November 11, 2013--Amazonia

Is Amazon on a course to take over the world? The world of commerce? And who knows what else?

What started in 1994 as a small scale on-line book store has become a retailing behemoth--the world's largest cyber retailer.

In addition to selling virtually every book in print as well as millions of used books via AbeBooks, Amazon now offers almost everything. There is a recent book, the well-titled, The Everything Store, that tracks this remarkable and potentially ominous growth.

From books Amazon quickly moved on to sell DVDs, CDs, video games, and consumer electronics such as TVs and VCRs. After they, from Amazon one could purchase furniture, appliances, apparel, toys, jewelry, and food. In fact, I buy my cookware from Amazon as well as olive oil and even pine nuts!

And then there are other, more exotic goods and especially services that Amazon has been successfully marketing. Best known, through cloud computing, they have been offering infrastructural computer services to some of the nation's leading companies as well as the U.S. government. Clients include NASA and the CIA. Also, the Obama reelection campaign used Amazon's cloud services! Too bad they didn't ask Amazon to run the website for the Obamacare federal health care exchanges.

Amazon discovered that the computer, information technology, data, and storage systems they devised to service their own customers could be used by others such as Netflix. Rather than Netflix developing its own  system to serve its subscribers they in effect rent space on Amazon's enormous computer and data networks.

Beyond this, Amazon has been a leader in the field of big data. They know so much about anyone who logs onto to their website either to shop around or buy something (200 million annually by objective measure) that they are able to mine that data and use it to market other enticing products to us.

If, like me, you buy olive oil, pots and pans, and spices from them, they can easily determine that I might be interested in cook books and kitchen electronics. Or, if I looked for information about Doris Kearns Goodwin's new book about Teddy Roosevelt, they pitch me with information and special deals about the equally recent book about the 2012 presidential election--Double Down.

Some people find this to be helpful; others, me very much included, find it spookily intrusive. I do not like the idea that "they" keep track of what I read and other items I look around for on the Internet. But I guess we are living in a post-privacy world and I should surrender to it since living off the grid--not attractive to me--is the alternative.

As Amazon has grown in size and the services it offers, there is mounting pressure by investors that it begin to make money. Though income last year was in the $61 billion range, as in all the years since it began, Amazon has lost money. Because of increasing its investment in its e-reader, Kindle, in 2012 it posted a loss of $40 million. Thus they pay no dividends, reinvesting almost all their gross income to scoop up other companies such as Kiva Systems and Zappos and expand the range of its own products and services.

People have been wondering what founder and CEO Jeff Bezos has in mind as his long-range business plan.

I think the answer is simple--drive competitive bookstores such as Barnes & Noble and electronics giants such as Best Buy out of business by underselling them; and then, after they are gone or reduced in size, begin to raise prices and allow income to move into the black.

Home Depot put local hardware stores and lumber yards out of business and Walmart wiped out downtown merchants on their march toward market dominance; and then, after doing that with deeply-discounted prices, began to raise them as the competition evaporated.

But I've noticed something new stirring in Amazonia--a few small steps to increase profitability that might suggest their future corporate strategy: rather than continuing to cut prices to undermine competition, Amazon has begun to raise prices. For example, they are charging more to ship books and some of their book prices--always heavily discounted--are beginning to creep up.

Until now, shipping has been free for orders of $25 or more. Soon, just in time for the holidays, customers will have to order at least $35 dollars of goods to qualify for free shipping. This will save the company a few million dollars a year and may also increase sales by prodding people to spend at least $10 more to continue to qualify for free shipping.

But then book prices are also quietly increasing. The evidence thus far is anecdotal. According to the New York Times, if you placed a "save-for-later" order recently for the University of Nebraska Press' bibliography of the novelist Jim Harrison, it was listed as costing $43.87 and then a week later returned to your "shopping cart," you might have found that if you wanted to complete your purchase it would cost $59.87. And this pricing strategy is proving true for some more popular books

That new Doris Kearns Goodwin biography of Teddy Roosevelt, The Bully Pulpit, offers another example. When I went to look for it on Amazon I found that though the list price was $40, it was available for $24, including shipping. Wondering if I could do better, I checked AbeBooks (ironically, an Amazon company) and found a bookseller who had them available for $19.88, also including shipping. True, from Amazon the book would arrive in 2-3 days and from the Abe dealer it would take 10 or so days; but, if you are not in a hurry, the savings would be $4.

I opted to be patient and ordered it in hardcover from PaperbackShop--US in Secaucus, New Jersey, the AbeBooks independent book dealer. I was not only happy to save a few dollars but also liked the idea, in a small way, of not so automatically helping Amazon take over the world.