Compare and contrast.
Click to enlarge.
Hat tip to Jason Kottke.
Nine Ways to Imagine Jeff Bezos Wealth by Nina Chalabi for the New York Times Magazine.
At What Point Does a Billionaire’s Greed Hurt the Rest of Us? by Drummond Pike for the Institute for New Economic Thinking. Reposted on Naked Capitalism. [Added 05/06/2022]
I’m far from the first person to have noticed the physical resemblance between Amazon CEO Jeff Bezos, Star Trek’s Jean-Luc Picard and Superman’s nemesis Lex Luthor.
Amazon’s tactics against the book publisher Hachette are not just bad for publishers. They are bad for writers. And, in the long run, they are bad for lovers of books.
What’s going on is part of a familiar pattern. A powerful company uses its power to squeeze the profit margins of weaker companies. This means the weaker companies can’t afford decent pay for the people who produce the work. But the producers can’t get at the powerful company because it is buffered by the intermediaries.
That is how it works with fast-food franchisers such as McConald’s, their franchisees and low-wage fast-food workers. That is how it works with electronics companies such as Apple and Sony, their sub-contractors in Asia, and the low-paid sweatshop workers. That is how it works with Walmart, its suppliers and their low-paid employees (aside from what Walmart pays its own employees)
And this is how, apparently, it is going to work with Amazon, book publishers and authors.
Jeff Bezos of Amazon refuses to provide good service to buyers of Hachette books unless the publisher submits to his terms for distributing their books. In an earlier dispute with the publisher Macmillian, he simply deleted the “buy” button from all Macmillan books listed on Amazon.
One of my favorite authors, Charles Stross, who is published by Hachette, explained what is at stake.
Amazon’s strategy … is to squat on the distribution channel, artificially subsidize the price of e-books “dumping” or predatory pricing to get consumers hooked, rely on DRM on the walled garden of the Kindle store to lock consumers onto their platform, and then to use their monopsony buying power to grab the publishers’ share of the profits. If you’re a consumer, in the short term this is good news: it means you get cheap books.
But if you’re a reader, you probably like to read new books. By driving down the unit revenue, Amazon makes it really hard for publishers—who are a proxy for authors—to turn a profit. Eventually they go out of business, leaving just Amazon as a monopoly distribution channel retailing the output of an atomized cloud of highly vulnerable self-employed piece-workers like myself.
At which point the screws can be tightened indefinitely. And after a while, there will be no more Charlie Stross novels because I will be unable to earn a living and will have to go find a paying job.
via Charlie’s Diary.
There is an old tradeoff: Speed. Price. Quality. Pick any two. The business model being pushed by Jeff Bezos would pressure publishers into signing up authors who are prolific and cheap. That literature has a value in and of itself doesn’t enter into his thinking. As Stross said:
Amazon is well on its way to monopolizing book distribution. Its strategy is like Walmart’s.
First you gain an initial advantage through economies of scale and introducing new efficiencies. So far, so good. That is how free enterprise is supposed to operate.
Then you leverage your initial advantage in the marketplace to squeeze suppliers and lower your costs. This enables you to keep prices low so as to knock out small competitors and keep new competitors from emerging.
Meanwhile you treat your rank-and-file employees like dirt.
The parallel is not complete, because the current Walmart owners are destroying their company through their short-sighted greed and stupidity, while Jeff Bezos, the founder and CEO of Amazon, may be greedy but he is anything but short-sighted and stupid.
And he is just getting started. According to one analyst, 93 percent of Amazon’s $75 billion in annual revenues come from products other than books.
George Packer, writing in the New Yorker, says that 50 to 60 percent of the price of a book sold through Amazon goes to Amazon itself. Another 10 to 15 percent goes for sales, warehousing and shipping. What’s left over covers printing, editing, publicity and, oh yes, royalties to the author and, oh yes, any profit the publisher may earn.
This is new. Historically retailers got 30 to 40 percent of the price of a book.
It is illegal for retailers to demand special discounts from publishers, but, according to Packer, Amazon gets around that by charging “cooperative promotion fees.” Amazon charges publishers this fee for placement of a book title on its page. Most of the ranking of books on Amazon’s lists are determined by these fees. The few publishers who have been brave enough to refuse to pay this fee have found there is no longer a “buy” button on Amazon’s page.
“The only point at which Bezos enters the chain is to take all the money and the e-mail address of the buyer,” Colin Robinson, a publisher, told Packer. “There’s an entire community of people and Bezos stands in the middle and collects the money.”
While Amazon offers bargain prices, its squeeze on publishers is bad for literature in the long run. Bezos seeks to transition from physical books to digital books, from which Amazon has 90 percent market share. If traditional book publishing dies out, Amazon will step into the gap, with book selection based on focus groups, surveys and computer algorithms rather than editors’ judgments of literary value.
Packer reported that Bezos doesn’t care about books as such. He started Amazon (named for a river into which all things flow) in 1994 because he had vision enough to foresee the importance of Internet marketing, and he chose books as his entry point because they are “easy to ship and hard to break.” Now he uses the information on customers he gained through book selling to market a wide array of products.
The saving grace of a well-ordered free enterprise system is that when big business executives overreach themselves, there is an opportunity for a smart entrepreneur to jump into the gap they leave. Such is Colin Robinson, who has started a publishing firm called OR Books, which bypasses Amazon and sells directly to consumers. OR Books gives up sales but earns a higher profit which, presumably, can be shared with the author.
Robinson is able to stay in business because of Net Neutrality—the law that says Internet service providers have to provide service to all customers on the same terms. There’s currently a legislative drive to abolish Net Neutrality (and some say the proposed Trans Pacific Partnership Agreement has an anti-Net Neutrality provision). If that were to happen, dominant businesses such as Amazon could squeeze out small competitors by demanding special terms from IPPs, just as Amazon does with publishers.
Another public policy favorable to Amazon is anti-trust policy. Historically anti-trust laws were directed against “the curse of bigness.” But in the Carter-Reagan years, policy-makers decided that it was all right for a company to dominate its market if there was some benefit to consumers. The problem with this reasoning is that the benefit to consumers is likely to last only so long as the dominant company has effective competition. Without competition, the benefits of efficiency and economies of scale don’t necessarily flow to consumers.
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Click on Cheap Words: Is Amazon Bad for Books? to read the whole article by George Packer in the New Yorker. It’s long, but packed with good information.
Click on a review of Brad Stone’s The Everything Store by Deborah Friedell for The London Review of Books for more. Her review has additional good information that’s not in the Packer article.
Contrary to what I wrote in Amazon’s Jeff Bezos to buy Washington Post, Amazon is not the world’s largest retailer. It is the largest on-line retailer, but is far behind Wal-Mart and other giants in total sales.
Click on 2013 Top 100 Retailers for information about its revenues and ranking.
Jeff Bezos, the founder and chief executive of Amazon, will buy the Washington Post for $250 million. I suppose it is not as bad as the Post being bought by the Koch brothers or Rupert Murdoch. We’ll see.
Bezos’ politics might be described as Silicon Valley liberalism. He is a champion of gay rights, but not in the right of his employees to decent working conditions.
I worked on newspapers for 40 years, and liked to believe that journalism was a calling and more than just a way for journalists to earn a salary and owners to earn a profit.
Most (not all) of the historically great American newspapers were owned by families who believed in the newspapers’ mission, rather than by corporations whose main business was elsewhere.
Bezos will own the Washington Post as an individual and incorporate it into Amazon, so he doesn’t fall into either category. It will be interesting to see what his intentions are.
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