Every profit is built on exploitation

Amazon and the Deadly Embrace Strategy

Even if the online retailer Amazon has not even existed for 20 years, it has already revolutionized people's shopping habits. In the run-up to Christmas of last year alone, over 30 million visitors used the portal in this country. [1] Customers appreciate Amazon's inexpensive and almost complete range of goods, the independent product reviews of other customers and the uncomplicated exchange options. And since the company usually even promises delivery within one working day, many prefer the convenient click of the mouse to stressful shopping.

The ARD documentary “Delivered! Temporary workers at Amazon “has revealed the dark side of this business model. The report showed the precarious conditions under which migrant workers, especially from Eastern Europe and Spain, toil in the Amazon logistics centers and are also harassed by right-wing security forces. [2]

The image damage for Amazon is great. The company immediately separated from its security service and also vowed to examine the labor law situation. Nevertheless, the outrage lasted for weeks, users called for a boycott of the group, and the Verdi union initiated an online petition for better working conditions in the logistics centers. [3]

However, the protest will have little effect on Amazon's successful course. Over the past few years, Amazon founder Jeff Bezos has built a global sales empire in which employee exploitation is just one of the reasons for its tremendous success. In order to live up to his motto - "Work hard, have fun, make history" - Bezos relies on aggressive growth and a company policy that can be described as a strategy of the "deadly embrace". With it, Amazon is forcing large parts of the stationary book trade, the publishers and, increasingly, other online retailers to their knees.

Pickers and packers: exploitation with a system

But let's return - according to Bezo's motto - to the places of "hard work" for now. There are eight logistics centers in Germany, six of which Amazon has built since 2009. The last two so-called fulfillment centers - “fulfillment centers” - were opened last autumn in order to withstand the onslaught of the upcoming Christmas business.

The pressure in the halls, which are several football fields, is extremely high. A wide variety of products are lined up next to each other in long rows of shelves: books, DVDs, shower curtains, bicycle tubes, dishwasher tabs or costume jewelry. At the hall entrances there are security gates where workers' pockets are searched at the end of the shift in order to prevent theft. [4]

All work processes are strictly regulated and software-controlled. Especially the pickers, who “pick” the ordered goods from the shelves and cover up to 20 kilometers a day, and the packers who prepare the orders for dispatch, do the hard work. Anyone who does not meet the specified quotas will lose their job. [5] And that can literally happen overnight, because the employment relationships in the first nine months are extremely precarious: Temporary workers can be terminated from one day to the next in the first three months. This is followed by a six-month trial period during which the notice period is extended to at least 14 days. [6] At least two thirds of all employees at Amazon are estimated to be temporary. [7]

In addition, the group systematically uses a social policy measure with which unemployed people are supposed to find a permanent job again. Amazon is hiring unemployed workers for a limited period of time as part of an alleged further training measure. The job center assumes the personnel costs for such “measures for activation and professional integration”, which usually last two weeks. There would be nothing wrong with that if these “internships” resulted in permanent employment. In fact, Amazon only employs the workers for the duration of the promotion and then fires them again. In 2011 alone, the group benefited from tax-financed subsidies in over 3,000 cases - especially in the stressful pre-Christmas period. [8]

Even if Amazon's approach corresponds to the Part-Time and Temporary Employment Act that has been in force since 2001 and is therefore legal, [9] the outrage over its system of exploitation is justified. However, such conditions can also be found - albeit not on this scale - in numerous other companies. [10] What distinguishes Amazon, on the other hand, is not so much the situation of its employees, but the corporate strategy: The decisive factor for its success is the consistent renunciation of entrepreneurial profit. Bezos ’motto is: growth instead of profit.

Growth instead of profit: conquering the market

The English company name of the company founded in 1994 already symbolizes the goal of Bezos ’: Like the largest river in the world, the Amazon, Amazon is to flood the world with a stream of brown parcels. And in fact, Bezos achieved the almost impossible: Today, the group not only dominates the online book market, but also large parts of global online retail.

This success is all the more astonishing when you compare Amazon's company profile with that of other global players in the digital age. In contrast to Apple, for example, Amazon's market power is not based on the fact that it has invented a new market. The group did not owe its rise to any revolutionary technical device such as the iPod or the iPad. Nor does it have a global social network like Facebook or search engine technology like Google.

For this reason, many initially smiled at Bezo's decision to attack the US book trade from the Internet. This was firmly in the hands of large bookstore chains in the mid-1990s. Barnes & Noble and the Borders Group alone controlled a quarter of the American book market; there were also more than 4,000 independent bookshops between New York and San Francisco.

However, Bezos was confident that his business model would be successful for two reasons: First, books are still a constant seller today. In 1994, Americans bought over 500 million books valued at $ 19 billion, including 17 bestsellers, each selling over a million copies. [11] On the other hand, Bezos recognized the astronomical growth potential of the Internet. Four years after the first web browser saw the light of day, the network grew by an incredible 2300 percent annually. In 1994 there were 16 million people online worldwide, a year later 36 million people, and today there are almost two billion people.

Still, at the beginning it looked like David's fight against Goliath. Bezos was faced with the challenge of bringing the book business together with the rapidly growing Internet. [12] And in order to be able to beat the mighty bookstore chains on the online market as a solitaire, it also had to grow as quickly as possible and in this way displace its competitors.

In fact, Amazon's sales have been growing steeply for years: In 2000, the company had sales of 2.7 billion US dollars, in 2010 it was already 34 billion, and in 2012 Amazon had sales of 61 billion US dollars. [13] Nevertheless, at the end of a year, the company is almost consistently in the red, as every dollar earned is immediately put back into the company. [14] This is also where Amazon differs from the other "giants". Apple has amassed a whopping $ 137.1 billion in financial reserves. Google also increased its profits last year by ten percent and achieved a surplus of 10.7 billion dollars. At Facebook, profits fell to 53 million US dollars after the unfortunate IPO in May of last year; In the previous year, however, the company had made a whopping profit of one billion dollars - with just 3.7 billion dollars in sales. [15]

Its persistent investment strategy enabled Amazon to optimize its website and build new logistics centers, but also to push its own asking prices below those of the competition. The Borders Group has already successfully thrown Amazon out of the running. In 2011, the American bookselling company had to file for bankruptcy and close around 400 stores nationwide. [16] Barnes & Noble is also stumbling: Their sales fell by almost nine percent in the third quarter of fiscal 2012/2013 compared to the previous year. And of the once more than 4,000 independent bookstores in the United States, only around 1,900 remain today. [17]

But not only in the United States, but also in Europe, Amazon has declared war on the book trade. Amazon has been represented in Germany since 1998. Fixed book prices in this country prevent a similarly relentless price war as in the USA by binding publishers and retailers to a uniform sales price for books. But Amazon also knows how to use this in its favor. The group has deliberately relocated its European headquarters to Luxembourg in order to benefit from a loophole in European tax legislation. Corporate profits in Luxembourg are nominally burdened with 29 percent. However, if income is generated with intellectual property, up to 80 percent of this is excluded from the assessment of taxable profit. In this way, Amazon can reduce the effective tax burden to below six percent. [18]

As a result, Amazon achieves far higher profit margins on books than the stationary book trade. This in turn allows him to lower the sales prices of other products, thus increasing the pressure on competitors on the Internet. With success: in the past year alone, the group sold goods worth around 8.7 billion US dollars in Germany; the previous year it was $ 7.2 billion. Thus, the German business has a significant share of 14 percent of Amazon's total sales - outside the USA, Germany is therefore also its most important market.

Deadly Hug: The Publishers' Dilemma

However, Amazon does not rely exclusively on its costly and resource-intensive displacement strategy. The most important pillar of his success is the fatal hug method. With this, Amazon binds its competitors so closely that they run out of steam. Amazon applies this principle especially with the cooperating publishers.

The discount that book publishers normally give stationary retailers is between 35 and 40 percent. At Amazon, up to 55 percent are due, especially for the weaker publishers - and that even though the group does not have its own bookstores. Sometimes Amazon also charges additional fees for logistics. For the publishers, there are also postage costs and occasionally barely comprehensible deductions from the invoices. In the end, they only have an average of around a third of the selling price that they can use to cover their costs.

How high the price for the cooperation with Amazon is, was also shown as a result of the ARD revelations. After that, Ch. Schroer Verlag and Verlag André Thiele terminated their cooperation with the online retailer in a media-effective manner. In open letters, they complained about the high discounts and "airy booking tricks for sales tax". The art and literature publisher Christopher Schroer is tired of appearing as a supplicant to Amazon, who “please, please, please may sell his books on your platform on terms and contracts that you dictate.” [19]

However, it remains to be seen how long the two publishers will be able to uphold their decision. Since Amazon now has a de facto monopoly on the Internet and controls 20 percent of the German book market, [20] works that are not listed on it are considered unavailable to most customers. The renowned Diogenes Verlag had to make this experience. He terminated Amazon's cooperation in 2006 in protest against the high discount demands. Shortly afterwards, however, the publisher and Amazon quietly reached an agreement and continued the collaboration. Apparently Diogenes could not do without Amazon's sales platform. [21]

In the struggle for higher margins and greater market power, Amazon is currently going one step further: for around a year now, the group has not only appeared as a retailer, but also as a publisher - with the aim of eliminating traditional publishers as “middlemen”. “Amazon Publishing” has its own scouts and editors. In addition, Amazon has recently started offering authors to publish their works independently on the “CreateSpace” service and then sell them digitally or in paper form via Amazon. [22] The fact that Amazon's intentions to compete with the publishers themselves are to be taken seriously is shown by the first successes of titles they have published themselves. In the summer of last year, several self-published works were on the e-book bestseller list of the "New York Times". [23]

The authors in particular are pleased with the direct marketing of their works. In addition, Amazon Publishing promises them up to 70 percent of the proceeds from their digital works - instead of the maximum 25 percent that traditional book publishers pay them. Obviously, Amazon is also accepting losses here in order to poach authors with attractive conditions. In order to seriously compete with the publishers - and thereby inflict economic damage - Amazon only has to convince selected bestselling authors of its offer. It is precisely these that guarantee the publishing houses high sales, with which they subsidize less profitable works. Amazon, on the other hand, is not dependent on such cross-financing.

The Kindle: The Gateway to Amazon's Digital Realm

The change in the book market is therefore already in full swing - and harbors another risk for the publishing business. Because the distribution channels are shifting more and more from media of all kinds to the Internet and thus to mobile devices at the same time. Bezos recognized this years ago: Since 2007, Amazon has been selling the Kindle, a digital reading device that is already changing the way books are bought and read forever.

The Kindle (in German: “something to kindle”) has a reader-friendly and energy-saving display, is hardly thicker than a pencil and can store up to a thousand e-books. In the past year alone, it is estimated that Amazon sold several million pieces in this country, although the device is considerably restricted in its use. The e-reader can only read the closed e-book format Mobi developed by Amazon. The open ePub format offered by numerous retailers, on the other hand, cannot be used. So if the customer buys an e-book from a competitor, he first has to laboriously convert it into the Amazon format in order to be able to read it on the Kindle.

Nevertheless, Amazon's strategy is very successful. In the United States in 2011, the group sold more e-books than printed books for the first time; And in this country, too, the demand for digital books is growing rapidly: last year alone, sales of e-books increased by around 70 percent. At the same time, Amazon reported a slump in the sale of paper books in the fourth quarter of 2012. In the 17 years since the company was founded, the company recorded its weakest growth to date with five percent. [24]

But Bezos is not just about the book. In 2010 he also presented Amazon's first computer tablet, the Kindle Fire. The counter-model to Apple's iPad serves as a player for numerous digital media formats and already has a market share of around 22 percent on the US market. [25] Amazon offers the tablet as well as the e-reader at a subsidized low price - according to the tried and tested motto: give away the lamp, sell the oil. Because the modern hardware is primarily intended to give customers access to Amazon's digital realm. [26] This offers - for a corresponding fee - an abundance of e-books, movies, TV series, daily newspapers and MP3 music.

The customer as king?

The successful sale of Kindle devices shows what long-term goal Amazon is actually pursuing: The company wants to eliminate any intermediary between itself and the customer.

Even in the early years, Bezos dreamed that when customers visit the Amazon website, they would only see an offer that was tailored to their needs - namely the book they would buy next. [27] At the same time, Bezos is convinced that the customer hotline that is not used is the best. This is because a direct contact person is only required if the customer's wishes are insufficiently satisfied. [28]

That is why Amazon wants to know the interests and inclinations of its customers down to the last detail - preferably before they are even aware of them.The group is closer to this goal than ever before: Today the group computers evaluate all customer activities on their own pages in order to make purchase recommendations that are as accurate as possible. [29] How far the customer screening goes can be seen particularly clearly in the new Kindle devices. For example, the “Silk” web browser, which Amazon programmed specifically for the Kindle Fire, enables the analysis of the data streams that the user calls up by default. According to Amazon, this only serves to accelerate the exchange of data: the queries would be routed via the company's own server, evaluated and compressed there, in order to allegedly reach the end devices more quickly. In this way, Amazon actually learns exactly which Internet pages the customer is calling up and how long he is where on the Internet. [30]

Even when reading e-books on Kindle, Amazon is constantly looking over the shoulder of the customer. The works read are also transmitted to the company server, as are highlighting and comments, the exact reading position and the reading time. Officially, Amazon only uses this data to synchronize the different devices of the customer if requested: The book read on the smartphone in the subway can be continued at home in the same place on the e-reader. In fact, however, this data also provides deep insights into the preferences of each individual customer - on the basis of which further purchase recommendations can then be made. [31]

The consumerist dream turns into a nightmare: With the help of so-called data mining, the customer at Amazon becomes a resource himself. However, not only does data protection fall under the wheels. If a customer decides to escape the clutches of Amazon and terminate his customer account, he will also lose access to all digital books that he previously bought from Amazon. Because with the purchase of the e-books, customers only receive one right of use; there is no ownership like a printed book that they can use and lend at will.

The Amazon Cartel: The Battle for the Commercial Internet

In this way, the price for customers is much higher in the end than the shopping cart on Amazon would suggest. But one thing is also certain: Obviously, no one is currently in a position to counter Amazon's expansion course.

But the battle for the commercial Internet has not yet been finally decided. Because the competing large providers no longer want to accept Amazon's dominance and legally put the group in its place. Specifically, they are bothered by the contractual conditions on Amazon's own platform. For some time now, the group has allowed third-party providers to offer their own products on the Amazon Marketplace. More than two million sellers are already registered on the platform. These include both professional dealers who sell new goods and private individuals who use the marketplace as an online flea market, so to speak. [32] Only through their offers can Amazon come up with an almost complete range of products. At the same time, the group precisely evaluates the sales activities on the marketplace in order to be able to react immediately with its own offers as soon as the demand for a certain product increases. [33]

Amazon's influence on marketplace dealers now extends far beyond its own domain. Because even if the sellers also switch to other platforms such as Hood.de or eBay, Amazon determines their pricing. This is ensured by the so-called price parity clause: It forbids sellers to sell their products more expensive on Amazon than on other websites. However, since Amazon charges up to ten percent higher fees than the competition, retailers have to increase their prices across platforms and cannot pass on saved costs to customers. [34] In other words: The group is abusing its dominant position and dictating minimum sales prices to dealers. [35] For this reason, the operators of the German online marketplace Hood.de filed a lawsuit with the Cologne Regional Court last November. In their view, setting a minimum price unduly restricts competition and therefore violates antitrust law. The Federal Cartel Office is also critical of Amazon's increasingly dominant position and has already initiated investigations against the company.

Even if the legal decision on Amazon's pricing policy is still pending, this is an effective tool against its unchecked growth path. Because a quasi-monopoly like Amazon should not even emerge in a market economy that is subject to rules such as antitrust law. The conclusion can only be: If the market power of a company grows too much, politics must intervene and, if necessary, even tighten competition law.

As a result, the Amazon case is about much more than just monopolizing the online book trade, namely the elimination of all alternative trading models on the Internet. If it is therefore not possible to limit Amazon's influence, the free market in the network is entirely up for grabs.

[1] Amazon was in November 2012 with 32.7 million visitors (unique visitors) far ahead of the mail order company Otto, which reached 15.1 million. See www.comscoredatamine.com, December 19, 2012.

[4] See Amazon in a state of emergency, in: "Frankfurter Allgemeine Zeitung", February 14, 2013.

[5] There is even a stopwatch installed on the picker's hand-held scanners, which specifies the time span between two “picks”. See run picker, run !, www.amazon-verdi.de, February 16, 2012.

[6] Cf. Mercilessly flexible, in: “Die Zeit”, 23.11.2012.

[7] According to Verdi, only 200 of the 3300 employees are permanently employed in the logistics center in Koblenz. See Amazon stealing from responsibility, www.sueddeutsche.de, February 14, 2013.

[8] Before the holidays, Amazon's workforce temporarily doubles by 10,000 warehouse workers. See Amazon’s Labor Relations Under Scrutiny in Germany, in: "The New York Times", 3.3.2013.

[9] So far, Amazon does not have to fear that the legislature will restrict this form of tax-financed subsidy. Cf. Outrageously legal, in: “Publik Forum”, 5/2013.

[10] This is also shown by the example of the mail order company Zalando, which also came under fire last year. See beautiful new world of work, in: “Frankfurter Rundschau”, March 5, 2013.

[11] See The Amazon Effect, in: "The Nation", May 29, 2012.

[12] In the first few years, Amazon only sold books. According to its own statements, the group now makes two thirds of its sales with non-media products and cloud computing.

[13] See market power Amazon: In the river of brown parcels, in "Süddeutsche Zeitung", November 3, 2012; It is estimated that sales could more than double in the next five years.

[14] The bottom line was that Amazon made a loss of $ 39 million in 2012. See www.heise.de, 5.2.2013.

[17] See The Amazon Effect, op.

[18] See how Amazon is avoiding tax figures, in: "Handelsblatt", December 7, 2012.

[21] Cf. The omnipotence of Amazon, op.

[23] Cf. Gigant ohne Geist, in: "Die Zeit", 23.8.2012.

[25] Cf. Jeff Bezos: "'We want to invent the unusual" "(Interview with Jeff Bezos) in:" Computerwoche ", October 12, 2012.

[26] See Jeff Bezos Owns the Web in More Ways Than You Think, www.wired.com, November 13, 2011.

[27] See Richard L. Brandt, Mr. Amazon. Jeff Bezos and the rise of amazon.com, Munich 2012, p. 68.

[28] In fact, there is still no phone number on the Amazon website through which customers could place orders or complain.

[29] The customer data could also provide the basis for Amazon's possible entry into the online advertising business. See "Amazon Woos Advertisers with What It Knows about Consumers", www.technologyreview.com, January 21, 2013.

[30] See Amazon's extended shop counter, in: “die tageszeitung” (taz), 30.9.2013.

[32] Almost 40 percent of the products sold on Amazon now come from the marketplace.

[33] See Stille Macht, in: "taz", December 29, 2012.

[34] See the omnipotence of Amazon, in: "FAZ", February 24, 2013.

[35] For a few months now, the group has been rigorously enforcing this clause, which has existed since 2010 but was largely ignored until recently, with its sellers. If a provider does not follow the instructions within a certain period of time, Amazon terminates the cooperation. See annoyance for Amazon.de: Dealer sues against price parity, also determined by the Cartel Office, www.t3n.de, 9.11.2012.