Amazon: A corporation economy

One of the most under-reported moves in technology recently has to be Amazon potentially launching their own currency.

As evidenced by a number of job postings from Amazon itself, the digital currency is proposed to be launched initially in the single market of Mexico. Notably different to other technology firms’ attempts at launching currencies, this is seen as a way to keep Amazon customers (and suppliers alike – more on that below) permanently plugged into the Amazon Prime ecosystem.

The roles advertised for Amazon’s digital and emerging payments (DEP) division state they want to enable customers to convert their cash into a digital currency so they can enjoy the wide gamut of their services, including shopping and entertainment from Prime Video. But it runs much deeper than that.

In Australia, we don’t really have Amazon (yet) in the same way other markets do. In the US, Amazon is so dominant that it has almost become an economy in itself. That’s why this is such an interesting move.

In 2020, Amazon’s asset base grew by 43 per cent, according to its most recent financial filings. Amazon currently has a market capitalisation of US$1.54 trillion. This would make it a top 10 country by GDP, just behind Canada. In the US, 143 million people have an Amazon Prime membership – one of the greatest consumer lock-ins of all time. It makes consumers want to use them for every transaction possible. That breadth of transactional possibility is only growing.

The number of business interests Amazon has makes it much more than the 'everything store', and more like the 'everything business'. It is the only true modern-day technology conglomerate. Amazon has diversified backwards and forwards, vertically and horizontally. The term tentacles comes to mind, and they run deep.

Amazon world

Amazon is a strong competitor in retail of all types, which sells everything you can imagine in channels from e-commerce to convenience stores and grocery chains. They’ve even made recent acquisitions and investments into pharmaceuticals and health via PillPack.

Amazon boasts a logistics arm that stretches well beyond their warehouses, from simple delivery vans, to trucking, drones, and even a fleet of 85 Boeing 767 widebody aircrafts. Not to mention their world-class warehouse outlets underpinned by Kiva robotics, another acquisition.

Their position in entertainment is also formidable. Amazon Studios is investing US$6 billion in original content this year, to underwrite their strengths in Amazon Music, Audible, IMDB, comiXology and Kindle. Speaking of which – they make their own connected electronics, including the fire Tablet, the Echo, the Ring home security camera and the Always Home Cam drone.

On top of what they make, own and sell, they also have an incredible position of strength in services and software arenas. This includes but is not limited to artificial intelligence, natural language processing, security and surveillance, payments, web services, and media, where their 1.9 million Amazon resellers have to buy ads to sell effectively on their platform. Not to mention their 1.3 million employees that propel them to the second biggest private industry employer in the world behind Walmart.

There is almost nothing Amazon doesn’t touch and this list is much longer than what I have pointed out. The point we need to remember is that people could almost live inside the Amazon economy.

Market by market

Strategically, Amazon has followed its own strategy when it comes to launching a digital currency. One market at a time.

When Facebook announced its move into the currency realm with Libra, their approach was the opposite. It was done with much fanfare, a list of reputable supporting firms, and an immediate global approach. Predictably, this didn’t sit well with sovereign governments, for whom control of their currency is a core pillar required for effective monetary policy, taxation and democracy. As expected, Facebook’s currency efforts have faced regulatory backlash, constant revisions and is yet to make its debut, almost two years in.

Amazon, on the other hand, seems to have learned from the Facebook Libra debacle and has decided to keep it a transactional unit within their businesses. On top of that, Amazon’s foray is in a developing economy with a currency that can fluctuate wildly. In 2020, the Mexican peso declined by around 20 per cent against a US dollar benchmark.

If it works in Mexico, then in the same systematic method as witnessed in other market categories Amazon has entered, Amazon’s currency could expand to other economies.

A sans nation-state economy

Amazon’s foray into currency could facilitate the creation of the world’s first sans nation-state closed economy. Imagine people on-boarding to the currency and then staying inside Amazon as a quasi-permanent consumer – like a constituent of a real economic country.

Their breadth of product offer in countries like the US could sustain many of their members’ disposable income expenditure, and increasingly, business expenditure with their logistics and software services.

For those who are set up as Amazon suppliers and sellers, the closed system model is far more compelling. If sellers were to receive compensation in a new Amazon currency, they could earn profits and create an economic multiplier effect for Amazon.

The sellers themselves could then use the Amazon currency inside the Amazon economy as consumers. What the sellers spend inside the Amazon economy would effectively be a pre-tax amount, making Amazon cheaper than any other player by the percentage of the effective marginal tax rate that person avoids.

Amazon could invent a corporate methodology for its customers to avoid tax, much like corporations do. It is often said that technology democratises what was only once available to the most powerful corporations. This would be the most significant corporate democratisation in modern economic history.

Taking it to the next level, Amazon could offer its minimum wage employees increased pay, or bonuses, with Amazon’s own currency.

While the potential political backlash to this approach would be predictable, it is hard to see any lower income workers refusing to accept this form of payment, especially given the range of products and services they’d be able to access and the pre-tax benefits of a closed system money transfer. All the while, Mr Bezos would then make his employees one of his biggest customer groups and create a growing circular economy. Amazonians would essentially operate within a corporate tax-free zone – until such a tax loophole would be closed down.

All this is a simple representation of how logistics, information and data operate. The days of business operating vertically in a supply chain are over. Effective economic systems now represent nodal spread and replicate what the internet looks like visually. Current geopolitical systems are ill-equipped to stop technology finding the gaps of where it can grow.

Amazon could further leverage Prime to include other services and benefits which are just too advantageous for consumers to ignore. Just imagine their expected fleet of 200 aircrafts by 2028 becoming a passenger airline. As many flights as you want for $X per year with Prime Fly Premium.

If it sounds fanciful – and it is a little – just remember that selling tokens for non-exclusive digital art just 12 months ago sounded preposterous! If anything, it points out that Amazon has an inordinate upside.

In my view, Amazon has the biggest competitive barriers of all the technology firms. If Amazon were to be split up via anti-trust legislation, the sum of the parts will likely be greater anyway.