFLX), a big Amazon Web Services customer, has succeeded with it. It is constantly buying cloud platform and application start-ups because it sees how rivals like Microsoft are going “up the stack” to boost their own cloud revenues.
AMZN has had a fulfillment unit since 2000 that lets some 2 million merchants rent its delivery and/or transaction processing infrastructure. One such seller, Pharmapacks, estimated 2016 revenue of $140 million despite a website that looks 10 years out of date.
Thanks to Amazon’s efficiency, the e-commerce business is moving toward platforms, like Amazon’s, that deliver scaled transaction-processing and fulfillment services. Amazon’s Marketplace business is growing twice as fast as AMZN itself.
But the success of Amazon’s merchants, like the success of Netflix, also gives it a game plan for its own future growth. With Whole Foods, Amazon could wipe thousands of its Marketplace vendors off the competitive map by fulfilling orders out of its own stores, or from competing WFM merchandise.
The Antitrust Police
Former Bush Administration official Scott Cleland is among those who believe Amazon may have just stepped into serious antitrust trouble with its Whole Foods acquisition.
While the deal only gives AMZN stock 3% of the grocery market, against 17% for Wal-Mart Stores Inc (NYSE:WMT), the market leader, it already had 22% of the online grocery market in 2015, and half of the total e-commerce market. Its 80 million Prime members represent 63% of all U.S. households, and nearly the whole upper-end of the market. In short, Prime has given Amazon monopoly power in online shopping, and its retail customers are satisfied.