BIS 332 AAssignmentsReaction Paper 2

25 AMAZON.COM

Andrew Calabrese and Tyler Rollins

In 1942, Austrian economist Joseph Schumpeter sought to explain how capitalist enterprises emerge and thrive, and how such developments tend to come at the expense of previously existing economic structures. “The fundamental impulse that sets and keeps the capitalist engine in motion comes from new consumers’ goods, the new methods of production and transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates,” he wrote. Schumpeter termed the process that follows this impulse “creative destruction,” and he characterized it aptly as “the essential fact about capitalism.”1 Schumpeter’s thought has gained traction in recent decades as Keynesian welfare economics have been displaced by neoliberal theory and practice.2

The central role of technological innovation to streamline industrial change is not a new preoccupation in economics and business studies. Theodore Levitt’s influential 1960 article in the Harvard Business Review criticized industry leaders who wed themselves to particular technological models for their production systems and who, according to his analysis, myopically fail to recognize what business they are in, and are therefore unprepared when technological innovation makes competing business and service models possible that eventually render a previously dominant model obsolete. The classic example used by Levitt was the way in which die-hard investors in the U.S. railroad industry lost out to the more flexible means of moving freight provided by the postwar interstate highway system and the trucking industry. As Levitt puts it, the railroad owners and managers had failed to recognize that the business they were in was freight transportation, not railroads.3 Twelve years later, in 1972, Levitt published another highly influential article in the same journal, titled “Production-Line Approach to Service,” in which he argues for streamlining labor-intensive service provision by modeling it after the Fordist production-line principles of goods manufacturing.4 Levitt makes a compelling case for creating greater efficiencies in service provision through the strategy of breaking down the tasks involved into smaller and simpler ones, reflecting the principles of “scientific management” that F.W. Taylor advocated.5 One of the cases that Levitt highlights as a success story to be modeled by other labor-intensive service providers is the McDonald’s fast-food chain, wherein tasks for food production are broken down in factory- like steps, and less skill is required of individual workers by standardizing and simplifying narrowly defined sets of tasks (deskilling), which also simplifies the management role of training workers, along with work-pace acceleration and related incentives for increased worker output.6 Levitt’s case illustrates how the analysis of the steps involved in making a hamburger can yield valuable information for streamlining and routinizing the service labor process. McDonald’s was not the

first labor-intensive service company to apply principles of scientific management to the labor process, but it has been one of the most successful.

Today, a new round of reflection and theorization within business studies gives sharper focus to contemporary anxieties about threats to and collapsing of old business models and the rise of new ones. Leading this wave has been economist Clayton Christensen, who is well known for his series of articles and books on the subject of “disruptive innovation,” most notably the bestseller, The Innovator’s Dilemma.7 Christensen’s essential argument is that firms who define the dominant mode of production for an industry have an interest in continuing with the model that served them well in reaching and sustaining their market positions, whereas new entrants that rely on innovative technologies are not bound by the same market logic as the incumbents. Instead, the innovators Christensen highlights look to derive smaller profit margins from larger customer bases at the fringes of the narrower but higher margin markets that the incumbents dominate. Eventually, these new entrants undermine the old industry models and come to define new business models in which their products and services are more attractive to a greater portion of the mainstream markets, ultimately redefining the industry and its terms.

Among the many corporations and corporate CEOs who are cited as disrupters of contemporary business as usual is Amazon, led by its founder, Jeff Bezos, who Fortune magazine has called “the ultimate disrupter.”8 In 1994, Bezos, a former communications engineer,9 incorporated Amazon.com, Inc. Initially, the company focused on selling printed books online, but soon expanded its offerings to everything from electronics to kitchenware. To many, Amazon.com is known for being one of the premier online retailers and an economic powerhouse, bringing in over $70 billion from product sales in 2014. Not surprisingly, Bezos was not the first to envision the vast market potential of online retailing. For example, Alton Doody and William Davidson constructed in 1967 a seemingly science-fiction vision of a housewife who does her grocery shopping from the comfort of a desktop terminal in her kitchen, where she communicates with “the Customer Communications Department of City Wide Distribution Center, Incorporated.”10

One of the earliest market tests of online retailing was conducted in 1980 in Columbus, Ohio,11

and since then many major telecommunications firms, banks, retailers, and news and entertainment organizations have partnered in pursuit of the business opportunities in online retailing, but no previous effort foreshadowed the success and dominance established by Amazon. Amazon offers more than physical products to consumers, including AmazonSupply, a business-to-business service that began in 2012 and is expected to be replaced by the newer Amazon Business Marketplace,12 as well as digital services such as Amazon Elastic Compute Cloud (EC2), a cloud computing service boasting nearly 500,000 servers.13 Amazon is ranked number 13 on Forbes list of World’s Most Valuable Brands, just above Louis Vuitton (#14) and below AT&T (#12), Disney (#11), and Facebook (#10).14

Amazon’s economic impact is impressive. Though the company is centered in Seattle, Washington, it employs over 154,000 workers in 32 countries, adding over 38,000 new employees in 2014.15 Many workers in the United States are hired seasonally to help fulfill increased orders placed during holidays. Amazon also has a political action committee known as the Amazon PAC, which is less politically active than one might expect, receiving just over $500,000 in receipts and spending just over $200,000 in 2014.16 Lobbying by Amazon, on the other hand, has seen far greater expenditures at nearly $5 million in the same year.17

Amazon has securely positioned itself in popular culture. The sheer number of users would likely be enough to ensure the company’s impact, however the unique business philosophy of Bezos has also altered the business world’s understanding about how to successfully run a company: get big fast. Bezos advocates for low profits on many items rather than high profits on a few, is extremely customer-focused in order to encourage repeat customers, and creates a “frugal” work environment where employees get uncharacteristically low wages, must pay for their own lunch,

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and have strict performance standards from which they cannot deviate, unlike other major technology companies like Google.

Bezos says, “the three big ideas at Amazon are long-term thinking, customer obsession, and a willingness to invent.”18 However, these three ideas prove inadequate for understanding how Amazon has ascended the ranks to become the largest online retailer in the U.S., which had more net sales in 2014 than the company’s ten closest online competitors, including Apple and Wal- Mart, combined.19

Following a brief history of Amazon, this chapter will discuss the economic, political, and cultural impacts of Amazon as well as some of the strategies that have been used to achieve such success and the conditions to which Amazon’s many warehouse and fulfillment center workers are subjected.

History

Before graduating from Princeton University in 198620 with Bachelor’s degrees in both electrical and computer engineering, Jeff Bezos had already worked as a computer programmer for Exxon, developing a computer model on an IBM 4341 mainframe that calculated oil royalties, as well as at IBM’s Santa Teresa Research Center in California.21 After graduation, Bezos worked a number of jobs on Wall Street, eventually becoming the youngest vice-president of investment firm D.E. Shaw. In 1994 he left his finance career after learning that Internet usage was growing at a rate of approximately 2,300% each year. Believing the Internet to be a unique and lucrative opportunity for a new type of commerce, Bezos started Amazon as an online book retail company. The company operated out of his garage in Bellevue, Washington, a suburb of Seattle, after raising “several million dollars from private investors.”22

Following the launch of Amazon.com in July 1995, the company quickly outgrew his garage, moving into a 2,000 square-foot warehouse after six weeks and into a 17,000 square-foot building after six months. Amazon’s revenues doubled every 2.4 months and sales totaled over $5 million in the first year.23 By the end of 1996, Amazon had rented a 93,000 square-foot warehouse, and sold over $16 million worth of books to nearly 200,000 customers in over 100 countries. The company went public in May 1997 at $18 per share, valuing the company at $429 million. In 1997, the company’s six-month sales (January to June) rose to $43 million.24 One year after the Initial Public Offering, stock in Amazon was selling at $105 per share, valuing the company at $5 billion.25

In 1997 the company began offering music CDs as well as movie videos to customers, and added five more product categories (toys, electronics, software, video games, and home improvement)26 before Christmas. Amazon also opened its first warehouse outside of Washington State, in New Castle, Delaware. The former vice-president of distribution for Wal-Mart, Jimmy Wright, was hired by Amazon in the summer of 1998 as the company’s Chief Logistics Officer and was put in charge of a company initiative that sought to negotiate contracts directly with publishers and build new warehouses in an effort to “eliminate the middle man in the supply chain.”27 Further, Bezos wanted to develop efficient warehouses with the highest technology. To achieve this, he began hiring so many executives away from Wal-Mart that Wal-Mart sued Amazon, claiming the hiring practice was “an attempt to steal [trade] secrets,” which “was causing [Wal- Mart] economic damage.”28 The two companies would eventually settle out of court, restricting some of the projects to which the former Wal-Mart employees would be assigned.

The first international Amazon domains, Amazon.co.uk and Amazon.de, went online in 1998, with fourth-quarter sales quadrupling over those of the third quarter. The two domains also became the leading online booksellers in their respective markets, according to a 1998 letter to shareholders.29 In that same letter, Bezos summarized the benefits of Amazon’s business model:

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We’re fortunate to benefit from a business model that is cash-favored and capital efficient. As we do not need to build physical stores or stock those stores with inventory, our centralized distribution model has allowed us to build our business to a billion-dollar sales rate with just $30 million in inventory and $30 million in net plant and equipment.30

The high value of Amazon provided the ability to begin purchasing other companies. In April 1998, the Internet Movie Database (IMDb) became the first company purchased by Amazon, and set up as a subsidiary.31 Amazon would use IMDb to help push the sale of videos and DVDs. Sales continued to increase and, by the end of the 1999 calendar year, had reached $1.6 billion.32

That year, in September, Amazon introduced zShops, which allowed third parties to sell products through the website but required they pay a 5–25% fee to Amazon.33 zShops would later become Amazon Marketplace. In December, Bezos was named Time magazine’s “Person of the Year,” meanwhile Barron’s magazine named Amazon and Microsoft “the two most overvalued stocks on the market.”34

In 2001, the company laid off 1,300 employees after reporting a $1.4 billion fiscal loss. From its creation until this point, Amazon had lost a total of $2.8 billion.35 However, a combina- tion of ridding the company of many full-time employees, using 3,200 fewer temporary workers to fulfill holiday orders, and offering various discounts and promotions such as free shipping on orders over $99, the company was able lower its costs by 24% while increasing the number of orders shipped by 23%. This, in turn, lead to Amazon’s first profitable quarter in 2001, earning 9 cents per share or $35 million.36

The early 2000s brought many changes and opportunities for Amazon. In 2000, Amazon teamed up with Toys “R” Us to launch a co-branded site that would allow each company to leverage the other’s strengths—Amazon was charged with warehousing and distribution while Toys “R” Us was charged with selecting and purchasing the inventory for the new site.37 The 10-year contract would eventually end up in court with both companies claiming they were deceived.38 Similarly, in 2001 Amazon teamed up with bricks-and-mortar book retailer Borders Group, Inc. to launch a co-branded website.39 The relationship lasted until 2008. The seven-year deal—in which Borders effectively outsourced sales to Amazon, thereby allowing Amazon to increase its own customer base—is often cited as one of the key decisions that led to Borders’ bankruptcy in 2011.40 Amazon and Target formed an alliance in 2001 with similar stipulations to those of zShops, whereby Target would pay a per-unit fee as well as an annual fee to have a branded store on Amazon.com, and Amazon was put in charge of Target’s e-commerce, including order fulfillment and customer service.41 In 2003, Amazon took over e-commerce for the NBA and WNBA through a co-branded pipeline, which integrated basketball merchandise into Amazon’s product catalog.42

In an attempt to “persuade more shoppers to consider buying more different kinds of products from Amazon—stuff they might have only bought in physical stores,”43 Amazon unveiled its Prime membership in 2005. The service allows for unlimited two-day delivery and heavily discounted overnight delivery on many items for an annual fee of $79. Prime memberships currently (February 2015) number in the tens of millions, increasing 53% in the last year.44 Amazon Grocery Store launched in 2006 allows customers to purchase many pantry and grocery items for home delivery, such as “146 varieties of ground or whole-bean coffee.”45 The company’s cloud computing service, EC2, moved out of beta testing46 and into full production in 2008.47 Internet giants such as Reddit, Dropbox, Netflix, and Newsweek have used the service.48 Currently, approximately one-third of Internet users connect to at least one Amazon-powered website every day.49

Amazon’s e-reader, Kindle, was launched in 2009 and has allowed the company to continue to dominate the e-book market. In 2013, nearly 40% of e-book readers over the age of 13 owned a Kindle, while only 27% of e-book readers owned an iPad.50 The second-generation Kindle was

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released in 2010 and Kindle Fire, a full color tablet, became available in 2011. In an effort to further capitalize on the $600 billion grocery market,51 the launch of Amazon Fresh, the newest iteration of the company’s grocery service, expanded beyond Seattle and San Francisco to New York City in late 2014. The service allows for groceries to be delivered directly to customers’ homes and, if ordered before 10:00 AM, the delivery can be made before dinner.52

From its inception through today, founder Jeff Bezos has held Amazon close as the Chairman and CEO. Bezos receives a comparatively modest salary of just over $80,000 per year, but his stock holdings and investments are valued at over $36 billion, placing him at #15 on Forbes worldwide ranking of billionaires. Though Amazon had some major financial losses early on, these growing pains allowed the company to “get big fast” and provided the opportunity to become the leader in online commerce and one of the largest retailers in the world. Offering everything from A to Z, as designated by the arrow seen in the logo connecting the first A to the Z in the word Amazon, the company has successfully branched out beyond media retail, such as books and music, into everything from table saws to canned corn. Given that Amazon is only just beginning to leverage its servers and web services, the company will almost surely remain the leader of cloud computing for the foreseeable future.

Economic Profile

Since turning its first profit in 2001, Amazon has established itself as both innovative and disruptive, being credited with upending entire markets as it did with book retail. The company has always appeared promising, which is perhaps why Bezos was able to raise millions of dollars while operating out of a garage. Amazon currently enjoys the title of leading online retailer. Part of the secret to this success is expressed in the mantra “get big fast.” Early on, Amazon devoted much of its money to expanding its offerings and capacity while cutting prices in an effort to gain market share advantage. Indeed, Amazon has even inspired such books as Robert Spector’s Amazon.com: Get Big Fast. Sales have seen steady increases over recent years and Amazon has gone from selling $5 million worth of books in 1995 to nearly $89 billion in product and service sales in 2014, an increase of 16,000%. This growth is illustrated in Table 25.1 below.

Though Amazon leads online retail, there are a number of competitors that outsell the company by a large margin. For example, Amazon saw its highest total sales numbers ($88.9 billion) in 2014 but the same year Wal-Mart saw over $470 billion in sales. However, from 2012 to 2013, Amazon saw a 27% increase in sales while Wal-Mart’s increase was only 1.7%. The National Retail Federation ranked Amazon.com at #9 of the top 100 retailers of 2014 based on 2013 sales, just below Lowe’s (#8) and above Safeway (#10) and McDonald’s (#11).53

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TABLE 25.1 Amazon.com Company Revenues, 2005–2014 (in $ millions)

Revenue Net Income Total Assets

2005 8,490 359 3,696 2006 10,711 190 4,363 2007 14,835 476 6,485 2008 19,166 645 8,314 2009 24,509 902 13,813 2010 34,204 1,152 18,797 2011 48,077 631 25,278 2012 61,093 –39 32,555 2013 74,452 274 40,159 2014 88,988 –241 54,505

Sources: Amazon.com, Inc., Form 10-K, 2006, 2008, 2010, 2012, 2014

To compare Amazon to Wal-Mart is perhaps unfair—the latter seeming somewhat an outlier with 2013 worldwide retail sales at $473 billion and the closest competitor, Costco, selling $105 billion, or less than a quarter of the sales of Wal-Mart. On the other hand, Amazon does enjoy a 23% market share of all online retail, doing more e-commerce than its 12 closest competitors, combined—a figure that includes the online sales of Wal-Mart. However, this figure can be misleading if one fails to recognize that e-commerce accounts for less than 7% of all retail sales.54

Corporate Structure

Amazon’s sales can be divided into two core categories: products and services. In 2014, net product sales totaled over $70 billion while services brought in nearly $19 billion. To distinguish between the two categories, Amazon includes in its product sales all retail between customers and Amazon, exclusively. Product sales figures include the sales of Amazon Prime accounts, as well as all purchases made in the Amazon Marketplace from Amazon, but not from a third party. Service sales are the total amount earned from fees charged to third parties by Amazon for using and selling in the Marketplace, as well as all earnings generated by Amazon Web Services, including EC2. Recently, Amazon revealed that its Web Services business is by far the most profitable of Amazon’s businesses, by operating margin,55 generating approximately $5 billion in 2014. This differentiation between products and services is the distinction Amazon makes when filing 10-K forms with the Securities and Exchange Commission. However, it is useful to imagine the company as operating four separate branches: retail, services, devices, and web.56 These branches are generally jumbled, with amorphous borders and boundaries, preventing a much more concrete financial analysis. For example, Amazon includes in retail the sales of devices. Though sales data per branch are not accessible, it is important to disclose Amazon’s varying pursuits in each of the four branches.

Retail

Retail sales for Amazon are generally understood as all sales of Amazon’s retail products directly to consumers. This does not include products sold by third parties. It also excludes the sales of web services such as cloud computing. Officially, per SEC filings, retail sales include sales of devices but a more nuanced understanding is beneficial, i.e., examining devices, such as the Kindle, separately.

Amazon, like many major retailers, has the ability to negotiate lower prices with producers. One advantage Amazon has over many large retail chains, however, is that it does not have a sales floor. Operating exclusively online allows Amazon to save money on rents, given that the store front on Main Street in a major metropolitan city with an attached warehouse is much more expensive per square foot than a warehouse in Coffeyville, Kansas. Saving money on rents in this way allows Amazon to operate with a smaller markup on products and still maintain profitability.

Still, physical stores have appeal to consumers who want to try out products or examine them in person before making a purchase. To capitalize on this, Amazon introduced its Price Check application for mobile phones in 2011. The application allows a user to scan a barcode, take a picture, or search for a particular product they see in a physical store and compare that price to the price of the same product offered by Amazon. Some retailers denounced the application as “evil”57 because it encouraged showrooming. That is, Price Check encouraged consumers to use the showrooms of bricks-and-mortar stores as a stand-in for an Amazon showroom, investigate products, test them, and decide which to buy. Then, instead of purchasing from the store that pays for the property, insurance, salespeople, and showroom, the consumers often leave and buy the item from Amazon. In this way, Amazon receives most of the benefits of a showroom without

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having to pay for it. To combat the showrooming phenomenon, some major retailers, such as Best Buy, have implemented a policy whereby the store matches the prices of online retailers.58

Amazon’s domination of online retail is not going unchallenged. Though the company does more e-commerce than its closest 12 competitors, it has been suggested that Amazon’s dominance is a consequence of online sales making up only a small percentage of nationwide retail. With online retail accounting for only 6.6% of all retail sales, it should be no wonder that traditional retailers are putting the majority of their efforts into selling products through their physical stores rather than online. However, that is not to say they are neglecting the world of online retail. In the first quarter of 2014, Home Depot, Costco, Macy’s, and Wal-Mart saw an increase in online sales of 54, 48, 31, and 30%, respectively; Amazon saw an increase of 20%.59 Further, physical stores often have an option for in-store pickup to save on shipping. In 2014, Amazon spent $6.6 billion on shipping while collecting only $3.1 billion in shipping charges.60

Services

In 2014, two million third-party retailers sold over two billion items through Amazon, accounting for nearly 40% of all items sold through the website.61 During the fourth quarter of 2012, third- party sales accounted for 39% of all items sold, up from 36% in 2012.62 On each of those items, Amazon charges a number of fees on top of taking a percentage of the sale. The fees are charged for such things as storage and logistics.63 These fees vary from seller to seller; one third-party retailer disclosed that the fee they were being charged had increased from 8% per item in 2012 to 15% in 2013, when Amazon opted to take a larger cut of sales.64

While the marketplace does offer increased traffic to third parties, these sellers have difficulty securing repeat customers because so many view Amazon sellers as homogeneous. That is, there is no reason to be loyal to a particular seller on Amazon because the service is relatively similar, as are prices, across sellers. Further, Amazon often offers the same products as third parties for a lower price or with preferred webpage placement. This has led some sellers to see a decline in sales as they are put into competition directly with Amazon.65 In the event that Amazon is not able to capture those that may choose to purchase from a third party, the company still makes money through the fees levied against the seller.

Another important service that Amazon provides is Amazon Payments. This wholly owned subsidiary allows a customer to make purchases on a non-Amazon website, using their Amazon credentials. The service helps customers feel secure in their purchase and eliminates the need to enter a credit card number and shipping address, cutting down on the time it takes to complete the purchase and removing burdens that might lead a customer to decide against making the purchase altogether. Amazon Payments faces competition from services such as Apple Pay, Square, and PayPal, forcing it to keep fees competitive.

Devices

Amazon occupies a strange place as a retailer, service provider, and technology company. Perhaps the most famous of Amazon’s physical creations is the highly successful Kindle e-reader, introduced in 2007. The company keeps the numbers on Kindle sales a secret, but it has been estimated that roughly 20 million Kindles were sold in 2013, generating nearly $4 billion in revenue. In addition to selling the physical device, Amazon also earns $265–530 million per year from e-book sales.66

In 2009, just 3 million Kindles were sold. Amazon has seen its e-reader market share drop from 90% in 201067 to approximately 40% in

2014. In 2010, Amazon made headlines by, for the first time, selling more e-books than hardcover

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books.68 Many of these e-books are sold at a loss in an attempt build customer loyalty, as Kindles read proprietary file types accessible only through Amazon.

Amazon also sells the Kindle Fire tablet, which competes with the iPad and various Android- powered tablets. The Fire Phone was Amazon’s failed attempt to create a smartphone. In the fourth quarter of 2014, Amazon took a $170 million loss on the phone.69 The Fire Stick, a competitor to Chromecast and Roku, enjoyed widespread success. In the U.K. it was touted as Amazon’s “fastest-selling device ever.”70

Web

As Amazon grew to be the major online retailer, it developed web technologies that allowed for easy navigation, well-functioning databases, and more. It has capitalized on those developments by allowing other companies to access to them through Amazon Web Services (AWS). Amazon officially launched AWS in 2006 to offer “IT infrastructure services to businesses in the form of web services—now commonly known as cloud computing.”71 The benefit of this type of computing is that businesses are able to rely on Amazon’s global network of servers to store and deliver data, rather than having to purchase and maintain servers in-house. The demand for AWS is widespread and companies such as TicketMaster, Etsy, Netflix, and The Guardian utilize the services, in addition to Yelp, Reddit, and numerous government agencies. In 2014, “a $600 million computing cloud developed by AWS for the Central Intelligence Agency began servicing all 17 agencies that make up the intelligence community.”72

In the first quarter of 2015, Amazon reported AWS revenue at $1.57 billion. It is expected that $6 billion will be total AWS revenue for 2015. Of the $1.57 billion in the first quarter, $265 million was profit, a $20 million increase over the previous year. The profit generated by AWS could exceed $1 billion by the end of 2015.73

Corporate Strategies and New Developments

Amazon is unlike many businesses in that it allows for third parties to sell their wares in its store. An analog would be Best Buy allowing Wal-Mart to set up a kiosk in its showroom. This unusual business tactic is indicative of what Bezos claims are the three big ideas at Amazon: long-term thinking, customer obsession, and willingness to invent. Long-term thinking is what has afforded Amazon the market position it enjoys today. Rather than seeking high profits in its infancy, the company opted to reinvest all money earned, and take on debt and losses, in order to build a huge customer base and product inventory. Now the company is incredibly diverse, selling products and services, creating devices, and developing web technologies that are used by some of the largest companies in the world.

The sheer size of Amazon allows the company to enjoy economies of scale and volume discounts. The fact that Amazon has no physical store allows for the stockpiling and bulk purchasing needed to achieve those price breaks, and the large customer base allows for the distribution of fixed costs over many consumers. Indeed, this customer base is so important that Amazon bought Zappos.com, a company with $1 billion of gross sales in 2008, for just under $1 billion in 2009. One of the most attractive features of the company was the “fiercely loyal customer base at Zappos.”74 This customer base was large at 24 million customers, and nearly 70% of those customers were female. For Amazon, more customers means more distribution, sellers, convenience, selection, and lower prices, which leads to more customers. Having repeat customers is key to Amazon’s success and longevity, and this is achieved through selection, low prices, and customer service.

Interestingly, Amazon has been able to vertically integrate retail so well that it is difficult to recognize where Amazon ends and third parties begin. This benefits the company greatly because

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the risks and opportunity costs associated with a fully stocked warehouse are mitigated by third parties that are able to supply any product that Amazon does not have immediately available. Those third parties, however, do not get their due recognition as customers still understand their purchase to have been made with Amazon.com, a situation that displaces risk from Amazon to third parties and rewards Amazon as well with repeat customers, though those customers are not likely to repeatedly buy from any particular third party.

The customer obsession is simultaneously an obsession with experience and an obsession with convenience. Amazon aims to make the purchasing of products as easy as possible. This has driven the site since the company was founded. This is also apparent in some of Amazon’s more recent offerings such as Prime Instant Video, an on-demand video service accessible for no additional charge with Prime membership, and Amazon Fresh, which offers same-day grocery delivery in several cities around the country. This convenience is also what drives Amazon Payments as well as Kindle sales.

At its heart, however, Amazon is still a no-holds-barred company in search of revenue and profit. The company proposed that it should get a 30% cut of all e-book sales in 2014.75 When publishers choose not to cede to these demands Amazon has, in the past, tried to inhibit the sale of those publishers’ books. For example, in 2012 when the Kindle contract with the Independent Publishers Group (IPG), one of the largest book distributors in the United States, came up for renewal, Amazon attempted to squeeze more profit out by paying less for each title. However, IPG was unwilling to bend as far as Amazon wanted. As a result, Amazon opted to remove nearly 5,000 e-books that were associated with IPG76 in an apparent act of retaliation. Similarly, in 2010, Amazon removed from its website books published by Macmillan due to a dispute over e-book pricing.77 These tactics have often been met uncritically and occasionally praised.

Political Profile

Since the company went public, Jeff Bezos has remained the CEO and chairman of Amazon. He holds the largest block of stock in Amazon as well, boasting over 87 million shares (19% of total shares).78 In 2013 he sold exactly 1 million of those, bringing in $270 million after taxes, to offset his personal purchase of The Washington Post for $250 million in October of that year. Although Bezos holds more Amazon stocks than any other individual, and is both the CEO and chairman of the company, he earns a modest executive salary around $80,000. His political contributions tend to be given to state-level candidates rather than to federal politicians, with Bezos and his wife Mackenzie giving just $162,000 to federal political candidates and committees since 1998.79

Nearly $130,000 of those donations were given to Amazon’s corporate PAC. In the same time, the couple has given $28,000 to Democratic candidates and only $4,000 to Republican candidates. In contrast, Bezos has been significantly more active in state-level politics, giving, with his wife, $2.5 million to a Washington state referendum to legalize gay marriage.80

The Amazon PAC has donated almost equally to Democrats and Republicans, giving $93,000 and $86,500 respectively. Where Amazon spends the most political money is on lobbying efforts. In 2013, Amazon spent $3.5 million on lobbying “with seven outside firms lobbying on its behalf.”81

That figure increased to $4.7 million in 2014.82 The first quarter of 2015 saw lobbying spending increase by 14% over the previous year, up to $1.9 million, outspending Apple’s $1.24 million lobbying efforts in the same 2015 quarter.

Board of Directors

Many of Amazon’s highest-ranking employees have held executive positions within the company for nearly a decade. The executives, however, make relatively low salaries compared to similar

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companies. The highest paid, Diego Piacentini, is Amazon’s senior vice-president for international retail who earns $175,000 annually, and Jeff Wilke, the senior vice-president of consumer business, earns the second largest salary at $165,000.83 However, Wilke does hold approximately $20 million in Amazon stock. It seems the high retention of executives at Amazon is not due to salaries, but instead because Amazon works “on big ideas, and big projects.”84 Former executive Dave Cotter suggests, “You go to Amazon because there’s something big going on. Other companies pay more.”85

Bezos has remained the sole chairman of Amazon’s board of directors since the company started. Other individuals on the Board have ties to publications such as Reader’s Digest, charit- able organizations such as the Bill and Melinda Gates Foundation, media companies such as Viacom, Inc., and tech companies such as webOS. Of the 10 members of the board only 3 are women—a higher percentage than women holding senior management positions in the com- pany. Of the 119 senior managers employed by Amazon, only 18 are women and none have a direct line to Bezos.86 An all-male team of 12, known as the Senior Team or S Team, has such direct lines and the Team seems “reluctant to employ women, according to a leak from an internal directory.”87

Labor Force/Workers

Amazon employs over 150,000 workers around the world. This workforce is predominantly white and male, with 60% of all employees identifying male, a number that increases to 75% when examining only managers. Similarly, 60% of all workers identify white, with 71% of managers identifying white,88 and Amazon’s board of directors is exclusively white. For its part, it appears that Amazon does employ a more diverse workforce than many other tech giants such as Facebook, Twitter, and Google.89

Much of Amazon’s workforce is composed of warehouse and order-fulfillment workers. Amazon’s size and the nature of online retail require the company to hire many seasonal or temporary workers. These workers tend to be employed during the holiday season and are sometimes called “workampers” because they travel to the fulfillment centers in vans, motorhomes, and RVs during the busy season, staying in one of the free RV parking spots provided by Amazon.90

Workampers and other seasonal workers receive bonuses for staying with the company through the entire holiday rush and usually earn $10 to $13 per hour. However, there have been many reports about the harsh working conditions, expectations, and neglect experienced by Amazon’s employees. During the peak season the company implements a “blackout” period, during which time any absence is inexcusable. This policy disproportionately impacts single mothers at the company.91 Medical coverage is not provided for these temporary workers, but full-time employees receive stock shares, 401(k), and health insurance after two years of employment.

Amazon has come under scrutiny for pressuring warehouse workers to refrain from disclosing injuries received while working, resulting in a federal lawsuit filed in Pennsylvania.92 An average warehouse employee walks 7 to 15 miles each day, and this “high stress, high pressure”93 walking has led to injuries such as those experienced by one warehouse worker whose doctor found that the walking induced stress fractures in both of her feet; Amazon disputed that the injuries were work-related.94 Workers have complained to federal regulators about the unbearably hot warehouses, where temperatures reach in excess of 110 degrees. The heat has attributed to heat- related illnesses with such frequency that Amazon has stationed ambulances and paramedics outside of some warehouses during the summer in anticipation,95 rather than invest in air conditioning. Managers have repeatedly refused to open the bay doors of the warehouse for fear of theft, preventing fresh air from entering the warehouse, and contributing to heat related illnesses, which, on June 2, 2011, resulted in 15 workers collapsing in a warehouse in Lehigh Valley, Pennsylvania.

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Workers are closely watched to ensure they meet productivity goals. In March 2011, an employee was fired for having “been found unproductive during several minutes of her shift.”96 Machines measure the efficiency of each worker and those who do not meet the quota are reprimanded. In Germany, Amazon was revealed to have hired a security firm with neo-Nazi ties, called HESS security, to “keep order at hostels and budget hotels” where Amazon housed a largely immigrant temporary workforce.97 The security guards not only harassed the workers, but also “intimidated them by searching their bedrooms and kitchens.”98 In the United States the Supreme Court rejected a lawsuit by Amazon workers that sought wages for time the employees spent waiting in line to be screened for stolen merchandise, in Integrity Staffing Solutions, Inc. v. Busk (2014). The Court found that requiring employees to wait in lines to be screened did not impair their ability to perform their primary duty at work and was therefore not compensable. In addition to poor working conditions, heavy employee surveillance and intimidation, and the requirement to stand in long lines without pay, the non-union workforce at Amazon is also subjected to lower-than-average wages, receives no incentive pay, and is offered no lunch compensation.99 Bezos claims that incen- tive pay is “detrimental to teamwork” and recognizes that the company pays “very low cash compensation relative to most companies.”100 However, Fortune still named Bezos “Businessperson of the Year” in 2012.101

Cultural Profile

The political ideology of creative destruction fits well in making virtue of perceived necessity in discourses about information-age economics, politics, and culture. And the idea of disrupting an established industry or broader set of economic arrangements, including those among publishers and distributors, and between capital and labor, through digital innovation has drawn critical and celebratory attention from many writers in business studies, economics, and film and media studies.102

The notion that digital innovation can and sometimes does dramatically undermine established business models and industry incumbents, leading to the redefining of markets and to new sources of revenue and profit, is now generally accepted as commonplace, if not inevitable and even necessary. In one of the most seductive visions of the economic potential of digital innovation in the modern life of consumers, Microsoft founder Bill Gates wrote about his vision of a time when digital networks would enhance the performance of firms by enabling them to respond optimally to near-perfect information about market demand, fulfilling the classical liberal vision of “friction- free” capitalism, in what Gates calls a “shopper’s heaven.”103 Like most visionaries of how information technology will deliver on capitalism’s utopian promise, Gates and others do not turn sustained attention to how the introduction of new forces of production have produced new and oppressive social relations.104

Amazon is not primarily a content producer, but instead functions more as a pipeline to the content of other providers. In that sense, Amazon more closely resembles a telecommunications common carrier than, for example, a Hollywood studio, a publishing company, or a media conglomerate. As such, Amazon’s cultural profile is best understood from the perspective of the political ideology that characterizes its business practices, particularly in how it approaches its customers and its employees. As discussed above, Amazon CEO Jeff Bezos, and the company as a whole, places a high priority on listening to the customer and on maximizing customer satisfaction. The immense popularity of Amazon as a source for all sorts of media content—video, music, books, ebooks, audiobooks, and more—and on the retail sale of such a wide range of goods that are not available in even the largest shopping malls in the United States, demonstrates that the company is effective in offering high value to consumers. Amazon does in many senses appear to enact the vision of the “shopper’s heaven” and “friction-free capitalism,” presented by Bill Gates.105 However, reports on both blue- and white-collar labor practices of Amazon portray

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a company that has been far from friction-free.106 Despite the company’s public relations efforts to respond to widespread criticism of the cost to Amazon employees in terms of health, safety, compensation, and humane treatment in delivering high value and customer satisfaction, a significant range of independent sources indicate that there are serious company-wide problems. To the extent that such reports corroborate and are valid, they are indicative of the dark side of what passes for “friction-free” in the era of digital capitalism.

Conclusion

In his 1986 book, Misunderstanding Media, media historian Brian Winston traces the introductions of several media innovations into the marketplace, and he demonstrates how in each of those cases the radically futuristic visions for how those innovations would transform communication and society were suppressed. Typically, this “suppression of radical potential,” as Winston terms it, is at the hand of established institutional forces—industry incumbents, government policies, market preferences—that mitigate against the fulfillment of visions of unbridled innovation.107 If Winston’s analysis and challenge to technological determinism were applied to the emergence and enormous success of Amazon, however, we would have to find exception to his generalization, because Amazon’s disruptive market emergence hardly seems to be suppressed by competition, government, or any other organized institutional forces. If there is any source of power that has compelling motivations to place limits on the business practices of Amazon, one might expect it to be labor power. But the radical potential of disruptive innovation that plays itself out under neoliberal capitalism is hardly inhibited by organized labor. Rather, as the case above illustrates, the true radicalism that drives the success of firms that have built their success on digital disruption derives from the intensifying alignment of governments (laws, regulations, politicians, judiciaries) with the interests of large corporations to repress the interests and solidarity of workers. It is in this context that the power of Amazon seems unbridled.

Notes 1 Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper and Brothers, 1950).

Originally published in 1942. 2 Andrew Calabrese, Creative destruction? From the welfare state to the global information society,

Javnost/The Public, 4(4), (1997), 7–24; Tyler Cowen, Creative Destruction: How Globalization is Changing the World’s Cultures (Princeton, NJ: Princeton University Press, 2002).

3 Theodore Levitt, Marketing Myopia, Harvard Business Review, July–August 1960, 45–57. 4 Theodore Levitt, Production-Line Approach to Service, Harvard Business Review, September–October

1972, 41–52. 5 Frederick Winslow Taylor, The Principles of Scientific Management (New York: Harper & Brothers, 1911). 6 Of course, workers who are forced to perform such routinized tasks under constant time pressure are

apt to object. Richard Eskow, The Fast-Food Strikers Are Fighting for All of Us, Huffington Post, October 8, 2013, www.huffingtonpost.com/rj-eskow/the-fast-food-strikers-ar_b_3728990.html; Scott M. Stringer, Human Capital in the Twenty-First Century, Huffington Post, May 21, 2014, www.huffington post.com/scott-m-stringer/human-capital-in-the-twen_b_5367296.html; Jack Temple, Going Nowhere Fast at McDonald’s, Huffington Post, July 23, 2014, www.huffingtonpost.com/jack-temple/mcdonalds- striking-workers_b_5381586.html

7 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Reprint edition (Cambridge, MA: Harvard Business Review Press, 2013). Originally published in 2011.

8 Adam Leshinsky, “Amazon’s Jeff Bozo: The Ultimate Disputer,” Fortune, November 16, 2012, ttp://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/

9 Richard Brandt, One Click: Jeff Bezos and the Rise of Amazon.com (New York: Portfolio, 2011), 35. 10 Alton F. Doody and William R. Davidson, Next Revolution in Retailing, Harvard Business Review,

May–June 1967, 4. 11 Thomas D. Harnish, Channel 2000, Description and Findings of a Viewdata Test Conducted by OCLC

in Columbus, Ohio, October–December 1980, http://library.oclc.org/cdm/ref/collection/p267701coll 27/id/4526

424 Andrew Calabrese and Tyler Rollins

12 www.forbes.com/sites/clareoconnor/2015/04/28/amazon-launches-amazon-business-marketplace- will-close-amazonsupply/

13 www.wired.com/2012/03/amazon-ec2/ 14 www.forbes.com/powerful-brands/list/#tab:rank 15 www.bizjournals.com/seattle/blog/techflash/2015/01/amazons-headcount-tops-150–000-after-

adding.html 16 www.opensecrets.org/pacs/lookup2.php?cycle=2014&strID=C00360354 17 www.opensecrets.org/lobby/clientsum.php?id=D000023883&year=2014 18 http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 19 http://blogs.wsj.com/corporate-intelligence/2014/05/06/apple-jumps-in-rankings-now-second-largest-

online-seller/ 20 www.biography.com/people/jeff-bezos-9542209 21 Brandt, One Click, 32. 22 Suresh Kotha, Competing on the Internet, 1998, 247. 23 Ibid. 24 Ibid. 25 Brandt, One Click, 97. 26 Christine Frey and John Cook, “How Amazon Survived, Thrived, and Turned a Profit,” Seattle Post,

January 28, 2004. 27 Stephanie Lang, Logan Tinder, Jarett Zimmerman, and Jeffrey S. Harrison, Amazon.com: Offering everything

from A to Z (University of Richmond: Robins School of Business, 2012), 2. 28 Brandt, One Click, 107. 29 http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter98.pdf 30 Ibid. 31 Brandt, One Click, 113. 32 Christine Frey, How Amazon Survived, 3. 33 Brandt, One Click, 115. 34 Ibid., 121. 35 www.nytimes.com/2002/01/23/business/technology-a-surprise-from-amazon-its-first-profit.html 36 Ibid. 37 http://money.cnn.com/2000/08/10/technology/amazon/ 38 www.wsj.com/articles/SB113798030922653260 39 http://news.cnet.com/2100–1017–255644.html 40 http://business.time.com/2011/07/19/5-reasons-borders-went-out-of-business-and-what-will-take-

its-place/ 41 www.wsj.com/articles/SB100017752821017751 42 www.businesswire.com/news/home/20030417005530/en/Amazon.com-Power-NBA-Store-NBA.

com-WNBA-Store#.VXH9d89Viko 43 www.businessweek.com/the_thread/techbeat/archives/2005/02/amazons_prime_c.html 44 www.washingtonpost.com/blogs/the-switch/wp/2015/02/03/what-amazons-learned-from-a-decade-

of-prime/ 45 http://arstechnica.com/uncategorized/2006/06/7068–2/ 46 www.businessinsider.com/2008/10/amazon-we-promise-our-ec2-cloud-will-only-crash-once-a-week-

amzn- 47 https://aws.amazon.com/blogs/aws/big-day-for-ec2/ 48 https://sg.news.yahoo.com/video/cia-freezer-big-amazon-143129467.html 49 Ibid. 50 www.forbes.com/sites/jeremygreenfield/2013/10/30/kindle-most-popular-device-for-ebooks-beating-

out-ipad-tablets-on-the-rise/ 51 www.businessinsider.com/e-commerce-disrupting-600-billion-grocery-industry-2014–8 52 www.cnbc.com/id/102103709 53 https://nrf.com/2014/top100-table 54 http://time.com/money/3671937/amazon-staples-walmart-ecommerce/ 55 www.cnet.com/news/amazon-says-amazon-web-services-a-5-billion-business/ 56 www.bloomberg.com/bw/articles/2014-12-04/amazon-expanded-far-beyond-retail-as-bezos-took-

on-more-rivals 57 http://business.time.com/2011/12/13/is-amazon-due-for-a-backlash-because-of-its-evil-price-check-

app/ 58 http://bits.blogs.nytimes.com/2013/02/27/more-retailers-at-risk-of-amazon-showrooming/ 59 http://time.com/money/3671937/amazon-staples-walmart-ecommerce/ 60 Ibid.

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61 http://techcrunch.com/2015/01/05/amazon-third-party-sellers-2014/ 62 www.forbes.com/sites/greatspeculations/2013/01/30/amazons-third-party-sellers-drive-margins-and-

stock-higher/ 63 Ibid. 64 www.reuters.com/article/2013/03/18/us-amazon-sellers-idUSBRE92H0CR20130318 65 www.wsj.com/articles/SB10001424052702304441404577482902055882264 66 www.forbes.com/sites/greatspeculations/2014/04/02/estimating-kindle-e-book-sales-for-amazon/; see

also www.trefis.com/stock/amzn/model/trefis?easyAccessToken=PROVIDER_c0f663352356827f8709 1d2164ed90f2cc253a52

67 www.thenation.com/article/168125/amazon-effect 68 www.wired.com/2010/07/amazon-e-books-outsell-hardcovers/ 69 www.wired.com/2015/01/amazon-fire-phone-always-going-fail/ 70 www.telegraph.co.uk/technology/amazon/11537336/Fire-TV-Stick-becomes-Amazons-fastest-selling-

UK-device-ever.html 71 http://aws.amazon.com/about-aws/ 72 www.theatlantic.com/technology/archive/2014/07/the-details-about-the-cias-deal-with-amazon/

374632/ 73 www.businessinsider.com/amazon-earnings-q1-2015-2015-4 74 www.reuters.com/article/2009/07/23/us-amazon-zappos-idUSTRE56L6TQ20090723 75 www.amazon.com/forum/kindle/ref=cm_cd_tfp_ef_tft_tp?_encoding=UTF8&cdForum=Fx1D7S

Y3BVSESG&cdThread=Tx3J0JKSSUIRCMT 76 http://business.time.com/2012/02/24/amazon-pulls-5000-books-from-kindle-store/ 77 www.nytimes.com/2010/01/30/technology/30amazon.html 78 www.bloomberg.com/news/articles/2013-04-12/amazon-s-bezos-among-lowest-paid-tech-ceos-with-

81–840-salary 79 www.opensecrets.org/news/2013/08/bezos-leaves-few-money-in-politics/ 80 www.washingtonpost.com/blogs/the-fix/wp/2013/08/07/the-politics-of-jeff-bezos/ 81 www.politico.com/story/2014/06/amazon-drones-lobbyist-k-street-107996.html 82 www.consumerwatchdog.org/newsrelease/google-spends-record-1683-million-2014-lobbying-topping-

15-tech-and-communications-compa 83 www.businessinsider.com/diego-piacentini-amazon-executive-pay-2012-11 84 www.businessinsider.com/working-at-amazon-no-free-food-and-a-low-salary-2012-11 85 Quoted in http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 86 www.theguardian.com/technology/2014/apr/25/amazon-employs-18-women-among-120-senior-

managers 87 Ibid. 88 www.techtimes.com/articles/19250/20141101/amazon-workforce-diversity-report-reveals-gender-

gap-no-surprises-here.htm 89 www.bloomberg.com/news/articles/2014-10-31/amazon-discloses-more-diverse-workforce-than-

silicon-valley 90 www.vice.com/read/in-the-prime-of-their-lives-0000544-v2n1 91 Nichole Gracely, “Surviving in the Amazon,” New Labor Forum 21.3 (2012): 80–83. Project MUSE. Web,

June 8, 2015, https://muse.jhu.edu/ 92 www.seattletimes.com/business/amazon-warehouse-jobs-push-workers-to-physical-limit/ 93 www.businessinsider.com/working-conditions-at-an-amazon-warehouse-2013–2 94 www.seattletimes.com/business/amazon-warehouse-jobs-push-workers-to-physical-limit/ 95 www.mcall.com/business/mc-amazon-temporary-workers-unemployment-20121215-story.html

#page=2 96 www.salon.com/2014/02/23/worse_than_wal_mart_amazons_sick_brutality_and_secret_history_of_

ruthlessly_intimidating_workers/ 97 www.independent.co.uk/news/world/europe/amazon-used-neonazi-guards-to-keep-immigrant-

workforce-under-control-in-germany-8495843.html 98 www.businessinsider.com/amazon-to-investigate-german-factories-2013-2 99 www.businessinsider.com/working-at-amazon-no-free-food-and-a-low-salary-2012-11

100 http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 101 Ibid. 102 See, for example, Dina Iordanova and Stuart Cunningham, Digital Disruption: Cinema Moves On-Line

(Edgecliffe, UK: St. Andrews Film Studies Publishing, 2012); James McQuivey, Digital Disruption: Unleashing the Next Wave of Innovation (Amazon Publishing, 2013).

103 Bill Gates, Nathan Myhvold, and Peter Rinearson, The Road Ahead, Rev. ed. (Penguin, 1996), 181.

426 Andrew Calabrese and Tyler Rollins

104 For an excellent analysis and critique of Gates’ vision of the future of capitalism, see Jens Schröter, “The Internet and ‘Frictionless Capitalism,’” Triple C, 10(2) (2012), 302–312.

105 Gates, et al., The Road Ahead, 181. 106 Spencer Soper, “Inside Amazon’s Warehouse,” The Morning Call, September 18, 11, http://articles.mcall.

com/2011-09-18/news/mc-allentown-amazon-complaints-20110917_1_warehouse-workers-heat- stress-brutal-heat; Jodi Kantor and David Streitfeld, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, New York Times, August 15, 2015, www.nytimes.com/2015/08/16/technology/inside- amazon-wrestling-big-ideas-in-a-bruising-workplace.html

107 Brian Winston, Misunderstanding Media (Cambridge, MA: Harvard University Press, 1986).

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