Jeff Bezos poses on a lorry after handing over a two billion dollar cheque to Indian Vice President and Country Manager of Amazon.in, Amit Agarwal, in Bangalore. Photo: Manjunath Kiran/AFP/Getty
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The party is over for Amazon

The retail giant was unstoppable – until this year. What happened?

At Business Insider’s annual Ignition conference Tuesday, CEO Jeff Bezos explained why Amazon’s stock price keeps rising despite almost zero profits: the company continues to invest in new businesses, and Amazon’s investors are OK with that. “If you’re going to take bold bets, they’re going to be experiments,” he said. “And if they’re experiments, you don't know ahead of time if they're going to work. Experiments are by their very nature prone to failure. But a few big successes compensate for dozens and dozens of things that didn’t work.”

But Amazon hit a road bump in 2014: its stock is down 18 per cent, and investors are no longer optimistic about the company’s outlook. This year has exposed the limitations of Bezos’s business strategy.

For most of Amazon’s existence, the company has been barely profitable. From 2007 through 2013, its revenues quintupled from $14.8bn to $74.45bn, but profits dropped from $436m to $273m. Note: that's billions in revenue, and just hundreds of millions in profits. Meanwhile, Amazon’s stock has consistently risen because investors didn't care about the dwindling profit margins. Bezos’s strategy worked: Amazon is now the US leader in online retail. It’s so big that the editor of the New Republic, Franklin Foer, wrote a cover story declaring the company a monopoly.

Then 2014 hit, and investors turned on the company. When Amazon announced on Monday that it would issue new unsecured debt, Moody’s downgraded the company’s outlook to negative. There are two reasons for this change in investor sentiment.

1. Revenue growth has slowed from 40 per cent in 2010 and 2011, to 27 per cent in 2012, to 22 per cent in 2013. This year it is projected to be between 16 and 20 per cent.

2. Amazon’s newest investments aren’t paying off. The most notable failure has been the Fire phone, which has received terrible reviews. In October, the firm took a $170m write-down loss as its inventory piled up and the company cut the cost of the phone from $200 to 99 cents. The Fire’s failure, at least so far, does not necessarily reveal a flaw in Bezos’s strategy. After all, if you make big bets, you’re going to have some major failures as well. “What really matters is that companies that don’t continue to experiment – companies that don’t embrace failurethey eventually get in a desperate position, where the only thing they can do is make a ‘Hail Mary’ bet at the very end,” Bezos said on Tuesday. Of course, not all of Amazon’s recent investments have failed. Fire TV, for instance, has been a success. But investors get nervous when those bets fail to pay off at the same time the core business’ growth slows. And the Fire phone was a big bet that has not worked.

Matt Yglesias, then writing for Slate, predicted this in January. “Amazon gets away with relentlessly investing in the future only because, for now, investors have faith in Bezos and his strategy,” he wrote. “But that faith has been tested in the past, and it’s likely that some future convulsion in markets will cause it to wane again.” Yglesias didn’t see any reason for this strategy to fail soon, much less this year. “For the foreseeable future, the party can – and willgo on, crushing everything in its path and generating mighty gains for consumers.”

On that point, Yglesias was wrong: investors have turned the lights on. The party is over. And yet, if his comments on Tuesday are any indication, Bezos isn’t planning to change his strategy anytime soon. That’s good news for Amazon’s penny-pinching customers, but could mean a rocky 2015 for the retail giant.

This article first appeared on newrepublic.com

Photo: Getty Images/Ian Forsyth
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The big battle in Corbyn's Labour party will be over organisation, not ideas

Forgotten and near-moribund institutions of the parliamentary Labour party will become vital once again, explain Declan McHugh and Will Sherlock. 

“Decidedly downbeat” was Chris Mullin’s assessment of the first Parliamentary Labour Party meeting following the 2001 landslide General Election victory. Blair was “received well, but without elation … the managing director was treated to some blunt warnings that this time around the boys and girls on the shop floor expect to be treated with more consideration.”

Assuming he wins the leadership, Jeremy Corbyn’s first PLP meeting will be anything but downbeat. The ‘shop floor’ will be more akin to a Lions’ Den. Labour’s new figurehead will face a PLP overwhelmingly opposed to him. Many will question the legitimacy of his election and some will reject his authority. From day one, he will face a significant number of Labour MPs not merely against him but actively out to get him. There has probably never been a situation where a leader of the Labour Party has been so far removed from the parliamentary party which he supposedly commands.

The closest historical parallel with Corbyn is arguably George Lansbury, another ardent socialist who took charge of the party after serious electoral defeat. But the comparison doesn’t really stand up to scrutiny. Lansbury may have been on the left but he had been a leading figure at the top of the party for many years. Corbyn has never been anything but part of the Labour fringe – rarely even attending PLP meetings.

Nevertheless an immediate move to oust him is unlikely. Whatever their concerns about the circumstances of his election, the scale of the contest will make MPs nervous about executing a coup. And crucially there is no obvious alternative leader waiting in the wings.

The internal battle against Corbyn will instead be more drawn out and fought through the internal structures of the party. The number of Labour MPs showing a sudden and hitherto undiscovered interest and expertise in the PLP Standing Orders is an indication of what is to come. When Labour is in government, journalists pay little notice to obscure internal committees. Now they are going to be the centre of attention. The PLP may be energised on an organisational front in a way that it never was during the Blair, Brown and even Miliband years. Conflict is likely to be focused in the following arenas:

  • Shadow Cabinet

Corbyn is now understood to populate his shadow cabinet by appointment, but opponents in the PLP are seeking a return to the system of elections. That will not be straightforward. Although the 2011 decision to end elections was primarily achieved by means of a PLP vote to change Standing Orders, it was subsequently agreed by the NEC and passed into party rules by Conference. It will be harder to undo that constitutional knot than it was to tie it. The PLP can vote to change Standing Orders again but the NEC and Conference will need to reflect that in further amendments to party rules if the decision is to have constitutional authority. That sets the scene for a messy clash between the PLP and the NEC if Corbyn chooses to defy the parliamentary party.

 

Even if elections are restored, it is not clear how Corbyn’s opponents in the PLP will respond. MPs seeking the return of shadow cabinet elections hope to run a slate of candidates who will work to emasculate the new leader. But others have already resolved to boycott the front bench, regardless of how it is selected. Corbyn’s opponents face a dilemma. On the one hand abandoning the shadow cabinet may be viewed as walking off the pitch at a time when others are prepared to get stuck in and organised. On the other, it will be impossible to take a shadow cabinet post without signing up to some level of collective responsibility. That means undergoing the daily grind of defending the party line in front of the 24 hour media spotlight, with all statements scrutinised and recorded by Conservative researchers for future use.  How many Labour MPs would be willing to support a Corbynite line on foreign affairs, defence and economic policy? The new Labour leader will soon find out.

 

  • PLP meetings

The Monday evening meetings of the PLP are a weekly arena in which the frontbench and the party leadership are held to account by the wider parliamentary party. In the Kinnock, Smith and Blair days, although occasionally raucous, there was a degree of deference to the Leader. That has waned of late but will likely be non-existent under Corbyn. No one can remember the last time the PLP voted on a matter of policy, but Standing Orders permit it to so – expect opponents of the leadership to use this device.

 

  • PLP Chair

John Cryer, the current PLP Chair, will have his work cut out trying to manage what are likely to be stormy meetings. Moreover, the annual election of the Chair is an important barometer of the parliamentary party’s mood and the easiest means of organising a proxy vote on confidence in the leader. Importantly, the Chair of the PLP approves what motions can be tabled at the weekly PLP meeting. 

 

  • Parliamentary Committee

The parliamentary committee are effectively shop stewards for the backbenchers and the election of representatives is similarly a reflection of political sentiment in the PLP. New elections won’t happen until next May but the PLP could decide to initiate earlier elections. Labour MPs will ask whether the current committee, which includes one Corbyn nominator, is representative of the majority view. If not, a slate opposed to the leader could be organised. The Parliamentary Committee has executive powers that it rarely uses but this may change and will be significant. 

 

  • Departmental Groups

The PLP’s internal policy committees have been in decline since the early years of Tony Blair and have rarely made waves but have potentially important powers, including the right of Committee Chairs to speak from the Despatch Box. MPs may use these bodies to challenge frontbench policy positions in a way that no leader has experienced, promoting alternative agendas at odds with the leadership line on foreign affairs, defence and the economy. The Chairs have not yet been elected and this could be a key focus in the autumn.

 

  • Whips Office

The idea of Jeremy Corbyn directing the PLP to follow three-line whips is, to many, a source of amusement. A man who regularly topped the charts of rebel MPs will struggle to maintain the traditional system of party discipline – and indeed he has already indicated that he has no intention of “corralling” MPs in the traditional way. Most likely the whips will play a distinctly different role in the future, acting more as shop stewards for backbench MPs who want their concerns made clear to the Leader’s Office. And the likely deputy keader Tom Watson, who hails from the right wing union tradition but is close to some of the left, will play a major part in trying to balance the needs of the new leadership with the real anger of backbench Labour MPs.

Corbyn’s lack of authority and support within the wider parliamentary party puts a major question mark over his long term prospects as Labour leader. He would certainly lose any direct trial of strength against the PLP.

But the Corbynite group will seek to avoid confrontation inside Westminster. They believe their strength lies in the party outside Parliament and in the new influx of members and supporters. Their agenda will be to capitalise – though they might not use the term – on the leadership triumph by instituting rule changes that will revive the left within the party machine. Not just inside the NEC, the Conference and the party HQ but in the regional and constituency party organisation.

Most particularly, they are likely to seek to convert supporters into members, with a role in the selection of parliamentary candidates. By such means they will seek to apply external pressure on MPs from their own constituency parties. Labour members may be understandably wary about moving to decapitate a new leader so soon after his election. But they face a race against time to prevent him and his supporters from reshaping the party machine in ways that will undermine them from below.

 Will Sherlock and Declan McHugh are former Labour special advisers who now work at Lexington Communication.