By Pam Martens and Russ Martens: 

On August 26, 2015 the market capitalization of just five Big Tech stocks totaled $1.889 trillion at the close of trading that day. Here’s the tally: Apple $625.532 billion; Google, $440.767 billion; Microsoft, $341.594 billion; Facebook, $245.795 billion and Amazon, $234.215 billion.

At the close of trading yesterday, those numbers stacked up like this: Apple $797.366 billion; Google $720.206 billion; Microsoft $918.312 billion; Facebook $467 billion; and Amazon, $833.365 billion – or a total of $3.736 trillion – almost a doubling of market value in less than four years.

Of particular note is that Amazon has increased its market value by more than three and a half times, despite its inability to show profits for much of its existence.

In December 2013, the International Business Times reported as follows about Amazon’s abysmal history of profits:

“So what’s with Wall Street’s love affair with

“The company barely ekes out a profit, spends a fortune on expansion and free shipping and is famously opaque about its business operations.

“Yet, investors continue to pour into the stock, pushing up the company’s share price to $388, a nearly 400 percent rise since the end of the company’s third quarter in September 2008.

“At that time, Amazon’s net profit margin was 2.8 percent. By September 2011, that number fell to 0.6 percent. A year later, it was losing $274 million on net sales of $13.8 billion. And in the latest quarter, ended Sept. 30, the massive e-tailer reported a $41 million loss on $17 billion in sales.”

The International Business Times then ran a chart that captured a stunning business model – flat or non-existing profits over a decade.

Amazon's Profit Picture from 2004 to 2014. Source: International Business Times

Amazon’s Profit Picture from 2004 to 2014. Source: International Business Times

And then, in January 2017, the Yale Law Journal published a brilliant 24,000 word forensic analysis of Amazon’s real business model by Lina Khan. The treatise was summarized as follows by Khan:

“Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny.”

Pricing below cost and operating in the red for years in order to grab market share from competitors  would not have been possible for Amazon without those reliable “buy” ratings from Wall Street. Any antitrust investigation into Amazon’s history must include an in-depth investigation of the role that Wall Street played in that history — particularly the trading of Amazon’s stock in Wall Street’s Dark Pools.

It is very possible that Wall Street didn’t care about Amazon’s suspicious business model because Amazon was Wall Street’s cash cow.

Khan’s detailed analysis of Amazon in the Yale Law Journal was widely covered by mainstream media – stoking the fires for a rethink of long dormant antitrust action. Today, Khan is Majority Counsel for the U.S. House Subcommittee on Antitrust, Commercial, and Administrative Law – the same Subcommittee that announced yesterday that it would be conducting a series of hearings to investigate anti-competitive conduct in digital markets. The Chair of the Antitrust Subcommittee, David Cicilline, released this statement:

“The growth of monopoly power across our economy is one of the most pressing economic and political challenges we face today. Market power in digital markets presents a whole new set of dangers. After four decades of weak antitrust enforcement and judicial hostility to antitrust cases, it is vital for Congress to step in to determine whether existing laws are adequate to tackle abusive conduct by platform gatekeepers or if we need new legislation.”

News of the House hearings followed media reports over the weekend that the U.S. Department of Justice was launching an antitrust investigation into Google. Yesterday, the Wall Street Journal reported that the Federal Trade Commission might pursue an investigation into Facebook. (See our 2018 report: Is It Social Media or Corporate Surveillance? Facebook’s Business Model.)

In an opinion piece in the Boston Globe last year, Robert Levine wrote this about Google:

“Google has as much as 90 percent of the search market, and says its algorithms are designed to get users the right information as fast as possible. But it’s far more than a search engine, of course. The company controls the most popular online video site (YouTube, which is also the second biggest web site overall, by some measures), the most popular mapping app (Google Maps), and the most popular Web browser (Chrome, which has more than 60 percent of the market). It also owns the most popular mobile operating system, Android, and five of the 10 most popular smartphone apps of 2017. Along with Facebook, it dominates the online advertising business. Other divisions of its parent company, Alphabet Inc., sell Internet access, develop self-driving cars, and invest in life-extension technology…”

In the article, Levine credits the Open Markets Institute, an influential think tank where Khan previously worked, for much of the renewed interest by progressives in the antitrust issue. Indeed, in her Yale Law Journal abstract, Khan credits her former boss at Open Markets, Barry C. Lynn, for introducing her “to these issues in the first place.”

Open Markets has an outstanding, layman-friendly overview of how the U.S. came to throw out its hard-earned lessons on monopoly power. It writes:

“…beginning in the 1980s, thinkers and politicians from both parties joined together to rewrite the nation’s patent and anti-monopoly policies along more libertarian lines. These changes radically altered antitrust law, permitting ever-larger companies and abuses of market power that for decades had been illegal. They also lengthened the duration of patents, making it easier for corporations to use patents to grow larger and more powerful. Today the results of these changes are bigger and more dominant industrial corporations, fewer pathways for inventors and upstart companies, and a sharp decline in innovation in many sectors of the economy.”

Open Markets points out how this increased market power has played out when it comes to Big Tech:

“…dominant technology companies are increasingly using their monopoly profits not to invest in new research and development, but to acquire or bankrupt their competitors, buy back stockhire lobbyists, or simply hoard cash. Unlike the libertarian theory that ‘creative destruction’ would unseat the country’s biggest monopolists, the same four tech companies—Google, Amazon, Facebook, and Apple—continue to dominate the country’s tech sector. To regain the balance that led to so much innovation and broad prosperity during the mid-20th century, both patent and antitrust law must be reformed.”

Amen to that.



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