November 10, 2015

So why did Amazon open a bookstore?


Amazon Books

Amazon’s new bookstore in Seattle, Amazon Books

Stories about Amazon’s latest skullduggeries, you may have noticed, have shorter and shorter life spans. At least within the industry. The company’s endless series of monopolistic accomplishments have been so relentless it’s beyond wearying, and since the DOJ decision it’s like they’ve got a license to kill. So what’s to discuss?

And so the new Amazon brick-and-mortar bookstore, Amazon Books, generated maybe two days worth of head-scratching before discussion faded. The irony didn’t cut the nastiness of it for those of us who love brick and mortar bookstores, and who think of those put out of business by Amazon as clansmen gone before us. And it wasn’t fun either to contemplate the ominous idea that this development could presage a whole ‘nother range war for indies.

So conversation moved on fast. So fast that few really processed—let alone came to any conclusions about—the obvious question: Why in the world did Amazon open the store in the first place?

After all, Amazon is the most perfect business in the history of business—hey, not only is it the first company in the history of companies that doesn’t have to make a profit, it can sell an item it doesn’t even have in stock!

That’s going to be tricky irl.

But of course, not having to make a profit (and remember, despite a few profitable quarters lately, the company has yet to have a profitable year in its entire history) makes all that moot. So why do it?

Let’s be frank: To most people in the book industry, if they thought about it at all—and remember, there are vast hordes of staffers at the big houses who aren’t even aware this happened—this is just a fuck you in much the same way that Amazon’s publishing effort was a fuck you to the industry, even if the rats have for the most part left that sinking ship. And given that this is a company with a history of vindictive behavior, this may indeed be the extent of it.

To the rest of the industry, though, it was the same old baffling Amazon story: Why are they so fucking nasty?

After all, according to a Publishers Weekly report by JimMilliot, even the Amazonian in charge of the store, Jennifer Cast, says there’s no real plan and “we have no idea what is going to happen.” And as Peter Aaron, owner of Seattle’s beloved indie bookseller Elliott Bay Book Company observed in an Associated Press wire story, Amazon Books is too small (5500 square feet) and stocked with too few titles (6000) to really work. “I can’t imagine that there would be any profit, especially if their pricing is identical to the prices online, given rent and staffing,” he says.

To the befuddled, the best answer might be the idea that Amazon actually could use a bookstore that would sell its books, whether the ones it published honestly under its own imprint, or via beards like Houghton Mifflin. This was presented mostly as a bitter joke, but there’s at least a modicum of truth to it—most indies, as well as Barnes & Noble, won’t sell books published by Amazon.

But in fact there has been further and more interesting speculation than that.

For example, there’s the idea that this was an experiment in show-rooming—the thing that survey after survey has said might contribute to as much as 50% of Amazon’s book sales. This area of speculation led to one particularly delicious bit of mischief—former Elliott Bay fiction buyer (and Stranger book critic) Paul Constant offered a bounty to anyone who show-roomed Amazon Books: Show-room them (by seeing a book there that you then buy on your phone at another store) and you’ll get a gift certificate at Elliott Bay. According to a Shelf Awareness report, someone promptly did.

Forbes magazine writer Rob Salkowitz offered another theory, in a piece headlined “Amazon’s Retail Store Has Nothing To Do With Selling Books.”

He postulates that it all has to do with the fact that to find out the price of a book in Amazon Books you have to go through the complication of going to the company’s website—or to the Amazon app on your phone. Then, he says,

Amazon is immediately able to associate its online customer records with you, the customer browsing the shelves in its physical location. It knows your preferences, your buying history, your status as an Amazon Prime and/or Amazon credit card member, and who knows what else. Armed with that data, it can feed you recommendations, offer coupons and incentives, and do whatever it needs to do to close the sale …

That may eventually include offering you a personalized price that represents the company’s best guess at what you’d be willing to pay, based on what it knows about you and the context in which you are shopping (for example, is it holiday time, or close to a loved-one’s birthday?).

Sounds smart, not to mention nefarious. The only thing wrong with it is that, well, Amazon can already do that without the expense of building a store for you to stand in.

That same article mentioned another theory, from a “local independent bookseller” who observed that “most of what was on the shelves on opening day was excess stock”—implying that Amazon was selling off whatever it didn’t sell online.

But that doesn’t make sense either. For one thing, Amazon can simply return unsold stock to the publishers without having to construct a retail outlet. For another, say what you will about Amazon, its return rates for most publishers are insanely low. (Return rates for Melville House, for example, have historically hovered between 2-3%.) In short, Amazon’s various algorithms are very good at telling the company precisely how many books to order. It doesn’t need an outlet to get rid of its mistakes.

Then there’s the theory of Vox’s Matthew Yglesias, an Amazon defender, usually, one of those commentators who seems to get a visceral thrill from playing the devil’s advocate to extremes … and who thus gets a lot wrong in his commentary on what’s behind Amazon Books.

For example, he observes that Amazon’s  last two quarters have had “meaningful” profits, which is missing the forest for the trees: those quarterly profits were “meaningful” because Amazon has been losing money, overwhelmingly, recently and forever. In fact, Amazon hasn’t made an annual profit in 20 years, the entire history of the company. And it has no interest in starting now. Why should it? Wall Street just wants to hear about revenue, which is up all the time for Amazon. Worrying about profitability would crimp that. (Yglesias goes on to say as much … but that of course then pretty much negates his earlier point that the profitable quarters were “meaningful.”)

Ygelsias also postulates that “Amazon’s already basically crushed the national bookstore chains” and that this has left an open opportunity. But since Amazon has been around only one of our major bookstore chains—Borders—has failed, and that was a real estate story that had nothing to do with Amazon.

That said, though, Yglesias is onto something when he says …

So why brick-and-mortar retail? Most likely because Amazon’s long-term strategy is simple: It wants everyone, everywhere to buy everything from Amazon … it will be a potentially valuable learning experience … lacking a physical presence the company ends up with a somewhat limited view of what its customers look like and how they behave. A retail presence can help change that.

And there you have it. Even a blind squirrel can find a nut every now and then. Amazon may indeed learn something from its bookstore/test lab—about show-rooming or about what kind of different data it can collect in situ. But does it really think brick and mortar stores, which it has been so disdainful of since the company’s beginnings, have anything to teach it?

Most likely not. As Yglesias sort of says before hedging his bets, Amazon may just be doing this simply because it can.

In short, let us not read too much into this blank slate that is no more nor less than a pure and brain-dead emanation—perhaps the ultimate emanation—of a rapacious free-market capitalism. A shark eating everything in its path because that’s what sharks do.

The question may not be “Why did Amazon open a bookstore?” but rather, “Why not?”


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.