Tim Wu

It's a kind of famous story on Amazon, but I think it's worth telling.

So there was the platform launched to be an alternative to Amazon.

And their thought was, you know, every parent needs diapers delivered quickly.

So why don't we make that the beginning?

In the same way Amazon started with books.

And then Amazon saw this, thought it was kind of threatening, and in the strategy of the day, just bought them.

Of course, the founders are pretty happy.

And Amazon managed basically to capture this market.

And that's when I think it turned to the extraction phase.

In the last 10 years, Amazon's strategy has just basically been for its marketplace to turn the screws and increase the fees, change the margins so that many sellers are paying over 50% or more, basically the same as brick and mortar businesses.

And Amazon prices are rarely any lower.

They actually have done a lot to try to prevent anyone pricing lower.

I think the one thing I would focus on is what they call advertising, which may be familiar to you as sort of the sponsored results that you get when you're searching.

So what's going on there is that sellers are bidding against each other, bidding down their own margins to get a higher up in the search results.

And that little trick, that sort of one weird trick, has become this extraordinary cash cow.

It's more profitable than Amazon Web Services, which is sort of surprising.

Last year, it was 56 billion.

Just paying Amazon for higher rankings in their search results was 56 billion dollars.

Yes, 56 billion.

It's looking like it's going to be over 70 billion dollars.