The Anomaly, Bookstore Owner, and How Politics Won Them Black Friday.
This isn’t going to be a typical political story. Instead, timely enough for Thanksgiving, it’s something else entirely:
This is a story about a bookstore owner, a stolen idea, and a social anomaly- and how they won the biggest sales events of the year. Specifically, how politics won it for them.
It’s a story they have not told, a story that sits in the coffee bars- it’s a barside story, a story that resides at one in particular, where they sit today.*
His name was Exon. John James Exon. As a student, he attended the University of Omaha, and from 1942–1949, he was a part of the U.S Army and then began his work in the U.S government. (BDUSC)
Then, there was Slade Gorton. He was born a Chicago man, but he took to the city that never sleeps for a J.D, from Columbia Law School. He soon moved to Seattle, where he was a practicing attorney- the Attorney General in fact, in and of the State of Washington from 1969–1981. (Miller Center, POLITICO)
He and Exon, however, did not cross paths until the undefeated, 33rd Democratic Governer of Nebraska and 14th Republican Attorney General were both voted into the office of The U.S Senate, where they collectively introduced the Communications Decency Act of 1996. (Congress)
Now, moving aside the shock that may be felt by the eager fact that there was once a moment in U.S History in which a Nebraskan Democrat and a Washington Republican had not only won seats in the Senate, but, in fact also introduced a bill together, the Communications Decency Act of 1996 had a specific section to it that set the stage for the conversation about conversations; who is going to be held responsible for what is said online?
According to Section 230 of the Act, “ “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider”. (EFF) Meaning, that a platform for voices, is different than a platform with a voice.
This, of course, created a bevy of opportunities for any platform that wanted to allow people to post their thoughts online. Before, this meant blogging. Typing unsolicited opinions required a URL, or at least a search, for “CoffeeisaConspiracy.com”. There wasn’t a section for those posts to trend, or become a part of the national dialogue. Not easily, by any means.
This, of course, all changed, when a 19 to 20-year-old sophomore decided that 2 future Olympic Rowers who went by the name of Cameron and Tyler Winklevoss (along with their partner, Divvya Narendra), had an interesting business idea to take the social experience of inviting people over to a dorm, online. The sophomore took the idea for himself. Exclusive to Harvard graduates at first, the platform led the 19-year old sophomore (characterized as a socially awkward kind of guy), to become the lead character in an Acadamy-Award-winning film. That award-winning film was the Social Network- which, as you may imagine, was a film starring Facebook. The lead character, of course, being Mark Zuckerburg. (The Social Network) (IMDB)
Facebook in its early ages, allowed people to post things, and discover other people while they were at it, all in one place that was easy to navigate. It also meant, that, for the first time, people could, at immense ease, and in the literal click of a button, share something they, or someone else, wanted to say. Someone else could pick it up, then someone else. Then someone else. The chain continued.
What it meant was, for the first time, there was a way to distribute opinion at a scale beyond a journalists’ wildest dreams. However, the posters weren’t always journalists. Sometimes, misinformation fanned the flames of the network, and it became a notorious problem, leading the company to eventually ban political ads in 2020. (NPR, 2020)
Yet, Facebook wasn’t liable for this spread of misinformation, and, in 2015, Secret-Sister, and Santa gift exchanges plowed from the network. Here’s how they worked (CNET):
“ Provide your name and address and personal information of a few additional friends, and tack this information on to a list that’s already started of people you’ve never met on the Internet. Next, it’s your turn to send an email or social media invitation to send a modest gift or bottle of wine to a stranger along with their friends, family and contacts.”- BBB, 2020
The problem was, it’s a scam. A pyramid scheme, as reported by the Better Buisness Bureau. The other thing to note is that the company’s algorithm favors interactions- meaning that steep discounts, real or not, make it to the front of the page. If scamming discounts don’t work, then the page that made it to the top? It gets sold. (Better Business Bureau, 2020). However, due to the Communications Act, Facebook wasn’t fully responsible for the spread of those exchanges.
For Facebook, aside from the trainwreck of a PR stunt, it would face on a 12-day basis, the legality of an algorithm that favors massive price slashes (real or fake), also means the company’s marketplace can slash prices down in extraordinary feats- giving the company a greater commission and greater traffic, all without having to have sold any product for a price, aside from Facebook. Data and Traffic became Big Tech’s currency on Black Friday, and both are in the pockets of a company founded by a man characterized by the vision of Jesse Eisenburg.
Now, in theory, if Zuckerburg was to have walked into a bar of big-tech executives, he wouldn’t be the only one who could gloat about how one law could benefit Facebook when it came to pre-holiday sales events.
The first teller sits in the middle of the bar. He lived his life as a social anomaly until he decided he wanted to rule the social landscape of the world instead. He’s tapping his thumbs rapidly to the sounds of Daft Punk on a wooden table, adorned in a grey sweatshirt jacket, a t-shirt, and jeans. His work has inspired plenty, his fashion, a trend. Sitting 4 feet across from him, lit by the room stained with Edison lightbulbs is the owner of a bookstore. He’s also the richest man in the world.
Jeff Bezos, of course, is not an ordinary bookstore owner. He owns the largest bookstore in history, and, it’s not much of a bookstore anymore. It’s Amazon, the world’s largest online retailer. For retail, Black Friday, and the holiday sales season that follows is consumer gold. Flash sales, 50%- off Discounts, and price slashing could have someone looking at retail price change numbers with no context at all believing that Santa Clause just delivered the U.S Economy gift-wrapped deflation.
Of course, that’s not necessarily the case. Those holiday sales are temporary, and as popular psychological culture has it- discounts are a sales tactic that helps amplify the incentive for demand. (Yoast, 2016) For Amazon, this is no different. However, the difference with Amazon comes with its extreme power in the retail industry- specifically Amazon Prime. With it, Amazon has the capacity to engage in massive, exclusive sales events on a global scale. A scale big enough, in fact, to make the case for a new look at predatory pricing.
One of those stories made the internet, and it started halfway across the world. He is the brother of a man named Preet. Preet was born in the Indian state of Punjab, and he’s now the Attorney General for the Southern District of New York. His brother, Vinit Bharara, who is also a licensed attorney, also was the owner of Diapers.com (NYU, India West)
Diapers.com, as you may already imagine, was a large diaper company. Then, one day, Amazon decided that it was going to enter the market that it, and it’s the parent company that owned it. They made an offer. Bharara's company rejected it. In a swift rebuttal, Amazon entered the space, undercut the price of Diapers.com, and eventually, and left the company no choice but to be sold to Amazon for $545 million. (Aston Baby)
Now, the point here isn’t to debate the right or the wrong- but rather that a company went in and undercut the entire industry because it had more than the reasonable means to do so. Now, this is not, in fact, predatory pricing, because, for many years, Amazon has a history of making a little-to-no profit. (The Verge). It’s important to remember that revenue, salaries, and net worth are different than the remaining money a company has over a year. The current laws pertaining to predatory pricing also factor in the possibility of raising prices once a competitor has been driven out, and since Amazon doesn’t need to do that to keep itself afloat, the competitive damage has still been done. It still can have market control.
Of course, this is not a debate that has made its way to the political stage. No flagship moment consists of a consensus of whether or not predatory pricing law is designed to encourage competition, whether or not competition falls under consumer protection, and to what degree is it crucial to be able to argue a case of predatory pricing.
It also lends itself to a more specific event- Black Friday. Likewise, another policy-related discussion comes into effect here: Revenue Recognition- which is more interesting than it sounds.
Revenue recognition isn’t a law, in and of itself- but rather a practice. It’s based on accounting standards (a set of rules for how a company reports something financially), which, in turn, help format the laws around market accounting. The simple act of being able to recognize that a company is making money can significantly alter the way a company makes money. (Investopedia)
See, all businesses in the US have to follow a specific accounting standard. For regular retail exchanges (say, at a Best Buy), Revenue Recognition is pretty straight forward: If someone is buying a Google Pixel 5, Best Buy logs it into their revenue.
However, for certain companies, this practice can change based on the contracts a company has. Looking at the degree of fulfillment, what categories follow, the transactions in place, and recognizing revenue for the performance obligations in place.
Previously, under ASC 605 (The national accounting revenue recognition standard), Amazon was able to report the subscription price as the source of subscription revenue. Buying an item, regardless of Prime membership, went into their product revenue category. What this meant for Amazon was, that previous to 2018, their overall sales were impervious to Prime Exclusive deals. (Financial Times, 2018) (Accounting Today)
This is where winning sales events come into the picture. Amazon could slash prices during these sales, and regardless of whether or not it was exclusive to Prime Members, and to what degree, it would go into the bigger basket of revenue. As a result, it would be harder to trace the outcomes of “Prime Day” deals or deals exclusive to Prime members on Black Friday, or the holidays. Retail product sales, to be exact.
Now, the regulations under financial reporting have changed, but it brings up another problem. ASC 606 does put Amazon in the position where it would have to declare Prime-based sales in the bucket of subscription services, and not product sales. However, what it does not do- and this is the important part: Distinguish the entity separation of Amazon Prime as a separate sales entity altogether. (Financial Times)
See, under these regulations, the diversity of products that Prime offers: Think, the TV shows, for example- is not separated from Prime Day deals. However, when it comes to predatory pricing, there’s two different leeway Amazon has Duration and Distinguishment.
During these sales events, Amazon has the ability to undercut its competition, yet again. However, it’s done for a day. Maybe a couple of weeks at the most. Since it’s duration is not long enough to see how much it impacted other company profits, Amazon can get away with the same technique it used to purchase Diapers.com, but at a smaller, more seasonal scale. On top of that, due to the format of revenue reporting, Prime as a service, and it's revenues, make it harder to track, from reports, whether or not it’s profits came from people watching more TV, or people buying that Google Pixel 5.
In 2018, Amazon reported $72.4B in sales in the fourth quarter alone, a 20% year-over-year revenue. In 2019, that number grew to $87.4, a 20% increase in that quarter alone. (The Verge) (Venture Beat)
So, there it is. While not the only reasons, and not even the primary ones- a law, and economic regulation, and an accounting standard, in a way that seems almost mundane, helped 2 companies find their footing when feet rampage across floors, all for slashed sales.
In comes the reporter, who’s heard a lot about this bar. It’s a Starbucks Reserve, in the great city of Seattle. He’s heard that great storytellers reside in this very bar, in the mornings. They talk about grand adventures, competitions nobody’s ever heard of. From 9AM to 12PM, these people sip on sparking Citrus espressos and chocolate truffles. Sitting right in the middle of the room, are the 2 people he has his eyes on. They’ve won a game so discreet, a game with millions of participants around the country. He goes to the middle of the middle, asks for their names, and asks them to narrate the story of this great competition they have won. The bookstore owner glances across to see the anomaly in front of him, his hair in a faint shadow from the rare Seattle sunlight basking the windows. He gives the opening for the gentleman to speak his side of the story first, and there begins the tale of how, the legislation of writing no civilian ear has heard of in their day-to-day life, won them the largest sales events of the year.
Sources:
https://www.sec.gov/Archives/edgar/data/1018724/000101872418000159/amzn-20180930x10q.htm
NOTE: The story outlined in italics (not the quote) is fictional and implemented for stylistic purposes. I would sarcastically point out that it was because this was a coffee shop, in fact, in Aspen Colorado, but unfortunately, nothing about the story in italics has actually occurred.*
