Hugh Howey

Bestselling author of Wool and other books. Currently sailing around the world.

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A Hug For Amazon

No, this isn’t because I’m doing my taxes and looking over 1099s. This hug is going out because of the ridiculousness of this post over on Forbes, where Amazon is mocked for reinvesting its earnings back into its business and into its customers. Has Amazon Derangement Syndrome gotten out of hand? I think so.

I wish more people would pick up Kevin Kelley’s excellent book What Technology Wants. Kevin shows us that technological and scientific progress flow downhill, picking up steam from each advancement and discovery, and following a course dictated by constraints on physics. Developments like powered flight do not happen simply because of a couple of ingenious bicycle building brothers. It has a lot to do with horsepower being delivered in an ever lighter package. Most major developments happen concurrently, often halfway around the world from each other (which is why invention is often credited to the wrong or multiple parties). Calculus, natural selection, the automobile, the airplane, the examples would take up this entire blog post (Kelley has to restrain himself as well, and he has an entire book in which to work).

The point is this: Bookstores were going to contract, no matter what. As soon as the internet gained mass adoption, this was going to be a thing. Same with big box retailers vs. mom and pop stores (South Park had a brilliant episode that exposed the fallacy of blaming WalMart for the inevitable). In the case of Amazon, the ire is magnified by our ardent love of bookstores. This is what I attribute many authors’ hatred of Amazon to. The same goes for the publishing industry (which receives its largest checks from Amazon) and the Authors Guild (which should be applauding Amazon) and aspiring writers (who do not dream of selling books but of seeing their books in bookstores).

These changes were going to happen. No matter what. Thank goodness they are being steered by a company that treats its customers as their number 1 priority. Thank goodness! But that’s not what we hear over at Forbes and elsewhere. We hear that Amazon is awful for delivering low prices and the best customer service down to regular people. Can’t everyone see they are hurting the investors! They are hurting banks and Wall Street! What about the 1%?! Profits should flow up to management and fatcats!

The article (amazing this is on Forbes) also misses something far more important: Amazon invests most of its earnings back into itself. This is what investors love about the company (and it’s how investments should work, rather than the glorified gambling of day trading). Amazon is opening up massive distribution centers all over the world. They are building a lead that no one will be able to surpass. The game is over, and it’s because Bezos took the long view rather than the shortcut of mounds of cash. This is a frugal company. That frugality runs right through the entire business, but it ends at the customer. The customer is treated like royalty.

And for the record, I had these same things to say about Amazon when I was a bookseller and not a book-writer. I used Amazon as a vendor in an independent bookstore, because it was often the best place to get out-of-print texts for my customers. Even though the store had been up and running for decades, I had to create their vendor entry in our system. I was the only one who used them (the warehouse would send down all smiley boxes without even checking the label). I fell in love with the company the first time I had to return something to them. I’ve been in love with the company ever since. Most of their customers feel the same way.

Believe me, I feel the pain of bookstores disappearing. I spent a huge chunk of my life in bookstores, both as an employee but far more often as a customer. I love bookstores. I also love music stores. And film photography. But I’m not going to let nostalgia cloud my thinking and have me rushing out as an industry pundit might to slam customers and wail for investors. I’m not going to rush out as an Authors Guild might and work against writers and readers while fighting for large corporations in the form of bookstore chains and major publishers. The customer comes first. I based my bookselling years on this philosophy. I now base my writing career on this philosophy. And I’m happy to send effusive hugs out to those who operate with the same goal in mind. The love flows down, people. And it should. Just like progress and innovation.

 

28 replies to “A Hug For Amazon”

This morning I got an email from Amazon suggesting a book I might like. I clicked through. I read the description, scrolled down half an inch to glimpse reviews, then back up to click the One Click Order button. Boom, now it’s in my Kindle.

I want to grab people who critique Amazon’s business acumen and shake them by the lapels. Like, do you understand what it takes to achieve that kind of intimacy within a brand ecosystem? That kind of agility? Do you understand how difficult it is, first to create an algorithm that ACTUALLY knows how to suggest things its user will like (ask Netflix if that’s an easy task), but then to create a user-interface infrastructure which takes that user from reading an email, to giving you money, to holding their product, all in less than fifteen seconds?

Pardon my french, but that’s a fucking miracle!

Yeah, Forbes writers good, in-depth articles but like every other pub there’s a certain slant, politic or group think at work behind the scenes. The current “Big Money” thinking is to build your company to popularity, raise stock prices…pay shareholders huge sums…build more company buzz…sell more stock. Raise stock prices…etc.

Re-investing capital in oneself doesn’t play too well into the ever popular pro-Wall St. strategy and therefor it is utter foolishness.

Expanding infrastructure and widening customer bases to provide for longer term operational success…ahhhh, who cares. Show us money today!!!

What I don’t understand is: How is this hurting investors? Profits, are still profits, are they not? Just because a company is not making money to their expectations, does not mean the investors are being hurt by the company.

Why does everyone (well most everyone, with exceptions of course) expect everything to become the next “get rich quick” scheme?

I think I would rather go with a company for longevity of returns, than a maximum return for a short period of time.

It hurts investors because the money that they invested in Amazon could be invested more profitably elsewhere. The difference between the actual return (<1%) and the return that they could be making elsewhere (say ~7.7% from B&N) is called the opportunity cost. It's just like you could spend all day watching TV, or you could spend all day writing your next book. The work that you didn't do is essentially a lost investment.

This doesn't mean that Amazon is a bad company, it just means that if you buy shares in Amazon, you won't be making as much money as if you bought shares in a different company. I definitely like Amazon as a company, I love my Kindle and I buy a ton of stuff from them. My 'investment' in them is as a customer, and I will continue to support them as long as they continue to provide services that I want at a price I am willing to pay.

Amazon seems to be a very customer driven company, not an investor driven company, which drive people like the Forbes journalists nuts. Often being customer-driven often leads to high investment returns, but not always. It's not inherently wrong to run a company that way, but it goes against the grain of orthodoxy, and that's the real reason for 'Amazon Derangement Syndrome.'

Agreed. So those investors shouldn’t invest in them.

Investment shouldn’t be a get-rich-quick scheme. Sadly, Wall Street has turned into a highbrow Vegas. You don’t put your money with a company that you respect and believe in. You make picosecond microtransactions and hope to ride a wave up or down and rake in fat profits, and don’t care what the company is making or what their longterm goal is.

Those investors should avoid Amazon. People who want to help a company by investing in their future might have something else in mind.

By Post Author

I invest in Amazon because I see they have a long term vision. In the long term, not just a few short years, I mean 20-30 years I believe Amazon will be a far more worthwhile investment than many other companies out there. A lot of investors are simply too short sighted to see what Jeff Bezo’s is doing. I see it. I get it. And I have some of my money in the mix to make it all happen and hopefully make a good return in the future when I am much older.

I want to second this, not to bandwagon, but because this is something I feel very passionately about — and something that America has got totally absolutely wrong.

The stock market was created as a means to SUPPORT businesses. To invest in what a company was doing. For an outsider to lend a helping hand to a company that needed revenue to get off the ground and couldn’t do so itself.

The current stock market doesn’t bear any resemblance to this. The current stock market cares more about a number on a piece of paper than what the product is that the company is selling. This is a gross perversion of what the stock market was intended to be.

The stock market is more about gaming the system, buying pieces of paper at low values, driving them up in value, and dumping them for a profit.

It no longer has any real connection to the businesses represented by those pieces of paper.

The issue investors have with Amazon are twofold:

1) They make remarkably little profit. They have crazy capital expense levels (which is not bad as long as it is invested wisely) but they also have very tight margins.
2) They hold information on their business remarkably close to the vest. Important tidbits like: “How many Kindles have you sold?” or “Is Amazon Prime profitable?” or “How many physical orders did you fill last quarter?” They pretty much give investors no ability to properly evaluate their business beyond “trust us, it’ll all work out in the end.” There’s no ability to figure out how well their massive capital investment is paying off, or which parts of their business are profitable, and which are not.

The more I read about Jeff Bezos the more I realize that he is on to something and has been for a long time. I really appreciate the idea of long term profit over short term gains. I try to follow that mentality in all aspects of my life, always working toward the long game.

Excellent post.

Here’s to _Wool_ being delivered by flying drone to a neighborhood near you. *raises glass*

I read an interview with Craig Newmark a few years ago and the interviewer kept asking him why he wasn’t doing all these different things to increase revenue on Craigslist. The answer was usually because “the customer wouldn’t like that”.

“Why don’t you sell banner ad space to generate more revenue?” “The customer wouldn’t like that.”

“Why don’t you charge listing fees for X or Y?” “The customer wouldn’t like that.

“Why don’t you sell to BigMegaGloboCorp ™ and live on an island somewhere?”

You know the answer to that one. The interviewer just couldn’t get it into his head that just because you _could_ do something to increase revenue doesn’t mean you _should_, especially if you risk alienating your core customers.

This is why I respect companies like Craigslist so much. They make enough money from the real estate listings (and auto listings in some markets), they have a small and dedicated workforce who all apparently make a *way* more than comfortable living, and they don’t see a need to try to “MAKE ALL THE MONIES IN THE WORLD” like most other business.

There is another important factor here that’s hard to quantify fiscally.

Consumers are rewarding Amazon with repeat business for far more reasons than rock-bottom prices. Amazon has built what I would argue is the single most superior consumer experience of our times. I don’t just buy books from Amazon, I buy whatever I can get from there. From Japanese umeboshi pickles to diapers for my kids.

How can you quantify the sense of satisfaction, trust and appreciation a consumer has for a company? A lot of people love Apple products, but how many people really love Apple? I am not an economist, but my common sense tells me it’s not just the profit margin that makes for a sustainable business model. The velocity of money and the magnitude of revenue gives Amazon the power not just to thrive, but to shape the future of consumerism.

And that’s an enviable position for any business to be in.

I’m learning to put things in my cart as soon as I know I need them, whether it’s printer paper or toothpaste. Less driving around from store to store. The UPS truck is coming through my neighborhood anyway. This efficiency is good for me, the wear and tear on my car, and the environment.

By Post Author

Whenever I need something for myself or around the house…anything…I often go to Amazon first and see what they have. Unless it’s something like socks or motor oil that I need right away, gloves I have to try on or something I need to see for myself before buying, (because just like Ebay there are tons of “stores” selling crap on Zon) I usually find it and buy it off Zon.

Just like how Amazon “gets” writer’s and readers, they “get” retail customers and what they want. I’m never shocked or offended at how “dangerous” a mega-corp like Amazon is or could potentially be or who they’ve strong armed or rubbed out along the way to the top. Sorry, but that’s corporate America..

But I’m shocked and offended at how many other CEO’s, business’s and industry’s can just sit there and scratch their heads or cry foul over what Bezos has done. While the building of Zon infrastructure and support systems are no easy (or cheap) task they only exist because of a simple company mission and philosophy.

Which is actually a very, very simple thing; the concept of genuinely putting customers first and not what’s most profitable and convenient for you as a business. Maybe because it’s so simple is why so many other companies have completely forgotten about it.

The distinction is striking.

Banks, for example, live by fine print and nickel-and-dime fees. Even their own CEOs boast they cannot understand all the terms and conditions their lawyers have cooked up to trap customers. You find out after it’s too late.

By contrast, Amazon likes to surprise customers on the upside. I signed up for Prime just to save on shipping, yet Amazon keeps piling on more benefits. Video, book-borrowing, etc. I never asked for or expected these things.

I don’t think the post is mocking Amazon. The quip about an investor-run charity comes from Matthew Yglesias. It does raise two important questions.

First, why *do* investors stick with Amazon? It’s costing them money to do so. And it’s not gaining them any kind of inside advantage by holding it now. You could buy Amazon stock the day before you think Bezos will start pivoting to profits, and reap the same gains as long-term investors. In the meanwhile, your money could’ve been put to better use elsewhere.

Second, how does Bezos plan to execute his pivot? The strategy he is following now looks suspiciously like monopolistic predation. Kill all the competitors with prices they cannot match, then raise prices later. It works, if you can get away with it. In this case, though, it is really hard to imagine Amazon following such a tactic. They’re just not a premium pricing type company. He clearly has something interesting in mind, but he’s not telling yet.

Ignoring investors is nice work if you can get it. But Amazon can get it, so I’m glad they’re doing it. There is a myth that has evolved around serving “the best interests of shareholders” that really has no basis in law, economics or history–it sure wasn’t the prevailing theory of corporate governance back in the day when American companies really did rule the world. I suspect it’s part of a compensation scam for short-timer corporate executives. I like to see someone demonstrate the power of putting the customer first.

BTW, nothing about Walmart was inevitable. That company was the result of deliberate bad choices, and they are beginning to reap the rewards. I’d put Walmart at the opposite end of the spectrum from Amazon, actually. Walmart puts the interests of the six Walton heirs above employees, customers and vendors. That’s why those six people have net work equal to the bottom third of all Americans combined, while a Walmart customer can’t find any merchandise on the store shelves.

See the author’s comments to grasp the disdain for Amazon. Jeremy says:

“I also question that a company that books very little profit is good for consumers — but I don’t know the answer to that question.”

Basically: I don’t like this company, but I’m not sure why. I just do.

By Post Author

I work in financial services. “Books “does not mean the same thing as “makes.” it’s closer to, “admits to.” Amazon is a very opaque company. No one can figure out what they are really up to.

They do attract a little chuff because they are not what is called a “financially managed” company. Apple used to be another example, until Steve Jobs died. Now that is changed, and it looks to me like Apple’s innovation is taking a hit. Not a coincidence, I don’t think. A lot of shareholders hate it when you invest in innovation.

As good as Amazon is in many ways, it is far from perfect.

With regard to books, my biggest quarrel with Amazon is the fact that I don’t get actual ownership rights when I buy an e-book on Amazon. The fact that I can’t resell an e-book when I am finished or give it to a friend is the single biggest factor that limits my e-book purchases and keeps me buying used books and/or checking books out from the library, both of which are often cheaper than the cost of buying an e-book on Amazon.

And as a previous commenter noted, what happens (to both authors and readers), when Amazon achieves such dominance in the market that it gains the ability to dictate terms. What happens to authors when Amazon is the ONLY option for publishing electronically?

I worry about the companies screwing me today. If Amazon did this in the future, someone else would step into their place.

There’s no such thing as absolute market dominance. Look at IBM. Sears. Competition will pop up if Amazon leaves an opening. I don’t think they will.

And the problem with selling back e-books is that they don’t wear and they are infinitely copyable. You can pull .mobi files off you Kindle and strip the DRM, keep the file, and then sell your copy. Books are a single-user item, and they degrade over time. What we need are e-books so inexpensive that you don’t care about selling them back.

By Post Author

Minor but very personal example here. I needed some help from CreateSpace (an Amazon company) on a Sunday afternoon. My need felt extremely urgent and immediate, but I realized relatively insignificant in the grand scheme of things. I went to their web site looking for help anyway. Within a couple of clicks I found an option to have them CALL ME! I clicked it and found an option to Call Now or Schedule Later. I hit Call Now and my cell phone started ringing. I got a live friendly person and a solution.

I am now a fan for life!

These articles disgust me. They are a celebration of greed while mocking companies that invest in its future instead of cashing in on short term gains.

What makes this article so funny is that Amazon has been doing this since its inception. And it seems to have worked out just fine.

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