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The Oligarchy of Amazon – The Scholarly Kitchen

Amazon is ubiquitous and inescapable in consumer culture. As a consumer, Amazon Prime member, Kindle owner, and Audible listener I have succumbed to its charm. They make my life easier. Their prices are often unbeatable, and they ship with no cost either to your door, or to a local pick-up point in days – almost as if by magic. And now their magical touch has extended to my food-shopping routine, where my Prime membership gets me discounts on produce on my trips to Whole Foods. What is there not to love?

interconnected globe

As in the most predictable fantasy novels, however, magic comes with a hidden price. In this article I describe how the recent, under the radar launch of the Amazon Global Store is putting local businesses at risk — a good example of this is when a publisher has an exclusive relationship with a distributor in another country, only to see their business put at risk as they are undercut by Amazon. While this may make consumers happy in the short-term, it makes those who produce goods and want to sell their goods internationally much less so. They essentially have no choice but to accede to Amazon’s business practices. When signing on with Amazon, publishers have no ability to negotiate – you sign an agreement that allows Amazon to do what they want, where they want and when they want, and boy those discounts are hefty.

Perhaps a good place to begin is to provide a sense of the scale of Amazon’s business. Approximately 560,000 people across the globe work for Amazon. Sales in 2017 were greater than $178 billion and the numbers rise dramatically every year, as do the number of Prime members, which, in the thirteen years since the launch of Amazon Prime, has grown to over 100 million. In 2017, more than five billion items were shipped with Prime worldwide. In fact, as I write it is Prime Day, an Amazon special sale day, that is likely to be the largest shopping event of the year, with many other retailers forced to engage in similar sales to keep up.

All of this sounds fabulous, and yet when Amazon decides to change the ground rules for how they sell products, there can be significant and harmful effects on retailers, including those of us in the publishing business.

Back in the year 2000, Amazon launched its marketplace offering. This meant that customers who were unable to find a book as a main Amazon offering (perhaps the book was out of stock) would be able to buy through a third party seller. This represented a problem for publishers, as what appear to be third party sellers may in fact be businesses that buy books on remainder, or low priced developing nation editions, or advance review copies, or perhaps used books cast as new, and resell them through the marketplace. In essence, they are feeding discounted books back to primary markets. It is not clear whether or how these third party sellers are vetted by Amazon. On top of this, Amazon then introduced a feature where a third party seller could be featured above the main “Buy” button – this all being achieved through some mysterious algorithm. One of the problems with all this is that the authors suffer, because books sold through this route may not be producing royalties for the author.

Over the last few years, Amazon quietly launched the Amazon Global Store among its marketplace options, beginning with China and Mexico, then India, expanding into Europe and other parts of the world. The Global Store allows customers (in those countries where the Global Store is active) to buy a book directly from an international Amazon site — for example the US Amazon store — with prices listed in their local currency, and often with low, or no shipping costs applied, and the promise of fast delivery. This all sounds wonderful at first blush, but if you think a little deeper you realize that this could spell disaster for local businesses. Let’s take the example of a book distributor based in Europe. The distributor may have an exclusive relationship to distribute books for a US based publisher. Up to now that local distributor would fulfill books for the local Amazon store, in addition to other outlets — although in some cases US-based book distributors supply books to a local Amazon store. Amazon’s Global Store is a direct threat to that distribution business, crossing international boundaries with the same products with often significantly lower prices, yet without the local market knowledge. Nor does the Global store do the personalized marketing that for many specialist publishers ensures strong sales of their books.

A recent and fascinating example of a country battling with Amazon is Australia. Australia is a recent addition for Amazon, with its local Amazon store opening in 2017. However, Australia has been very cautious in its approach to Amazon. It enacted restrictions on Amazon business, using the excuse of a new GST (Goods and Services Tax) policy that applies a 10% tax to all overseas purchases under $1000. Using this policy, Australia has forced Amazon to announce that Australians are not allowed to purchase products, books included, from an international Amazon site, such as the US site, thus preventing Australians from shopping around internationally for lower prices, and harming the fortunes of local retailers. Shoppers may go to the local Australian Amazon store to buy what they need. Amazon is enacting this for all shipments in Australia, so that even if you are a customer with a VPN that does not reveal where in the world you are located, the shipment itself will not be allowed.

At this point it is worth reflecting on Kent Anderson’s recent Scholarly Kitchen piece entitled “The Race to the Bottom – Short-term Bargains versus Long-term Vitality”.  As a consumer, you naturally look for the product you need for the lowest price available. Kent argues that this is short-term thinking and your own interests may well be harmed as fewer. less diverse products are then made available to you.

Kent eloquently states:

“Another bad idea we seem to be mimicking is the economic “race to the bottom” — the tendency for people to want to pay as little as possible now for a finished good, because bargain-hunting saves them money in the short term, even if they intuit it will do damage in the long term, damage that will somehow affect them negatively directly or indirectly, and which could prove difficult to undo. It’s the “penny wise, pound foolish” way of assessing value.

The damage of “race to the bottom” financial and economic thinking in society at large can be seen in many ways, from cramped airliners to stagnant wages to cheap clothing to abandoned local storefronts to outsourced jobs and lower wages to the decimation of entire swaths of certain regions as consolidation has sucked jobs into urban power centers.”

One can argue for and against consumer choice. The issue for me here is that while the consumer clearly wants the best deal available, publishers risk losing the income they need to produce the books, forcing them to publish fewer, less diverse materials. The principle at stake here is that diversity of business across nations, and across retailers, is important for a thriving publishing economy, and yet Amazon does what it wants, where it wants, when it wants. Are we OK with this?

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