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Is Amazon Hurting Or Helping?

In the last few weeks several significant local employers where I live announced that they will be closing shop. One of them is Bon Ton, a large retail chain which was sold to a liquidator under bankruptcy proceedings. It is but the latest story of large retailers experiencing severe financial difficulty.

Amazon.com, started in 1995, has become one of the top-volume sellers, while its founder and CEO, Jeff Bezos, has become the richest person in the world, based in his share of Amazon stock. The company leads the industry that is changing the way that people shop, and many accuse it of killing off retail in the United States, as well as other countries.

Amazon today is the Sears and Roebuck of one hundred years ago. It is disrupting the retail industry. One thing to recognize is that Amazon, to a large extent, is not really a retailer in the sense of Bon Ton or Sears, where the company buys goods on inventory and resells them for a profit. While they do earn significant profits on products and services that they do purchase and resell, as well as digital products they produce, the original business model, and still a major contributor to its sales volume, is its role as an electronic marketplace for other sellers. When you buy something on Amazon.com, you are often not really buying from Amazon. You are buying from one of a vast network of sellers throughout the world.

Amazon is not alone. Another of the world’s richest men, Jack Ma, founded the Chinese version of Amazon, Alibaba.com, using a similar strategy of developing a centralized selling platform to enable producers from far-flung areas in China to have nationwide and world exposure. Ebay is another large contender. In each case, the companies charge a fee for the opportunity to sell on its site.

Individual sellers can still use their own traditional distribution channels, but the Ebays, Amazons, and Alibabas present them with opportunities to reach new audiences. The downside, however, is that they are also exposed to competition from all of the other sellers, who also have the same exposure.

The fundamental problem for Bon Ton and the other big-box retailers is not actually Amazon, Ebay, or Alibaba, but rather their failure to anticipate the earth-shaking changes brought about by rapid technological advance. They were too invested in their own processes and infrastructure or too bound by bad financial decisions to bother to build other sales channels to capture more of the growing online potential. Those companies that did and those that are actively pursuing it now can use online sales to leverage local presence and, thus, are not being bulldozed by technology. They are, instead, embracing it and using it to compete.

So, are Amazon-type companies hurting or helping? The answer depends on whether or not your job is at risk. For some companies and their employees, it can mean gut-wrenching difficulties. For everyone else, however, it means lower prices as businesses compete for customers.

By presenting millions of customers with lots of choice, of product type, brand, and provider, that business model has saved hundreds of millions of people lots of money, money that can then be used for purchasing other things or to save for the future. The standard of living increases when the real cost of living decreases.

Technology is certainly a double edged sword. What is called the process of creative destruction replaces older technology, outdated products, and inefficient processes with newer more efficient ones. It never works out well for those who are on the destruction side of it, but the creation part is where all economic and social progress has come from over the last few centuries.

Dan McLaughlin is the author of “Compassion and Truth-Why Good Intentions Don’t Equal Good Results.” Follow him at daniel-mclaughlin.com.

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