In late 2018 Jeff Bezos, controlling shareholder and CEO of online reseller Amazon Inc., made a statement to employees that raised many eyebrows. “Amazon is not too big to fail,” he said, according to cable channel CNBC. “In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”
Shocking? Not really. Bezos knows probably better than many that market disruption–an phenomenon triggered by his own company over and over again in these last twenty years–catches many a management team unawares. Companies that cannot adapt to such disruption, either through inertia or incompetence, go out of business.
The history of the benchmark Dow Jones Industrial 30 index gives an ample demonstration of the short lives of seemingly invincible corporations. When Bezos made his statement about Amazon’s long term prospects, only a few months had passed since General Electric, the last original member of the 1896 Dow Jones Industrials, was removed. Dow Jones periodically adjusts the Industrials index to ensure it includes both representation from as many relevant industries as possible and the companies with the largest market capitalization. General Electric’s place in various industries is still relevant, but the company has fallen on hard times as a succession of two mediocre CEO’s has led to poor market decisions and the need to raise cash by divesting important pieces of itself.
If one peruses the list of oldest known businesses in the United States, the oldest among them are an eclectic group of farms, hotels, breweries and tobacco distributors, banks, law firms, and insurance companies. A reader has to run their finger all the way down to 1802 before they get to a major corporation not engaged in vice or finance–in this case DuPont. Except DuPont was purchased by Dow Chemical in 2014 and is run as a stripped-down subsidiary. Ok, so the next candidate is 1806 and Colgate. Now referred to as Colgate-Palmolive, the company is recognized as one of the top three consumer products manufacturers in the world. And that is it. After Colgate, the next long-lived industrial non-vice non-finance corporation is General Electric, which was founded in 1892. Sears, founded in 1886, declared Chapter 11 bankruptcy late last year. In fact the company actually ended in 2004 when K-Mart purchased the dying chain after K-Mart emerged from its own Chapter 11 bankruptcy filing.
It remains to be seen whether or not Amazon will see even its 30th anniversary, never mind its 100th. Given its business model’s low barrier to entry, its focus on razor thin profits, the heavy toll it takes on its employees, and its tendency to engage in Justice Department-attracting anti-competitive behavior to protect and grow market share, I would bet 50-50 against the former and 100% against the latter.
Don’t forget that Amazon’s success is in no small way due to Bezos himself. How long can he keep it up? Consider that Apple eventually consumed Steve Jobs, in spite of the fact that Jobs was a health fanatic. It is hard to imagine the superhuman effort it must take to run a corporation the size and complexity of Amazon, never mind various side projects such as the Washington Post and Blue Origin.
I’m not in a rush to see Amazon’s downfall–its collapse will create an enormous vacuum in the space that the company occupies in the US economy. But it is useful to occasionally remind ourselves that Amazon’s dominance squelches innovation in the marketplace. Bezos is right–all things do come to an eventual end. And Amazon’s end will ultimately be more healthy for the US than its continued existence.