Sunday, July 6, 2014

Economy: - The Predator?

(Drivebycuriosity) - It seems there is an anti-Amazon front in the media. The online retailer got verbally attacked by the "New York Times", the "Atlantic", "Forbes", "The New Yorker" and others (driveby). Some days ago the TV channel  "CNBC" joined the ranks of  Amazon bashers and published a documentary called "Amazon Rising". There they criticize that Amazon`s pricing strategy has always been aggressive (techinsider). The CNBC attack was joined by Bob Kohn, one of the founders of, a competitor to Amazon. On CNBC Kohn claimed that Amazon uses predatory prices.

Really? Does Amazon price beloved children books for hundreds of dollars, sucking money out of parents` wallets? Do textbooks cost a fortune  there, robbing students? Are we all impoverished by paying to much for Amazon´s services?

No. Kohn laments that Amazon sells books TOO CHEAP!  According to him the online shop purchases an eBook from the publisher for $13 and sells it for $9.99. Kohn calls this "predatory pricing".  He also accuses Amazon for "taking advantage and trying to break some rules in order to win this ‘win or take all’ game.” He calls the alleged predatory pricing strategy a major issue which would be definitely something to be looked into by courts and politicians.

I checked the eBook prices on Amazon. Many cost more than $9.99  (amazon). But anyway. Producing an eBook is much cheaper than printing a paperback. There are no costs for paper, printing, binding, storing and delivering. But publishers want to sell eBooks for almost the same price as printed books. According to the Wall Street Journal eBooks have a profit margin of 75%! That means that 3 quarter of the selling price go to the publisher, not to the author. Contrary to them Amazon wants to give the cost advantage of virtual books to the customer.

Kohn - and the other Amazon bashers - claim that  Amazon´s low prices are crushing the competitors. Thus Amazon would reach the status of a monopoly, which would give it the chance to raise prices again. Kohn & Co. underestimate the competition in e-commerce - and especially on the online book market - by far. Amazon already feels the pressure of giants like Google and Apple who also want a piece form the cake. Brick and mortar chain stores like Wal-Mart, Target, Barnes & Noble are expanding online, China´s online giant Alibaba - already much larger than Amazon -   is going global and there are also aggressive upstarts who hope to become the next Amazon.

Conclusion: The world is changing faster and faster - and the Internet is disrupting everything.  Amazon is just a part of that. Amazon´s low prices are the result of the efficiency of the Internet. Other online companies like Google, Alibaba et. al. are also attacking the traditional producers & retailers. There will be at least one winner - the consumers who gain a better life standard thanks to a larger variety for lower prices.

Disclosure: I am an investor in, user of a Kindle and subscriber of Amazon Prime.

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