The Adventures of Bezo the Clown

bezoAmazon.com was founded by Jeff Bezos as a book seller in the mid-1990s on the principle that revenue growth was paramount if the on-line store (then a novelty) was to compete against long-established companies like Borders, Waldenbooks and Barnes & Noble. On day one, Amazon had precisely zero customers so they needed an angle to lure buyers away from the well-stocked aisles of the big retailers. And the strategy was to sell books at the lowest price available – even if the transaction resulted in a loss for Amazon.com. Dot-com era shareholders and venture capitalists were cool with the plan, and their investments served to bridge the debit gap between the price of books sold and the cost incurred to procure them in the first place.

Nearly twenty years later, Amazon is for the most part running the same strategy. Only now, as a mature company, Amazon finds its shareholders are not as sanguine as before. Years of minimal profit (or outright losses, see bar graph) have taken a toll on Bezos’s avaricious company. The stock is tumbling.

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The infinitesimal black bars are profit for the year.

Under unusual pressure to perform, Bezo the Clown is trying something new. Not a departure from the subsidized-sale model that has sustained the business to date, but a scorched earth policy against the very people who make his book-selling arm possible: authors and publishers. Through the short-sightedness of publishers and the big retail book sellers, Amazon was allowed to cement a powerful control point by establishing the de-facto e-reader device accompanied by a simple-to-use online store. The fact that a few years prior, the music industry went through exactly the same type of upheaval which ended with an outsider (Apple) becoming the control point, it’s astounding that the book industry completely missed seeing the same inflection point in its industry. Had a book-friendly B&N launched the Nook a few year earlier – something easily accomplished had anyone thee been awake – they could have dominated their industry. Instead they’re hanging onto life by their fingertips, closing stores and contemplating sell-off.

In any event, now that Amazon has hegemony over the industry, it’s making punitive demands of its suppliers (authors and publishers) in the form of reduced royalties, mandatory loyalty oaths, and for those who push back, ostracism. Amazon is regularly delaying delivery of books from certain recalcitrant publishers, or refusing to sell them at all. So much for partnership. It’s ironic that most of the “big six” publishers who tried to cut a pricing deal with Apple were punished by the Justice Department, while the most evil of the players in the book-selling industry – Amazon – was granted freedom to march forward unscathed. Now Bezo the Clown holds a near-monopoly position and is exploiting it exactly as any business textbook would forewarn.

I have four books available on Amazon and I can tell you that they essentially offer you the sleeves off their vest. For example, in return for selling books exclusively on Amazon, the author is rewarded with a special promotion: the privilege of giving away books for free for up to five days. What a deal! What a country! I have removed my books from distribution for B&N Nook, Apple iPad, Sony eReader, Kobo, and who knows what else – just to be able to give away my book for free on Amazon. Yes – traffic on Amazon for my books spiked, but to what end? No royalties. Loss of sales on other outlets. Knowing for three months that I played the tool for Amazon.

My take: Amazon is becoming Walmart. Not in the retail business sense of dominating commerce, but in the evil sense of restricting flow of free trade while exploiting the working stiff. They’re a bully to its suppliers, and a dictator of choice to its customers.

I appeal to all avid readers: assuming you have one, buy local in your friendly indie book shop (I’ll give a shout-out to IndieBound ). And, to the friendly indie shops: invent a better way to for customers to purchase e-books. Collude with your competitors if you have to – after all, you’re dealing with John Sherman’s worst nightmare.

Golden Parachute in Iran: Death by Hanging

Accused: Stanley O’Neal
Occupation: CEO, Merrill-Lynch
Crime: As the sub-prime crisis swept through the global financial market while clueless Stanley checked his Blackberry, Merrill Lynch announced losses of $8 billion.
Penalty: Severance package included Merrill stock and options worth $161.5 million on top of the $91.4 million in total compensation he earned in 2006
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Accused: John Thain
Occupation: CEO, Merrill-Lynch.
Crime: Misrepresented the assets and liabilities of Merrill-Lynch to acquirer Bank of America while renovating his office to the tune of $1.2 million. US Government must come in to prop up the weakened merger at tax-payer expense.
Penalty: Total compensation of $83,785,021, which included a base salary of $750,000, a cash bonus of $15,000,000, stock grant of $33,013,151, and options grant of $35,017,421.
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Accused: Robert Nardelli
Occupation: CEO, The Home Depot
Crime: Oversaw flat growth at Home Depot while rival Lowes doubled revenues. Treated employees like shit. Shareholders felt like said shit-upon employees.
Penalty: Severance package was estimated at $210 million.
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Accused: Carly Fiorina
Occupation: CEO, HP
Crime: Steward of limp performance in a growing market; in the face of massive resistance, drove the ill-conceived acquisition of Compaq, a major seller of PCs just as the PC era was about to go into the history books alongside the Pony Express.
Penalty: Paid slightly more than $20 million in severance.
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Accused: Mahafarid Amir Khosravi
Occupation: Billionaire Iranian investor
Crime: Forging letters of credit with the help of high-level bank managers in order to get loans from Saderat, one of Iran’s largest banks.
Penalty: Death by hanging.

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