Could Amazon Be Broken Into 3 Pieces to Blunt Its Dominance?

Amazon.com Inc. (NASDAQ: AMZN) rules two businesses and is a leader in another. Competitors and regulators have begun to question whether the e-commerce, media, consumer electronics and cloud operations corporation is so powerful that it has undermined the ability of others to do business in some of these sectors. That is a judgment call based on reams of data, subjective views and government regulation.

Some antitrust experts and government officials do not believe Amazon is too powerful at all. It has earned its market share in several businesses via brilliant practices, and its market share is not so great in any of the businesses that it constitutes a threat to pricing or viable rivalry. As a matter of fact, its competitors have done poorly because they have not been adroit or disciplined enough to give Amazon a run for its money.

However, other huge companies in the United States have either been broken up or faced very real threats of having to divide their businesses. The U.S. government forced the breakup of AT&T, which was ordered in 1982. There was a great deal of discussion of about breaking up Microsoft Corp. (NASDAQ: MSFT) in 2001. The battle made it into a federal count. One of two parts, it was proposed, would hold the Windows franchise, which controlled the PC operating system market, and the second would hold the balance of the software company’s assets. Microsoft eventually allowed other companies a more open system to integrate their products into Windows and the case ended.

Amazon’s largest business is e-commerce, and the company has been accused of ruining vast parts of the retail sector and destroying tens of thousands of jobs. Once again, Amazon and its defenders argue these businesses ruined themselves by being late to online sales. However, Amazon’s business is huge. Of Amazon’s $56.6 billion of revenue in the third quarter, $34.2 billion came from its North American e-commerce operations and $15.5 billion from its International operations. Amazon Web Services (AWS) had revenue of $6.7 billion. Overall, Amazon is growing at a 29% clip at the top line.

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The North American and International e-commerce segments contain some of Amazon’s most powerful operations. Its media business, which is made of up streaming video, music and photo storage, has only one challenger in Netflix. The two have changed the landscape of TV and movie production. Amazon will spend about $5 billion on original content this year. That figure is expected to rise further in future years. Amazon is likely to move beyond movies to streaming live sports. Amazon also licenses thousands of movies and programs from other companies, which bolsters what it can offer to consumers.

This media business would be one piece of the new Amazon. E-commerce would be another. It would include Whole Foods Market, which Amazon bought for $14 billion. It would continue to operate Prime, one of the greatest customer loyalty programs in the world. Prime offers its more than 100 million members special deals on merchandise and shipping for $120 a year in the United States. This business probably would have an arm’s length relationship with the media company because streaming video is a major part of Prime’s appeal.

Then there is AWS, which holds the largest share of the market in the cloud computing business. Its share of the public cloud infrastructure industry is put at about 42%. Microsoft is second at 29%. No other competitor is even close. AWS would be a standalone company. Its sales in the third quarter put it at a $27 billion annual run rate. It is growing at almost 50%. In two years, it could be a $60 billion company. That is two-thirds larger than Oracle is today and 80% the size of IBM. Growth at both of these companies is flat.

This leaves one part of Amazon that would go with either e-commerce or media. This is the Alexa-powered voice-activated consumer electronics products, and its Fire tablets, Fire TV and Kindle e-readers. Alexa is estimated to hold 44% of its market, followed by Google at 27%.

Amazon has three segments that dominate the industries they are in. These are interdependent to some extent, which makes the whole even more powerful. Amazon is already under the antitrust microscope and is therefore at risk of becoming more than one company, sooner or later.

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