I remember life before Amazon. I remember when Amazon first entered the public consciousness, and we first used it.
It was, simply put, incredible.
I’ve been a huge fan of Amazon ever since — two decades. And I’ve been an outspoken ambassador of it, too.
When anyone criticised it for being too big, hurting small and local businesses, I would say “It’s got that big because it’s innovated. That local shop closes at 4pm and all day Sunday, but Amazon now has same-day shipping.”
Against the criticism that it doesn’t pay taxes, I would say “It does pay taxes, it just uses legal avoidance mechanisms to avoid tax it isn’t legally required to pay. As a company, it pays staggering amount of tax through its employees.” There would also be a mini-lecture about how tax is due on profit, not turnover, and Amazon is famously in the red a lot.
So it was enthusiasm that I began reading The Everything Store — a biography of Jeff Bezos and Amazon — at the end of 2020. And now, my opinion has changed of the company, to the extent that one of my 2021 resolutions is to be less reliant on Amazon.
On the surface, I don’t have a problem that Amazon is big. And I also don’t have a problem with its mission to offer products at cheaper prices. I think, too, that Jeff Bezos is incredible and he’s built something truly outstanding.
Nonetheless, within the cracks of those statements are troubling truths.
Amazon has advantages that small companies don’t
When advocates, like me, say Amazon is bigger because it offered lower prices and better service, the important part missing from the argument is this isn’t a level playing field. Amazon was flush with cash from its public offering, and Bezos is a long-term thinker. With those two factors in play, Amazon intentionally operated at a heavy loss. Determined to build the customer base and give customers the best prices, Bezos didn’t care about early profitability.
Local mom and pop stores cannot operate with that mentality. Without millions of investment capital, their concerns are immediate cashflow to keep the lights on.
Amazon’s size makes it more predatory
“It’s just business, nothing personal” is a cliche line. But business is personal.
As Amazon grew — and, indeed, continues to grow — its suppliers become reliant on it. Put yourself in the shoes of the manufacturers and distributors: when you have one company dominating so much of the market and selling the largest amount of your product, you’ll do anything to keep them happy.
Amazon exploits that fact.
It uses its size to put pressure on the supply chain, demanding cheaper prices. So, it’s buying goods cheaper than the other stores, so it can offer them cheaper. Then it prices them even lower because Bezos is happy to run at a loss, and the end result is a price that a) competitors simply cannot compete with and b) customers cannot resist.
This further grows Amazon, who puts additional pressure on suppliers, exacerbating the problem even further.
Amazon stifles the free market
This is perhaps the toughest pill to swallow for proponents of free market enterprise.
“Amazon got where it got to because of the free market. People are free to shop elsewhere.”
Technically, yes. In reality, not so much. For two reasons:
- Because it’s able to operate in a way that most businesses can’t, it has leverage. It uses that leverage to make itself more appealing, and competitors less appealing.
- When people do shop elsewhere, Amazon notices, and responds.
The second point is what troubled me the most about The Everything Store.
Take Zappos for example. Or Quidsi, which owned Diapers.com. Both of these companies were popular, had multi-millions in revenue, and huge customer satisfaction. Amazon noticed them, and wanted them.
Neither company wanted to sell: they had founders who wanted to be independent and establish their own successful businesses. That’s something you’d expect Jeff Bezos to understand and respect.
Instead, Amazon responded by driving down the price of the products on its website, to levels that it knew Zappos and Quidsi couldn’t compete with. If they tried, they would be bankrupt quickly. I’m focusing only on the top-level detail here and missing out a lot of the finer details for the sake of brevity, but the end result was Amazon purchasing both companies.
This isn’t free market. When an entrepreneur has the idea and the initiative to start a new venture, they shouldn’t be faced with the two choices of “sell or go bust.” But that’s the Amazon reality. A company does well, Amazon monitors it, then sells the same products at huge losses, knowing the competitor can’t match or withstand the prices.
Make no mistake, if new companies cannot be built without being driven out of business or bought by Amazon, the market will have no competition. There will be only Amazon.
Amazon has no problem putting manufacturers out of business, too
One of the most troubling and disappointing moments in The Everything Store was the story of Wusthof knives. This is a 200-year-old family-run company, still making knives in Germany.
Wusthof, like any business, has a number of costs — overheads, staff, manufacturing, equipment, and so on. Prices take all of this into consideration, ensuring the bills are all paid and there’s enough left over to turn a profit. Manufacturers then tell retailers, like Amazon, the suggested pricing.
In its eternal quest to be the lowest price anywhere, Amazon disregarded Wusthof’s price, insisting on selling cheaper. This affects not only Wusthof directly, but also the numerous small retailers. Remember, each time you visit a department store or small independent shop, they’re competing with Amazon. The deep price reductions put huge pressure on every other retailer, who lack the same margins or financial padding to sell at a loss.
Wusthof’s current owner flew to Seattle to meet the Amazon team to explain the problem and to announce that they felt they had no choice but to remove their knives from Amazon’s website.
Instead of responding with empathy, Amazon told Wusthof that it would acquire the knives on the grey market and sell them cheaper anyway. Worse,if it had no inventory, when customers searched for “Wusthof” Amazon would deliberately show them adverts from competitors instead. Simply put, Amazon gladly turns the screws from every angle to force every part of the supply chain to bend to its will. Even if it means that the company would be out of business in the near future — as Wusthof would have been.
Imagine being told that if you don’t bow down to demands from a company you will be punished; that other companies will be proactively promoted to teach you a lesson.
Amazon’s disregard for pricing sensitivity is why certain brands, like Dyson and Apple, are either not on Amazon or give it a limited supply of certain products.
Amazon is forcing a race to the bottom
Since Day One, Jeff Bezos has made it Amazon’s aim to offer the lowest prices on products. There are even pricing algorithms in place that scan prices on other sites, and lower them on Amazon if necessary.
Combine that with additional perks like free shipping, same- or next-day delivery, and the convenience of an almost limitless inventory, and there’s little need to ever shop elsewhere. Indeed, we’ve reached the point where buying from anywhere other than Amazon is a conscious effort to diversify which outlets receive our money.
The problem with this is it creates a race to the bottom. On the Marketplace in particular, almost the only way to sell your inventory is by being the cheapest. Yet being the cheapest means making razor-thin profits or making a loss. Each time somebody undercuts you, you have to lower prices even further or accept that you won’t be making many more sales.
If you’re reading this and thinking “Low prices are great, though, because we buy things for less money” — remember that most businesses are not Amazon, with a staggering market value and ample cash reserves. The selling price of each item has to pay for supplies, staff, overheads, marketing, and the retailer’s cut too, with enough left over for the seller to earn a living. If the item is sold too cheap, the seller can actually end up losing money with each item sold.
Most businesses are small, and the profit is how they put food on the table. Making money on inventory is how they reinvest in the business, hire staff in the local area, and contribute to the economy. Most companies don’t get the luxury that Amazon does to avoid and lower their tax liabilities.
So each time that we buy from a company like Amazon, which puts undue pressure on smaller operations, we reinforce this economy. We add to their pressure, to the extent they may go out of business. We stop rewarding entrepreneurship and innovation, and we stifle the desire to pursue creative outlets as a means of income, because we buy from the retailer that makes these small businesses struggle to survive.
Amazon is in competition with its Marketplace sellers
The Amazon Marketplace is, on the surface, incredible. Individuals from all over the world are able to sell their goods on one of the most visited websites, reaching an audience they would otherwise have to spend huge amounts of money on advertising to reach.
There is, though, a major drawback. In addition to the previous section’s point about sellers being forced to sell at a low price, they’re also in competition with Amazon directly.
In The Everything Store, Brad Stone explains that Amazon monitors what product lines are hot. If it sees an opportunity, it begins to stock and sell those items itself, and hoovers up the customers.
A quick caveat — the book is seven years old, so there may have been operational changes in the intervening years. Nonetheless, it was a known practice in the past and I assume is still occurring.
Amazon’s bullying attack on the publishing industry
Ironically, I read The Everything Store on my Kindle Paperwhite. The Kindle is an incredible invention, and in many ways it really does elevate the reading experience — the backlit screen, single-handed use, built-in dictionary, ability to highlight and take notes, access to the book store on the device itself, and syncing to apps on non-Kindle devices.
But… there’s murkiness to how the Kindle came to exist.
First, Amazon strong-armed the publishers into it. E-reading had been a flop previously, and the publishing houses had little interest in pursuing it again. Amazon’s executives convinced them of the potential, and then literally harassed them into providing the necessary files. Bezos wanted 100,000 titles available at the Kindle’s launch, and according to The Everything Store, this period of time was not entirely pleasant.
In addition, Amazon intentionally withheld its plans for e-book prices from the publishers. On stage at the launch, Bezos announced that hot new releases and bestsellers would be $9.99 — cheaper than the wholesale price of books. Not only was the publishing industry caught off guard with the announcement, it was a price that physical bookstores couldn’t match without taking a loss on every sale.
On the other hand…
Certainly it’s not all bad. I still maintain my position that Jeff Bezos is an incredible entrepreneur and Amazon is an incredible company, and in many ways the right company for the times. It’s 2021, of course connected devices like Echo and same-day delivery and an Everything Store should exist.
And the Marketplace and Fulfilled by Amazon genuinely allow people to make entire businesses using Amazon’s platform. It’s revolutionised e-commerce.
Certainly, the eternal march of progress always has winners and losers. I hope it’s clear that this article hasn’t been a lament of changing times.
Simply put, I believe that fair play should be required as much as possible. From what I took from The Everything Store, Amazon doesn’t just not employ fair play, it actively shuns it in favour of dirty tactics to squash upstarts and further fatten itself.
I believe that when bright-eyed entrepreneurs start successful businesses, they should have the opportunity to grow it — like Bezos did. Instead, because of the ambition for Amazon to literally sell everything and do so at the cheapest price with the most convenience, those entrepreneurs meet the business equivalent of the playground bully: “give me your lunch money or get a punch in the face.”
I’m reminded of Stephen King’s novel Needful Things. In it, King expertly crafts a story that highlights the true cost of something isn’t always its monetary value. And that’s what we see with Amazon.
Yes, it’s cheap. Yes, it’s convenient. Yes, I still love it for many things. I will keep my Kindle, my Prime membership, and my Echo devices.
This isn’t a total boycott.
But I must also acknowledge the implication of using Amazon too much. I must accept that I play a part in the closure of high street shops and the struggles of small businesses. I will be more discerning about where my money goes, and in the first instance will look for alternative businesses to support.
I will be mindful of the true price of convenience, acknowledging that the cost of something isn’t always financial. I will support retailers, small businesses and manufacturers where possible, so that we don’t live in a future where Amazon is the only player in town.