Amazon and the Capitalist’s Dilemma

Jan Dawson wrote a great summary of Amazon’s business and gave some ideas on why Amazon might be buying Twitch.

I am very unfamiliar with Twitch, but Jan’s summary of Amazon fits some thoughts that I have regarding Clayton Christensen’s “Capitalist’s Dilemma”. I would like to touch on that here.

I previously wrote a very brief summary of the Capitalist’s Dilemma on this blog.

Not all innovations are equal. In fact, the majority of the innovations that are happening today are detrimental to economic growth. The authors dissect “Innovation” into three separate categories and argue that the one that create jobs (market-creating innovations) is currently being de-emphasized, while the one that eliminates jobs (efficiency innovations) is being highlighted.

Jan Dawson summarizes Amazon’s business as follows;

Essentially all of Amazon’s business rests on the transfer of spending from legacy categories to categories it competes in, whether that’s e-commerce replacing bricks-and-mortar retail or digital content replacing physical content (or even cloud computing replacing premise-based computing). As such, Amazon’s addressable market is directly tied to three factors:

  • the size of the legacy markets it’s seeking to disrupt
  • the degree to which those markets are shifting into categories Amazon competes in
  • the market share Amazon is able to capture.

From here, it is plainly obvious that Amazon’s business (with the exception of AWS perhaps) perfectly fits Christensen’s description of an “efficiency innovation”. That is to say, Amazon’s business eliminates jobs and is detrimental to economic growth.

Unlike Christensen’s “Innovator’s Dilemma”, the Capitalist’s Dilemma will not directly impact a company’s business. In fact, it will usually greatly benefit short term profits. Instead, it will slowly deteriorate the health of the company, leading to long term effects. Even more significantly, it will negatively affect the national economy as a whole.

This suggests that Amazon itself will benefit from its current focus on replacing brick-and-mortar retail. This may even be true in the long term. However, Christensen’s observations predict that the US economy as a whole will suffer.

P.S.

Using the Capitalist’s Dilemma as a lens, it is possible to argue that services like Uber are also mainly “efficiency innovations”. It’s definitely something to consider before singing praises of tech innovation.