Don’t judge an e-book by its cover: a tale of Amazon

A (great) critical analysis of how Amazon has disrupted the book publishing

Image: Compilation of Jeff Bezos, Kindle by Mike Licht and Fire by Liz Fitch from Unsplash and Flickr, All rights Reserved (linked on left)

In this essay, I will provide a perform a critical analysis of the historical development of Amazon.

I provide evidence that Amazon has the potential to disrupt a few industries, but I focus on Amazon’s former and continual disruption of the book and  publishing industry. I question Amazon’s reputation, outline its social, political and economic repercussions and analyse the power dynamic between its networked relations.

What is Amazon and Historical Development?

In 1995, Amazon was launched as an online bookstore by Jeff Bezos under the placeholder name Cadabra. Bezos aimed to curate the largest and most comprehensive online bookstore, thus he renamed the company, his sentiment stemming from:

“[Amazon] this is not only the largest river in the world, it’s many times bigger than the next biggest river” (Stone, 2013, p.45).

Image: Early Amazon website by prosociateAll Rights Reserved

By the end of 1995, Amazon sold over US $20, 000 worth of books per week and in 1997 launched its initial public offering (IPO) for US $54 billion.

By 1999, Amazon had distribution centres in the US, Europe and Asia and expanded its online store to include toys, kitchenware and electronics (Applegate, 2008, p.2).

In 2000, the widespread adoption of the internet spurred brick-and-mortar stores to transition online. However, large retailers were hindered by this transition due to high risk, lack of organisational readiness and internet skill (Nikolaeva, 2006), thus allowing Amazon to become the website host for many of its competitors (Ritala, 2011).

In 2018, Amazon is more than an online retail platform. Amazon has expanded to manufacture and sell its own goods, Amazon Basics, host third-party vendors, Amazon Marketplace and provide cloud, computing and intelligence infrastructure, Amazon Web Services (AWS) (Strategic Direction, 2018).

Recently, Amazon has transcended from the internet into a brick-and-mortar convenience store, Amazon Goand bookstore, Amazon BooksOther services include payments, publishing, delivery, advertising and entertainment subscriptions (Amazon, 2017)

Video: Amazon Go from YouTube by Amazon.com, Creative Commons 3.0

Amazon’s 2017 Annual Report showed that they boasted a net sales of $178 billion US dollars in 2017 and 27% revenue growth from 2016 to 2017. Moreover, in 2016, it accounted for 53% of all online e-commerce sales and in 2016 ranked 1stin Global RepTrak Top 100 most reputable companies (Reputation Institute, 2018). Nasdaq, a stock quoting website, has valued Amazon stock as over US $400 million.

Image: Amazon revenue 2004-2018 by Statistica, All Rights Reserved

Statistic: Net sales revenue of Amazon from 2004 to 2017 (in billion U.S. dollars) | Statista

Amazon has  reputation as the ‘Everything Store’ and is at the forefront of innovation (Stone, 2013, p.138).  In 2018, with the recent acquisitions such as Wholefoods and PillPack, Amazon has plans to enter the healthcare industry. In addition, Amazon’s digital assistance device, Amazon Echo, can aid in the collection of data in dementia research (Firth et al., 2018).

Business Model, Research Agenda and Ownership

Amazon is a company who caters for all consumers by offering a diverse set of products and services at competitively low prices.  Wu and Gereffi (2018) argue that Amazon’s use of a platform business model, defined as value creation through the integration of digital capabilities and physical assets, accounts for its widespread utilization.

By allowing online retail vendors, third-party merchants and small sellers to use Amazon Marketplace and by directing consumers to a competitor’s low price product on its search engine, Snihur, Thomas and Burgelman (2018) propose that this ensures Amazon is visible, credible and have strong relationships key industry stakeholders, which are characteristics of a disruptive company.

Moreover, unlike most companies in the digital economy which focus on profit margins, Amazon invests in internal innovation (Wu & Gereffi, 2018) aligning with its values which include customer obsession, simplicity and frugality which are values instilled and regulated by CEO Jeff Bezos.

To optimize customer experience, Amazon collects data and utilizes algorithms to provide insight into consumer behavior allowing for personalized recommendations and product innovations (Chen, Mislov & Wilson, 2016). Merely browsing allows Amazon to collect information on habits and preferences, allowing targeted product placements by account, and IP address.

Video by Simplilearn on YouTubeCreative Commons 3.0

Amazon’s use of dynamic repricing algorithms, an automated price adjusting using collected price data from web-crawlers, to stay committed to their lowest price mentality. Third party vendors or small sellers have access to these algorithms through Amazon Marketplace which automatically adjusts the price of their goods depending on demand and rarity (Chen, Mislov & Wilson, 2016). Ultimately, by using Amazon’s infrastructure, whether consumer or supplier, data is collected to optimize customer service (Wu & Gereffi, 2018)

Amazon’s internet ecology and the book industry

Iansiti and Levien (2004) define the internet ecology as an online platform of services, tools or technologies which are utilized by consumers, suppliers, partners and competitors alike. The authors emphasize that boundaries of the internet business ecosystem are not distinct and each business can take on many roles, thus each business can be viewed through its networked relations.

Books are standardized commodities which only differ in format (paperback, hardcover and e-book) and price. Bezos’ idea to curate an online bookstore was not unique and Amazon entered the market with competitors such as Unlimited Books.com, the online platform of Cleveland-based bookstore Book Stacks (Stone, 2013, p.46).

The digitization of retail allowed Amazon’s sales and visibility to grow significantly across the internet. Thus, was able to partner with major publishing houses for reduced wholesale prices on books (Lu, Shi & Huang, 2018) and allow third-party vendors to sell on the website (Strategic Direction, 2018), Amazon also supplies its own inventory of books in fulfilment centres.

Ritala (2011) outlines that the relationship between Amazon and its book competitors, such as brick-and-mortar bookstores, Barnes & Noble, Borders and Publishing houses, Penguin RandomHouse, Harper Collins, operates in a unique coopetition state. Coopetition is defined as the collaboration between competing firms in order to gain benefits they could not achieve alone, for example, sharing distribution channels, co-marketing and data collection (Ritala, 2011).

For example, due to Amazon’s popularity and internet traffic, small bookstores increase sales when they sell through Amazon’s website infrastructure. In return, Amazon benefits by commissioning these sales. Even though small bookstores are in competition with Amazon, most of their sales rely on this website, thus shifting the power dynamic towards Amazon. 

Image: Books sold on Amazon.com showing options from Amazon and 2 competitors

Aside from physical books, Amazon has partnered with publishers, such as Harper Collins, and suppliers, such as Readerlink, to spur the transition into e-books (Gilbert, 2014). Within the realm of e-books, Amazon competes with online book libraries such as Project Gutenberg and Overdrive which allow free access to e-books. Amazon’s addition of self-publishing features has put it in direct competition with the publishing industry and other e-book platforms such as Apple’s iBooks (Gilbert, 2014)

Overtime, Amazon has acquired competitors such as, online book retailers Bookpages.co.uk, The Book Depository, Bibliofind.com, Abebooks; e-book and software companies, BookSurge and Mobipocket.com, as well as, audiobook company, Audible.com.

Regulators include consumers, national and international government bodies and anti-trust commission, which aims to promote fair competition within industries (Khan, 2o17).

Image: Amazon Internet Ecosystem by Zinny Wong

Book Industry Disruption: transition towards E-books, Exit of Publishers

Amazon has and continues to disrupt the book and publishing industry and its transformative effect was 1. becoming the largest online retailer for book sales 2. facilitated mass transition from physical books to e-books (Gilbert, 2014).

“[Amazon] controls around 65% of the e-book market today, while its share of the e-reader market hovers around 74%. Players that appeared up-and-coming even a few years ago are now retreating from the market. Sony closed its U.S. Reader store and is no longer introducing new e-readers to the U.S. market. Barnes & Noble, meanwhile, has slashed funding for the Nook by 74% .The only real e-books competitor left standing is Apple”

Khan (2017) demonstrating the effect Amazon alone has on book sales.

Havalais (2013) propose that search engines are attractive to consumers as they use the least amount of attention to obtain information. Compared to other primitive websites, Amazon’s clean interface and intuitive search bar allowed it to become the most popular search engine for books.

By extension, Klaus (2013) argues that Amazon’s easy to use interface and impeccable customer service fosters a sense of familiarity and trust, as well as the convenience of One Click reliable orders and fast delivery services.

Data from the Association of American Publishers, in 2008, after the introduction of the Kindle, Amazon’s e-reader device, led to a rise of 117% in e-book sales and drop of 18.6% in print books (AAP, 2017) which has led to the demise of many brick-and-mortar and independent bookstores.

Although Amazon’s online business model not new, Amazon’s dominance in the realm of book retailing has economically disrupted the publishing industry.

Empirical research by Greeve and Song (2017) found that customer reviews on Amazon were valued more highly than those of critics when deciding to purchase books. Book publishers were prized by authors on their connections to bookstores and marketing resources. However Amazon introduced self-publishing features which offered the marketing use of their website at low-cost and high royalties.

In 2014, a third of Kindle Bestsellers were by self-published authors, thus changing the dynamic between authors and publishers. The above factors show how Amazon has disrupted how authors, consumers, suppliers relate in book sales and the traditional systems in place. In particular, reducing the need of publishing houses and increasing dependency of authors on Amazon.

Video by Emeka Ossai on YouTubeCreative Commons 3.0

In 2016, Amazon ranked 1st in Global RepTrak Top 100 most reputable companies, ahead of competitors such as Netflix, Apple and eBay (Reputation Institute, 2018) and recent public surveys associate Amazon with adjectives such as modern, likeable, innovative and creative (Statistica, 2017).

The success of Amazon’s e-books delivery services is attributed to Bezos’s race for faster innovation and no tolerance for failure. Despite, its positive reputation, Amazon has been under critique for its unfair treatment of its employees and has directly changed how Amazon relates socially with its suppliers and employees Chan (2015, p. 17).

A core element of Amazon is its Fulfilment Centre a large scale distribution center, where employees pack orders for delivery.

“Amazon was also quite stingy when it came to installing an air-conditioner as well. “In one famous incident, Amazon hired paramedics to revive heat-sick employees at a Pennsylvania warehouse rather than buy an air-conditioning unit” (Foer, 2014, as cited in Chan, 2015, p.18)

However, through exemplary customer service, Amazon changed customer’s expectations, towards expecting premium service for low cost (Chan, 2017). Henkel and Colleagues (2018) found that if monetary maximization is the goal of the consumer, which is often the case when shopping on Amazon, that consumers dehumaised employee experiences.

For example, consumers viewed employees as a ‘means to an end’ and were more likely to disregard their feelings of pain or sadness. Moreover, the authors found that this dehumanizing effect could be elicited if a brand is positioned to be thrift-orientated (Study 1, Henkel et al., 2018), which matches Amazon’s description.

Lastly, Amazon’s leveraged its economic dominance to sway political and consumer decisions. In some US states and Australia, Amazon requires its customer’s to pay a sales tax upon check-out online (Baugh, Ben-David & Park, 2018). This post-checkout tax is another tactic to reduce costs.

“In 2012, Amazon surrounded in Texas, South Carolina, Pennsylvania and Tennesee, negotiating accommodation that allowed it to stat tax-free for a few more years in exchange for putting a new fulfilment centre in each state” demonstrating Amazon’s political influence (Stone, 2013, p.200)

Amazon’s threat to competition in all retail categories, not just books and publishing, has instigated uproar regarding antitrust laws. Khan (2017) argues that current antitrust law is inadequate to address competition in modern business and internet. Khan (2017) anticipates that future anti-trust law will address harms against supplies and producers and not just against consumer interests, as a result, may leave Amazon vulnerable.

Summary

Overall, Amazon has led internet transformation in online retailing and has transformed the book and publishing industry. By positioning itself as the dominant search engine for books and other commodities, Amazon was able to become an economic powerhouse. However, in the strive for innovation, Amazon has been met with negative social and political repercussions. Amazon will continue to disrupt online retail and through its networked relationships will continue to innovate various industries.

 

References

Applegate, Lynda M. “Amazon: The Brink of Bankruptcy.” Harvard Business School Case 809-014, July 2008. (Revised June 2018.)

Firth, N. C., Harding, E., Sullivan, M. P., Crutch, S. J., & Alexander, D. C. (2018). echoes around the home: Can the amazon echo be used in the home to help those living with dementia? Alzheimer’s & Dementia: The Journal of the Alzheimer’s Association, 14(7), P184-P185. doi:10.1016/j.jalz.2018.06.2014

Gilbert, R. J. (2015). E-books: A tale of digital disruption. The Journal of Economic Perspectives, 29(3), 165-184. doi:10.1257/jep.29.3.165

Greve, H. R., & Song, S. Y. (2017). Amazon warrior: How a platform can restructure industry power and ecology. (pp. 299-335). BINGLEY: Emerald Publishing Limited. doi:10.1108/S0742-332220170000037010

Has digital retail won?: The effect of multi-sided platforms on the retail industry. (2018). Strategic Direction, 34(3), 4-6. doi:10.1108/SD-12-2017-0191

Henkel, A. P., Boegershausen, J., Hoegg, J., Aquino, K., Lemmink, J., Campbell, M. C., . . . Forehand, M. (2018). Discounting humanity: When consumers are price conscious, employees appear less human. Journal of Consumer Psychology, 28(2), 272-292. doi:10.1002/jcpy.1023

Klaus, P. (2013). The case of amazon.com: Towards a conceptual framework of online customer service experience (OCSE) using the emerging consensus technique (ECT).Journal of Services Marketing, 27(6), 443-457. doi:10.1108/JSM-02-2012-0030

Lu, Q., Shi, V., & Huang, J. (2018). Who benefit from agency model: A strategic analysis of pricing models in distribution channels of physical books and e-books. European Journal of Operational Research, 264(3), 1074-1091. doi:10.1016/j.ejor.2017.07.002

Nikolaeva, R. (2006). E-commerce adoption in the retail sector: Empirical insights.International Journal of Retail & Distribution Management, 34(4/5), 369-387. doi:10.1108/09590550610660288

Snihur, Y., Thomas, L. D. W., & Burgelman, R. A. (2018). An ecosystem-level process model of business model disruption: The disruptor’s gambit: Business model disruption: The disruptor’s gambit. Journal of Management Studies, 55(7), 1278-1316. doi:10.1111/joms.12343

Stone, B. (2013). The everything store: Jeff bezos and the age of amazon (First Back Bay paperback ed.). New York, NY: Back Bay Books/Little, Brown and Company.

“Amazon Inc. 2017 Report”

https://www.sec.gov/Archives/edgar/data/1018724/000101872418000005/amzn-20171231x10k.htm

“Amazon opens another 4 start store in Berkeley, California” https://www.theverge.com/2018/11/5/18063498/amazon-4-star-store-berkeley-california-opening-today

“Amazon’s first New York bookstore blends tradition with technology”

https://www.theguardian.com/technology/2017/may/26/amazon-new-york-bookstore

“Amazon.com, Inc. Common Stock (AMZN) Quote & Summary Data”

https://www.nasdaq.com/symbol/amzn

“2018 Global RepTrak”

https://www.reputationinstitute.com/research/2017-global-reptrak

“FORGET THE EVERYTHING STORE—AMAZON’S AN EVERYTHING BUSINESS“

https://www.wired.com/2015/10/forget-the-everything-store-amazons-an-everything-business/

“AAP StatShot: Book Publisher Trade Sales Flat for 2016”

http://newsroom.publishers.org/aap-statshot-book-publisher-trade-sales-flat-for-2016/

zinny
About zinny 2 Articles
science/arts undergrad | neuroscience, statistics & chinese studies | self-proclaimed culinary master

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