What Seems To Be the Problem Here?

Amazon was only incidentally a bookseller: Bezos liked books because online shoppers didn’t have to try them on or smell or measure them. In the online world, books were the ultimate widget, nothing more. And yet books somehow remained at the heart of the Amazon enterprise. It was books that showed the company the value of customer reviews, when reviews, from one to five stars, became a kind of alternate center for literary judgment, and a hugely popular aspect of the site.

Amazon.com: Total Domination

Jeff Bezos

I’ve worked in book publishing for most of my adult life; currently I run an online bookstore called Emily Books specializing in the kind of women’s writing that’s typically labeled “difficult.” My business partner is my best friend. Most of my other friends and coworkers are also involved, directly or otherwise, in the writing, publication, and sale of books. When we talk about Amazon an uneasy pall falls over the room, as if we’ve invoked a monstrous, evil entity—Pol Pot or Exxon Mobil or King Joffrey Baratheon, the Ill-Born Usurper of Westeros (lifetime Amazon rank of A Game of Thrones author George R. R. Martin: 14). Amazon’s cutthroat pricing schemes, commanding control of the book marketplace, and experiments with bundling and the publication of original material directly threaten our livelihoods, such as they are.

If you already think this, there’s not much in The Everything Store, the new business bio on Amazon and its founder, Jeff Bezos, that will surprise or dissuade you. A comprehensive history of Amazon from domain registration to the present, it reports the following: despite extremely selective recruiting standards, working at Amazon sucks; Jeff Bezos is a Horrible Boss; the company’s vision of itself has always been that of a retailer and only more recently a tech company; its association with books is only incidental; and Bezos’s—and by extension Amazon’s—ultimate goal is total market domination in all categories of products around the world. With the advent of 3-D printing, Bezos’s August 2013 acquisition of the Washington Post, and the rollout of a mobile grocery service (Amazon Fresh), Bezos’s achievement of this goal is starting to seem not just possible, but inevitable.

As an independent bookseller, and as a reader, and as a person, this worries me. On the other hand, I realize that a consumer without a dog—and by “dog” I mean “an unnaturally strong and cherished connection to the written word”—in this particular fight might have no stronger response than a shrug at the prospect of Amazon.com: Total Domination. Most of us, understandably, are more concerned with economics on the personal scale of budgets and paychecks and debt and less interested in economics on the corporate scale of interstate commerce or monopolies or taxable presences. Amazon’s violation of the spirit (if not the letter) of American tax and anti-monopoly laws is abstract; one’s rent, phone bill, spending money, student loan payments, a lot less so. And Amazon is very good at addressing economics on a personal scale: their stuff is cheap and there’s a lot of it. One-click purchasing (which Amazon pioneered), low prices, endless inventory, and incredibly fast shipping have made it a company that reported $61 billion in sales last year and a 60 percent increase in stock value over the first half of 2013. The frequently cited fact that Amazon rarely turns a profit in a given quarter is mostly beside the point: if they didn’t spend so much money on building infrastructure for their future new world order, the company would be plenty profitable. And, as The Everything Store makes clear, Amazon doesn’t have to be profitable to become the only significant retailer doing business in many major product categories. Once it’s done that, prices will go up. Why would they not? Where one falls on this question, I think, depends on whether or not you think the check for the actual cost of merchandise we’ve grown accustomed to purchasing at artificially low prices is ever going to be dropped on the metaphorical table, and who’s going to have to pony up their Visa.


As you may know by now, the world’s largest bookstore did not begin as the twinkle in the eye of a bespectacled book aficionado but as a business plan conceived in the conference rooms of D. E. Shaw, a Wall Street hedge fund, in 1994. The eerily far-sighted package—assembled as a series of potential investment opportunities for D. E. Shaw clients—proposed early versions of services that others went on to launch, including ad-supported email (Gmail!) and online stock and bond trading (E-trade!). The third idea in the business plan was for an online company serving as a middleman between customers and manufacturers worldwide, selling every product in existence—“the everything store,” the hedge fund guys called it. Jeff Bezos, then a 29-year-old VP at Shaw, realized that an actual “everything store” wasn’t possible, not in 1994, at least. Instead, he decided he would have to focus on a single product. Out of a shortlist of potential merchandise including software, office supplies, and CDs, Bezos settled on books. A book was the same whether it was borrowed from the library or purchased from a bookstore or snagged off someone’s front stoop; there were no physical variations demanding an in-person shopping decision. And the vast number of books in print allowed Bezos to sell, not everything, but a lot of one particular kind of thing, which was close enough.

Bezos left D. E. Shaw that year to pursue opening an online bookstore.

Amazon.com went live in July of 1995 and went public in May 1997. One of its early mottos, Stone writes, was “Get Big Fast:”

The bigger the company got, Bezos explained, the lower prices it could exact from [the book wholesalers], and the more distribution capacity it could afford. And the quicker the company grew, the more territory it could capture in what was becoming the race to establish new brands on the digital frontier.

There’s a fundamental problem with bookselling as a business: put bluntly, it’s that people aren’t really into buying books. Bezos discovered this via a 1998 survey that found most shoppers didn’t use Amazon.com and probably never would, because—well—Americans buy very few books. This is the part of the story where some booksellers, like me and my partner, might begin wishing we had done something else with our lives, but Bezos was unfazed. Instead he turned his attention to other products easily sold via mail, and shortly thereafter Amazon expanded into music and DVDs.

Through the late ‘90s and early ‘00s, Bezos courted investors again and again, and then plowed their money into other startups, like IMDB and Drugstore.com. Most of them failed, but a few didn’t, and Amazon emerged from the dot-com bust chastened but still in business. Those down years forced a retrenchment that resulted in the company’s redesigning its unwieldy distribution network, which allowed it to begin acting as an ecommerce provider for other smaller or less adventurous companies. It continued to expand its product categories, targeting toys and jewelry next. The necessity of developing better search capabilities within the Amazon product catalog and technological bottlenecks within the company led to the development of Amazon Web Services, which sells basic computer infrastructure to third parties. You may know it as “the cloud.” And all the while, Amazon still expanded its physical product categories, into clothes, software, housewares, automotive parts—everything.

Bezos liked books because online shoppers didn’t have to try them on or smell or measure them.

Tweet

Amazon was only incidentally a bookseller: Bezos liked books because online shoppers didn’t have to try them on or smell or measure them. In the online world, books were the ultimate widget, nothing more. And yet books somehow remained at the heart of the Amazon enterprise. It was books that showed the company the value of customer reviews, when reviews, from one to five stars, became a kind of alternate center for literary judgment, and a hugely popular aspect of the site. It was books, too, that allowed the company to perfect its recommendation algorithms, as curious customers inadvertently provided huge reams of data by following or not following the “customers who bought this item also bought…” links—data that could be mined, analyzed, and further monetized. It was books that forced Amazon to create its own distribution mechanism, with its famous robotized warehouses (and, soon, distribution drones), because it was clear that outsourcing this work was costly and ineffective.

But back to that black leatherette envelope, and the possibility of Amazon basically peeing in the nice warm pool they’ve welcomed us all into, there’s Amazon’s historic dealings with book publishers to consider. “Back in its earliest days,” Stone writes, “Amazon’s relationship with book publishers was uncomplicated and largely symbiotic… [M]any publishers viewed Amazon as a savior, a desperately needed counterbalance to Borders, Barnes & Noble, and Waterstones in the United Kingdom, all of which were churning out new superstores and using their size and growth to press for steeper discounts on wholesale prices.” The honeymoon period couldn’t—and didn’t—last. If when Bezos started the company he wanted merely to “Get Big Fast,” by 2004 he was thinking that like Walmart, he’d like to offer “everyday low prices.” This meant, as it does for Walmart, squeezing the suppliers—in this case, publishers. Already selling “a large percentage” of all books in the US, Amazon began to demand more favorable terms from publishers on discounting, billing cycles, and shipping. When a publisher refused the new terms, Amazon removed their books from its personalization and recommendation engines, rendering the books effectively invisible on the site.

When sales fell by as much as 40 percent on these ‘invisible’ books, most publishers were eager to reopen negotiations. But Amazon’s demands continued to escalate. Publishers didn’t feel like they could refuse. The ultimate kicker was that for every concession to Amazon that resulted in a lower customer price, whether it was on free shipping or a deep discount on the new Harry Potter, there was a physical bookstore somewhere that couldn’t match it and lost a sale. With every lost sale Amazon’s market power grew, and the cycle could begin again.

Now, this was not exactly unprecedented: if you go to your local independent bookstore and ask them to sell your book on terms they can’t accept, they’ll just say ‘no.’ But Amazon is much bigger than your local bookstore, and they were creating the terms as they went along. Finally, there’s something fundamentally different about the online world and the physical one. We all understand the limitations of physical space at the Word bookstore in Greenpoint. But there are no space limitations online, not in the same way. In its quest to sell “everything” (books edition), Amazon had become, in effect, an archival resource, a database of record, a research application. And so its deliberate “disappearing” of books from their site seemed–and was–incredibly sinister.

Then, in 2007, Amazon released the Kindle. The new device was made possible by the relatively recent advent of widespread wireless technology; the development of magnetic e-ink, which made the screen readable without a backlight, and the fact that in the years before, Amazon had leveraged its market power to convince publishers to digitize their back catalogs. When the Kindle launched, publishers didn’t see why an ebook should cost any less than a physical book, and set the price at the same as the hardcover—typically, around $26. With the standard 50 percent discount, this meant the publishers would charge sellers $13. Bezos set the sticker price of most ebooks at $9.99, meaning that every time Amazon sold an ebook, he lost $3. For a while, publishers chuckled, but then they grew frightened. What did Bezos have up his sleeve? Amazon could afford to sell ebooks at a loss, but the availability of a cheaper ebook edition meant publishers lost money on their most profitable format (the hardcover) and small booksellers could not compete at all. Amazon no longer adheres to the $9.99 ebook price point as a rule, but the standard had been set, and the company only grew more powerful as the popularity of the ebook format increased. Holiday 2013 sales of the Nook, Barnes & Noble’s answer to the Kindle, fell 60.5 percent compared to 2012 holiday sales. Borders—initially one of the Big Bad, along with Waterstones and Barnes & Noble—went out of business in 2011, and Barnes & Noble is expected to follow any day now.


You might think that in the face of what is essentially a monopsony, the biggest New York City publishers would be killing themselves trying to find a viable alternative. That is not the case.

Emily Books, the online feminist bookstore I run with my best friend, was started as an attempt to create a tiny, but serious, competitor to Amazon. To our surprise, the publishers who will talk in private about how much they hate Amazon did not want to do business with us. When I approached the VP of what I’ll generously call the “Digital Development” department of one of these publishers about selling one of her books via Emily Books, she was dismissive. She won’t do business with retailers who can’t offer digital rights protection (DRM), she explained. OK, I said, that software is far too expensive for most independent booksellers, and for Kindle devices, it’s proprietary to Amazon. What sort of non-Amazon branded digital protection would they require? Was there a viable workaround, an alternative? What if we were able to come up with something? As soon as the words left my mouth, I realized how stupid they were. Surely such a thing—an Amazon workaround!—would be incredibly, obviously valuable. Surely many people far smarter and wealthier than me were working day and night on it. Well, the Digital Developer reiterated, acknowledging my gaffe by speaking as if to a very slow child, they would need the software required for a Kindle. Never mind that these arbitrary criteria exclude basically all retailers who are not Amazon, never mind that DRM does little to prevent a determined book pirate, never mind that a real-life retailer was literally asking for her business, money on the table. It’s rare to witness someone line up such a perfect shot to their own foot, unless you work in publishing, I guess.

It’s rare to witness someone line up such a perfect shot to their own foot, unless you work in publishing, I guess.

Tweet

That was two years ago. Meanwhile I’ve waited to see what these well-resourced and well-connected publishing insiders were working on to challenge Amazon. Large publishers have websites, of course, but they generally don’t use them to sell books. In 2010, several of the major publishers banded together with Apple (illegally, as the Justice Department later determined) to forge a better pricing arrangement on ebooks; they agreed to settle the resulting lawsuit (Apple went to trial). In 2011, a few of the top publishers got together (legally this time) to fund a website, Bookish.com, that was supposed to offer a “recommendation engine,” feature reviews, and sell books directly to consumers. After two years and several million dollars, the site finally launched to general apathy and was soon sold, for an undisclosed but apparently small sum, to a startup called Zola.


I had a strange feeling when I reached the end of The Everything Store. It’s an impressive piece of investigative reporting, but it also fits the conventions of a corporate biography, like those of Steve Jobs, Lee Iaccoca, and Sam Walton: poor, immigrant, wacky, or otherwise “different” (straight, white) guy rises from humble beginnings through hard work and natural genius to create or dominate the industry of his choice. It’s the American Dream turned up to 11. The difference between this genre and self-help is a fine one: people read them both in order to figure out how to be like “that.” What was the secret, the turning point, the key moment? As a small business owner and de facto Amazon competitor, I, too, wanted those answers.

But it turns out the way to build the world’s most successful bookstore has nothing to do with knowing your customers or recommending the “best” books or even making money, and everything to do with developing software, recruiting investors, and hiring a bunch of people who used to work at Walmart. This is not news I can use, but it explains the odd mixture of relief and nihilism I felt. Jeff Bezos both created and dominated the industry of his choice, online retail. His success has all but ensured the failure of anyone else who wants to sell not just books but consumer goods of any kind, and I wonder how many corporate biographies will be possible after this one.

I do not think it is a coincidence that Amazon’s success has corresponded with a significant contraction in the book publishing industry, one marked by mass layoffs, the merger of two major companies, drastically reduced royalties for writers, and a remarkably embarrassing price-fixing lawsuit. What remains to be seen is how Amazon will behave in the other product categories it sells, and eventually in the “everything” that Jeff Bezos has always promised.

Related Articles

March 15, 2009

Bolaño writes as if Flaubert had never suffered his passion of style; his characteristic register is almost pre-modern.

July 10, 2006

The result is closer to meditation than to storytelling, and the films are difficult in the way that meditation is difficult.

Issue 5 Decivilizing Process

Lit-bloggers are the avant-garde of 21st-century publicity.

February 29, 2012
Ancient Curse