At 5pm Eastern time on Thursday, Jeff Bezos, the founder and largest shareholder of Amazon, became the world’s third-richest man, with a fortune of US$66.5 billion. As the planet’s most phenomenal retailer announced yet another staggering set of results – revenue was up by 31 per cent at $30.4bn in the second quarter – Amazon shares surged, adding $2.6bn to the boss’s fortune in a single day. That took him past Warren Buffett and within a billion or two of Bill Gates, who still holds the crown.
Mr Bezos first appeared in the Forbes rich list in 1998, a year after the company listed, with a net worth of $1.6bn, putting him in 102nd place. Since then Amazon shares have risen by 5,800 per cent, taking its market value to $355bn. By contrast, the British retail group Sainsbury, the country’s second-largest supermarket group that is locked in a head-to-head battle with Amazon in the grocery sector, is capitalised at £4.3bn (Dh20.8bn). Who would you reckon is going to win that one?
Founded in 1869, it has taken Sainsbury, a well-managed and respected retailer, 147 years to get here. Amazon was founded in 1994, when the internet barely existed, and is only now getting into its stride, sending ripples of panic through the world’s retailers, who until recently thought it would stick to selling books and DVDs. Last week, Amazon raised the stakes by winning permission to test unmanned air vehicles – or drones – in the UK, which it plans to use to deliver packages to people’s homes within hours of an order being placed.
It will obviously be a long time, if ever, before drones can deliver the family grocery shop straight to the home – the maximum payload is only five pounds. But, as the Financial Times said, “the trials are both a punt on the potential of an emerging technology and a slick piece of PR”.
The real battle is taking place on the ground and involves old-fashioned lorries and delivery men frantically pushing parcels up steps. In June, the online behemoth launched its Amazon Fresh same-day delivery service in London, forcing Sainsbury to retaliate with its own same-day service in the British capital. Sainsbury’s chief executive, Mike Coupe, also announced that, with the completion of its £1.4bn acquisition of Home Retail Group, which owns Argos, it will take Amazon on by delivering everything from electronic goods to DVDs.
For Sainsbury and other supermarket groups, this is a matter of life and death. For Mr Bezos and Amazon it is merely a testing ground for new technologies and the exploration of new markets. Mr Bezos is pursuing a strategy far wider than the delivery of groceries, which he knows will never be profitable. He is deploying the huge success of Amazon Prime, with the wealth of information it has produced about its customers and their buying habits, to sell more advertising and products. And that poses challenges to businesses far bigger than poor little Sainsbury, or even the giant Walmart.
“They are using these user IDs to be more relevant to a bigger part of your life,” said Tien Tzuo, the chief executive of Zuora, a billings software company, last week. “The competition is less about Amazon versus Walmart. It is Amazon versus Netflix versus Google versus Apple versus Facebook.”
Digital advertising is expected to surpass the $200bn global TV advertising market within the next two years. Excluding China, where Amazon doesn’t operate, just two companies, Google and Facebook, account for 72 per cent of the world’s online advertising already, and that is predicted to rise to 87 per cent by the end of the decade, according to Brian Wieser, an analyst at Pivotal Research, an equity-research firm. Last week Verizon took over Yahoo for $4.4bn (in its heyday Yahoo commanded a market value of $125bn) to create a potential third force, with Amazon still a long way back. The disruptive effect of these giants on traditional media – and the advertising industry – is immense.
All of that leaves Mr Bezos poised to claim the no. 1 place in the rich list. But he has a long way to go before he catches up with Mr Buffett in the charity stakes. Mid last month, Mr Buffett made his annual donation of $2.9bn to charity, taking his total lifetime contribution to $28.9bn. Take away the donations, and he would still be at the top.
Ivan Fallon is a former business editor of The Sunday Times.
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