September 21, 2012

Calls grow for an investigation of Amazon’s role in the DOJ lawsuit


Is that a gun in your pocket, or is it the Department of Justice?

Not that they ever seem to care about this sort of thing — hell, you wouldn’t either, if you had the Department of Justice in your pocket — but there have been a couple of bad developments for Amazon lately.

Yesterday, for one, Wal-Mart announced it was no longer going to sell Kindles. As Julie Bosman explains in a New York Times report,

Wal-Mart did not specify why it was discontinuing its Kindle sales, but analysts said it was not hard to decipher, given that the retailer will still sell similar devices from companies like Apple, Google, Barnes & Noble and Samsung.

Physical retailers have been worried about customers who browse in stores and then buy from online competitors instead. Displaying the new Kindles encourages that behavior, analysts said.

This, after — as MobyLives reported earlier Target had also stopped selling Kindles.

But there has been another development that Amazon has seemed to notice — to the point, in fact, of swift reaction. As Laura Hazard Owen details in a paidContent report, court papers have revealed that Amazon is trying to quash a request by Apple to see transcripts of interviews the government conducted with Amazon executives before bringing charges against Apple and five of the Big Six publishers.

Why? Because, as Apple put it in an August court filing (PDF),

Amazon was the driving force behind the Government’s investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees—yet not once under oath.

It’s not exactly a new story, but rather one that has beeen percolating since the slow-news-cycle days of mid-August, when several other players in the DOJ lawsuit began calling for a closer look at Amazon’s involvement with the case.

As Owen noted in another paidContent report in mid-August, the two publishers who haven’t settled the case — Penguin and Macmillan — along with the Authors’ Guild, filed their opposition to the settlement made with the other publishers (since approved by the court) by saying largely, “What about Amazon?” As the Macmillan filing put it, “Amazon will be able to use the judicially compelled discounting to grow its market share to a level that is not in the public interest.” As the Authors’ Guild put it, “… requiring three large publishers to allow Amazon to sell ebooks at a loss is among the most destructive of competition that one could imagine.”

Shortly after that, after announcing a new (and promptly panned) emanation of the Kindle, Jeff Bezos gave one of his patently bizarre interviews in which he says a whole lot of not much, but which then gets spun by a willing reporter exactly the way he wants it to be — in this instance, away from the idea that Amazon’s low pricing is a dangerous thing for the marketplace and the consumer. In this instance, the interview was given to Trica Duryee for the All Things D website, and the main take-away — judging by the many who linked to it — was the headline: Making Money While Keeping Prices Low, which phenomenon Bezos purportedly explains. Here’s the part of the interview where he supposedly does that:

What stood out to me from the presentation today was your comments on Amazon’s ability to make money despite offering low prices.

Jeff Bezos: We do not like the razor and razor blade model, where you lose money up front and then somehow make it up on the backend. We also do not like the other model, where you make a lot of money on the device, because it doesn’t follow our approach.

By the way, one thing I should tell you is that our approach is our approach, and we don’t even claim it’s the right approach. It’s not something that’s new, but it’s something we’ve done since the founding of the company. In my view, you set up the business in a way that is aligned with the customer, or you can set it up in odds with the customer. When you have the option, you should figure out a way to be in alignment. Sometimes that requires you to be more patient, so it’s part and parcel with long-term thinking.

But if you were a short-term-oriented share owner, you might say let’s get the money up front. That’s where I decline to say that approach is wrong. I won’t say that. But it’s not ours. I work with the teams to set up the business models.

You see an explanation there? Me neither. Because the only possible answer is: The only way you can make money by relying on loss-leaders is by gaining complete monopolization of the market. But like a politician, Bezos deftly distracts the interviewer’s attention from the obvious to something shiny nearby … and she never gets him back to the unanswered question. That didn’t stop a gazillion people from linking to the interview as evidence of his genius — and justification, essentially, for the DOJ case. Hey, if he can do this without losing money, it can’t be about nothing but market control, right? Of course, a look at Amazon’s quarterlies — where the company’s earnings have been steadily crashing — might testify otherwise. But of course, no one did that.

Nonetheless, those mystified by what in the world led the government to bring this lawsuit can be forgiven feeling at least a bit more hopeful by the growing chorus calling for an investigation of the most obvious monopoly in the book business. After all, it seems to have prompted the What-Me-Worry? company to finally act — in trying to quash Apple’s request to get a legitimate, closer look at its involvement with the government.

And the government seems to have blinked as well. At least, that’s the way a lot of people read another story that emerged from the haze of the summer doldrums — the one about the government deciding that it wouldn’t go through with its highly questionable $16.5 million, no-bid deal with Amazon to buy thousands of Kindles.


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives