There have been various calls, from different quarters, to break Amazon up. Those have been mostly due to the Seattle behemoth’s eating into the retail business of many others—big box stores, stand-alone businesses and even mall stores, such such as venerable Macy’s. In essence, however, Amazon is just doing what Wal-Mart, and other big boxes, did to smaller retailers, years before.
Amazon doesn’t have a monopoly on the retail sector; rather, it had just anticipated that Americans, as well as overseas customers, were ready for a new way of shopping—On-Line. Most of the other stores in the sector; however, can certainly invest in similar advanced systems, but they haven’t. Wal-Mart, for instance, would cause massive layoffs in the various job occupations from which it draws its customer base. And, the mall stores and stand-alone retailers mostly have long-term store leases at their current locations.
My suggestion that Amazon split into two separate corporations—let’s say Amazon and Amazon Web Services—is due to, what I believe are, significant operational differences between the two business segments. As shown on the chart below, Amazon has two different sectors. Most Americans are well aware of Amazon’s retail business; but, few know how active, and expanding, it is in technology—Amazon Web Services.
Amazon is the largest provider of cloud computing, has its own robotics company—which has improved its own logistics systems, as well as provides robotics to other companies globally. It has also been been expanding its Artificial Intelligence operations. To me, the retail and AWS segments should be totally split into two different corporations, with Amazon shareholders receiving their proportion number of shares in each.
First off, the mindset for managing retail is quite different from that of the AWS segment. So would the occupational skills of both the employees and management of the two. The chart below shows the differences between retail and AWS, regarding Revenue and Operating Profit.
Revenue, between North America and its International operations was $123, 768 million in 2016. AWS, on the other hand, was a mere $12,219 million—or just 10.0% of Amazon’s Total Revenue. Operating Profit was even more revealing. AWS had $3,108, as compared to the net combined retail profit of just $1,100 million.Lastly, AWS had a Profit Margin—operating income divided by net sales or revenue—of 25.4%, while that of Retail was only 1.03%.
I am an Amazon shareholder; however, I still believe that the break-up, between the two dissimilar business segments, would make good sense. There are so many dissimilarities between retail and AWS, that the split is certainly called for, in order to improve the overall Amazon operation.
Currently, AWS distracts from the retail operations and, I believe that retail also holds AWS back. In summary, this is truly a case where the two halves would be more effective—and more valuable—than the total!