• Jeffrey Goldfarb

Tech Dominance

Updated: Nov 14, 2019

Tech Dominance | Amazon | Internet | Buffalo, NY | Certified B Corp 

Nearly 50% of all online sales go through, or are directly made, on Amazon.[1] Historically this sort of dominance would have been met with anti-trust legislation in an attempt to reintroduce competition into the market; but the dominance of tech companies today, vs the dominance of big oil and big steel in the past, is the effect tech companies have on consumers.

Though Amazon accounts for 44% of all ecommerce sales, and Facebook and Google account for 99% of digital ad revenue, the consumer still wins.[2] What this means is, while natural monopolies have historically formed in free markets, these tech companies are the first organically developed monopolies that have maintained favorable prices for consumers. For example (on a personal note), Amazon is not where I shop for books because I have no other choice, Amazon is where I shop for books because the textbook I had for Finance was about a hundred dollars cheaper online with free two-day delivery than it was at my school’s bookstore.

What does this mean for traditional retailers? It may not be the end for them but they have a long road to recovery. While retail had a good September, growing 1.6%, they may have less luck in the fourth quarter. Why is this bad? The holiday season has historically been retail’s best quarter.

As mentioned before, Amazon already has a sizable grip on ecommerce, being responsible for around 44% of all online sales.[3] However, in an attempt to lure more traffic to their site, to allow customers to shop for holiday deals from the comfort of their own home, Amazon is taking further measures.

The online store is cutting prices for third-party sellers as well. Rather than just controlling the price of the goods they sell from their warehouses, now Amazon will cut secondary market prices, which were already price competitive with retail stores. This move will bring prices of some goods down to Walmart levels. These discounts will be as low as 9%.[4]

While this move will not affect the profits per sale of the third-party seller (they still receive the list price payments), it is further straining Amazon’s relationship with large retail brands. These companies have been resistant to selling their products directly on Amazon before, and if Amazon continues prompting a price war we may see some companies pulling out of their agreements to sell on Amazon.

While this is merely speculation, predicted by the distrust between retailers and growing tech companies, there is one clear and objective winner: The Consumer. Yes there may be some volatility but if a price war does emerge, the consumer will be able to enjoy the lower price results.

Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing involves risk and investors may incur a profit or a loss. Past performance is not a guarantee of future results. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any web-site or the collection or use of information regarding any web-site’s users and/or members.





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