by Andrew Keen
The book industry, which was initially quite enthusiastic about Bezos’s venture, has mostly soured on Amazon. “An abusive, alcoholic father; a snake-oil salesman; a predatory lion; Nazi Germany,” are, according to Forbes staff writer Jeff Bercovici, some of the insults that publishers and retailers are now throwing at Amazon.42 And it’s not hard to see why some literary folks are reverting to these kind of clichés. In the United States, where Amazon now accounts for 65% of all digital purchases in a market that now makes up 30% of all book sales,43 there were around four thousand bookstores in the mid-1990s, when Bezos launched Amazon.com. But today there are half that number, resulting in thousands of lost retail jobs.44 In Britain, things are no better, with fewer than 1,000 bookstores surviving in 2014, a third fewer than in 2005.45 The Everything Store hasn’t been any kinder to the publishing industry, where, in 2004, Amazon’s books group division unleashed what it dubbed a “Gazelle Project” designed to crush small publishers that wouldn’t agree to their stringent demands on pricing and bill payment. This project got its name, Brad Stone explains, because Jeff Bezos instructed one of his staff that “Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.”46
Bezos’s brutally efficient business methodology, what Brad Stone politely describes as “eliminating more costs from the supply chain,”47 is now squeezing jobs in every retail sector—from clothing, electronics, and toys to garden furniture and jewelry. As a 2013 study from the US Institute of Local Self-Reliance (ILSR) reports, while brick-and-mortar retailers employ 47 people for every $10 million in sales, Amazon only employs 14 people to generate the same $10 million sales revenue. Amazon, according to the ILSR report, is a job killer rather than job creator, having destroyed a net 27,000 jobs in the American economy in 2012.48
Even more chilling is Amazon’s heartless treatment of its nonunionized workforce, particularly its utilization of monitoring technologies to observe the company’s warehouse workers’ most minute activities. Simon Head, a senior fellow at the Institute for Public Knowledge at New York University, argues that this makes Amazon, with Walmart, the “most egregiously ruthless corporation in America.” This shop-floor surveillance, Head says, is an “extreme variant” of nineteenth- and twentieth-century Taylorism—the scientific management system invented by Frederick Winslow Taylor, which Aldous Huxley savagely parodied as “Fordism” in Brave New World.49
Yet even without these monitoring technologies, work in the Amazon fulfillment centers is notoriously unpleasant. Nonunionized Amazon workers in Pennsylvania, for example, have been subjected to such high warehouse temperatures that the company has ambulances permanently parked outside the facility ready to speed overheated workers to the emergency ward.50 In its Kentucky delivery center, Amazon’s hyperefficient work culture has created what one former manager described as the “huge problems” of permanently injured workers.51 In Germany, Amazon’s second-largest market, 1,300 workers organized a series of strikes in 2013 over pay and working conditions as well as to protest a security firm hired to police the company’s distribution centers.52 In Britain, a 2013 BBC undercover investigation into an Amazon warehouse revealed disturbingly harsh working conditions that one stress expert warned could lead to “mental and physical illness” for workers.53
But I don’t suppose the libertarian venture capitalists care much about the many casualties of this war of the one percent—such as Pam Wetherington, a middle-aged woman at Amazon’s Kentucky operation who suffered stress fractures in both feet through walking for miles on the warehouse’s concrete floor, yet received no compensation from Bezos’s company when she could no longer work.54 Or Jennifer Owen, a ten-year veteran employee at the Kentucky warehouse who was summarily fired after returning to work from an Amazon-approved medical leave after a car accident.55 While Amazon is a nightmare for nonunionized workers like Wetherington and Owen, it has been a financial dream for investors like Tom Perkins’s KPCB, whose original $6 million investment would, by 2014, be worth around $20 billion.
Yet, in spite of Amazon’s phenomenal success, what isn’t available in the Everything Store, at least in June 2014, were most of the books owned by Hachette Book Group, the publisher of Brad Stone’s Everything Store. That’s because Amazon was locked in an ongoing contractual dispute with Hachette over the pricing of electronic books. “What seems clear is that Amazon is using its market power,” a June 2014 New York Times editorial notes about Amazon’s decision to unstock Hachette’s books, “to get the best deal for itself while it squeezes publishers, annoys its customers and hurts authors by limiting their sales.”56
“Amazon’s Power Play” is how the New York Times summarized this bullying behavior. This is an accurate summary not only of the Internet’s winner-take-all economy, but also of Amazon’s dominant place in it. So much for those “decentralizing, globalizing, harmonizing and empowering” qualities that Nicholas Negroponte promised would be a “force of nature” of the digital age. Jeff Bezos would, of course, disagree, arguing, no doubt, that such a generalization is a narrative fallacy. But he’d be wrong. The real force of nature in the digital age is a winner-take-all economy that is creating increasingly monopolistic companies like Amazon and multibillionaire plutocrats like Bezos himself.
The Code Is Cracked
Despite the metaphysical promises of digital prophets like Nicholas Negroponte and Kevin Kelly, the early generation of Internet businesses in what is now called the “Web 1.0” age, such as Amazon, Netscape, Yahoo, and eBay, weren’t very innovative. Nobody has ever used terms like Amazonomics, Netscapenomics, or eBaynomics to compliment their business models; nobody has ever claimed that these companies had cracked the code on Internet profits.
For all its economic and cultural significance, Amazon was and still mostly is a very low-margin business—a digital version of Walmart focused on gaining mental shelf space, building its economies of scale, and underselling its rivals so aggressively that the American blogger Matthew Yglesias has even anointed Jeff Bezos as “the prophet of no profit” and suggested that Amazon’s “pace of growth will almost certainly slow,” particularly “if Bezos were to turn his interest to other things.”57 Netscape, in spite of its transformational role in Internet history, pursued the very orthodox business models of either selling software subscriptions or advertising on its Web pages. eBay, which grew from 41,000 users trading $7.2 million worth of goods in 1995 to 22 million users trading $5.4 billion worth of goods in 2000,58 was essentially an electronic platform bringing together traditional buyers and sellers of goods. Like Amazon and Netscape, eBay—which took a cut of each transaction conducted on its site—didn’t represent a fundamental break with the economics of the past.
Many of the most highly trafficked sites in this Web 1.0 period were owned by traditional media companies that saw the Internet as little more than an electronic shop window through which to market and sell their content. Others, like Yahoo, an acronym for “Yet Another Hierarchical Officious Oracle,” founded in 1994 by Jerry Yang and David Filo and originally known as “Jerry and David’s Guide to the World Wide Web,” began—as its odd name suggests—as a curated directory designed to help users find interesting new websites. But even by 1998, when Yahoo was the most highly trafficked site on the Web with close to 100 million page views per day,59 its business model remained that of a glorified electronic magazine, relying on site-based advertising and the selling of online services like email hosting for its revenue.
All this was to change with Google, the revolutionary Internet search engine that not only successfully cracked the code on Internet profits, but ushered in the word Googlenomics,60 a term describing the reinvention of Internet economics. Created in 1996 as an academic project by Larry Page and Sergey Brin, two unusually gifted Stanford University computer science doctoral students, Google began with the kind of audacious idea that would have challenged the intellects of Internet pioneers like J. C. R. Licklider and Vannevar Bush.
/> Like Bush, Page and Brin were concerned with the problem of information overload. The digital universe was exploding—the number of computers connected to the Internet increasing from 3.8 million in 1994 to 19.6 million by 1997,61 and the number of websites growing from 18,957 in 1995 to over 3,350,000 sites producing around 60 million pages of online content by 1998. This prodigious growth of sites, pages, and hyperlinks was central to Page and Brin’s project and it’s why they named their search engine Google—Sergey Brin’s unintentional misspelling of the word googol, a mathematical term signifying the number1.0 × 10100, which has come to mean an unimaginably large number.
What if all the content on the Web, all those 26 million pages with their hundreds of millions of hyperlinks, could be sorted and indexed? Page and Brin wondered. What if Google could organize all the world’s digital information?
There already were technologies from well-funded startups like Lycos, AltaVista, Excite, and Yahoo, vying to build a winner-take-all search engine for navigating the Web. But Brin and Page beat them all to it with an astonishingly original method for determining the relevance and reliability of a Web page’s content. Just as Vannevar Bush’s Memex worked through an intricate system of “trails,” Page and Brin saw the logic of the Web in terms of hyperlinks. By crawling the entire Web and indexing all its pages and links, they turned the Web into what Brin, a National Science Foundation fellow at Stanford, identified as “a big equation.” The end result of this gigantic math project was an algorithm they called PageRank, which determined the relevance of the Web page based on the number and quality of its incoming links. “The more prominent the status of the page that made the link, the more valuable the link was and the higher it would rise when calculating the ultimate PageRank number of the web page itself,” explains Steven Levy in In the Plex, his definitive history of Google.62
In the spirit of Norbert Wiener’s flight path predictor device, which relied on a continuous stream of information that flowed back and forth between the gun and its operator, the logic of the Google algorithm was dependent on a self-regulating system of hyperlinks flowing around the Web. Page and Brin’s creation represented the realization of Licklider’s man-computer symbiosis. As an information map that mirrored the distributed nature of the electronic network, it was the opposite of a centralized Web portal like Yahoo—anything but yet another hierarchical officious oracle.
“The idea behind PageRank was that you can estimate the importance of a web page by the web pages that link to it,” Brin explained. “We convert the entire web into a big equation with several hundred million variables, which are the PageRanks of all the web pages, and billions of terms, which are all the links.”63
“It’s all recursive,” Brin said, revealing the logic of his search engine, “it’s all a big circle.”64 And the real beauty of this virtuous circle is that it became more efficient the more the Web grew and the more Web pages and links there were. It was infinitely scalable. The more links the algorithm had to crunch, the more data it was fed, the more accurately the search engine could identify the relevant pages to a query.
“Google search really did feel like magic,” notes Levy about the reaction of the Stanford academic community to the search engine.65 By 1998, Google was dealing with up to 10,000 daily queries and hogging half of Stanford’s Internet capacity. Having begun as a possible doctoral dissertation, the project, like its technology, became a virtuous circle, acquiring its own momentum. What next? Brin and Page started to ask themselves in 1997. Maybe this is real.66
Both Page’s and Brin’s fathers were university scientists and both had always intended to become academics themselves. They wanted to do “something that mattered,” which would change the world. In a different age, they might have had public careers like Vannevar Bush or J. C. R. Licklider, spent inside nonprofit universities and government agencies, working for the public good as the world’s librarians by organizing all its information. But this was the Stanford of the 1990s rather than the MIT of the 1940s. And that meant launching Google as a for-profit startup and becoming billionaires rather than electronic librarians.
Having raised a million-dollar seed round from investors that included Jeff Bezos, Page and Brin incorporated Google in September 1998 and began to build a team of engineers to transform their academic project into a viable commercial product. But they quickly needed more capital to invest in both engineers and hardware, which inevitably led them to KPCB’s John Doerr.
“How big do you think this could be?” Doerr asked them when they met in 1999.
“Ten billion,” Larry Page immediately shot back about a “business” that, at that point, not only didn’t have any revenue, but didn’t even have a coherent model for making money. “And I don’t mean market cap. I mean revenues.”
Doerr, Steven Levy noted, “just about fell off his chair” at Page’s boldness.67 But he nonetheless invested in Google, joining Michael Moritz from Sequoia Capital in a joint $25 million Series A round. But two years after the investment, in spite of Google’s establishing itself as the Web’s dominant search engine with 70 million daily search requests, the company—which by now had appointed the “grown-up” Eric Schmidt as CEO—hadn’t figured out a successful business model for monetizing the popularity of its free technology.
As always with Google, the solution was both totally obvious (at least in retrospect) and completely counterintuitive. Both Brin and Page—who took great pride in the fast-loading, minimalist aesthetic of the Google home page—had been hostile to the online advertising model pursued by portals like Yahoo that cluttered up the Web with CPM-priced (cost per thousand impressions) banner and interstitial advertisements. The solution was Google AdWords, a do-it-yourself marketplace for advertisers introduced in 2000 that enabled the placement of keyword-associated ads on the right-hand side of the search result page. Advertising thus became baked into search and Google, for all its technical brilliance, became an electronic advertising sales company.
Doing away with the CPM pricing, Google introduced the auction sales model to AdWords, which some of America’s leading academic economists later described as “spectacularly successful” and “the dominant transaction mechanism in a large and rapidly growing industry.”68 Rather than buying online advertising at a set price, advertisers were now able to bid in what Steven Levy calls a real-time “unique auction” that simultaneously made online advertising more effective and profitable.69
Alongside AdWords, Google also developed an increasingly successful product called AdSense, which provided the tools to buy and measure advertising on websites not affiliated with the search engine. Google’s advertising network was becoming as ubiquitous as Google search. AdWords and AdSense together represented what Levy calls a “cash cow” to fund the next decade’s worth of Web projects, which included the acquisition of YouTube and the creation of the Android mobile operating system, Gmail, Google+, Blogger, the Chrome browser, Google self-driving cars, Google Glass, Waze, and its most recent roll-up of artificial intelligence companies including DeepMind, Boston Dynamics, and Nest Labs.70
More than just cracking the code on Internet profits, Google had discovered the holy grail of the information economy. In 2001, revenues were just $86 million. They rose to $347 million in 2002, then to just under a billion dollars in 2003 and to almost $2 billion in 2004, when the six-year-old company went public in a $1.67 billion offering that valued it at $23 billion. By 2014, Google had become the world’s second most valuable company, after Apple, with a market cap of over $400 billion, and Brin and Page were the two wealthiest young men in the world, with fortunes of around $30 billion apiece. In vivid contrast with Amazon, Google’s profits were also astonishing. In 2012, its operational profits were just under $14 billion from revenues of $50 billion. In 2013, Google “demolished” Wall Street expectations and returned operational profits of over $15 billion from revenues of nearly $60 billion.71 Larry Page’s response to John Doerr’s question when they fir
st met in 1999 had turned out to be a dramatic underestimation of just “how big” Google could become. And the company is still growing.
By 2014, Google had joined Amazon as a winner-take-all company. It was processing around 40,000 search queries each second, which computes into 3.5 billion daily searches or 1.2 trillion annual searches. The leviathan controls around 65% of search globally, with its dominance of some markets, such as Italy or Spain, being higher than 90%.72 Google’s domination of the Internet reveals the new power laws of this networked economy. Idealists like Kevin Kelly and Nicholas Negroponte believed that the “decentralizing” architecture of the Web would result in a “thousand points of wealth” economy. But the reverse is true. By mimicking the distributed architecture of the Web itself, Google has become a monopolist of information. So when thinkers like Moises Naim describe “the end of power”73 in our digital age, they are wrong. Power hasn’t ended. It’s simply changed its form, going from a top-down to a recursive, circular structure.