There has been a significant level of chat online in the past few days of the possibility of an “Amazon split”. That’s a scenario where the Amazon Web Services (AWS) division of the company is separated from the retail and marketplace parts of the Seattle-based ecommerce behemoth.
The rationales for an Amazon split are various but several are particularly significant and worthy of investigation. From an investor point of view, it could well be that by splitting the organisation up that more shareholder value could be released: they are worth less together than they are alone. That was exactly the rationale with the eBay and PayPal split.
Reason two: split up voluntarily before governments force that upon Amazon. Amazon is truly gargantuan and there are fears that an antitrust action in the United States will eventually mean that it is required to separate. President Trump is no fan of Amazon or founder and CEO Jeff Bezos and could be a catalyst for such regulatory action. A smaller business may attract less ire. As one keen Amazon analyst has noted:
There has been greater noise of late regarding the desire to investigate and potentially regulate the company. By separating the retail and AWS businesses, Amazon could minimize or avoid the risk of increased regulatory pressure.
– Mark May, Citigroup
The third reason is more prosaic: such a big organisation is always going to be difficult to administer and a split may make it more manageable. And, obviously, the don Jeff Bezos isn’t going to be in the hotseat forever.
From a merchant perspective, there could be several impacts of this development and potentially reasons why it is welcome. President Trump has his eye on Amazon and would love to give Bezos a kicking. That could come in the shape of a federal online sales tax or the like and that would be bad for merchants.
But the big concern is surely related to resources: Amazon needs deep pockets to develop and experiment with the service it offers. The retail section of the business can sometimes struggle to be profitable. The funds that Amazon uses often come from the AWS part of the organisation, which is a veritable cash cow. An Amazon split may make such resources harder to come by.