Week 7: Amazon Basic(ally) kills, Grim tax stats, Funding for India's entrepreneurial talent
Wonderful deep-dive article on Amazon by the Wall Street Journal this week that touches upon some of the issues I discussed a couple of weeks ago (point #2 here). I urge everyone to read the WSJ article themselves. I found the Amazon explanations for their actions quite weak (also in the article).
It is a reality that these platform companies have quasi-monopoly powers and can crush small retailers on their platforms if they find it worthwhile. In effect, the more successful you get as a third party seller on the platform, the less likely your future success becomes. Usually, it is a matter of time before these platforms offer a cheaper product with better visibility (they know the exact keywords consumers search for when they want a specific item, and can put those keywords more prominently in their product description to direct traffic towards them).
The article actually suggests that Amazon almost forces sellers (through threats of suspension for counterfeit claims) to reveal invoice information about their suppliers and costings. This allegedly helps Amazon come up with cheaper competing products.
Customers do benefit from lower prices for similar products, but is this not abuse of “monopoly” power?
Check out the image below of a best selling chair and a competing Amazon product that appeared shortly thereafter. Priced 40% cheaper, they even kept the “orb” in the name.
The deep reality of the situation is that this is now common practice with platform tech companies, and is happening in several industries (media, retailing, finance, transportation among others). Once you own the customer relationship and the data, your ecosystem is (more or less) at your mercy. And usually it is a winner-take-most market structure, so market forces probably won’t solve the issue.
p.s. For what it is worth, I think Jeff Bezos is the greatest entrepreneur of the 21st Century so far, and I have immense respect for what he has created. It will be interesting to see how far this story is allowed to develop by regulators and society at large. Absent that, it’s unstoppable (network effects, scale economics, data advantage, innovation capital etc.)
I came across the latest Income Tax data in India this week (India’s Income Tax department has a Twitter account!). Most people know that very few people pay income tax in India, but when you actually see the numbers, it is doubly disheartening (all figures for FY19):
Out of a population of ~135cr, 5.78cr individuals filed tax returns (i.e. 4%)
Of these 5.78cr filers, 4.32cr disclosed income below INR 5 lakhs per year and are thus exempt from income tax
Hence only 1.46cr people paid income tax (i.e. 1.1% of the population)
Only 46 lakh citizens disclosed income above 10L per year (0.3% of population)
Only 8,600 people disclosed income above 5cr per year (0.0006% of population).
The two obvious, and grim, conclusions (while contradictory) are that India is a land of (a) very poor people and (b) a large number of tax evaders. The unfortunate thing is that successive governments keep squeezing the 1% of the population that pays income taxes rather than finding ways to widen the tax net. How sustainable is this?
Venture capital funding in India has gone up 14x to $14bn over the past 10 years, according to Sequoia India. India has gone from zero unicorns to 34 unicorns in that time.
Statistics like these make me hopeful for a better India tomorrow.
In the olden days, only the old business families of India (usually the handful of mega conglomerates) had access to risk capital to pursue new, innovative business ideas. But now, many more smart and ambitious people from less privileged backgrounds have a chance to compete for risk capital and realise their business vision.
If we use it well, our huge population is our strength. We just need systems to help people achieve their potential. Look at the magic that people like MS Dhoni (from a modest background in Ranchi) created on the world stage when they got the chance. Hopefully we will create many MS Dhonis of the business world in the coming decades.
Next we meet in the New Year!
Stay safe and healthy as you bring in the new year!
