John Naughton: Beware friendly internet giants bearing gifts
(Observer (UK) Via Acquire Media NewsEdge) When corporate types gather to schmooze at expensive watering holes they talk about competition as an unalloyed public good. It's seen in Darwinian terms - companies engaged in a ceaseless battle for survival, with only the fittest emerging triumphant. But generally the discussion is couched in agreeably vague, general terms. The sordid realities of Darwinian competition - nature red in tooth and claw - are generally eschewed on the golf course and at the poolside.
Except at amazon.com. Like the other titans of the online world - Google, Facebook, Yahoo and to a lesser extent, Microsoft - Amazon is driven by data and algorithms. But not entirely. What many of its customers may not realise is that the results generated by Amazon's search engine are partly determined by promotional fees extracted from publishers. In his book The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone describes one campaign to exert pressure for better terms on the more vulnerable publishers. It was known internally as the gazelle project, after Bezos suggested "that Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle". (With a nice Orwellian touch, company lawyers later changed the name to the "small publisher negotiation programme".)
That's a revealing metaphor: capitalism red in tooth and claw. And it's a useful antidote to the soothing PR of the corporations that now dominate our networked world.
Up to now, they have succeeded in branding themselves as different in important ways from the bad old industrial behemoths of the past. Google has its much-vaunted "don't be evil" slogan, for example. Facebook just wants to help everyone to hook up to "share" and "like" stuff. (Strangely, there is no "dislike" button on Planet Facebook.) Amazon is fanatically committed to the philosophy that you - the customer - are always right. And so on.
As a public relations posture this branding strategy has been a brilliant success. We loathe, fear or suspect many of the companies that dominate the offline world - energy utilities, oil companies and banks, to name just three sectors. Yet the giants of cyberspace seem to escape such opprobrium. Instead, it seems that we cannot get enough of the "free" services that they offer.
Yet in Darwinian terms these new corporate giants are just the latest stage in the evolution of the public corporation. They exist to create wealth - vast quantities of it - for their founders and shareholders. Their imperative is to grow and achieve dominance in their chosen markets - as well as in others which they now deem to be within their reach. They are as hostile to trade unions, taxation and regulation as John D Rockefeller, JP Morgan and Andrew Carnegie ever were in their day. The only differences are that the new titans employ far fewer people, enjoy higher margins and are less harassed by governments than their predecessors.
These reflections are triggered by a fascinating study of Amazon by George Packer in the New Yorker magazine. Amazon, you will recall, started out as an online bookstore, and most people probably think that it just branched out into selling other stuff as opportunities arose. The company is pathologically secretive about its sales figures, but Packer quotes one estimate that less than 7% of Amazon's annual revenue now comes from books. Indeed, it's now hard to think of anything that one can't buy from it, or from its affiliates. In that sense, it has indeed become "the everything store".
Packer claims that this was Jeff Bezos's plan from the very beginning. Books were simply a good place to start because people don't need to handle the product before they buy and they are easy to ship. In the early days, some astute observers thought that Bezos's ambition was to become the Walmart of the web. But actually compared with Amazon as it is now, Walmart looks like a niche retailer.
Although books are no longer its core business, Amazon still thinks that book publishing is an industry ripe for further creative destruction. In his book Amazonia, James Marcus, a former Amazon editorial employee, describes how Amazon's techie executives viewed book publishers as "antediluvian losers with rotary phones and inventory systems designed in 1968 and warehouses full of crap". Which explains why most publishers privately regard Amazon as a predatory monster, squeezing their margins the way Tesco squeezes farmers. They won't say this in public, though, for fear that the "buy" button will disappear from their books' pages on Amazon sites.
The big question, of course, is what happens if traditional book publishing becomes unviable because of Amazon's power? One answer - the one that keeps some people awake at night - is that Amazon's dominance in the eBook market will lead to it becoming the biggest publisher in the world. The fittest will then have survived. The
rest of us will just have to pay its monopoly rents.
Jeff Bezos, founder of Amazon, is as driven a capitalist as any of the great names of American corporate history. Reuters
(c) 2014 Guardian Newspapers Limited.
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