The Amazon Effect

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June 2, 2012: The Amazon Effect by Steve Wasserman  

This article originally appeared in The Nation magazine’s June 18, 2012 special issue.

From the start, Jeff Bezos wanted to “get big fast.” He was never a “small is beautiful” kind of guy. The Brobdingnagian numbers tell much of the story. In 1994, four years after the first Internet browser was created, Bezos stumbled upon a startling statistic: the Internet had been growing at the rate of 2,300 percent annually. In 1995, the year Bezos, then 31, started Amazon, just 16 million people used the Internet. A year later, the number was 36 million, a figure that would multiply at a furious rate. Today, more than 1.7 billion people, or almost one out of every four humans on the planet, are online. Bezos understood two things. One was the way the Internet made it possible to banish geography, enabling anyone with an Internet connection and a computer to browse a seemingly limitless universe of goods with a precision never previously known and then buy them directly from the comfort of their homes. The second was how the Internet allowed merchants to gather vast amounts of personal information on individual customers.

The Internet permitted a kind of bespoke selling. James Marcus, who was hired by Bezos in 1996 and would work at Amazon for five years, later published a revealing memoir of his time as Employee #55. He recalls Bezos insisting that the Internet, with “its bottomless capacity for data collection,” would “allow you to sort through entire populations with a fine-tooth comb. Affinity would call out to affinity: your likes and dislikes—from Beethoven to barbecue sauce, shampoo to shoe polish to Laverne & Shirley—were as distinctive as your DNA, and would make it a snap to match you up with your 9,999 cousins.” This prospect, Marcus felt, “was either a utopian daydream or a targeted-marketing nightmare.”

Whichever one it was, Bezos didn’t much care. “You know, things just don’t grow that fast,” he observed. “It’s highly unusual, and that started me thinking, ‘What kind of business plan might make sense in the context of that growth?’” Bezos decided selling books would be the best way to get big fast on the Internet. This was not immediately obvious: bookselling in the United States had always been less of a business than a calling. Profit margins were notoriously thin, and most independent stores depended on low rents. Walk-in traffic was often sporadic, the public’s taste fickle; reliance on a steady stream of bestsellers to keep the landlord at bay was not exactly a sure-fire strategy for remaining solvent.

Still, overall, selling books was a big business. In 1994 Americans bought $19 billion worth of books. Barnes & Noble and the Borders Group had by then captured a quarter of the market, with independent stores struggling to make up just over another fifth and a skein of book clubs, supermarkets and other outlets accounting for the rest. That same year, 513 million individual books were sold, and seventeen bestsellers each sold more than 1 million copies. Bezos knew that two national distributors, Ingram Book Group and Baker & Taylor, had warehouses holding about 400,000 titles and in the late 1980s had begun converting their inventory list from microfiche to a digital format accessible by computer. Bezos also knew that in 1992 the Supreme Court had ruled in Quill Corp. v. North Dakota that retailers were exempt from charging sales tax in states where they didn’t have a physical presence. (For years, he would use this advantage to avoid collecting hundreds of millions of dollars in state sales taxes, giving Amazon an enormous edge over retailers of every kind, from bookstores to Best Buy and Home Depot. In recent months, however, Amazon, under mounting pressure, has eased its opposition and reached agreements with twelve states, including California and Texas, to collect sales tax.) “Books are incredibly unusual in one respect,” Bezos said, “and that is that there are more items in the book category than there are items in any other category by far.” A devotee of the Culture of Metrics, Bezos was undaunted. He was sure that the algorithms of computerized search and access would provide the keys to a consumer kingdom whose riches were as yet undiscovered and barely dreamed of, and so he set out to construct a twenty-first-century ordering mechanism that, at least for the short term, would deliver goods the old-fashioned way: by hand, from warehouses via the Postal Service and commercial shippers.

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