Leader of the package: Amazon turns 30

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The Economist.

Hello and welcome to the Intelligence from the Economist. I'm your host, Rosie Bloor. Every weekday we provide a fresh perspective on the events shaping your world. Education is one of the few ways for poor Indians to advance their chances in life. So widespread cheating in this year's university entrance exams has enraged millions of people, enveloping India's new government in its first scandal. And they're giant, expensive and extremely smelly. We find out why Chinese consumers are going crazy for durian. And yes, the story of this pungent fruit also has a geopolitical angle. But first.

This is the first office of Amazon.com Inc.

In the summer of 1994, a job vacancy for software engineers was posted online.

That's the fax machine.

As you can see up there.

The rolls were at a company that planned to pioneer commerce on the Internet. Applicants needed to be able to design complex systems in about a third of the time that most competent people thought was possible. Their CVs. Well, those could be sent to Jeff Bezos, the founder of a startup in Seattle called Cadabra. The name Cadabra didn't stick. It sounded too much like cadaver. But the ambition did.

We know customers like low prices. We know customers like big selection. And we know that customers like fast delivery.

Cadabra became Amazon, and this week marks an important milestone.

Amazon turns 30 tomorrow.

Guy Scriven is the Economist technology editor.

The company's changed our lives in so many different ways. Not just online shopping, but also video streaming, cloud computing, and a whole bunch of other business activities. And the next big question for it as it moves forward is whether it can start to integrate all these different disparate business units together.

I feel like barely a day goes by without yet another Amazon parcel coming in to my door. Just how massive is Amazon 30 years in?

The company in those 30 years has grown enormous towards the End of June, its market value surpassed $2 trillion for the first time, which puts it in a very exclusive club of only a few other companies. It has about a 40% of the US online retail market. And it also has the third biggest advertising business in the world, after Meta and Alphabet, and the biggest cloud computing service in the world, which is called Amazon Web Services. It tries to invent a whole bunch of gadgets as well. So it invented the Kindle, the Echo, which is the smart speaker that has Alexa, its virtual assistant on.

Say hello to Echo Dot, a compact speaker that's controlled by your voice analog.

And it's got a whole bunch of moonshot projects. It's got a satellite network business to get Internet to people in remote places. It's got Zoox, which is a self driving car bet. And so even as it turns 30, it keeps on innovating and keeps on betting on new technologies.

Okay, so at least part of its success must be that it's coming up with these brilliant ideas and working out exactly what we want before we want it and before we even need it. What else is making it so successful?

Part of it, I think, is the company's culture. A lot of this was the result of Jeff Bezos, the founder. I mean, a lot of companies say this, but it is customer obsessed. It loves trying to invent things. It's good at experimenting, and when the experiments aren't going well, it's good at killing off those experiments as well. And it invests an awful lot back into its own business. It's never paid out a dividend to the shareholders, which puts it in contrast to other big tech companies. Its capital spending in the last 12 months or so is the highest in the world, and so is its R and D spending as well.

And obviously one of the things that we've heard a lot about Amazon, particularly as we're consuming so much from it, is about the conditions of its workers in the warehouses. And that this thing that's so useful and easy for us as consumers might be something that someone else is paying a price for elsewhere. What's the situation with the workforce at the moment?

This is quite a big deal for Amazon. They employ hundreds of thousands of workers across their logistics network. And over the past few years, you've seen more and more of the workers try to form unions at different warehouses. That feels like it's petered out. Now. A lot of the unions that were voting to form haven't been formed. And even the big standard bearer union that Staten island warehouse hasn't yet managed to negotiate a new contract with Amazon's management. So although it is a big issue for the company, it's not in the news very much at the moment.

So what happens next? Bigger and bigger birthday cakes?

I'm sure that's what Amazon hopes. The problem it has is a problem that a lot of other tech companies face, which is that it's just got really, really big. So anything that moves the needle for it, business wise, also has to be really big and by definition is quite a large risk as well. So if you look at the markets it's trying to with its retail business, they're really big ones, like groceries and pharmacies. As a result of this, one of the strategies it seems to be pursuing is to try to integrate all its different business units more closely together and use them to benefit each other.

And how will that work? What advantage will it have when it integrates these better?

The really clear example of this is the way it's trying to connect its retail business with its advertising business and also its video streaming business. A lot of this runs through the crime subscription, through Amazon's e commerce business. That has a large amount of data about what people like to buy, when, and even more importantly, what ads they've seen just before they buy something. And so this is hugely valuable to advertisers who want to advertise on its website, and then increasingly who now advertise on its Prime Video, its streaming service as well, through its prime subscription membership. It's starting to tie the retail business to the streaming business much more closely. And the other big area of integration for Amazon is AI. In particular, it will be thinking more and more over the next few years about how it can use its cloud computing service and the AI capabilities that has to benefit the rest of the companies. So, for instance, it has a shopping chatbot assistant, and that will be running on its cloud computing arm, Amazon Web Services. And you can imagine it rolling out more and more features like this and trying to use its expertise in cloud computing and AI as an advantage.

Is this something we should be concerned about in terms of the business environments? Are people concerned about monopolistic practices?

I mean, certainly lots of regulators are worried about whether this starts to look monopolistic because Amazon's platform is so big. Is it using that size to push customers and businesses to use its other services as well? Plenty of regulators around the world are taking a close look at Amazon different businesses. Last September, the ftc, which is the Federal Trade Commission in America, sued Amazon with a long list of complaints and among those, there are accusations of anti competitive behavior and unfair business practices.

And what about on a personal level? Should I be concerned at how often my life touches something that Amazon has delivered to me?

It does just depend how you feel about that really. Amazon is just everywhere. But at the same time it delivers really good services and often does so cheaply. And so in a sense there is just a cost to not using Amazon and you've just got to decide where you stand on that.

Trade off guy, thank you so much.

My pleasure. Thanks so much.

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Across India, giant protests have erupted over irregularities in university entrance exam. These students forced their way into the National Testing Agency in Delhi. Scores of demonstrators were detained while trying to march on Parliament when the Education Minister was being sworn in. Even inside Parliament, politicians on the opposition benches were shouting with rage.

The new Indian government has its first big scandal which is related to cheating in university admissions test.

Lena Shipper is the Economist South Asia Bureau chief.

It all started on June 4, which also happens to be the day when the election results came out. When the National Testing Agency released results of 2.4 million candidates who'd taken an entrance exam for India's top medical schools. And an unusually high number of them got perfect scores.

An unusually high number that I assume is now being investigated.

Yes. So there were already some suspicions before June 4th because there was a police investigation in the state of Bihar investigating alleged leaks of exam paper questions before the exam. And that money had changed hands. And in the intervening weeks that has turned out to be justified suspicion. So India's anti corruption agencies are now investigating the conduct of this exam. Several people have been arrested not only in Bihar, but across various other states. They've raided locations in Gujarat, Madhya Pradesh, Rajasthan, almost the entire country. And one government official's already admitted to selling exam papers for something like 3 million rupees a prop, which is about $36,000. Many more people have been arrested and there's going to be a Supreme Court hearing because people have asked the court to work out whether that exam was actually valid. And the next hearing is going to happen on Monday, on July 8th.

And what will happen to the students, these students that got unusually high scores, what does it mean for them and their results?

So in this particular exam for the medical school entrance, they ordered retests for several hundred people. They've taken the retests and they've released new exam schools. So the rank has changed in that exam. And also in response to the accusation of irregularities in that particular exam, they've postponed several other central and state level exams, which has affected another million students. The government's also suspended the head of the National Testing Agency, which is supposed to administer those exams, and passed an anti cheating law in parliament. So they've tried very hard to appear like they're doing something about this.

You'd think that cheating didn't actually need a specific law. Tell me what's so important about these exams in India? The role of university and professional exams.

Admissions exams to both universities and colleges and to government jobs in India are among the most competitive processes in the world. You sometimes have hundreds of people going for one place. The Indian civil service exam, for instance, I think has a pass rate of 0.2%. And these are some of the only ways for particularly poorer in to have some access to social mobility. Getting into a good college means you have an edge in the labor market. The unemployment rate for graduates in India is extremely high, it's around 40%. So if you don't have a standout degree, you basically get stuck at the lower end of the labor market. So people spend years studying for them. They sometimes take these exams multiple times. Families go into debt to afford tutoring. So it's an extremely big deal.

So presumably that's why this is quite such a big scandal. It's not just that students have to retake exams, it's that this feels like it's sort of messing with their life chances. How does that play into the bigger concerns of many of this group who are looking to move upwards in society?

I think that's definitely true. It touches on one of the fundamental problems in Indian society, which is a massive inequality and massive scarcity of opportunity. So there are hundreds of millions of people, particularly young people, in the country and there are just not enough jobs and not enough opportunities for any of them. So the temptation to cheat and the temptation for criminal elements, gangs buying exam papers, bribing government officials to get hold of them. And the fact that the state can't administer those exams in ways that prevent those criminal activities is a really big problem.

So you're saying that one of the concerns here is the lack of trust in the system? Correct me if I'm wrong, but isn't that one of the things that we saw with the recent election results when Modi and Modi's party did, surprisingly, not as well as expected?

The Modi government 10 years ago set out to build a country that was working for everybody. They promised they would make life better for Indians everywhere, and particularly for people at the lower end of the income scale. And the recent election result suggests that there's been a certain disappointment among those people. And I traveled around the country, particularly the poorer northern states in India, during the election campaign and basically everybody I spoke to said, look, it's nice. The government's giving us food, it's nice. They're giving us some money occasionally or helping us build our houses, but the things we actually want are jobs and better education for our children and means to make our lives better.

So has this happened before? Have there been scandals of this type?

Cheating in those exams has been a problem in India for many decades. There have been problems, particularly at the state level, and some of the measures that the current government took a few years ago in centralising those exams were supposed to help. But this scandal suggests that that hasn't really borne fruit in the way that it was maybe supposed to.

And is there any sense in which Modi's government appears to be taking the lessons of the election result and consider how to deal with this bigger problem, the lack of social mobility and the lack of opportunities?

I think from the months since the election result came out, it's not been clear whether or not the government is going to be thinking more about tackling these problems, dealing differently with the persistent problem of joblessness and inequality and not poverty, necessarily, but just living in very precarious circumstances. One of the things I've heard quite frequently talking to people around Delhi and around northern India is like, the government's not going to let us starve, but they're not going to let us live.

Lena, thank you so much for talking to me.

Thanks so much, Rosie. Very nice to talk to you.

So I'm in the studio and I've had a delivery from my colleague Josh Spencer, who's one of our Asian news editors in Singapore, who. I should be able to hear you there.

Josh, I'm here. Rosie, hi.

Hi, Josh. I was a bit shocked today because normally the studio is pretty empty. We're not really allowed to bring in anything that might sully this equipment. And here I can see a package on the table and this says Thai Montong Durian.

Yes. This is my special delivery from the Economist Southeast Asia Bureau for you, Rosie. Why don't you give it an open and see what you think?

Okay, thanks. So I know durian from when I lived in China, and I know it mainly by its smell, but I'm not certain if I've ever tried it. I'm just opening the pack here. Wow, this is packed really well. Good thing I've got a knife to eat it with, because I'm going to use a knife to enter. Oh, my gosh.

Wow.

You're about to be the least favourite person in the Economist's office, I think.

Oh, my Lord. Oh, my Lord. It's sort of a vague combination of banana, which I don't like, and maybe socks, and I don't know, it's so unlike anything else, I'm not sure I have the words for it. Tell me what I'm about to eat, Josh.

Yeah, Rosie, well, I'm sorry for putting this on you and also the rest of our colleagues in London. This is durian. It's a fruit that grows mostly in Southeast Asia, which is where I live, and as you've pointed out, it's probably most famous for its smell, which is sometimes compared to old socks, as you've said, sometimes rubbish. The smell's actually so strong that in Singapore, where I live, it's banned on buses and trains and in some hotels as well.

And do you like it, Josh?

So I've only tried it once, which was actually in Malaysia, and I did enjoy it, but I have to say the smell at least a bit to be desired.

Okay, wish me luck.

Good luck.

Oh, my God. It's also like eating feet. Oh, yuck. I had a knife and fork, but unfortunately not a bucket. Here. Thanks, Josh, so kind. Tell me why we're talking about durian. It's not just for you to torture.

Me, it's partly for that. But the other reason we're talking about durian today, Rosie, is that it's been long popular in Southeast Asia, where I live, but it's becoming way more popular in China, where you used to live. So last year, China imported about $7 billion worth of it, and that's up from about $1.6 billion worth in 2019. So in the space of four years, the amount of durian going into China has more than tripled. This is A huge increase. We're seeing basically a durian craze across the country. I've seen durian festivals have sprung up across China. There's durian flavored versions of every food you can think of, from ice creams to cake. So, yeah, there's this real surge that we're seeing for this stinky fruit.

And I seem to remember that China has its own fair share of smelly food. So why are the Chinese suddenly clamoring for smelly durian?

Well, Rosie, unlike you, a lot of Chinese people really like the taste of durian, which is obviously a key reason. But another reason is because more Chinese people can afford it. The middle classes in China are growing. People on the whole, they're becoming richer, and so they can afford to buy durian, which is not cheap. An average durian from Thailand can go for about US$20 in a supermarket, and that's just for the basic variety. If you want to go for the high end durian, such as the Musang King, which comes from Malaysia, you could be paying $70 for that. This high price sometimes adds to the appeal for Chinese people. Some people reckon that durian has almost become like a luxury good or some sort of status symbol within China. People have been giving it as a gift at birthdays or at weddings. And both these trends mean that durian is becoming hugely popular.

I'd better make sure that I tell everyone not to give me a durian for my birthday. I'm actually really interested to hear that people are buying whole durians, because I remember mostly seeing them as sort of small bits or kind of dried dur. Where is this influx of durians coming from?

Well, certainly not from China. China doesn't really have the right climate to grow durians. Most of the country. There's a small number of farmers on Hainan, a tropical island in the south, where it's being grown. But mostly these durians are coming from Southeast Asia.

Okay, so we know that China's importing more fruit from Southeast Asia. Anything else going on?

Well, more countries in Southeast Asia are getting access to the Chinese market. That's another reason why durians are becoming so much more popular, is that more Chinese people can get access to them. So up until 2022, China was only buying fresh durians from Thailand. But recently Vietnam and the Philippines have also got the same access, and Malaysia actually also got access. So when Li Chang, China's prime minister, made a trip to Malaysia, he secured a deal to buy fresh durian from the country. So that means that Chinese durian lovers can get their fresh Musang king durians, which they once couldn't.

Okay, so it's great news for China's many durian lovers, misguided though I personally believe they are.

Yeah, great news for durian lovers, but it's also really good news for China and its broader strategic goals. So China's buying of durian from countries in Southeast Asia helps it foster good relations with the region. It also gives it a source of leverage over these countries if they upset it. So in the past, China has restricted banana imports from the Philippines at the same time as there have been disputes between countries over territory in the South China Sea, and some Vietnamese durian sellers fear similar treatment.

Okay, so the smell of stinky durian is here to stay.

It sounds like it sounds like it's here to stay. Rosie. I don't think they're going anywhere if China has anything to say about it.

Okay, well, I'm afraid my box may not be going anywhere much other than the bin. Thank you so much, Josh.

Thanks very much, Rosie. And sorry to subject you to that today.

I'm sorry to spurn such a lovely presentation. That's all for this episode of the Intelligence. Let us know what you think of the show. You can get in touch@podcastconomist.com we'll see you back here tomorrow.

Sam.

When you think of skyrocketing brands like Aloe, Allbirds or Skims, it's easy to credit their success to great products, sleek branding and brilliant marketing. But here's the overlooked secret. The real magic lies in the engine behind the scenes, the business powering their business. For millions of brands, that engine is Shopify, making selling seamless for them and shopping effortless for us. Upgrade your business and get the same checkout Alo Yoga uses. Sign up for your $1 per month trial period at shopify.com retail all lowercase go to shopify.com retail to upgrade your selling today. Shopify.com retail.