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The video above (click arrow to start) shows graphically the phenomenal rise in the stock market valuation of online retailer Amazon compared to the market capitalization of one of its main retail competitors – the brick-and-mortar retail giant Walmart (special thanks to AEI’s Olivier Ballou for graphical assistance and Scott Grannis for providing the data) . Here’s some history:
Bottom Line: Amazon’s increase in market value from less than $500 million in 1997 to more than $450 billion today might be the most remarkable example of wealth creation and business success that has ever taken place in the history of the world, at least over such a short period of time. As the Wall Street Journal’s editorial board pointed out today:
Amazon marks 20 years as a public company this week, and if you got in on the ground floor you have a lot to celebrate. A $100 investment in the initial public offering of the three-year-old Internet company in 1997 is worth more than $49,000 today. Even by the standards of successful Silicon Valley start-ups, that’s hitting the jackpot. Wealth creation is the business of democratic capitalism, and by taking its market capitalization to $460 billion from $660 million in two decades, Amazon has delivered. It’s worth a moment to consider some business and policy lessons.
The beauty of the free market is that entrepreneurs seeking to get rich have to make their customers better off at the same time. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,” Adam Smith wrote in the 18th century.
On a visit to the Wall Street Journal some years ago, founder Jeff Bezos said Amazon employees focus relentlessly on what its customers need—even if they don’t know they need it. That might explain how a company that started out as an online bookstore has become the most popular U.S. supplier of consumer goods.
Amazon’s laser-like focus on creating value for consumers and keeping them satisfied with low prices, huge selection, speedy delivery and great customer service goes a long way towards explaining its phenomenal success as a retailer, which gets reflected in the meteoric rise in its stock price and market capitalization. The online retail giant perfectly embodies the economic concept of “consumer sovereignty,” which describes the reality that profit-seeking sellers like Amazon make the greatest profits when they provide consumers with the best possible products at the lowest possible prices with the best service and fastest delivery. That is, companies like Amazon maximize their profits, share price and market cap when they treat their customers like royalty, i.e., the kings and queens of the marketplace.
Amazon’s official corporate version of consumer sovereignty is known as The Amazon Doctrine, as Amazon CEO Jeff Bezos explained in 2012 when he unveiled the new Kindle Fire HD tablets:
Above all else, align with customers.
Win when they win.
Win only when they win.
There may be no other large company operating today that better illustrates the economic concept of consumer sovereignty than Amazon – to the significant benefit of consumers, who are the direct beneficiaries of Amazon’s success as an internet-based online retailer. The phenomenal rise in Amazon’s market cap illustrated in the video above is a market measure of its success at fulfilling The Amazon Doctrine of aligning with customers – its stock is winning in the equity market only because its customers are winning daily in the retail sector with low prices, a wide selection of great products and the convenience of shopping online from home – or from anywhere with a Smartphone. And Amazon customers now increasingly get their orders delivered the same day or next day.
Kudos to Amazon for reaching nearly half-a-trillion dollars in market value in just 20 years and in the process epitomizing perfectly so many important economic concepts: consumer sovereignty, the invisible hand, entrepreneurship, wealth creation, and creative destruction. Amazon’s spectacular rise in market value reflects an equally spectacular rise in the value it is creating for its hundreds of millions of customers. In recognition of its success at serving consumers, I hereby nominate Amazon for the 2017 Nobel Peace Prize for doing more to create consumer value and improve the lives of the average person in America and in the other countries where Amazon operates than any other single corporation, charitable organization or government agency in the world.
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