Since Paul Krugman wandered into my field of economics today, I thought this might be an opportune moment to recount various things I have said about Amazon and its dispute with Hachette over the last few months. Krugman’s problem: Amazon has too much power, plain and simple. Well, it isn’t that plain or simple.

First, if Amazon has power in the book market, it is because publishers have handed it that power. The power in eBooks, for example, could end tomorrow if publishers abandoned DRM and offered eBooks to Kindle purchasers in other formats (for free if they have already purchased the book). That would empower consumers to switch if Amazon should, in the future, not act in their interests. 

Second, yes, Amazon are trying to reduce the publisher’s cut of eBooks. But at the same time, they are trying to maintain or increase authors’ cut. It is far from obvious to me that that is a bad thing for the book industry. 

Paul Krugman sees Amazon’s actions against Hachette — not allowing pre-orders, slipping delivery times and the like — as evidence it cannot be trusted with its power. But his anger is missplaced. The issue is that Amazon has taken these actions in a way that actually harms consumers right now. As Clay Shirky writes:

In the current fight between Amazon and the publisher Hachette over the price of ebooks and print-on-demand rights, Amazon’s tactics are awful, the worst possible in fact: They are denying readers access to books, removing pre-order options and slowing delivery of titles published by Hachette. Amazon’s image as a business committed to connecting readers to books is shredded by this sort of hostage-taking. The obvious goal for readers in should be to punish anyone using us as leverage.

So Amazon’s customers have a reason to be upset about how they have been dragged into this fight.

But it is more than that: doing this harms Amazon’s core identity that it is relentless in its customer focus. These actions are not those of someone who is relentless and that is a real problem for Amazon. It surely wants people to think of it as customer focussed. In that regard, it could, for instance, have fought the publishers by more aggressively promoting its own publication house. It would have pushed publishers to perform better. Instead, it has brought consumers into the fight.

We should be saddened by this. I was this past week when I had an unbelievably positive experience with Amazon. I had order a cheap computer monitor and some air freshner. Both were stolen from our front porch. Well, I suspect they were because they were listed as delivered but were not there. So I contacted Amazon customer service via a web form. Their response:

Hello from Amazon.ca. 

I’m sorry to hear that you have not received your order yet though tracking shows delivered. 

I completely understand your disappointment. That’s definitely not what we want our customers to experience. 

We are aware that our choice of delivery services reflects on our business as a whole, and I have passed your message along to our shipping department, as I know they will want to read about your experience. 

At this point, I can only assume that it was lost. 

Tracing a package is time-consuming and only occasionally successful. Because we want you to receive your order as soon as possible, we have found it more efficient to simply send a replacement order whenever a package is lost. 

Normally, we use to create a replacement order which will be sent as soon as possible. However, at this point, we are unsure if you would like us to send you a replacement order, or if you would like a refund. 

Please use the following link to contact us again and indicate which option you prefer.

This happened within minutes of my inquiry. I wrote back saying that I thought it was probably stolen. They didn’t care. Amazon wanted to replace the item. Wow.

I thought about why they did this. The answer was obvious. If customers like myself start to fear losing things that get stolen on a porch, we will stop using Amazon. Moreover, as this hadn’t happened before, they did not think I was pulling one over on them. I certainly hope it isn’t a regular thing. Why? Because I like using Amazon.

My point is this. First, this is not the sort of customer service we get from evil monopolies. Second, it is the sort of customer service we get from a company that always puts its customers first. What a shame, therefore, that in the dispute with Hachette, Amazon has chosen another path — away from relentlessness. That’s why we should be upset not appealing to issues of antitrust concerns.

18 Responses to Amazon: it’s not the power, it’s the lost focus

  1. alex says:

    I had the same/similar experience a couple of times with Amazon, the last one few days ago when I received a gift sent by a friend in a different country and it arrived 5 days late (it was a Prime delivery) and completely damaged.
    However, I think this sentence “it is the sort of customer service we get from a company that always puts its customers first” could be also changed into “it is the sort of customer service we get from a company that is very good in negotiating insurance contracts with its delivery partners” (that will likely have their own insurance too).

    As long as the number of lost items is under control for a given customer or area, then it is much better to replace the item fast so that the customer is happy and then send the bill to the delivery and/or insurance company.

  2. […] this post by Joshua Gans at Digitolopy today got me thinking a bit more about this. I was glad to read how he had a positive experience […]

  3. Christiaan says:

    I don’t agree with your assessment of Amazon as being nice to their customers. And I also don’t agree that, as you seem to think, it makes a difference whether the items were stolen. There is in fact a much better explanation as to why Amazon doesn’t make a fuzz about it: it is their responsibility, so they should send a replacement. The reason is that Amazon has a choice of how they deliver their products. They can make sure the items are delivered in a safe way, explicitly handled to the customer. Or they can choose to deliver in an unsafe way by just dropping them off at your porch, which has the (considerable) risk of it being stolen. It is clear that the former option is more expensive than the latter. For Amazon. So they make a rational choice: they save on delivery costs, because the cost of replacements in case of stealing is (probably) much less. But it is their choice. And therefore it is also their responsibility. If they reap the benefits of saving costs for unsafe delivery, they are also liable for the costs in case this goes wrong, that’s only reasonable. What worries me more is that (even) you actually think it would not be Amazon’s responsibility, that already shows that Amazon has more power than it should.

    • =Peter says:

      Is it only Amazon’s choice to go with the less expensive delivery option? If they allowed us to pay for a delivery option that required our signature on delivery would they then no longer be ‘responsible’ for loss when we choose not to pay for it? How many of us *would* pay for it?

      • =Peter says:

        p.s. I too had a recent loss/stolen experience. In this case I received an empty, open envelope in my mail box. Could have been opened at the border (I think it originated abroad) and not quite sealed properly, thereby having been separated from its envelope accidentally along the way. Could also have been stolen, either in the system, or from my mailbox (my building fronts on a fairly busy street, with the mailbox in clear view).

        I submitted my ‘complaint’ through Amazon’s system to the 3rd party dealer I’d purchased it through (a ‘used’ book, purchased via Amazon). And they too replaced it, basically no questions asked (other than: would you like another copy, or would you prefer a refund?).

    • Cliff says:

      That makes zero sense because every company in the world ships their products the exact same way as Amazon.

  4. =Peter says:

    “My point is this. First, this is not the sort of customer service we get from evil monopolies. Second, it is the sort of customer service we get from a company that always puts its customers first.”

    Doesn’t quite square with:

    “If customers like myself start to fear losing things that get stolen on a porch, we will stop using Amazon.”

    Amazon ‘puts customers first’ so that it can keep them. It actually puts customers second, after itself. (Which is quite appropriate for a business, but don’t confuse this with altruism or actual care for you or its other customers.)

    Also: Note that Krugman’s argument was not that Amazon was abusing its monopoly power, but that it is abusing its monopsony power!

    • Cliff says:

      And philanthropists only donate to charity because it satisfies them personally. So really they put themselves first as well.

  5. […] 5. Ryan Avent on how bad is Amazon?  And Joshua Gans on Krugman on Amazon. […]

  6. Dan says:

    I thought Krugman was in favor of putting the thumbscrews to big corporations who overcharge their customers. Only when government turns the screw, I guess. I read Amazon has reached agreement with Simon and Schuster to sell most books for $9.99 or less while maintaining the authors’ current royalty payments. Which should undermine Hachette’s argument that it is only looking out for the writers’ interests.

  7. kaleberg says:

    I think Amazon knows it can be replaced.

    There was a good piece on Amazon’s approach to systems. Everything is a service. Their whole shop runs on AWS which is now a profit center in its own right. It’s logistics system has changed the way UPS, Federal Express and Post Office work. (Hell, my mailman dropped off an Amazon package on a Sunday!) All the moving parts are visible, and they are interchangeable. If Amazon stops offering generally good pricing and predictable, prompt delivery, there are countless hungry firms, large, small and as yet unformed, ready and eager to take advantage of any weakness. It wouldn’t even be very expensive. The pieces are there, and Amazon isn’t their only supplier. If Hachette wanted to, it could bite off a chunk.

    Hachette, in contrast, has a government enforced monopoly, and it has shown no compunction about trying to press its monopoly advantage, even to the point of violating anti-trust law. I have no sympathy for Hachette or any of the other publishers.

    You are right that Amazon is taking a risk of alienating its customers by putting them in the middle of the dispute, but a lot of us have dealt with this kind of thing before. I don’t cross picket lines, even if it means changing plans or meeting places. Amazon may be a monopsony, but that’s because they’ve integrated my buying power with that of countless others.

  8. Ravi says:

    I would not be so quick to assume that Amazon isn’t putting customers first in the Hachette standoff.

    Publishers have a long and deep track record of massively customer-hostile behavior with respect to ebooks (DRM, conspiring to raise prices, text-to-speech restrictions, a decade spent crushing nascent ebook platforms, …). Sometimes it feels like publishers would rather not sell a book at all than sell an ebook.

    It’s entirely possible that Hachette is holding out for terms that would support going back to their ebook customer-hostile ways. If so, Amazon may be trading short-run customer inconvenience for long-term customer benefits.

  9. […] Krugman seems to have stirred the waters, with a few other authors following […]

  10. Kenn says:

    I would order far less often from Amazon if they required signatures, because no one is home at my house during the day, so that would make receiving packages from them extremely inconvenient. I don’t think I’m the only person this applies to. Cost (to Amazon, or to me) isn’t really a relevant factor in this scenario.

  11. […] market power of Amazon and the big publishers (Joshua Gans is the go-to economist on this – here’s his most recent post); and the health (or lack of) of book stores; and also about long-term prospects for earning money […]

  12. […] market power of Amazon and the big publishers (Joshua Gans is the go-to economist on this – here’s his most recent post); and the health (or lack of) of book stores; and also about long-term prospects for earning money […]

  13. […] Amazon: it’s not the power, it’s the lost focus "My point is this. First, this is not the sort of customer service we get from evil monopolies. Second, it is the sort of customer service we get from a company that always puts its customers first. What a shame, therefore, that in the dispute with Hachette, Amazon has chosen another path — away from relentlessness. That’s why we should be upset not appealing to issues of antitrust concerns." […]

  14. paul says:

    Customer service is key to any business progress. i thing signature requirement will be destructive

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