Amazon’s $4 Billion Coronavirus Investment Will Shred Its Competitors

Photo: Bloomberg via Getty Images

Last Thursday, Amazon CEO Jeff Bezos announced in the company’s first-quarter earnings report that shareowners “may want to take a seat.” He wasn’t preparing them for sticker shock from the quarter’s losses — around $622 million, chalked up to the cost of rapidly expanding to meet demand — but for the massive investment he planned for the second quarter. As the e-commerce giant becomes a lifeline for Americans stuck at home during the pandemic, Bezos vowed to invest Amazon’s anticipated $4 billion second-quarter profit into adapting to the demands of the coronavirus, including buying PPE for its employees and developing its own testing capacity.

Last Friday, the House Judiciary Committee gave Amazon shareholders a reason to take a seat in front of a C-Span stream when seven bipartisan members called for Bezos to testify regarding a Wall Street Journal report that the company used data from independent sellers to design its own products to meet consumer demand. On Tuesday’s episode of the New York podcast Pivot, co-hosts Kara Swisher and Scott Galloway discuss the recent developments, examining how Amazon’s investment could consolidate their vice grip on the post-coronavirus economy and how Bezos might fare in front of Adam Schiff. They also talk with Anand Giridharadas about how the COVID-19 crisis is an opportunity to reinvent government.

Amazon Is Lapping the Competition

Kara Swisher: So with this $4 billion investment, Bezos is going to pull ahead of everybody by laps around the track. Tell me what you think?

Scott Galloway: This is the most underreported business story of last week. Bezos effectively said, “We’re taking all of our profits and we’re piling it back into growth,” or specifically in initiative, which is protective gear, testing, protocols, and additional compensation. I’ll be curious how that actually translates to additional compensation, to respond to a post-COVID world. And I just sat there, and it sunk in on me — what is going on here? It is so mind-blowing and ambitious, no doubt about it. This guy is the visionary of our age when it comes to business.

Amazon is going to build and construct through an investment an expertise that no one else can match. They’re going to build the first vaccinated supply chain globally. That is, if you’re a vendor, if you’re a worker, if you’re a customer, anything that goes through their supply chain is not only not interrupted but is virus-free. He’s going to be able to say, “Okay, there’s every other supply chain globally, and then there’s the Amazon supply chain.”

And also, making a serious investment in testing what is about to become the biggest consumer product category in the world, testing for the novel coronavirus. And Amazon may be the best at it and have the supply chain to deliver it. I mean, it’s just —

Swisher: No one can beat him on delivery, no one can beat him on convenience. Price, he keeps up. He doesn’t, like, win necessarily, but he keeps up on price. He keeps up on what you want, the anticipation, more and more technology around it.

Galloway: Well, so he says this, and of course shareholders are like, “Oh shit, they’re not going to be profitable again.” And they took the stock down 7 percent. This is the scale of Amazon. Whenever I speak to elected officials, I don’t make new arguments; all I really do is show them the scale of what we’re talking about. So Amazon, because they said they’re reinvesting their profits, what happens is, until the marketplace absorbs the fact that they’re about to, as you say, lap the competition again, they get angry and they whack the stock for about 24 or 48 hours. You watch, the stock is going to recover and more this week.

But when their stock goes down 7 percent, that’s like losing the value of Boeing. That’s where Amazon is right now; it gains or loses the value of Boeing in a single trading day. So when you’re talking about a company that’s quote-unquote too big, just remember, it can shed or gain Boeing in a trading day. And that’s what happened. He is unafraid to lose the value of Boeing. This is not how most CEOs think. And Wall Street doesn’t care. They just trust him now because they let him do it for so long before. So they’re used to it. Like Apple cannot do this, nobody else can do this. He’s going to have the best supply chain ever.

Swisher: Well, it’s his playbook.

Galloway: It’s going to be so exciting. It’s going to be so exciting when we break their ass up into —

Swisher: And speaking of which, he’s going to go to Congress. I’d show up if I were him, I would show up.

Galloway: Why wouldn’t he? About half, about 48 percent to 51 precent of the people, are just going to talk about what a leader he is and basically glom all over him. It’s not going to be that bad for him. It’s not going to be that bad.

Swisher: Yeah. I mean, it’s about these intentionally misleading statements about using data to help themselves versus sellers on the platform. It’s a little bit dicey. Maybe he shouldn’t come. I don’t know, there’s a whole bunch of people who advise people on that, and I never understand their arguments. But I guess it’s probably not good. You could end up with like a Jerry Yang situation when you show up at Congress where —

Galloway: I don’t know, I think it’ll be more reminiscent of Howard Hughes in front of the Congress. When Howard Hughes went in front of Congress, he was basically very strong. He was one of the most famous interesting businesspeople of the age. I think Bezos would do just fine in front of Congress. I also think he’d have a lot of supporters there. I think a lot of people would basically just tee him up with softballs.

Swisher: Well, it’s interesting because some of this coronavirus legislation is helping him, like Republicans’ proposed liability legislation designed to limit companies from legal exposure as they reopen — that will help him. At the same time, you’ve got Trump after him and the Washington Post —

Galloway: I disagree there. I think actually it would hurt him because I think he will be able to avoid that liability. He’ll be one of the few companies that will actually be able to avoid that liability. And he has the money to support it and say to every worker, “I’m insuring you. I’m giving additional compensation.”

I used to go on weekends, so my dad would come pick me up after being at my mom’s, but we used to go to race go-karts, which was wildly dangerous. And we would sign this thing saying, “Okay, if you die in a fiery ball, it’s your fault.” And he’s basically going to say to the entire supply chain, “You’re taking a risk. Here’s some additional compensation, but there’s less risk here than anywhere else in the world.” It’s going to get people their sausage and their Nespresso pods.

I’m just like, I am blown away by this. I’m totally blown away by Amazon’s crazy vision and march toward $2 trillion. And it’s more important than ever that we break them up.

Swisher: This move announced last week is exactly what he should have done: leaning in with this $4 billion. Damn the torpedoes; full speed ahead. And I think at the same time, he’s got to deliver on the safety of workers. I think it’s unconscionable that someone of that wealth doesn’t have — isn’t the most concerned. And they’ve had a history of this, they’ve had a history of stories about their treatment of workers, and he needs to fix this one most of all, I think.

Galloway: They kind of upped the ante. They raised their minimum wage to $15, which I think the federal government should have done. I mean, you have companies now that have a trillion-dollar market cap, which almost all the big tech firms do. And if they want to double their market capitalization in the next five years — which they have to implicitly guarantee to their shareholders — that means that a company like Amazon needs to increase its top-line revenue by about a $100 billion over the next five years. Which is effectively adding $1.5 billion in top-line revenue every 30 days, or $50 million in incremental revenue every 24 hours, or $75 million every business day.

I mean, the scale here is staggering. And if you have to do that, it limits the sectors you can go after, so what you’re going to have is the following: Amazon is about to go into government, Amazon is about to go into defense. Apple is about to go into education. Amazon is about to go into health care, because there’s only a handful of industries that are big enough to sate the appetite of the world’s largest vampires. They can’t eat rats; they have to go after elephants.

But seriously, what’s so genius about this is that Jeff Bezos has said, “Okay, we have to get into government, we have to get into health care because there are just very few corpses big enough for us to drain enough blood to feed our insatiable appetite, here.” And they’ve effectively said, “Okay, the next-biggest consumer category in the world is going to be testing for COVID-19.”

Swisher: We talked about this — they should run the testing. It would have worked. We’d all been a lot better off if they had gotten involved.

Galloway: The people I work with are ordering their lunch from Amazon Now, which they get in 48 minutes. What if they said, “In 48 minutes, we can get you a test for either antibodies or the virus?” Available to Prime members: The Marvelous Mrs. Maisel and COVID-19 antibody tests.


Amazon’s $4 billion investment and Anand Giridharadas on “Rich Corona, Poor Corona”

Pivot is produced by Rebecca Sananes. Erica Anderson is the executive producer. It is also now on YouTube.

Rediscovering the Importance of Government

Swisher: Also on the show today is our guest Anand Giridharadas, the host of Vice TV’s Seat at the Table.

Galloway: Anand, is there an opportunity here where we might come out of this recognizing that government is important? That delegitimizing and defunding government does have consequences and we might be producing a new generation of younger people who will want a global CDC, who will want cooperation, that we might in fact decide that the world taking a break from emissions does make a difference.

Anand Giridharadas: I will take that and raise you and say, I actually think this may be the only opportunity for that. I’m 38 years old. Given my possible future lifespan, I think this may be the biggest and only opportunity to truly transform the country in my lifetime. An interesting thing happened when I was on book tour the last couple of years. Some older people would often come up to me in the signing line and almost whisper this thing like they were embarrassed to say it. They’re like, “This is all great. We agree with you on changing the system. But you know, we’re older. This stuff only happens after awful stuff.”

No World War I, women don’t get suffrage. No World War II, you don’t have the civil-rights movement in the same way. It takes these reset moments in history that creates space for change. And over the last couple of years, it seemed true, but I was kind of depressed by that. Well, the good news is, we now have our thing that is of that magnitude — the entire world on lockdown right now. All of our systems have been tested, and many of them failing.

But it takes political leadership out of that. And so the question is, if you’re Joe Biden, you have the opportunity right now to say, “I’m not a ‘Medicare for All’ person. Haven’t been. But I see now that I was wrong.” The coronavirus is a big enough thing that you can say that without being embarrassed.

Swisher: Yeah, he’s not going to.

Giridharadas: He’s not going to. So, to Scott’s question, the question of whether this actually does become a pivot is going to turn on whether people like Joe Biden and other leaders in our society and leaders of movements are really able to get in there and change people’s minds. Because what the crisis is also revealing is, even in something as awful as this, we are just so locked in our silos of assumption that it’s not clear that any of us are persuadable to each other anymore.

Swisher: If it’s not the political leaders, is it the corporate ones? I want to focus in on the tech billionaires, because you’ve written about them. And they are the richest people in the world. How do you think they come out of this? And you gave Bill Gates the exception.

Giridharadas: Well, I mean, I don’t give him the exception in the sense that he is still very much only has that level of wealth because of a terrible system that made that wealth possible. I think he’s more sincere about a lot of the efforts he makes and actually applies his mind to them in a way that some of these people are just literally throwing reputational dollars, marketing dollars.

But I think as a whole, the tech group is very culpable for this society being as weak as it is. So you think about Uber and Lyft, for example, all these kinds of distributed-workforce tech companies. At every opportunity, they’ve faced a fork in the road between, “Do you make people employees, do you give them some security, or do you leave them to themselves?” They’ve created through those choices a precariat, a very large group of people, growing group of people, who have no security. Well, when something like this happens, you can step up and say, “I’m going to help this person. I’m going to help this person. I’m going to donate to this relief fund,” but you have fought tooth and nail to achieve the kind of economy in which there is no security.

Galloway: 100 percent. Pablo Escobar built soccer stadiums. That doesn’t excuse what he was doing. I’m curious, I think so many people, including the people you’re talking to, buy into this notion that this inequality is out of control, the tech billionaires deserve to be wealthy but they shouldn’t have the GDP of Norway. Give us two things: If you had a magic wand, what would you like to see Congress pursue?

Giridharadas: No. 1, as a policy matter, the time for the wealth tax is overdue. I think the way I’ve seen the conversation even shift in the last couple of years. One of the advantages we have in this country is, this is kind of a place you can’t not be if you’re a business, so wealth flight can be mitigated. It’s just the size of the market. It’s 25 percent of global demand on a bunch of different things. I don’t know a lot of ambitious global companies that don’t need revenue from America.

So I would say, if Michael Bloomberg would really leave America if we took a 10 percent wealth tax every year, which would still be probably about half, shaving about half of his increase —

Swisher: I’m sorry, you said 10 percent?

Giridharadas: Which is higher than the Bernie thing, right? But just think about this for a second. Most of these people earn, let’s say, 20 percent IRR every year, rate of return on capital. So even something higher than the Bernie tax would actually see them all getting maybe 10 percent richer a year instead of 20 percent richer a year. Right? That scares them. Warren’s was 2 percent or 3 percent? So Warren would have slowed them from getting richer at 20 percent a year to getting richer at 17 percent a year. And that was horrifying to them. So I think we had the leverage as a country to do that and not see them all run away.

The second thing, which is not a policy thing — although there are policy fixes that would help it, I would say, particularly in this moment — we need a wave of young people going to public service. Going into public service, going into government or careers as a thing they do. And now is a good time, because you know what? Those jobs are secure. They’re hard to be fired from. Millennials have no security.

Swisher: Corona Corps is what Scott is calling it.

Giridharadas: Right now, I don’t think any 22-year-old listening to this podcast thinks, “I want to go do that.” I think they did in a different era. I think in the ’50s and ’60s, that was actually where the smart people went. Now everybody wants to go to tech. I would say we need a massive shift in young people going to public service as the place they go to change the world.

Amazon’s Coronavirus Investments Will Shred Its Competitors