The Trouble With Amazon
Jeff Bezos loves numbers. In a speech in May to graduates at his alma mater, Princeton University, he recounted a childhood memory: when, driving with his grandmother, a heavy smoker, he calculated by how many years her addiction would reduce her life expectancy. Announcing the result from the back seat, he expected praise for his deft math. But his grandmother just burst into tears.
The Amazon founder's geeky obsession with numbers evidently formed early, and despite the glimmer of discomfort revealed by his Princeton anecdote, his fervently quantitative take on the world clearly still predominates. In a letter accompanying the 2009 Amazon annual report, for instance, he sets out a mind-boggling 452 goals for the company in the coming year. The word "revenue" is mentioned only eight times, yet revenue growth is central to the Amazon story. Expanding both internationally and across other products—nonbook sales represent 75 percent of total Amazon turnover—Amazon's global business has increased fifteenfold over the past decade, 28 percent last year alone. Sales in 2009 topped $24.5 billion. To put that in perspective, in 2008 total sales by all US bookstores were less than $17 billion. Amazon is today, by some margin, the largest bookseller in the world.
Of all the goals in the report, Bezos proudly points out, no fewer than 360 deal directly with customer needs. The customer has always been king in the Bezos ethos, and the formula for keeping the king happy is straightforward. "Amazon gives the customers what they want: low prices, vast selection and extreme convenience," he told a shareholders' meeting. On these terms, Amazon's success is stellar. It has more than 2 million titles on sale; bestselling books are routinely discounted by 50 percent or more; and it ranked first in BusinessWeek's "customer service champs" awards last year. But dig beneath the surface of the numbers and a more complex picture emerges, one suggesting that, stats notwithstanding, readers and writers may ultimately not be best served by Amazon's race to become the biggest, cheapest and most convenient bookseller around.
Amazon has not grown to where it is today by being touchy-feely. Sure, it adopted the informal trappings that characterized many of the new technology start-ups of the 1990s. But if Bezos's first desk at the company was an old door on trestles, the business conducted from behind it has been as ruthless as anything he encountered in his previous gig as a Wall Street broker. Soon after Amazon's launch in 1995, Bezos told his employees that he wanted a place that was both "intense and friendly" but that "if you ever had to give up 'friendly' in order to have 'intense,' we would do that."
This hard-nosed approach has not endeared Amazon to publishers, who have consistently felt the pressure of the company's intensity, especially when it comes to setting terms. In researching this article, I uncovered widespread resentment about the aggressive way Amazon pursues its objectives, matched only by dread of being publicly identified as a critic of publishing's largest customer. "They have no sense of collegiality," complained one publisher, who asked not to be identified. "They behave like pigs," said another, his voice dropping as he checked around to see if anyone was within earshot.
(Disclosure: the new publishing company with which I am involved, OR Books, does not deal with Amazon. We sell direct to customers, channeling money that would otherwise go on discount and distribution to extensive promotion, primarily on the Internet.)
Dennis Loy Johnson, co-publisher of the Brooklyn-based independent Melville House, is one of the few publishers who have dared to speak openly about Amazon's bullying. His story is far from atypical. In 2004 a representative of the retailer contacted Melville's distributor demanding an additional discount. Such payments are illegal under antitrust law, which precludes selling at different prices to different customers. Large retailers circumvent this restriction by disguising the extra discount under the rubric of "co-op," money paid to the bookseller for promotional services, often notional. In this case the distributor did not bother with such niceties, describing what Amazon was after as "kickback."
Johnson resisted Amazon's pressure and complained to Publishers Weekly about what he saw as the retailer's capo-like tactics. What happened next evidently still rankles. "I was at the Book Expo in New York and two guys from Amazon came to see me. They said that the company was watching what we were doing and that they strongly advised us to get in line. I was shocked at how blatant the pressure was." Within a couple of days Johnson noticed that the buy buttons for his books had been taken off Amazon's site, making Melville's titles unavailable.
In the end Johnson, faced with an offer it was nigh impossible to refuse, agreed to the co-op. His books' buy buttons were reinstated. Today Amazon is Melville House's biggest customer, and though Johnson still regularly flays the company on his popular publishing blog Moby Lives, he also concedes that it is highly effective at bookselling: "They make buying so easy. It's impossible to resist."
Another man who recently lost his Amazon buy buttons is John Sargent, head of Macmillan, the US arm of German book giant Holtzbrinck, home to many authors familiar to Nation readers, including Naomi Klein, Noam Chomsky and Barbara Ehrenreich. In January Sargent confronted Amazon over its insistence on setting the prices of e-books it sold on its site, generally at under $10. This was a concern throughout an industry worried that low prices of electronic versions would undermine profits from printed books and generally lower the perceived value of the product. Sargent informed Amazon that he wanted to move Macmillan to an "agency agreement," meaning that he, as the publisher, could price books at whatever level he chose, paying Amazon a fixed discount.
Amazon reacted with characteristic distemper: bye-bye Macmillan's buy buttons. A face-off ensued. Amazon was vehement that its stand was on behalf of customers looking for bargains. A gallery of cynics openly suspected it had more to do with securing the future of its proprietary e-book reader, the Kindle, in the face of Apple's imminent launch of the competing iPad.
Something had to give, and a few days later it did: Amazon gave in with a statement revealing contempt toward the very idea of a publisher. "We will have to capitulate," it said, "because Macmillan has a monopoly over their own titles." The company's hand had been forced by a preceding announcement that Apple had accepted an agency agreement with five of the six largest publishers. Unusual for Amazon, its suppliers had an alternative for selling their books.
It was the first time Amazon had ever given way in public on a big issue with publishers. And it may just have marked the beginning of a power shift between the retailer and its suppliers. Such realignment is long overdue, because the problems caused by Amazon's business practices extend to fundamental matters of the future of the book business and the diversity of our culture as a whole.
Take the issue of choice: when it comes to the books it stocks, Amazon makes no pretense of selectivity. Provided it carries an ISBN and isn't offensive, Amazon is happy to sell any book Joe Schmo cares to publish. "We want to make every book available—the good, the bad and the ugly," Bezos once said. Spurred on by Amazon and the growth of self-publishing companies like XLibris and Lulu, the number of new books being published has soared. According to industry statisticians Bowker, just over 172,000 titles were released in 2005. Last year "traditional" output had risen to 288,000 titles, a significant enough increase by itself. But adding what Bowker describes as "self-published" and "micro-niche" books, the total inflates to a staggering 1 million new titles in just twelve months.
Many would argue that the efflorescence of new publishing that Amazon has encouraged can only be a good thing, that it enriches cultural diversity and expands choice. But that picture is not so clear: a number of studies have shown that when people are offered a narrower range of options, their selections are likely to be more diverse than if they are presented with a number of choices so vast as to be overwhelming. In this situation people often respond by retreating into the security of what they already know.
As Barry Schwartz, author of The Paradox of Choice, explains, "When the choice set is larger, people tend to make worse choices. They choose on the basis of what's easiest to evaluate, rather than what's important to evaluate...the safe, highly marketed option usually comes out on top."
This apparent anomaly of greater choice resulting in a narrower selection finds a corollary in Amazon's use of metrics to recommend titles based on previous purchases. The algorithms at work here are highly sophisticated and are widely credited with expanding consumer choice. Yet such metric-based systems can simultaneously increase the variety of books purchased by individual customers while decreasing the overall variety of books bought by everyone. This is because, as blogger Whimsley explains, "In Internet World the customers see further, but they are all looking out from the same tall hilltop. In Offline World individual customers are standing on different, lower hilltops. They may not see as far individually, but more of the ground is visible to someone."