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Join the 15,000 companies using Vanta to prove trust. Go to vanta.com. Hi everyone, this is Pivot from the Vox Media Podcast Network. I'm Kara Swisher.
And this is Scott Galloway coming to you live with a live bonus episode. I met up with my podcast nemesis and your friend Jason Orey to talk about Amazon at the Code Commerce Conference in New York. It's nice to see someone read my book out loud and figure out a way to make money from it. It's a way to go JDR.
You better be threatened by Jason Del Rey. He's quiet, but deadly. Anyway, recode podcast crossover hit. Jason is the host of the podcast Land of the Giants.
It looks at the biggest tech companies of our time. In the first season, Jason looks at Amazon, where it gets its power, and what it does with that power. Jason's a really great recode reporter, and I can't wait to hear your conversation and what you said about the company. I thought a good way to start would be for people who haven't listened somehow to the last episode of Land of the Giants, which was in the words of sellers and big brands that do business on Amazon talking about.
Both opportunity, but really more and more of the challenges of doing business. So we have a brief clip, sort of a highlight reel of some of those sellers and brands talking about what it's like dealing with Amazon's power today. Why don't you just pull off of Amazon if it's this bad? Like, no one's forcing you to sell there.
We're in too deep. If you talk to Amazon sellers, they're living in fear. Their whole livelihood is at stake. You know, with a flip of a switch, their livelihood is gone.
Oh, well, we're just doing what the customer wants, and I call BS on that. It's rope-a-dope. They're playing with you until the time they come in with the knockout punch. Right, when you start to actually assume that every single customer on Earth wants Amazon, I don't think you're being realistic.
I don't think you're being honest, your customer promise anymore. If you woke up tomorrow and you said, I've had enough, and you pulled off, how long would your business remain viable? You know, maybe 30 seconds. I mean, there's no reason for us to exist without that channel.
You can't sell toys today without selling toys on Amazon. So, a lot of happy people. How did we get here? Steve Jobs, we decided in a modern economy, as you become more educated and more affluent, you're dependent upon a super-being and church attendance goes down.
But our questions get bigger and bigger. And in order to fill that void between a spiritual need and a lack of spiritual figures, we need to fill it with people. We used to fill it with athletes and government officials. Now we fill it with innovators.
And so, the Jesus Christ of our modern economy was a guy who denied his blood under oath to avoid child support payments when he was worth a quarter of a billion dollars. And that's Steve Jobs. And we have continued this gross idolatry of innovators that has allowed these companies to run unfettered, regardless of the tax avoidance, regardless of the job destruction, regardless of the anti-competitive predatory behaviors, regardless of the exploitation of workers that aren't mostly white, mostly college educated, all working at headquarters, because we just think they're the new Jesus Christ. And I think finally we're starting to throw up on that notion.
Did that answer your question? I mean, it was the beginning of an answer to a question. Amazon specifically. The dominant position and they hold today.
What do you see as the core of that? One of the factors we explored in the series was their relationship with Wall Street. Yep. So that's the real story.
Probably one of the biggest fundamental shifts in our economy is this Amazon effect where typically what happens is the company is given some wrong way to lose money, and then investors in the market demand profits, at which point the profits are distributed to investors, they're taxed, and those profits are taxed. It's kind of how our economy is set up. And Amazon, through incredible storytelling that goes back to the 1997 shareholder letter and their ability to execute against that vision, has resulted in a company that has totally changed the compact between investors in the markets. And that has basically been allowed to go in almost break even for 25 years, while almost becoming the most valuable company in the world.
I think it's the third most valuable company in the world. And our economy isn't set up for that. So what does that do? It has an incredible impact, and the impact is boring, unfortunately, so it doesn't get a lot of attention.
But if we're in a boxing ring and you're getting 100% pure oxygen, in other words, you can put 100 cents on the dollar back into the consumer experience. And I'm any other retailer, and my investors have gotten their lips around the crack pipe of profits, and to get very irritable when I take it away. And I get somewhere between 70 and 92 cents, 92% pure oxygen. You can, I can be a better boxer than you, I can be more innovative than you.
Eventually, I'm going down. So we have this company that can reinvest, not only a gross level, but a net level of capital in the consumer experience that nobody can compete with. So that's the first thing. It's literally no company can compete with Amazon.
And then the second thing is our entire society, our roads, our hospitals, our military, is based on profitability. And that is we tax profits, corporate profits. I think about 22%, 23% of our tax base. What happens when the most successful company in the world has paid in the last 10 years, $1.4 billion in taxes, and Walmart has paid $64 billion despite the fact that Amazon added the value of Walmart in a three month period in 2017.
So there's this new dynamic we're not used to. I don't know if you noticed what most recent earnings call. Amazon took its profits down again. About a quarter ago, they said, oh, here they are.
Amazon's making profits. I literally think, and I don't know this, but I'm fairly certain this. Every time Amazon, the CFO and Jeff Bezos gets together with this team and they say pre-earnings, our profits are up. He looks around and he goes, you fucked up.
Green light, everything. Green light, everything. Because as long as the market continues to take your stock up, why would you ever give up the ability to put 100 cents back into the company? So if you noticed in the last 10 years call, they've taken profitability back down again.
So no company compete with that. We've never seen a company reinvesting that sheer amount of capital with zero profitability and as a result, zero tax base. And it's also led to this, I apologize, I'm going on, this third really weird dynamic is now all company, every company mimics the leader. And so now every company is trying to make the jump to light speed and establish themselves as the leader, get access to the cheapest capital, and reinvest massive amounts of money.
Netflix is probably the best example of company that's been able to do that. But what it's led to is some other companies that believe as long as we tell this great consumer story, the market's might bite into it and we can invest not 98 or 100 cents back on the dollar, but we can invest 200 cents on the dollar back in the business. We work. We can invest 150 cents back on the dollar, Uber.
But the market is showing it's probably not got the same sort of patience for that type of company that has negative gross margins. So Amazon always had positive gross margins. Anyways, the ability to constantly reinvest and get this far, we've never seen it before. And it has totally changed our economy as it relates to the investment markets, the capital markets, and the consumer experience.
Couple of things there. I think I counted six, but I'm going to get to two or three. One is, you mentioned basically literally no one can compete with Amazon. So we have a room full of, I don't know what percentage, but a large percentage of brands and retailers.
What happens to our poor attendees in five years if no one can compete with Amazon? There'll be some very well publicized stories about breakthroughs away. They're incredible. By the way, they should probably test on Amazon.
They're brand purest right now. The only way they're going to grow into that billion dollar market evaluation, they just raise money out, which is wildly overvalued, is if they dramatically increase their top line and they do some limited distribution through places like Nordstrom's and Macy's and I would even test a little bit on Amazon. There'll be some limited examples of winners. Wherever Parker's a winner.
People love, the media loves writing about these little winners. However, it masks a much more disturbing trend. And that is if you look at seed funding across all the different sectors in our economy, it's dramatically down across about half of all sectors. And if you look at those sectors, they all have one thing in common.
They're competing with Amazon Apple Facebook or Google and can't get funded. So I challenge you to start an e-commerce company right now and get funding. What away in Warby Parker did was incredible because it is very hard to get funding for an e-commerce company. There were twice as many new businesses being started every day in the Carter administration than are being started today.
We bought into this bullshit notion that we live in an era of innovation. We live in an era of non-innovation. Where everybody's trying to be the one Amazon, they'll get a ton of press coverage. Maybe you know someone who works in Amazon, maybe you know someone who works in a way, will put away on stage.
So we're under the impression that there's a ton of acorns blooming. No there aren't. This is the era of non-innovation because the fastest-growing parts of our economy are controlled by one or two players. And no one wants to invest in anything remotely near them.
So some of you will break through. People in this room are in the 1%. If you can survive in New York and afford that apartment in Brooklyn, you're likely in the top 1% of innovators. And most likely means your parents are putting you through New York.
I live in New Jersey. But it has a terrible chilling effect on the economy. It's cauterizing all kinds of innovation. We don't know what we're missing because 20 years ago, 15% of all companies were less than a year old.
Now it's 7%. I want to get to that. We don't know what we're missing. So one of the big topics around antitrust has been sort of the framework in which this country has viewed competition and the need for government to step in over the last couple decades.
And to put it very simplistically, if the consumer is benefiting from a company, it's probably a good thing. And we should continue to let that happen. Then there's Amazon. Is there a consumer welfare argument for why?
I know some of these sellers have reasons why they think Amazon keeps prices high. What in your opinion is that argument around Amazon and if there is sort of a downside to consumers? So, typical antitrust, right now antitrust for the last 30 or 40 years is based off of basically Boric University of Chicago that says it's about consumer harm. That's the test.
If it's good for consumers, we as antitrust and the DOJ leave it alone. And by the way, the number of FTC and DOJ investigations opened every year has declined by like 80 or 90%. And basically, the DOJ and the FTC are no longer countervailing forces to private power their co-conspirators, right? So, you have basically antitrust as a sleep at the switch because of this consumer test.
Before that, it used to be this brand easy to test where they looked at what was happening to competition more holistically. And I think we're going to go back there. But even if we don't go back there, let's talk about the consumer test. I would argue that the price of Facebook being incurred by all of us, despite the fact it's free, has skyrocketed.
The fact that in my view, we have an illegitimate president who is slowly but surely eroding the rights of a woman's choice. I think that price is pretty fucking high for all of us. The fact that I'm more worried about my 12-year-old son, now that he has a phone, being admitted to an emergency room for self-cutting, which is up 80% among girls and up 40% among boys because of the social media addiction, that's a pretty high price to pay for parents. So, I would argue even on a consumer test.
Yeah, great. I get my espresso pods in 48 hours for 3% less than I used to. The price each of us is paying for this tyranny of technology which continues to march on is skyrocketing. Amazon's not Facebook.
I understand that from Facebook. Well, look at it. Okay. So, the price we pay for Amazon.
Look what's happening in terms of startups. I think that's a pretty high price to pay. We don't know what we're missing. A third of all, I mean, if you're looking at basically what's happening in retail, retail's going through a fairly significant apocalypse, more foreclosures in 2019 year to date than 2018, which was our worst year in 30 years.
Think of a great retailer that's starting up. There really aren't that retail is really struggling right now. By the way, retail is the third largest employer in America. There are 3 million cashiers in the US.
You could used to be able to string a decent life together if one person was an assistant manager at Old Navy and the other was Union at Kroger's. They could string together a decent middle-class lifestyle. That's not happening. Now, should a company be able to take AWS, which in my view in two years will be spun and will be the most valuable company in the world, massively profitable, should they be able to funnel those profits into the retail group, which we largely think of as Amazon and sets the tone for Amazon, and sell.
If I think if you did real accounting around what it costs to get you, my kids at my work now order lunch off of Amazon now and get it within 47 minutes, if you look at the cost of doing that, I think they're selling stuff either at cost or slightly below. It's being subsidized by Amazon Media Group and AWS, which are hugely profitable. When the Chinese tried to do that with steel, they said, we're going to roll up the international steel market and we're going to sell steel into the US market for less than cost. Back then, we called it dumping.
With Amazon, we call it innovation. So we have some very difficult questions to ask. Should we allow a company to be able to funnel profits from here to another group and thereby, quite frankly, decimate an industry, which has been a great taxpayer and a great employer. Some retailers had it coming.
Go into a series, all right, they deserved it, right? They deserved it. It's a lot of mediocre retail, or bad. There's a lot of bad retail, but try and start an e-commerce company right now.
Anyways, I think the cost to consumers is we don't know what we're missing. I don't think there's been a ton of innovation in retail. When we think of innovation in retail, people have a pretty short list. There's little queue companies that get bought by, get bought, hope that they sell, but there's really a name of retail or a fast fashion was pretty innovative, but now they're getting their turn at the woodshed.
Fast fashion is really declining fast. If you look at the market cap of H&M and into text, they're falling off a cliff right now. Here are the charts. This is the chart.
The stock returns for one company in retail, and here's the stock chart for all of retail. If you gave those two data sets to a statistician, they would say every day that Amazon stock goes up, it's at the price of all of retail. And some people might say, well, okay, they had it coming. I would argue that it's non-competitive, and we have a much less diverse ecosystem than we should.
We'll be back with more conversation about Amazon, but the Land of the Giant Soast, Chase, and O'Rae, after a quick break. I'm Seth Herndon, and this is America, actually. We're all talking to each other to see what we do wrong, what we do not see. I'm in Washington, DC this week to interview Reuben Gaiago.
He's a Democratic Senator from Arizona, and he's been thinking openly about running for higher office. But he's recently running to some hot water, because of his connection to Congress from New York's Wallwell. I have to learn from this, and I will learn from this. But, you know, for me, it's not a 20-28 question.
It's about what it means to be a better first boss in my office and also a better senator to my constituents. This week on America Actually, we ask Gaiago about predatory behavior in Washington. His plans for immigration reform and more. This week on Network and Chill, I'm breaking down the institution everyone's talking about right now, but nobody actually understands the federal reserve.
With all the drama happening between Trump and Fed Chair Jerome Powell, you're probably seeing headlines and wondering what any of this has to do with your money. Spoiler alert, it's everything. I'll explain what the Fed actually is, why it exists, and how this one institution controls the interest rates on your mortgage, credit cards, student loans, and more. We're diving into why raising or cutting rates isn't just boring policy talk.
It's the difference between affording a house or watching crisis spiral out of control. Plus, I'm breaking down the current controversy over firing Fed board members and why both Republicans and Democrats are freaking out about it, because this fight isn't just political theater, it could mean real chaos for your wallet. We're back. Let's get back to our conversation with Jason O'Rae on Amazon at the Code Commerce Conference in New York.
You mentioned AWS. You think AWS is something that is forced to be spun off or you think Amazon, I've heard you say, I think maybe once or twice before that you think Amazon would go ahead and do it on their own, spin it off. So I love predictions. I think the most valuable company in the world in the next year will be Amazon.
I think the most valuable company in the world in three years is going to be a company called AWS. I think Jeff Bezos is smarter than the rest of us, and as he sees, the DOJ and FTC start to go after Google, go after Facebook, and they'll be successful with both of those. And then they start to think about, okay, who's next? Apple or Amazon?
I think Jeff Bezos will prophylactically spin AWS, and within 12 to 24 months, the most valuable company in the world. If you look at the multiples on cloud-like companies and take those same multiples and attach them to AWS's growth and profitability, AWS, again, I believe, in two to three years will be the most valuable company in the world. And I think he will spin it prophylactically because he would rather have it be I buy his own hand and have someone come in and tell him he's got to split it up. But an ego thing or just business sense?
Well, you say that if it's a surprise. By the way, he lives here now. I'm shocked he's not speaking. You talked about price.
Let's talk about consumer price. Let's talk about the price of the commonwealth at the hands of Amazon. In the 1980s, Reagan had this whistle call called welfare queens, which was basically a race. It was disguised racism.
He had this image of an African-American woman sipping champagne. What was it disguised? It wasn't disguised. The mother of all welfare queens is Jeff Bezos.
If he owns 17% of Amazon, if you look at all the subsidies that Amazon has gotten, by playing municipalities off of each other and saying, well, we'll put our data center there. We'll put our warehouse there. We'll put our HQ, two, three, four, A and B there, right? But we're going to be genius of playing one municipality over the other.
Taking advantage of short-term politics or every municipal official wants to be the individual that detonates a prosperity bomb in town swear. They've gotten billions of dollars in taxpayer funding, times that by .17. And that's what Bezos has gotten directly from the government. He never pays taxes because he never sells stock triggering a taxable event.
He just borrows against his stock at probably 2% from JP Morgan. So every year, my thesis is that we are paying the wealthiest man in the world out of our tax treasury. So we have never had a welfare queen, if you will, the size of Jeff Bezos. And again, it's because our tax structure and our Dollar Tree of Innovators means that every other company, every other tax payer pays more.
And the most successful company in the wealthiest man in the world don't pay anything. So, Alexis, this is a good thing. Can't believe I'm going to play devil's advocate defending Amazon, but here we go. Second largest employer in the US, right?
Amazon? Amazon? Amazon. Private employer.
If you include their warehouse workers. Correct. Okay. Good thing, bad thing.
Here's the issue. We have a tendency. I love the term tyranny is the deliberate removal of all nuance. If we had to pick two doors between one of two doors, Amazon or no Amazon, I think we pick Amazon.
By the way, I love Amazon. I own their stock. Took you 25 minutes together, but I do. As a consumer, I own their stock.
I'm a prime member. I think Marvus, Mrs. Mysau is amazing. I teach 160, 180 kids, 15 to 25.
We'll get jobs in Amazon. The number one recruiter out of my class, second is Google, third is Goldman. What's not to love? They used to love me.
They used to love me. But here's the issue. They're a net good for society. But here's the problem.
The word net. Pesticides are a net good for society. But we still have an EPA and an FDA. Fossil fuels, my view, are still a net good for the world.
But we have emission standards and we're moving to electric. We look at Amazon and the argument is, well, on the whole, aren't they good? I think there's some amazing things about Amazon. They're a great employer.
I think it's actually probably a good place to work. Raising the minimum wage to $15, I thought was a leadership move. They treat their employees at headquarters really well. It's an amazing service.
It is good for consumers. There are some retailers that stuck out their chin and had it coming. But does that mean we just say, okay, let's not do anything? Let's not look at the taxation system.
Let's not look at anti-competitive behavior. Let's not look at maybe the economy as a whole would be oxygenated if we broke them up. So I think Amazon is amazing. I think they could be amazing squared if the people in DC decided to put some nuance back into the examination of these companies.
I'm not saying they're bad people and we should break them up as a punishment. I'm sure the folks at AT&T, the aluminum companies and the seven sisters, the old companies were probably lovely people. But a key component of a healthy economy is once one company becomes an invasive species, we move in and we break it up and we oxygenate the economy. And it's time.
I don't think they're bad people. There's some great things about it. But let's keep this disco party going. If you want the market to keep going up, the best thing we could do for the market right now would be to break these guys up.
Because on a some of the parts basis, I think they're worth more than they are as a whole. So in break AWS apart and in investor speak would say unlock value. 100%. What does that happen?
Well, okay. So if you look at Instagram and you put a multiple on Instagram of a similar company, a snap, Instagram is worth 60 to 80% of the market cap of Facebook right now. So as long as you think Facebook with WhatsApp and a core platform are still worth $100 or $150 billion, you have shareholders that do really well. I think AWS is worth somewhere between $300 and $800 billion right now.
Meaning it might be worth as much as the entire company. And if you were to take AWS out of Amazon and still have the retail platform, still have a fulfillment, still have Amazon media group, you still have a company worth a lot of money. When you look at spins and breakups, AT&T, if you look at the value of AT&T pre-breakup, and then 10 years post, it was worth a lot more. This will unlock eBay, the spin of eBay.
These companies will be worth a lot more. So I always say we don't break them up because, you know, we're angry. We don't break them up because they're bad people. We don't break them up because they avoid taxes.
We all try to avoid taxes. We don't break them up because they're selfish. Everyone here has an obligation to affix your own mass first and provide economic security for your own family. I don't think they're bad people.
We break them up because we're capitalists. A key component of capitalism is ensuring that no individual or no individual company has too much power. It's a key part of what is the greatest economic engine in history. And for some reason, we seem to have lost the script.
In part because these companies, A, have more ammunition. Amazon has 88 full-time lobbyists in DC. 88 full-time highly paid, highly educated people, blind golf, going to dinner, making donations to people, and educating them about how wonderful Amazon is a combined company as to the economy. And we have a group of individuals elected officials somewhere between 4% and 7% of have a background in technology or engineering.
So we're just, we're outgunned. But anyways, I love Amazon. Let's make it even better. Let's break it up.
Scott, thank you. Thank you, Jason. I'm so glad you and Jason could put your podcast feud aside. No doubt, we'll be talking about whether or not Amazon will actually ever get broken up on future episodes of Pivot.
Definitely. And if you haven't checked it out yet, go listen to Land of the Giants. Thanks again to Jason Del Rey. We'll be back later this week with more Pivot to break down All Things Tech and Business.
This bonus episode of Pivot was produced by Rebecca Sennanas. Megan Conane edited the episode. Art Chung is our Head of Production, and Golda Arthur is Land of the Giants Senior Producer. Thanks also to Pivot's Executive Producer, Erica Anderson.
And thanks for listening to Pivot from Vox Media. We'll be back next week for another breakdown of All Things Tech and Business.