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10/7/2014
08:06 AM
Rob Preston
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Amazon Isn't Evil

The online retailer has its faults, but it's competing in business, not a bridge tournament.

Amazon.com is the new whipping boy of the kinder, gentler capitalism crowd -- mostly journalists, academics, and other commercial activists who pine for a bygone retail era that's never coming back.

The latest anti-Amazon screed comes from writer Jim Hightower, who, in a piece last week for Salon.com, cites a number of "ruthless practices" the company has employed on its way to becoming the world's largest online retailer of books and myriad other goods. I'll break down Hightower's arguments in more detail below, but they amount to the following: Amazon a) doesn't pay its people well; b) benefits from a government "subsidy" (no sales tax on online purchases in certain states); c) leverages its "monopoly" power to play hardball with competitors and suppliers; and d) sacrifices profits to charge cut-rate prices. Oh, and its founder CEO, Jeff Bezos, is a ruthless bastard. As a result, it threatens the mom and pop shops on Main Street USA, portending a "sterile Amazonian future" in which few local stores are left to pay local taxes and serve as community stalwarts.

Let's break down those arguments.

Bezos has built an empire "by exploiting low-wage workers and extracting billions in government subsidies."

In a response to the author's low-wage claim, a commenter on the Salon article named "langley park" posted a current list of salaries/wages for Amazon employees. Among them: $75K to $180K for software engineers; $89K to $160K for senior product managers; $77K to $147K for technical program managers; $50K to $138K for operations managers; and $75K to $125K for senior financial analysts. The big beef of the anti-Amazon crowd seems to be with what the company pays warehouse associates, listed at between $10 and $15 an hour.

[Social network upstart Ello bets big on ad aggravation. Read Ad Haters: The Backlash Against Google And Facebook.]

Are we to believe that mom and pop stores, the main focus of Hightower's sympathies, pay their store clerks more than what Amazon pays its warehouse workers? Meantime, most local stores other than branches of the big chains aren't even hiring highly skilled technical people, one reason their personalized marketing is so rudimentary and their inventories can't keep up with customer demands.

Hightower goes on to rail against Amazon's "special" tax breaks -- that is, it's not required to collect sales taxes in all but a "handful" of states, giving it an unfair advantage over brick-and-mortar retailers that must add those sales taxes to the prices of their goods. Why is this tax break "special" to Amazon if every other online merchant in the country gets the same one? And why is Amazon said to be collecting sales taxes in only a "handful" of states when in fact it's collecting them in 21 states? And that number is rising as other states get more vigilant.

The research is mixed on just how much Amazon benefits in those states in which online merchants are still exempt from collecting sales taxes, but to call this an "Amazon subsidy" is like calling the home-mortgage deduction a "Jeff Bezos subsidy" because he owns a home.

The company engages in predatory pricing, or what Hightower calls "the Amazon crush."

"Beyond taxpayer subsidies, Bezos can afford to be a voracious predator because his Wall Street investors have allowed him to keep operating without returning a profit," he writes. Fair enough. Bezos has made it clear that he's running the company for the long haul and will sacrifice short-term profits for market share. But why the emphasis on Wall Street investors as opposed to the ones not on Wall Street, so that he can introduce another stereotypical villain -- the greedy Wall Streeter? Meantime, the 20% decline in Amazon's stock price this year indicates that investors (on Wall Street and elsewhere) won't put up with no profits for very long.

"Amazon uses [shareholders'] capital to buy its competitors and/or to market its own version of competitors' products, which it then sells at a loss in order to squeeze hapless competitors out of business," Hightower writes. From a book on Amazon's exploits written by BusinessWeek reporter Brad Stone, Hightower plucks the example of Diapers.com, a once-successful company that allegedly succumbed to Amazon's cut-rate pricing.

I have another example for readers to consider: college-textbook publishers. Leveraging their monopolies on campuses nationwide, those publishers raised their prices an average of 6% a year over the past decade, triple the rate of inflation, according to government figures cited by The Wall Street Journal. Amazon is now helping to break down that monopoly, offering cash-strapped college students (including my two sons) big discounts on what the former monopolists charge in the campus bookstore.

Are we to feel sorry for the textbook makers because their margins are narrowing thanks to new competitors? Are we to feel sorry for Diapers.com because Amazon offered young parents a steep price break? For that matter, was Diapers.com ever paying local sales taxes and serving a non-virtual community? Didn't it get "special" government treatment as well, and wasn't it another online embodiment of the "sterile Amazonian future?"

Amazon promotes showrooming, whereby consumers shop for clothes, TVs, and other goods in brick-and-mortar stores and then buy them for less online.

First of all, how is this an Amazon phenomenon? It's a brick and mortar vs. online phenomenon. And how do Hightower and his supporters propose to stop it? Pass a law that prohibits people from taking their phones into retail outlets? Charge people with shoplifting if they leave a store without buying something? Showrooming is a fact of modern retail life. The only way for brick-and-mortars to fight it is to provide a superior shopping experience for which customers will pay a premium.

Hightower's Exhibit A is John Crandall, owner of Old Town Bike Shop in Colorado Springs, which we're told has lost business to Amazon as shoppers used their Fires and other smartphones to scan the barcodes of bicycles in his store and then buy the parts online at a much lower price. Hightower goes so far as to call showrooming "corporate murder."

This isn't corporate murder; it's basic competition. Companies have been going after one another's

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Rob Preston currently serves as VP and editor in chief of InformationWeek, where he oversees the editorial content and direction of its various website, digital magazine, Webcast, live and virtual event, and other products. Rob has 25 years of experience in high-tech ... View Full Bio
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freespiritny25
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freespiritny25,
User Rank: Ninja
10/20/2014 | 1:28:53 PM
Re: Amazon Isn't Evil
The reality is that people are increasingly turning to Internet market places like Amazon, instead of Brick and Mortar shopping. Why should we spend more money on items? When comparing local bookstore prices, a book on Amazon costs pennies to the dollar. I call that saving money. Maybe evil for the Brick and Mortar stores, but certainly not for the consumer!
zerox203
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zerox203,
User Rank: Ninja
10/19/2014 | 3:02:59 AM
Re: Amazon Isn't Evil
I agree that the argument against Amazon there is cherry picked, but we ought to be careful not to cherry pick in the opposite direction. As melgross points out, there's such a thing as violating the spirit of the law without violating the letter, and while it IS the job of regulatory bodies to make that call, it's also very much our job as consumers to share our opinions on the matter and speak up when we want some change.  There is value in the macro attitude of 'whatever happens, happens', but then again, what happens is largely up to us.

That being said, I don't think these specific hangups are really going to cause all that many of us to stop shopping at Amazon. The worker rights issues seem most egregious to me, and while your point that they're certainly not making less than employees at your local bookstore is a good one, Rob, that intersects with Thomas' point about other bad practices,  and work conditions, etc. After all, they're not delivering these low prices by magic. The intentional profit-cutting? That's a tricky one. On the one hand, I'm inclined to praise it as an ingenius strategy... but if competitors can't do it, it raises some tough questions. The internet age may call for some all-new rules.
TerryB
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TerryB,
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10/13/2014 | 1:25:18 PM
Re: When is the Amazon of education coming?
@Laurianne. I didn't know that was part of tuition, I got ripped off!!

Seriously, depends on what kind of school and what kind of degree before stuff like that means anything. I went to Wright State in Dayton OH, which at that time was primarily a commuter school. I didn't make any lasting friends, much less have a mentor. But I did get BS in Comp Sci, which is what I was paying for.

I went from 1979-1984. My entire student loan was $7500. A few years ago, my daughter wanted to go to a private school up here in Green Bay called St. Norberts, instead one of more affordable state schools. I laughed when she said that, knowing it was $25K a year to go there. But her Mom and her wanted to look for loans/grants/scholarships and try.

Much to my surprise, they got loan approval from Wells Fargo if we cosigned, even though anyone looking at my budget would have known we could not afford to pay off $100K in loan. I did not know at time about that bill they snuck thru Congress which made it impossible to discharge private student loan debt. No way in heck Wells Fargo makes that loan without that. With it, they operate like loan shark, lending to anyone who asks and then turning collection system loose on you later. They are so irresponsible they make mortgage subprime lending look like secure business.

So what is net effect of all this cash dumped in that market? Double digit tuition increases every year. Crap schools like ITT Tech charging $20K a year for 2 year degrees. What do you think college tuition would be without all this private money dumped in that market?

Of course in my case, worst case scenario happened. Daughter quit after 3 years, owing $70K to Wells Fargo. And even though she had good job as Pharm Tech at Walgreens, she couldn't make $800 a month in payments. So Wells Fargo kept dinging my credit when she was late, I finally ended up paying off 1/2 for her just to give her fighting chance.

And St Norberts is a dump. Old buildings that had to be paid off by 1940, a dorm room smaller than most work cubicles. Other than high paid administrators who run the place, I could never figure out how that could cost $25K a year.

I'm not sure MOOC is final answer. Why couldn't you record classes from some of finest teachers around for lectures? Put a Watson type question answerer in place as resource for kids, supplemented by a tutor system. Dump these administrators doing nothing for $5 million a year.

Online schools work, as Rob pointed out. My wife upgraded her 2 year nursing degree to BS thru online school. Very cost effective and feasible for her since she worked full time already.

But to me, the first logical step is attack this loose money the Wells Fargo's of world are throwing at it. That will send shock waves thru tuition prices.
Laurianne
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Laurianne,
User Rank: Author
10/10/2014 | 4:10:04 PM
Re: When is the Amazon of education coming?
Agree that higher ed pricing needs disruption. What the online classes can't replace, though, are the people networks you make in college. You're probably not going to find a lasting mentor in a MOOC.
PedroGonzales
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PedroGonzales,
User Rank: Ninja
10/8/2014 | 11:05:55 AM
Re: Books & Textbooks
@newman. I complete understand; no wonder a lot of students can't afford to go to college.  Something has to be done to control textbook pricing.  It seems that everyone accepts it as part of the education package.  I know that many publishers do not even offer some of their books in electronic form.  Even if they do, they do not carry the class projects which are necessary for the completion of the course. 
melgross
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melgross,
User Rank: Ninja
10/7/2014 | 11:07:53 PM
Monopoly
The old concept of monopoly is outdated. When a company is so large that it can force competitors to go out of business by using monopoly tactics, which are illegal, because their size and strength in a number of areas are enough for them to act as a monopoly in any area, then something should be done. I know how unpopular any regulation is among business writers, and businesses as a whole. I ran two businesses and wasn't a lover of regulations, but did feel as though they were necessary. While a number of things Amazon does may seem to be "just business", it's not. It's beyond ethical standards which is something businesses hate to think about. What they have been doing in the areas of books is truly a monopoly tactic. The government took the wrong company to court, according to professors in business law around the country. I agree.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
10/7/2014 | 7:24:24 PM
not evil but
Largely I agree, though there do appear to be some Amazon practices that while not "evil" ought to be reformed. For example, there's a lawsuit going on about Amazon's requirement that workers, when their shifts are over, wait in line to be screened for stolen goods -- on their own time. The lawsuit alleges these waits can take 20 minutes or more. If Amazon wants to screen its workers, it should do so on the clock, which would incentivize prompt screening.

 
David F. Carr
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David F. Carr,
User Rank: Author
10/7/2014 | 4:54:14 PM
Bridge players, unite!
The characterization of too-polite card players is very funny, but I'm waiting for the retort from competitive bridge players (hey, we can be cut-throat, too!)
vnewman2
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vnewman2,
User Rank: Ninja
10/7/2014 | 3:35:57 PM
Re: Books & Textbooks
@Pedro - I recently went back to school for a short stint and when I saw the prices of the textbooks, I almost dropped out.  I decided to take my chances and not buy the workbook, but rather download some portions I found online and it just so happened that was all I needed.  I rented the other Textbook on Amazon at reduced cost and sent it back when the semester was over.

Some of the more creative folks in my class were buying the textbook online, copying the pages they needed after reviewing the class syllabus, and sent it back immediately.  Cost=$0 with free returns.
Lorna Garey
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Lorna Garey,
User Rank: Author
10/7/2014 | 3:03:35 PM
Re: Books & Textbooks
Pedro, When I retire, that will be my dream business -- setting up coffee and pastry concessions and booking coffeehouse-style entertainment in libraries. So many libraries need money, and communities need gathering places. It's a match made in heaven. Wi-fi is already set up.
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