Is Amazon A Monopoly? Ctd

Readers continue the thread on the mega-company:

As a measure of how Amazon is getting its fingers into an ever-widening area of retail, consider this: My Audi TT had a headlight go bad, which required replacing the entire headlight module.  Cost from a dealer? $1200. Cost from Amazon? $600.  (Directly from Amazon, not from a reseller.)

Car parts for a 12-year old, low volume model?  Wow.

A business professor writes:

Two key points about Amazon’s market position are being consistently missed, even in the business press:

1. While Amazon shows accounting net losses, they have generated net positive cash flows for the last three years running from $574 million up to $2.8 billion. Accounting income is largely a fiction these days, aimed as much at minimizing taxes as anything. The ability to generate a positive cash flow through creative means (including “innovative” financing) is what drives most really big businesses. A key part of this strategy is keeping accounting profit so low that competitors cannot fly this close to the ground without crashing.

2. Amazon, like Walmart who mastered the art before them, is a “penny scraper.” Sam Walton realized that if you scraped a few extra pennies per transaction out of suppliers, customers and employee pay, profit becomes irrelevant. Multiplied by millions of transactions daily, these pennies add up to billions of dollars over a single year if you are big enough.

Another focuses on books:

It’s hard to like Amazon.  Their size is genuinely troubling, and they treat many of their employees quite badly.  I’d rather work in a Walmart than an Amazon warehouse.  And it’s easy to love old school publishers, who champion great books, and so much of what’s best in our culture.

But the traditional publishers are doing a terrible job with ebooks.  There are publishers of tech books who do a great job with ebooks, who manage to distribute books without Amazon (even to Kindle owners), and who have found good ways to minimize piracy.  The traditional publishers can’t even copy those existing and proven business models.

The best example of a small publisher that gets ebooks right is probably the Pragmatic Press.  If I buy an ebook book from them, I can download epub, mobi, and pdf versions.  The files I download have my name all over them, which discourages me from pirating them.

They’re good at delivery. I have my Prag press account synced to my Dropbox, so the files appear there automatically.  When corrections are made (which happens often with geek books), updated versions appear automatically.  They also offer automatic delivery to Kindles via email, although I don’t use that.  I just copy the files to my device manually.

It’s really nice to have both PDFs and mobi files of tech books because sometimes the formatting is important it tech books.  This would be a huge advantage for other types of books too – poetry, for example, which has never worked well for me on Kindles.

When the Prag Press sells me a book, they get to keep all of the money.  And they have a relationship with me that they control, which lets them market to me directly.  They send me notifications of new books and discount codes.  This stuff works; I buy books in response to their emails several times a year.

I just bought an ebook as a text for a free online programming class, and I was really unhappy that I had to buy it through the Kindle system (the publisher is more traditional), not because I have a political axe to grind, but because it’s a worse experience.

Everyone who loves books wants literary publishers to succeed.  But they want to respond to ebooks by using some other company (Amazon) as if it were just another bookstore to sell their stuff.  It’s just not a viable approach.  They’ve outsourced their response to massive tech trends to Amazon, and they’re surprised that Amazon has set things up on favorable terms for Amazon.

And another counters many of the previous readers:

I’m glad there’s pushback against the notion that Amazon is a monopoly, but it needs to be mentioned that the fallback view, that Amazon is a monopsony, is also demonstrably false. What is the definition of a monopsony? As your readers say, its “a market form in which there is only one buyer for goods”. A monopsony means that sellers are forced to agree to the terms of the buyer, because there is no one else to sell to.

But the current dispute with Hachette proves that Amazon is not a monopsony, since Hachette is refusing to agree to Amazon‘s terms, and is instead insisting that Amazon agree to its terms. If Hachette had been forced to quickly give in to Amazon, that would serve to prove that Amazon is effectively a monopsony. That they aren’t even entertaining the notion of doing so, but willing to suffer whatever consequences come their way, demonstrates that Amazon can’t force its suppliers to accede to its demands.

And this isn’t the first time. In 2010, Amazon got in similar disputes with the Big 5 publishers, who were demanding agency pricing on ebooks, and guess who was forced to give in to the other sides’ demands? Right again, it was Amazon who folded. Later the Justice Department sued and the courts agreed that those publishers, along with Apple, had engaged in an illegal collusion conspiracy to force Amazon to accept their demands. Again, more evidence that Amazon is not a monopsony, but strong evidence that the major publishers constitute a cartel-monopoly that can force even giant retailers like Amazon to accept their terms.

Following that lawsuit, the major publishers have been required to renegotiate their contracts with Amazon. They are allowed to demand agency pricing, but not to do so as collusion. And that’s exactly what Hachette is doing. They are from all accounts demanding agency pricing on ebooks, and not giving an inch, even when Amazonmakes things more difficult for buyers to order or ship Hachette books. Hachette is the smallest of the major publishers, but it seems reasonable to infer that they would not be taking this hard line unless they felt confident that they would be backed up by the others when it is their turn to negotiate new agreements with Amazon. If that is how it turns out, Amazon will likely be forced to concede to the big publisher’s demands. Which simply isn’t how a monopsony is supposed to work.

If one examines the publishing industry honestly, massive consolidation of publishers into a few major corporations has created an effective monopoly cartel that has successfully forced all the players in the market to accept its demands and pricing. And when it comes to authors, they have also created uniformly non-competitive standard author contracts that only the biggest selling writers are able to get around, which pay the same royalties and have the same highly restrictive provisions. That has made them an author’s monopsony, meaning that most authors have no choice but to sell their works on those same terms.

Only Amazon has created a means to break that cartel-monopsony, by allowing authors to self-publish through their Kindle Direct Publishing program (which has since been copied by Apple, Barnes and Noble, Smashwords, Kobo, and others). And that makes the major publishers and best-selling authors mumble vague threats about the end of literature and the demise of publishing. As if letting authors bypass the monopsony cartel on publishing that has been enjoyed by the major publishers for decades now is somehow a bad thing for writers.

It’s not that Amazon is some angel here, but their disruptive digital technologies have been proven to be a boon to authors and are helping to break up the monopolies and monopsonies of the publishing industry.

Update from another:

I can’t add much to the monopoly thread regarding Amazon, but you have to wonder if the actually sellers being lorded over by Amazon are very happy about not getting a fair shake online when it comes to being found when someone does a search for the products you sell and being absolutely squashed by Amazon’s ability to own the search results.

The Audi TT headlight is a good example. The actual seller/supplier not only sells that headlight for half the price and squat for profit, but then more than likely pays Amazon a percentage for that privilege. Amazon effectively controls their ability to make money. I’m sure there are some who would have no business, but when the profit margins are shit, and Amazon is potentially making more off the sale than they do, where’s the motivation? Where’s the fairness? You’re part of a mega-chain gang, just working to get through the day, but probably not getting ahead.

I used to buy bee pollen from a company in Arizona for $17 a pound. Search results came up with Amazon’s price as $10 per pound. This is a niche market, where that $7 of profit would make a huge difference. I used to buy directly from the supplier to be the nice guy. If you think about the labor and time invested in collecting and packaging bee pollen, not including the efforts of the bees of course, it makes you wonder how this outfit survives.

Amazon is probably great for the consumer, but they’ve effectively killed consumer loyalty when it comes to actually being loyal to a business and their business model. Buying their product from Amazon shows loyalty to the product, maybe. But wholly at the expense of the supplier.

I’m not sure Amazon has a monopoly, but certain they’ve created an unfair advantage. How can you compete with their pricing and stay in business. Amazon is the 1% and their vendors are victims while the business profit margin gap is widening.

One more:

Your reader wrote, “I’d rather work in a Walmart than an Amazon warehouse.” I don’t know if this person has experience working in either, but I tend to think “not,” because there is no comparison.

I just finished 6 weeks of working in an Amazon Warehouse in Tennessee near Nashville. The starting pay is $11.00, plus 50 cents an hour for working the night shift (6:30pm to 5:00am, four ten-hour shifts per week). About four weeks in, there was a big meeting where they announced our pay was going up 25 cents per hour based on a survey of similar businesses in the region.

This would NOT happen at Walmart. Walmart starts at minimum wage (the federal $7.25 here in Tennessee) and good luck actually working full time (they send you home before 40 hours to avoid paying full-time benefits).

I’m not going to lie and say that working in the warehouse was easy, or that the $11.75 per hour I was getting was great and working nights was awful. I quit as soon as I could. And yes, they monitor your production to the minute and require you to hit a certain rate (it depends on your job; mine, in the “Sort” department was one of the “better” jobs in the warehouse). But I met a lot of people who have worked there since it opened and liked it very much.

Most of the horror stories you hear are from seasonal temps who work there during the busiest, craziest time of the year, don’t get proper training and never have a chance to figure out what was going on. It may suck for them, but I was able to earn a basically living wage (supplementing my wife’s income) and sustain us until I found something better. I didn’t have to deal with shitty customers, the managers treated me fairly. I would have stayed there had I not gotten a significantly better-paid job that allows me to sleep normal hours.

(Full disclose: the Dish gets about 3 percent of its annual revenue from Amazon’s affiliate program, detailed here.)