The Internet Is Not the Answer (8 page)

The rules of this new economy are thus those of the old industrial economy—on steroids. The bigger Amazon has become, the cheaper its prices and the more reliable its services, the more invulnerable it has become to competition. “Amazon is increasingly looking like a monopoly in publishing,” Wilson explains, warning that the Internet has gone “from laughable toys to dominant monopolies in less than a decade.”
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Scale matters more than ever in the online economy, particularly in e-commerce, where the margins are extremely tight. “Opportunities before efficiencies” was one of Kevin Kelly’s new rules for the new economy. But Amazon, while certainly not averse to the strategic opportunities in the digital market, has built its economic power upon the tactical efficiencies of a company that, in 2013, booked $75 billion in sales, but a profit of just $274 million.
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In 2002, Amazon’s growing financial clout enabled it to take on United Parcel Service, wringing significant price concessions from the shipping giant, thereby giving it a major cost advantage over its rivals and, as Brad Stone notes, teaching Amazon “an enduring lesson about the power of scale and the reality of Darwinian survival in the world of big business.”
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Amazon’s financial resources allowed the notoriously parsimonious company in 2001 to even build its own, customized back-end fulfillment software, which, Stone notes, allowed it “innumerable advantages,” such as being able to promise its customers when their packages will arrive and enabling the introduction of its lucrative subscription-based Amazon Prime two-day delivery service.
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The winner-take-all economy is a euphemism for a market that tends toward monopoly—and that’s exactly what Amazon, with its tighter and tighter control of online commerce, is becoming. Neoliberals like Tom Perkins would argue that Amazon is creating jobs, enriching our culture, and improving everyone’s prosperity. But he’d be wrong. The reverse is actually true. Amazon, in spite of its undoubted convenience, reliability, and great value, is actually having a disturbingly negative impact on the broader economy.

The Amazon narrative is best encapsulated by its impact on the publishing industry over the last twenty years. There’s no denying that, in many ways, Amazon has been beneficial for book publishers, especially smaller ones. Bezos created a universal bookstore that offered the most comprehensive selection of books ever available in one place, particularly for readers like myself interested in buying hard-to-find new and secondhand books. Amazon empowered smaller publishers, giving them a relatively level playing field to widely distribute their books. And Amazon’s significant investment in its excellent Kindle reader, which it launched in 2007, was key to the book industry’s relatively smooth transition to digital. But the problem is that the more successful Amazon has become, the more power it has amassed over book publishers both large and small. Unfortunately, what Fred Wilson calls Amazon’s “monopoly in publishing” is ultimately bad news not only for publishers, but also for authors and even readers, who are all now suffering as Bezos takes advantage of his increasingly monopolistic power to squeeze publishers of their profits.

The book industry, which was initially quite enthusiastic about Bezos’s venture, has mostly soured on Amazon. “An abusive, alcoholic father; a snake-oil salesman; a predatory lion; Nazi Germany,” are, according to
Forbes
staff writer Jeff Bercovici, some of the insults that publishers and retailers are now throwing at Amazon.
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And it’s not hard to see why some literary folks are reverting to these kind of clichés. In the United States, where Amazon now accounts for 65% of all digital purchases in a market that now makes up 30% of all book sales,
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there were around four thousand bookstores in the mid-1990s, when Bezos launched
Amazon.com
. But today there are half that number, resulting in thousands of lost retail jobs.
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In Britain, things are no better, with fewer than 1,000 bookstores surviving in 2014, a third fewer than in 2005.
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The Everything Store hasn’t been any kinder to the publishing industry, where, in 2004, Amazon’s books group division unleashed what it dubbed a “Gazelle Project” designed to crush small publishers that wouldn’t agree to their stringent demands on pricing and bill payment. This project got its name, Brad Stone explains, because Jeff Bezos instructed one of his staff that “Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.”
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Bezos’s brutally efficient business methodology, what Brad Stone politely describes as “eliminating more costs from the supply chain,”
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is now squeezing jobs in every retail sector—from clothing, electronics, and toys to garden furniture and jewelry. As a 2013 study from the US Institute of Local Self-Reliance (ILSR) reports, while brick-and-mortar retailers employ 47 people for every $10 million in sales, Amazon only employs 14 people to generate the same $10 million sales revenue. Amazon, according to the ILSR report, is a job killer rather than job creator, having destroyed a net 27,000 jobs in the American economy in 2012.
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Even more chilling is Amazon’s heartless treatment of its nonunionized workforce, particularly its utilization of monitoring technologies to observe the company’s warehouse workers’ most minute activities. Simon Head, a senior fellow at the Institute for Public Knowledge at New York University, argues that this makes Amazon, with Walmart, the “most egregiously ruthless corporation in America.” This shop-floor surveillance, Head says, is an “extreme variant” of nineteenth- and twentieth-century Taylorism—the scientific management system invented by Frederick Winslow Taylor, which Aldous Huxley savagely parodied as “Fordism” in
Brave New World.
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Yet even without these monitoring technologies, work in the Amazon fulfillment centers is notoriously unpleasant. Nonunionized Amazon workers in Pennsylvania, for example, have been subjected to such high warehouse temperatures that the company has ambulances permanently parked outside the facility ready to speed overheated workers to the emergency ward.
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In its Kentucky delivery center, Amazon’s hyperefficient work culture has created what one former manager described as the “huge problems” of permanently injured workers.
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In Germany, Amazon’s second-largest market, 1,300 workers organized a series of strikes in 2013 over pay and working conditions as well as to protest a security firm hired to police the company’s distribution centers.
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In Britain, a 2013 BBC undercover investigation into an Amazon warehouse revealed disturbingly harsh working conditions that one stress expert warned could lead to “mental and physical illness” for workers.
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But I don’t suppose the libertarian venture capitalists care much about the many casualties of this war of the one percent—such as Pam Wetherington, a middle-aged woman at Amazon’s Kentucky operation who suffered stress fractures in both feet through walking for miles on the warehouse’s concrete floor, yet received no compensation from Bezos’s company when she could no longer work.
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Or Jennifer Owen, a ten-year veteran employee at the Kentucky warehouse who was summarily fired after returning to work from an Amazon-approved medical leave after a car accident.
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While Amazon is a nightmare for nonunionized workers like Wetherington and Owen, it has been a financial dream for investors like Tom Perkins’s KPCB, whose original $6 million investment would, by 2014, be worth around $20 billion.

Yet, in spite of Amazon’s phenomenal success, what isn’t available in the Everything Store, at least in June 2014, were most of the books owned by Hachette Book Group, the publisher of Brad Stone’s
Everything Store
. That’s because Amazon was locked in an ongoing contractual dispute with Hachette over the pricing of electronic books. “What seems clear is that Amazon is using its market power,” a June 2014
New York Times
editorial notes about Amazon’s decision to unstock Hachette’s books, “to get the best deal for itself while it squeezes publishers, annoys its customers and hurts authors by limiting their sales.”
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“Amazon’s Power Play” is how the
New York Times
summarized this bullying behavior. This is an accurate summary not only of the Internet’s winner-take-all economy, but also of Amazon’s dominant place in it. So much for those “decentralizing, globalizing, harmonizing and empowering” qualities that Nicholas Negroponte promised would be a “force of nature” of the digital age. Jeff Bezos would, of course, disagree, arguing, no doubt, that such a generalization is a narrative fallacy. But he’d be wrong. The real
force of nature
in the digital age is a winner-take-all economy that is creating increasingly monopolistic companies like Amazon and multibillionaire plutocrats like Bezos himself.

The Code Is Cracked

Despite the metaphysical promises of digital prophets like Nicholas Negroponte and Kevin Kelly, the early generation of Internet businesses in what is now called the “Web 1.0” age, such as Amazon, Netscape, Yahoo, and eBay, weren’t very innovative. Nobody has ever used terms like Amazonomics, Netscapenomics, or eBaynomics to compliment their business models; nobody has ever claimed that these companies had cracked the code on Internet profits.

For all its economic and cultural significance, Amazon was and still mostly is a very low-margin business—a digital version of Walmart focused on gaining mental shelf space, building its economies of scale, and underselling its rivals so aggressively that the American blogger Matthew Yglesias has even anointed Jeff Bezos as “the prophet of no profit” and suggested that Amazon’s “pace of growth will almost certainly slow,” particularly “if Bezos were to turn his interest to other things.”
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Netscape, in spite of its transformational role in Internet history, pursued the very orthodox business models of either selling software subscriptions or advertising on its Web pages. eBay, which grew from 41,000 users trading $7.2 million worth of goods in 1995 to 22 million users trading $5.4 billion worth of goods in 2000,
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was essentially an electronic platform bringing together traditional buyers and sellers of goods. Like Amazon and Netscape, eBay—which took a cut of each transaction conducted on its site—didn’t represent a fundamental break with the economics of the past.

Many of the most highly trafficked sites in this Web 1.0 period were owned by traditional media companies that saw the Internet as little more than an electronic shop window through which to market and sell their content. Others, like Yahoo, an acronym for “Yet Another Hierarchical Officious Oracle,” founded in 1994 by Jerry Yang and David Filo and originally known as “Jerry and David’s Guide to the World Wide Web,” began—as its odd name suggests—as a curated directory designed to help users find interesting new websites. But even by 1998, when Yahoo was the most highly trafficked site on the Web with close to 100 million page views per day,
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its business model remained that of a glorified electronic magazine, relying on site-based advertising and the selling of online services like email hosting for its revenue.

All this was to change with Google, the revolutionary Internet search engine that not only successfully cracked the code on Internet profits, but ushered in the word
Googlenomics
,
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a term describing the reinvention of Internet economics. Created in 1996 as an academic project by Larry Page and Sergey Brin, two unusually gifted Stanford University computer science doctoral students, Google began with the kind of audacious idea that would have challenged the intellects of Internet pioneers like J. C. R. Licklider and Vannevar Bush.

Like Bush, Page and Brin were concerned with the problem of information overload. The digital universe was exploding—the number of computers connected to the Internet increasing from 3.8 million in 1994 to 19.6 million by 1997,
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and the number of websites growing from 18,957 in 1995 to over 3,350,000 sites producing around 60 million pages of online content by 1998. This prodigious growth of sites, pages, and hyperlinks was central to Page and Brin’s project and it’s why they named their search engine Google—Sergey Brin’s unintentional misspelling of the word
googol
, a mathematical term signifying the number1.0 × 10
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, which has come to mean an unimaginably large number.

What if all the content on the Web, all those 26 million pages with their hundreds of millions of hyperlinks, could be sorted and indexed?
Page and Brin wondered. What if Google could organize all the world’s digital information?