An unanticipated discussion thread followed my post before the holidays about Amazon’s Price Check app and the controversy it stirred. The discussion was unanticipated because I felt at the time the post was fairly non-controversial. But there was much to be said about the death of local bookstores, Amazon’s sales tax situation, fairness, and community.
Now that the holidays are behind us, let’s talk Amazon again.
Because my instinct is to applaud business innovation, I wanted to explore these topics a bit more thoroughly than a comment thread allows. Like some of the commentators, I too feel angst about disappearing bookstores, the threats to print books, and our migration away from traditional publishing practices. Yet I come to this cogitation from an admittedly sympathetic position relative to Amazon’s success — I think they’ve been really smart, executed a lot of risky long-term strategies very well, invested and re-invested wisely, been ahead of trends almost uniformly, and continue to make savvy, audacious moves while other companies sit and watch.
I’m not alone in this attitude. Recently, Diane Mermigas, covering the rapid adoption of the Kindle Fire, wrote on the MediaPost blog:
Once again, Amazon’s CEO Jeff Bezos is looking like the smartest guy in the room. He can teach just about every company in any industry a few things about innovating for, connecting with and monetizing connected consumers.
But there are just as many complaints about Amazon. Are they sour grapes? Are they legitimate? Is there a silver lining to this apparent cloud? Is it all correct, both the good and the bad? Here’s a representative list of the common complaints about Amazon, and some further consideration.
Amazon doesn’t charge sales tax, giving it a big pricing advantage and decimating communities — Amazon doesn’t have to charge sales tax in all but a handful of states, so Amazon’s customers don’t uniformly pay sales tax. The complaint is that this gives Amazon a big pricing advantage. This complaint doesn’t make sense to me when the base price on nearly every item I find on Amazon is lower than the base price I find in local retail shops. When I shop at either a physical store or Amazon, I look at the price. Period. And I compare that price to the price I would pay elsewhere. Amazon usually has the lowest price. Often, the difference is significant. That’s the price that matters. Even if I were forced to pay sales tax on it at the same locally applicable level, Amazon’s price would be better.
I live in Massachusetts. Some Massachusetts residents drive to New Hampshire to buy things, because there is no sales tax there. Or they wait until our annual tax holiday weekend, usually in August. There are people who really focus on avoiding paying sales tax. I’m not one of them.
People who worry about communities being short-changed because Amazon isn’t forced to collect sales tax may not know that they have the perfect remedy at their disposal — that is, most states require purchasers of online goods for which no tax was collected to pay the tax at the end of the year. Remember, Amazon isn’t charging the tax in the states where it does add sales tax — Amazon is collecting the tax and sending it to the states. If you purchase goods from Amazon, and Amazon isn’t collecting sales tax on those purchases, you’re legally required to pay those taxes to your state at the end of the year in most states. I wonder what percentage of those complaining about local tax fairness are saving receipts, calculating their taxes that went unpaid, and settling with the state at the end of the year.
Amazon works its people too hard, and is a cruel taskmaster — I come at this complaint from a very jaded perspective, having worked as a janitor, waiter, retail employee, and third-shift compositor. I also think about friends and family who are employed in factories, warehouses, delivery companies, hospitals, and other parts of the economy, and they work really hard — long hours, lots of lifting, poor health insurance, endless days, and so forth. Nearly every customer-facing company I know of — from USAir to UPS to Macy’s to Cinnabon to Target — works people hard enough that some will complain.
A recent report from an “Amazon Town” in Fernely, NV, provides some interesting insights, perhaps best summarized by this quote:
“It’s like the best place to work and the worst place to work,” said Kelly Andrus, a 50-year-old Fernley resident who served as an Amazon holiday employee seven years ago. “It’s good pay, and they’re safety oriented,” but she said the managers were strict and the labor was physically demanding.
Amazon has grown quickly, added a lot of employees, a lot of new supervisors, and this will lead to complaints. There have been instances of extremely high temperatures in their fulfillment centers, horror stories of employees being fired for complaining or passing out, and so forth. How much truth there is to these isn’t clear. The fact that they tend to fade away suggests there’s some truth in the middle — Amazon is working people hard, perhaps skirting a line it shouldn’t, or perhaps hiring a higher proportion of whiners than usual as they grow. It’s hard to know. But if you want to focus on relieving people of harsh working conditions, focusing on Amazon is targeting Amazon. There may be situations more under your control, where you can help to remedy the pressures of demanding workplaces. Visit your printer and your fulfillment center. In the summer. During a heat wave. In the late afternoon. And stay until after dinner. You might be surprised what you’re tacitly enabling or accepting in the workplaces of others.
Amazon is killing local bookstores, thereby killing a part of literary culture — This line of reasoning was dealt with in detail in the original post, but it’s worth elaborating on a bit more. As Farhad Manjoo writes in Slate:
Compared with online retailers, bookstores present a frustrating consumer experience. A physical store—whether it’s your favorite indie or the humongous Barnes & Noble at the mall—offers a relatively paltry selection, no customer reviews, no reliable way to find what you’re looking for, and a dubious recommendations engine. . . . They’re economically inefficient, too. Rent, utilities, and a brigade of book-reading workers aren’t cheap, so the only way for bookstores to stay afloat is to sell items at a huge markup.
Amazon has been a big part of a decade-long trend (from Harry Potter to the Kindle to Oprah) that has made reading exciting again — people are talking about book reading devices, books to put on them, book clubs, and so forth. Local bookstores have benefited to some extent from this new focus on book reading, but they can’t take much of the credit for getting it going. And wandering the aisles of my local bookstore/coffee shop/greeting card store/haberdashery, I’ve become convinced that most bookstores are no longer bookstores except in name — they’re niche merchandise stores, and books are just another form of niche merchandise. Bookstores are transforming into gift shops. They are doing this because they can’t find a better way to sell books than Amazon’s way — and Amazon’s way demands a long-term strategy, big investments in fulfillment centers and e-commerce, and vision. But more on this below.
E-book prices are artificially low — After launching the Kindle in late 2007, Amazon offered e-books at $9.99 or lower, a significant savings off most hardcovers and many paperbacks. Amazon also kept 70% of the money in the early days. This drove publishers mad for many reasons — the pricing stance made their regular prices seem high, they were worried they’d make the same money off lower-priced items, and it made Amazon a greater retail power. However, Amazon paid them the same amount despite the lower price. Under pressure, Amazon changed to an agency model, reversing the 70/30 split. This led to the next complaint.
E-book prices have gotten too high — Now, people are buying e-readers like the Kindle, the Nook, and Kobo’s device, spending $79 to $199 up front. Some buyers have relied on lower e-book pricing generally to justify the upfront costs. Now that e-books are becoming as expensive as traditional hardcovers and paperbacks, there’s a sense of betrayal. Readers are complaining — a lot. One blogger has issued an edict banning further complaints about e-book prices:
I think it’s important to understand that eBooks are not special snowflakes; they’re just books in electronic form. As someone who prefers to read in eBook form, you are not substantially different from someone who prefers hardcovers, or trade paperbacks, or mass market paperbacks. If someone who preferred paperbacks (or at the very least paperback pricing) showed up on my site on a regular basis to whine and moan about how books should always be priced at that paperback level, on a comment thread that is meant to be on another subject entirely, I would find them tiresome too. Books: They have variable price points!
The problem isn’t Amazon’s, it’s the publishers’. Now that they own pricing again, they’re raising e-book prices significantly. Why? Either to protect print, extract profits from a fast-growing market, or both. But Matthew Ingram argues persuasively that they’re only shooting themselves in the foot. And that’s why customers are complaining — not because of Amazon, but because of publishers.
Amazon’s impossible to compete against — With their incredible market power (20 million customers per day, on average, and each is worth about $190 in sales per year), along with their acquisitions and development of publishing entities, Amazon is becoming a force to be reckoned with in many areas — e-readers, tablets, publishing, retail, hosting, music, movies. But you can compete against them. The recent Price Check app provides some examples. One of the best bits of journalism around this came recently from Radio Boston. The reporter interviewed the proprietor of a local toy store, Magic Beans. The store created an app that allows shoppers to scan as they shop, pay through their phone, and leave the store. They also get discounts as they shop with the app. The approach is driving sales, making customers happy, and increasing revenues for the store. It’s also preventing customers from using Amazon, because it increases loyalty to Magic Beans and saves them money. Our local supermarket is taking a similar approach, providing an app you can download by clicking a QR code posted in the aisles, and giving you reward points you can use for gas and extra discounts, along with the convenience of skipping the checkout line. Amazon has plenty of competition, and more is coming.
Amazon is predatory — The impressive thing about Amazon and their ilk is that they have executed — quite carefully and assertively — a long-term strategy with big implications. It was within memory that Amazon was considered a bubble company, a passing phenomenon, something bricks-and-clicks would beat soon enough. In 1997, three years after the site launched, Jeff Bezos’ letter to investors in his relatively new firm underscored that Amazon was focused on the long-term, and would make investment decisions accordingly.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:
- We will continue to focus relentlessly on our customers.
- We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions. . . .
We aren’t so bold as to claim that the above is the “right” investment philosophy, but it’s ours, and we would be remiss if we weren’t clear in the approach we have taken and will continue to take. With this foundation, we would like to turn to a review of our business focus, our progress in 1997, and our outlook for the future.
It’s clear to me that Amazon has been remarkably true to these and other statements about its long-term orientation to the market. For years, they’ve cultivated self-publishing approaches, e-readers, and other publishing innovations. Prior to this, they cultivated online shopping and new retail approaches. Judge for yourself, based on this from a recent New York Times article about Amazon’s long-term orientation:
The reason Amazon is earning so little while selling so much is that it is spending so much on long-term growth. It’s opening 17 new fulfillment centers — airport hangar-size storage and shipping facilities — this year and aggressively cutting prices. Its profit margin for the quarter was just 2.4 percent, and it said it might be zero for the fourth quarter. (By comparison, Wal-Mart’s margins are 6 percent on revenue of $440 billion. )
If Amazon is viewed as predatory, I think it’s because it has a better hunting strategy than its competing hunters, and is willing to forgo a large meal that might slow it down in order to stay nimble and hungry. Bezos has stated repeatedly that he wants to keep his margins so thin that nobody else could beat him on price. Then, the battle became about scale, and he seems to be winning at that, too. Maybe if bookstores could find a way to thrive on something less than 30-40% gross margins, they’d be a bit better at hunting.
Conclusion — Incumbents in many areas — books, music, movies, clothing, hosting, and more — are infamous for being unable to break away from their own success in order to strip down their value chains so they’re future-friendly. This trap manifests itself as a form of paralysis. And now the competitors who have effectively lost the game to new players — be that Amazon, Apple, Google, UPS, FedEx, or others — should look at how they can compete in a new world, defined by new rules, and dominated by a new species of company.
As Charles Darwin famously wrote:
It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.
37 Thoughts on "Getting Real About Amazon — Taxes, Prices, Competition, and Long-term Strategies"
If Amazon is so customer-oriented, how come people like me refuse to do business with them? It has certainly managed to alienate a segment of the buying public, albeit small. By contrast, I remain a loyal fan of another innovative company, Apple. As I’ve said in earlier posts, I dislike Amazon largely because of its discriminatory approach to dealing with partners in the business, treating smaller players with less market power as scum of the earth while negotiating with the larger players that it can’t manhandle at will. Nothing you have said above changes my mind one whit in this regard.
As the saying goes to remind business people of their limitations around usability or desirability, “You are not the customer.” We people inside the industry are not the customer of Amazon. In fact, their dealings with partners in the business likely stems from them being focused on retail customers, and extracting the best deal they can is part of that. We’re used to a pretty mannerly world of exchanges between small, niche, academic entities and their allies. Amazon is not mannerly. They are ferocious in their pursuit of low prices for their customers.
Most wholesale entities have a huge structural disadvantage and can’t win much in negotiations with Amazon, Apple, Wal-Mart, McDonald’s, Target, or even Google. There are benefits to scale, and they perpetuate themselves beyond a certain threshold. That’s the reality of it, like it or not.
Well, yes, you can define away the objection by claiming that i am not acting in my capacity as customer when I don’t buy from Amazon because of my objection to its business tactics. But the fact is that there are plenty of people who also don’t shop at Wal-Mart for similar reasons, so the company is losing their business. Also, I have to say, price isn’t everything in the marketplace. People do patronize local retail stores because they want to support them and keep them in business, even though they could save a few cents by shopping online.
Yes, price isn’t everything, but local retailers often make the mistake of competing on price. It’s possible to compete with Amazon, but not on price. Compete on service, local goods, deep customer connections, convenience. Many win this way. But don’t compete on price.
Nobody’s arguing you should shop at Amazon. It’s just unrealistic to think that _not_ shopping there is going to change things.
Regarding: “Amazon is killing local bookstores, thereby killing a part of literary culture”…
Some bookstores are closing, but others are opening to fill a perceived need…See Nov.16th posting of NPR story about author Ann Patchet and the independent bookstore she just opened and co-owns in her hometown, Nashville, TN.
Kent, nothing you’ve said here is wrong. Amazon isn’t evil, it’s a business. It does what’s best for business, following a strategy to maximize earnings over the long term. That’s the driving force behind all that they do. So to characterize them as deliberately evil makes no sense, just as we shouldn’t think of them as nice or friendly. That’s what a business is supposed to do, their duty to their shareholders.
And Amazon is very good at what they do. A Forbes article on their strategy is here (not sure if this is linked above):
There is much to be admired about them from a business point of view. That said, what’s best for a business isn’t always what’s best for a consumer, a community, a country or an industry. It’s up to the individual consumer to make decisions about what’s best for himself.
As someone who works in publishing, I’ll echo Sandy’s comments above–I won’t buy from Amazon because their ultimate goal is to take my job away. I feel no need to support someone whose success likely means my demise. I also worry about how poorly consumers and creators thrive when markets get more and more monopoly-like. The more power one company has in a given arena, the more likely abuses. So I am doing what I can to support a more varied ecosystem.
This holiday season, I’ve listened to a stream of friends and relatives moaning about their local toy/book/whatever store going out of business and how much this upsets them and seen a bit of a revelation when I then ask them how much they’ve purchased from Amazon instead of these much missed extinct creatures.
But that’s just me, you likely have different motivations and may make a different decision about where to spend your money (at least while you still have options among which to choose).
One other interesting point is a question facing Amazon that has become apparent with Google as well. Both companies started out as nearly universally beloved. Each offered a superb level of service with their core business and each built a sterling reputation over time. But in the long run, the reputation of each has started to show cracks. Google’s vaunted “don’t be evil” is now seen as something of a joke. As they’ve expanded into areas outside of their original core areas (cel phones for example), their reputation for quality has suffered as they have had to learn a new skillset and face a different set of customer expectations.
Amazon is in that same position, moving from being a retail behemoth into being an electronic gadget producer (not to mention server farmers, publishers, etc). They’ve repeatedly stumbled here, deleting books from consumers’ devices without warning and releasing the Fire which has sold well but met a decidedly mixed reception. It will be interesting to see how their reputation evolves over time, and if it’s truly possible to maintain the same level of satisfaction and loyalty they’ve engendered over the long haul.
Remember, your local book/toy/novelystores are/were businesses, too. They weren’t blessings or, as one blogger put it, special snowflakes. Our local bookstore grew big by putting other smaller bookstores out of business, and now it is being out-competed. But it’s always been a competition. Our local bookstore has my allegiance, but their online catalog isn’t integrated with their inventory system, they’ve started to give up on books, their expertise in books was never great and is degrading quickly, they haven’t made themselves local enough to differentiate themselves, they compete on price instead of service, they haven’t innovated (adding a cafe isn’t innovating), and they’re losing me. It’s sad, but it’s business. It’s always been business.
The next time you want to feel bad, think of how much of a change to communities it _will be_ when daily postal delivery ends. It’s probably a decade off. No more mailboxes on the streets, no more post offices in town, no more trucks prowling our neighborhoods. What’s causing that? Think about it the next time you send an email with a PDF attachment. Things change. And often it’s an ecosystem shift that changes particulars, not direct competition. Amazon saw a new ecosystem arising, and built for it. They are now masters of it. Your local stores rely on a fading ecosystem. This is all bigger than Amazon, which is why it’s unfair to target them, in my mind. They’re just a symptom of bigger changes. Kodak, Polaroid, Tower Records, TV Guide . . . dead or nearly dead, but Amazon had little to do with their demise.
But of course not just anything goes, David, as you well know. Companies skirt the law or break it outright in their pursuit of hegemony in the marketplace, and that’s what I complain about with Amazon’s avoidance of asking permission to post chapters from books, its obliging all publishers that wants their books listed on the site to use its POD subsidiary (flouting anti-trust law), its attempt to avoid paying sales taxes in Texas where it has a warehouse , etc. Google famously did this also with its library project, seeking to gain an unfair monopoly on the digital sale of orphan works, pretending all the time that this was sanctioned by “fair use.” No, it’s not all right for companies to pursue just any tactics that benefit shareholders, and they can be judged accordingly for engaging in illegal (and, if not illegal, morally questionable) practices–as many companies did in the days before we had child-labor laws or outlawed sweat shops, for example.
Let’s take these one at at time.
Not asking permission to post chapters from books — Amazon has to compete, and you don’t give bookstores permission to let customers read books in their aisles or at their cafes before purchase. Amazon has proof that previews drive sales, and they protect these previews carefully because their interests, publishers’ interests, and authors’ interests all align around SALES. I think it’s actually a bit daft to _not_ let readers sample a book before buying it. What’s the commercial risk?
Amazon is obliging all publishers that want their books listed on the site to use its POD subsidiary — I have direct and continuous evidence that this isn’t the case. In fact, this seems like 2008 information, and has been superseded by changes in the POD ecosystem. Correct me if I’m wrong, please, with a link or two. Amazon tried this at one point, but backed off fairly quickly. My books are printed via Lightning Source and sold on Amazon.
Amazon is attempting to avoid paying sales tax — Amazon states it is not attempting to avoid paying sales tax. It’s trying to use current laws in its favor. Nothing wrong with that. The laws state that you have to have retail locations in a state to be subject to taxes. If you order a book, Amazon might fulfill from a nearby fulfillment center or from a faraway one. It doesn’t know until the order is placed, and even then, it’s not a “retail location.” It’s shipped. Amazon has advocated for a Federal law to suit its circumstances, and has accepted new laws (and note, these states had to pass NEW LAWS to leverage sales tax on Amazon). It’s a new business that doesn’t really fit current tax laws, and Amazon isn’t taking a dive. I don’t blame them.
I’ve seen many studies that suggest illegal downloading of songs through BitTorrent and the like leads to increased sales. Are you suggesting that it is okay to set up and run an illegal music system because of this, without the permission of the copyright holders? That seems to be what you’re suggesting in point one above. Go ahead and break the law if you think you can make more money.
As for point 3, Sandy is specifically referring to Texas, where Amazon has extensive facilities. Companies are required to collect sales tax in states in which they have a business presence. This is also a question being asked in California, where Amazon has businesses involved in designing and building the Kindle.
Just because posting a chapter or two or more may help drive sales doesn’t mean that copyright laws don’t apply, and as I read the law, reproducing a substantial amount of material for commercial reasons is not fair use. Even Google asked permission of publishers when it launched its Publisher Print program. Amazon asked permission only of large publishers (thereby revealing that it was wary about relying on fair use but taking advantage of small publishers that could not afford to sue).
Yes, Amazon settled out of court with one small publisher that challenged its attempt to leverage business for its POD subsidiary. But it did make the effort to strong-arm small publishers into using BookSurge, and that is what I, as a small publisher, resented.
The rule is that a company has to have a “physical presence” in a state; it does not rwquire that physical presence to be a retail outlet. Amazon attempted an end run around the Texas comptroller by claiming that the warehouse was owned by a subsidiary–and then threatened to close it and put people out of work if the State didn’t back off. Hogwash!
You may like doing business with companies that resort to such tactics. I don’t. In my book, there are values worth more than low prices.
Sandy, you’re wrong about the “physical presence” in a state. In 1992, the Supreme Court struck down a North Dakota law imposing a tax collection obligation on mail-order businesses. The non-partisan Tax Foundation has a great article on this. A noteworthy set of selections:
Far from creating a level playing field, Amazon taxes move away from one. Brick-and-mortar businesses collect sales tax based on where the business is located, so they need to track only one sales tax rate and base. Under Amazon taxes, though, out-of-state businesses are required to collect sales tax based on where the customer is located. Thus, each retailer no matter how large or small must track 8,000+ sales tax rates and bases. Further, these constantly change and (contrary to common assumptions) are not aligned with even 5-digit zip codes, let alone 9-digit zip codes. . . . Widespread adoption of vague and expansive nexus standards will expand these compliance costs and cause adverse impacts on interstate commerce. Compliance costs for businesses engaged in interstate commerce will increase. Businesses that merely expand their sales into such states will have to understand the local tax base, any applicable tax rates, available tax incentives, and differing apportionment formulas. Differing nexus standards among the states means businesses will have to guess about whether to file and pay taxes or not. . . . The Amazon tax is just the latest in a series of efforts to eliminate the long-standing “physical presence” standard and replace it with a nebulous, arbitrary standard of “economic presence.” Businesses throughout our nation’s history could always ply their trade across state lines. Today, with new technologies, even the smallest businesses can more easily reach across geographical borders to sell their products and services in all fifty states. If such sales can now expose these businesses to tax compliance and liability risks in states where they merely have customers, they will be less likely to expand their reach into those states.
States that have passed new “Amazon taxes” have seen no increase in tax receipts and some have seen a decrease. So, unconstitutional, economically disadvantageous, and hurts tax revenues. Boy, with a solution like that . . .
Kent, I don’t know what you’re looking at, but my source, Nolo, makes it very clear that “physical presence” includes running a warehouse, which Amazon does in Irving, TX.
Collecting Sales Tax: Some Sites Have To, Some Don’t
If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.
In 1967, there was a ruling related to interstate commerce that found that companies using the mail or common carriers lacked sufficient nexus required for taxation, and the Commerce Clause of the Constitution prohibits states for assessing tariffs or duties. The 1992 Quill Supreme Court ruling found that a mail order company, by sending materials through the mail to North Dakota, did not have sufficient nexus in the state for North Dakota to collect sales tax. They had neither retail outlets nor a sales force. Nolo is talking about retail or sales functions (store, business office, warehouse). A fulfillment center is not a warehouse, just to be clear. A warehouse is where a local company stores goods for potential sale. A fulfillment center is what a company uses to send orders through the mail or common carriers.
This is why the states that have imposed taxes on Amazon have had to pass separate laws to do so, as the Supreme Court found that nexus was not created when a company has no sales force or retail outlet in a state.
It’s subtle, but it’s real, and it’s legal. The states that have passed laws assessing taxes on Amazon may actually be violating the Constitution, but that’s a matter for the courts.
I’m not sure i understand what the significance of the distinction between warehouse and fulfillment center is for the publishing business. Every publisher has a warehouse that stores books that are both shipped to retail outlets and sent through the mail for customer direct orders (if they are not sold to intermediaries like wholesalers). Surely, having a warehouse that does the latter establishes a physical nexus for a publisher, does it not? That is why publishers that own warehouses located in other states have to pay taxes in the state where the warehouses are located as well as the state where the editorial marketing, production, etc. office is located.
I’m confused. Publishers paying sales tax in the states where they have warehouses?! We’re talking sales taxes with Amazon. You have to pay sales taxes to Pennsylvania when you ship a book via Ingram to California? I don’t think so. You may have to pay other taxes, but sales tax? Really?
If your home office is in NYC, for instance, and your warehouse from where books are shipped to customers is in New Jersey, yes, you have to pay sales tax to both New York and New Jersey. Heck, some university presses, like ours, collected sales tax for other states when residents of those states orders books from them as we did for California. When we had an exhibit at a scholarly convention and sold books directly from the exhibit, a tax was owed to the state in which the convention was held. Even though the physical presence was temporary, it was enough to establish a business nexus.
Well, it’s probably because you were retail and not mail order. Amazon is purely mail order, so the legal structure I described earlier applies to them. I am surprised to learn that you had to pay sales tax to both New York and New Jersey in your example. That seems like double taxation and a violation of interstate commerce laws. I wonder if someone wasn’t being overly cautious in your tax area. But tax law is an arcane area.
In any event, it seems we can agree that Amazon is behaving legally, and the tax laws that apply to them have been vetted repeatedly in the courts. That’s why states that do tax Amazon’s sales have to pass new laws. It will be interesting to see if those new laws prove constitutional should more of them emerge. It seems there’s reason to think they wouldn’t stand up to scrutiny.
Warehouse sales are strictly mail order; there is no walk-in business conducted. We also had to collect the 7% Canadian GST for all sales made to Canadian customers via mail order.
Remember Sandy, that we live in an age where Microsoft has shown that it’s better to break the law, make the money, then pay the consequences later, as any penalties seem to amount to only a small portion of the profits you’ve made from the violation.
Why isn’t if fair to single out the company that led to the demise of something you value (whether through fair competition or not)? I’m still angry at Napster and the like and the entire online download legal market as it meant the end of the record store, something I valued. Why is it unfair for bookstore owners and patrons to bemoan the ending of something they value? It may be inevitable and fair game, but that doesn’t mean we all have to celebrate it and support it. Hell, I’m still mad at the 1994 Houston Rockets for the downfall of my beloved Knicks.
I’m just saying it’s not realistic to wring your hands in the face of Amazon or other companies that are taking advantage of a completely different business ecosystem than the one the older companies thrived in. In fact, you might want to decry the emergence of Wal-Mart, which has succeeded because of the ecosystem of roads, cars, trucking, and cheap gas. You set up enough of an ecosystem, and something will sprout. The Internet plus FedEx/UPS = Amazon.
As for the Knicks, you have my sympathies.
I’m not complaining about Apple, am I, which certainly has taken advantage of a new ecosystem it has helped create? My complaints are specifically directed at Amazon for certain business practices that i abhor. I don’t expect my sentiments to be widely shared, and Amazon will no doubt continue to thrive–and grind competitors to dust along the way. Google I have mixed feelings about; it has done both good things and bad things, in my view. I feel the same way about the large STM commercial publishers, by the way.
I wring my hands when a species goes extinct. Just because something happens through evolutionary competition or due to an environmental change, that doesn’t automatically make for an improvement. When an ecosystem is destroyed through an invasive species, I find no cause for celebration. A world without coral reefs is a poorer place.
Kent, I have thoroughly enjoyed this and the earlier debate on Amazon. I commend you for an excellent micro-economic description of the forces at play here. You are 100% correct. Amazon is just a company exploiting a market advantage. Amazon is a single example of a much wider secular trend that has been going on for the better part of 40 years. Technology is changing our economy (for better or worse). Amazon isn’t driving this change, it is merely taking advantage of these larger secular changes to the disadvantage of it competitors. This is controversial (among SK readers) because it is our jobs, our wages, our benefits and those things we hold dear (book stores, record stores etc…) which are at risk from this new competition.
In the earlier discussion, you blamed poor governance (or lack thereof) for some of the negative aspects of technological change. However, the tax debate in this thread may point to a larger more disturbing issue. Your remedy for some of the negative side effects in the last thread was better governance. The debate about taxes in this thread may point to why better governance may not even be possible. The technology not only forces more competition among companies, it also increases competition among political jurisdictions. The State may no longer hold the power to regulate commerce in an age where economic activity can be quickly moved from one jurisdiction to another. The unfair sales tax advantage afforded to Amazon is a case in point – mind you, I agree with you that this is the least of the problems Main St retailers face.
Though I agree with you that change is inevitable (yes David, it is best to just “think of England”). I come back to my age old question. To what end this change? You suggest two societal benefits Amazon offers; 1) increased efficiency (those efficiencies are coming from our pockets this time – but so be it), 2) and lower prices for books. This strikes me as awfully thin gruel for all this disruption. For forty years we have endured technological change. In that time period millions of jobs have been lost, benefits have been reduced (across the board) and income has stagnated.
As David Wojick pointed out in one post, in the end, technological change throughout history has advanced the human condition. To be sure, this axiom has held this time for people in China and India. Literally hundreds of millions have been lifted out of poverty. In fact economists have a word for this development, they call it “the Great Convergence.”
But what of American and European workers? When will all this change lead to better living standards for them? Other than less pay, more work and fewer benefits what have they gained these past forty years? Electronic toys. Big screen TVs. Phones that can check prices. Video on demand. Electronic social networks. Safer and more fuel efficient cars. These are all really amazing things to be sure. Some of these new technologies have even made our lives better. But is that it? Is that enough to allow the American and European public to continue to support technological change? I don’t think it accidental that we live in an age where movements have risen to challenge corporate authority (Occupy Wall St), government authority (Tea Party) and even intellectualism itself.
Which leaves me with a final question; will my life and the lives of those I love be better for it? Do the advantages that come from this change out-weigh the negative impact of all this disruption? I think the jury is still out on that one. In the end, I actually agree with David Wojick, I think the answer is yes, but perhaps not for this generation.
I still believe that “better governance” is possible and a main part of the solution. We’ve endured decades of risk being shifted from corporations and governments to individuals, through 401(k)s, health savings accounts, flexible spending accounts, vouchers, and so forth. These are taking the place of pensions and the dreaded single-payer approach to health care. Individuals have been trying to adjust by having both parents work, using personal credit and mortgages, etc.
The Occupy movements are very positive. It’s time for us to function as a thoughtful society. That said, Amazon’s approach to business isn’t the problem, any more than the Book of the Month club was a problem in its day — no sales tax because it was mail order, etc.
Money in politics has created a vicious cycle in which that is now an end unto itself. Until that’s corrected (probably through a Constitutional amendment), we’ll continue to see things erode. I agree. I just don’t think Amazon, Apple, or Wal-Mart cause the problems. They’re in some ways answers to the problems being created upstream.
Your framing the situation in this way reminds me of the way i began my presidential address for the AAUP back in 2007, starting off with a quote from Karl Marx:
“In the social production which men carry on they enter into definite relations that are indispensable and independent of their will; these relations of production correspond to a definite stage of development of their material powers of production. The sum total of these relations of production constitutes the economic structure of society—the real foundation, on which rise legal and political superstructures and to which correspond definite forms of social consciousness. The mode of production in material life determines the general character of the social, political and spiritual processes of life. It is not the consciousness of men that determines their existence, but, on the contrary, their social existence determines their consciousness. At a certain stage of their development, the material forces of production in society come in conflict with the existing relations of production, or—what is but a legal expression for the same thing—with the property relations within which they had been at work before. From forms of development of the forces of production these relations turn into their fetters. Then comes the period of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed.”
What strikes me about this quote is how uncannily it seems to portray the situation in which we exist today in scholarly publishing, with the legal regime of copyright as a form of private “property” under widespread attack as imposing “fetters” on the further development of the “forces of production” unleashed by the Internet, which is heralded by many as ushering in a new “period of social revolution” manifested most recently by the advent of the Web 2.0 generation and its practices of communitarian collectivity. The authors of a new book titled Wikinomics: How Mass Collaboration Changes Everything (2006) put it this way: “Leaders must think differently about how to compete and be profitable, and embrace a new art and science of collaboration we call wikinomics. This is more than open source, social networking, so-called crowdsourcing, smart mobs, crowd wisdom or other ideas that touch upon the subject. Rather, we are talking about deep changes in the structure and modus operandi of the corporation and our economy, based on competitive principles such as openness, peering, sharing, and acting globally.” In Marxian thought, technological advance is seen as the engine of economic change, and the Internet is a prime example of a “force of production” setting in motion a revolution in the “relations of production.”
Although some interpreters of Marx have viewed his as a philosophy of technological determinism, with a fatalist tinge to it, others emphasize his political activism, perhaps best summed up in this pithy quote: “The philosophers have only interpreted the world in various ways; the point, however, is to change it.” This is the message that we in university press publishing need to heed. It is all too easy to feel beset on all sides by forces in our environment, both within the academy that informs our values and within the industry that shapes our economic well-being, over which we have little or no control, and then to resign ourselves to passive acceptance of our fate. But this is the road to perdition, and if we acquiesce, we have no one to blame but ourselves.
“Not long ago, it seemed fanciful that public smoking would be restricted and tobacco companies would sponsor public service ads that discourage smoking,” wrote Deepak Chopra and David Simon in 2004. “But this shift in awareness occurred when a critical mass of people decided they would no longer tolerate a behavior that harmed many while benefited a few.”
Flaw in your comparison = “harmed many while benefited a few.” Amazon and other retailing innovations tend to work because they benefit many while upsetting only a few. And the day that consumers start caring whether academic publishers are comfortable or not is the day I think there are frost warnings in Hades, porcine transports go airborne, and we all begin defecating the petals of the Rosa rubiginosa.
Sorry, that comment was not meant to reflect Amazon in particular, but was in response to Mark’s comments about our declining quality of life and acceptance that we must simply lie back and take it, and also whether a change in governance is possible.
You’re absolutely right, Kent, but you’ve just made my point for me. I don’t care to do business with a company that treats my company like dirt, and it is even more galling that because of the market power of this player one has no choice but to do so. So, my personal choice is not to patronize Amazon and support its business practices as an individual, even though my press is obliged to do so. I realize that there are not many other people who will share this point of view and act on it as i have.
On sales tax, you readily admit Amazon usually has a price advantage anyway. All tax is extractive and general compliance occurs only when there are readily executed remedies for non compliance. Taxes on sales have been extracted on behalf of government by sellers for multiple excellent reasons. Billions of dollars annually are being withheld from local governments by the failure to use internet sellers to collect sales taxes.
The alternative to compelling Amazon to collect sales tax is to compell Amazon to provide individual taxpayer identities with every sales transaction to the government . Which is less controversial?
Some states have effected taxes on Amazon and its ilk, but there is no Constitutional way currently for states to do so without new laws, and those new laws might yet prove to be unconstitutional. The Commerce Clause of the Constitution allows for interstate commerce and forbids states from levying tariffs and duties against one another. Courts have found (in unrelated and older mail-order cases) that using the common carriage or mail to distribute goods amongst the states while having no retail outlets means no state can collect taxes, as it is all interstate commerce, essentially. Those states that have effected tax laws against Amazon seem to be basing that on the notion that there are individuals in those states selling goods through Amazon, so that creates a tax nexus. However, I think that argument goes down in flames if ever really tested in the courts. Many states have proposed these laws, but most haven’t been implemented, possibly because their AGs feel they’re not going to stand up. Also, states that have put them in place in hopes of generating revenues have found that tax revenues have held flat or fallen. The reasons for this aren’t clear, but a logical cause would be resellers leaving the market because of tax collection requirements, which depletes their incomes, leaving them less money to spend in the state, money that would have been subject to the normal sales tax.
There is nothing in the Constitution that would prevent the federal government from imposing a general sales and excise tax leveled on sales within the national borders. The proceeds from this national tax could then be shared among the states. This is a radical departure from past practice but then, up until the internet, the vast majority of sales were always local in nature. It would then be up to each state to determine whether or not they would reduce or eliminate their own sales taxes.
Love the quote from Marx, Sandy. Kent, while you are right about the smoking analogy, I do not yet think it has been proven that all this change has benefited the majority of the people (at least for Americans). Most Americans have experienced falling wages for the past ten years. In light of falling wages, I don’t think that cheaper books qualifies as a “benefit” – not that I am blaming falling wages on Amazon, but I do blame the communication advances (including the internet) for this decline. The Economist has reported many times over the years that technological advance has had a negative impact on wages in the West. David and Sandy may be right, we could be reaching a point when people of the West say; “no more.” Though in the end, any attempt to limit the impact of technological change would be doomed to failure – one need look no further than the French saboteurs to see the futility of such a strategy.
Mark, to that first point, Amazon actually (or insincerely) supports a national tax if that’s the issue. They just demand it be small and fairly applied, and not target them.
I’m glad someone finally quoted Marx.
There’s plenty to do with old technologies like asphalt, cement, bricks, and electricity. With higher taxes on the wealthy in the US, we might have bridges that aren’t falling apart, schools that are up to snuff, teachers who are paid a fair wage, roads that aren’t littered with potholes, and so forth. People who point to technology as the culprit are shifting blame, or have a fixation.
I don’t think anyone here is suggesting that we try to stop technology or move backward in time. Instead I’m more interested in a society changing its values, away from rewarding those who game the system, and perhaps away from the acquisition of more material goods as the overriding priority. The latter may be harder to overcome than the former where OWS has already sown the seeds.