As one of the world’s most valuable brands, it’s hard to imagine a time when Amazon may cease to exist.
Jeff Bezos, the company’s illustrious CEO and founder, however, sees its extinction as a real possibility.
At an all-hands meeting last Thursday in Seattle, the 54-year-old billionaire asserted, “Amazon is not too big to fail…In fact, I predict one day Amazon will fail. Amazon will go bankrupt.”
He continued, “If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”
His sweeping assertions, which can be heard in a recording obtained CNBC, certainly raised some eyebrows. So is there any truth to Bezos’ bleak vision of corporate mortality?
The answer: it depends how you look at it.
To begin, a number of companies in today’s S&P 500 index are, in fact, centenarians. Wells Fargo was founded in 1852, Boeing in 1916 and Ford in 1903, among others.
However, if we look at the average tenure of companies in the S&P 500, Bezos’ claim does have some validity. According to a report by Innosight, in 2016 companies averaged a 24-year stint in the index before dropping off. This is compared to the 33-year average in 1964. Innosight also predicts this number will drop even lower in the future at just 12 years by 2027 due to technology shifts and companies being slow to respond to disruptive competitors.
Though that is not to say these companies “failed.” M&A drives most of the turnover in the S&P 500, according to the report. Over half of the removals are the result of a merger or acquisition, whereas only about one-third dropped off due to a failure maintain a sufficient market capitalization, or less common, bankruptcy.
A metric that does offer some legitimacy to the pronouncement made by the world’s richest man, however, is the average age of companies in the S&P 500. The average age of an S&P 500 company was determined to be under 20 years old by Credit Suisse in a 2017 report.
That’s down from an average age of 60 years in the 1950s, and it’s expected to drop even lower in the near future, again due to rapid advancements in tech and agile competitors.
Yet, neither statistic necessarily is confirmation than an older business is likely to fail.
Richard Sylla, a professor of Economic History at New York University’s Stern School of Business, sees these numbers not as proof of older companies’ inevitable demise, but rather as confirmation that more young companies are materializing, and successfully disrupting.
“Of course young companies outnumber the old,” says Sylla. “Many of the largest companies started between 1880 and 1920, but many more have grown large after 1950 so they wouldn’t quite be centenarians. Yet.”
As far as Sylla is concerned, Amazon users shouldn’t worry too much about the collapse of the rapidly growing and beloved platform.
“Bezos may be a great business man, but seems like he might need a history lesson.”