At Amazon, "Cheap" Comes at a Very Hefty Price

It's time to look closer at Jeff Bezos and his online retail colossus

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THE AMAZON CRUSH

Having overweening market power means never having to say you're sorry—even to your owners. 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. On paper, his revenue-generating machine has lost billions of dollars, yet his major investors, enamored with Amazon's takeover of one consumer market after another, haven't pulled the plug. Amazon uses their 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. That's the very definition of predatory pricing.

Brad Stone's book gives a chilling example of one such predation. Amazon has its own corporate espionage team called Competitive Intelligence that tracks rivals. In 2009, Amazon spotted a fast-rising online seller of one particular baby product: Diapers.com. A Bezos lieutenant was dispatched to inform the diaper honchos that the cheetah was going into that business, so they should just sell their firm to it. No thanks, replied the upstart.

Amazon promptly responded to the rebuff by marketing another line of diapers—with a price discount of 30 percent. It kept dropping the price even lower (plus free shipping) when the smaller firm tried to fight back. Diapers.com's investors grew antsy, and in September 2010, the two founders of the company met with Bezos himself and surrendered. The final blow was their discovery that Bezos, in his campaign to crush them and control the market of online diaper sales, was on track to lose $100 million in just three months.

SHOWROOMING

Such ruthlessness is standard operating procedure at Amazon, which exerts it against any gazelle it chooses to eliminate. This likely includes some of your town's Main Street stores. Small retailers everywhere are experiencing an ugly practice dubbed "showrooming." For example, John Crandall, owner of Old Town Bike Shop in Colorado Springs, has seen a surge of shoppers who come in, check out the bikes he sells, ask a lot of questions, try out some bikes—and leave without buying anything. Then, some days later, they'll show up at the store with the parts for a new bike and ask Old Town to assemble it for them! These shoppers have used their smartphones in Crandall's store to scan the barcode of a product they like and then gone online to buy it from Amazon at a discounted price—lower than Crandall's wholesale price.

Amazon's new smartphone, called Fire (apparently meant in the sense of "shoot to kill"), is specifically designed to make showrooming fast and easy. Amazon has even offered $5 rebates to shoppers who scan items at stores, then buy them from the online brute. This is corporate murder. After 38 years in business, Old Town is hanging on, but it's endangered. Crandall employs 11 people, pays rent and local taxes, supports all sorts of community events, and is fully involved in Colorado Springs—a place Bezos couldn't care less about.

MONOPOLY, FOR REAL.

Producers need the marketplace, the marketplace needs products. You'd think this would be a felicitous, symbiotic relationship, but when the market grows into a virtual monopoly, the monopolist can turn on suppliers with a vengeance. Amazon has done precisely that to book publishers. While Amazon's fight with international publishing giant Hachette has been well publicized, it's medium-sized and small publishers who are especially vulnerable. They don't have splashy marketing budgets, so they're largely dependent on access to the buyers coming to Amazon's online market.

"I offered them a 30 percent discount," the head of a small academic publishing house told the New York Times this year. "They demanded 40," she said. After she acquiesced to that, the cheetah soon came back, demanding 45. "Where do I find that 5 percent?" she asks. "Amazon may be able to operate at a loss, but I'm not in a position to do that." She can't leave, but staying could crush her company: "I wake up every single day knowing Amazon might make new, impossible demands."

IT'S TIME TO TELL AMAZON: NO MORE

Rather than examine the far-reaching social destructiveness in Amazon's business model, the Powers That Be blithely hail Bezos as an exemplary corporate leader and point to his company as a model for the New Economy. They smile cluelessly when he says that it's not Amazon killing off local businesses and turning work into a low-wage, roboticized nightmare—rather it's "the future" that is producing these changes.

Bezos has gotten away with this hornswoggle up to now by endlessly reciting his mantra that EVERYTHING Amazon does is to benefit consumers by relentlessly lowering prices. But I don't want a price that's stained with gross worker exploitation, the crushing of local enterprise, and the creation of a corporate oligarch. It's up to us to reject this way of business.

Stacy Mitchell, an intrepid researcher with the Institute for Local Self-Reliance (www.ilsr.org ), has been studying Amazon's impact and rightly says that to avoid a sterile Amazonian future, we must force "a public conversation about their power." Unlike Walmart, Amazon is largely invisible to most people. As Mitchell puts it: "All you really see is the website and then the FedEx guy is there."

More people need to know what's going on between that jazzy website and "the FedEx guy," for Amazon is insidious, far more dangerous and destructive to our culture's essential values than Walmart ever dreamed of being. Remember: price is not value. Exchanging value—and our society's values—for Amazon's low prices is a raw deal.

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