Amazon Unbound

by Brad Stone

  In the midst of this ascendency, a reckoning was finally at hand. Americans and Europeans tend to lionize the business triumphs of their shrewdest entrepreneurs. But they are also inherently skeptical of large, distant corporations and can be downright vituperative toward the exceedingly wealthy, particularly at a time of grotesquely widening income inequality.

  And so the dual rise of Jeff Bezos’s fortune and his company’s market cap generated not just plaudits for a historic business accomplishment but also an incongruous amount of anger. In the final years of the company’s most prosperous decade, there was a dawning sense that the system was rigged, that consumers and smaller firms were caught in Amazon’s merciless grip, and that it and other tech giants were swallowing the economy whole. Emboldened politicians across the spectrum on both sides of the Atlantic Ocean started to investigate the power of Amazon and its big tech brethren, Google, Facebook, and Apple, initiating several campaigns to curb their rampant growth. If not yet the conclusive battle over the tech giants and their far-reaching influence, it was, at the very least, the opening salvo in a coming war.

  Jeff Bezos said he welcomed this scrutiny, even if he did nothing to blunt the sharper edges of Amazon’s business tactics. “All big institutions of any kind are going to be and should be examined, scrutinized, inspected,” he told the private equity billionaire David Rubinstein during an onstage interview at the Economic Club in Washington, D.C., in 2018. “It’s not personal, it’s kind of what we as a society want to have happen.” He sounded almost resigned toward whatever outcome might result: “We are so inventive that whatever regulations are promulgated or however it works, that will not stop us from serving customers.”

  In private though, Bezos prepared to take a less accommodating approach toward the intensifying techlash. In the fall of 2019, the S-team and Amazon’s board of directors read The Great A&P and the Struggle for Small Business in America, by the economic historian Marc Levinson. The book traces the rise and fall of the first American grocery chain of the twentieth century, as well as its strategic drift after the death of its founders and the decades-long crusade against it by populist politicians and determined trustbusters. The campaign against A&P, the book concludes, was mostly political, propelled by the cumulative complaints of thousands of sympathetic mom-and-pop stores and their suppliers, and by a company that exhibited unusual passivity in the face of early criticism.

  Though A&P was known for strong-arming suppliers and undercutting rivals with predatory prices, the idea that the company actually doomed itself by failing to properly answer its critics, and then to plan for succession after the death of its founders, seemed to resonate with Bezos and other Amazon executives. “The takeaway was, we really can’t ourselves get distracted by all the noise out there. This is going to happen. It’s inevitable,” said David Zapolsky, senior vice president and general counsel. “This is kind of how our society reacts to large institutions.”

  Amazon could not ignore what was coming. As public and political sentiment around big tech began to perceptibly shift, the company faced a set of largely antagonistic candidates for the 2020 Democratic nomination for the U.S. presidency. It also confronted a campaign to increase wages for workers in its fulfillment centers and a controversy over the minuscule amount of corporate taxes it paid in the U.S. and Europe. President Donald Trump, an avowed enemy of Bezos and his newspaper, the Washington Post, leveled fresh accusations that Amazon’s deal with the U.S. Postal Service was inequitable, while allegedly interfering with AWS’s pursuit of the so-called JEDI contract, a lucrative deal to host the U.S. Department of Defense’s computer operations in the cloud.

  To cap it all off, after a sixteen-month-long investigation into the state of competition in the digital economy, the U.S. House Judiciary Subcommittee on Antitrust delivered a scathing, 450-page report on the abuses of Amazon and other tech companies. Among other things, the report charged that Amazon enjoyed a dominant position in online retail, engaged in anticompetitive acquisitions, and bullied small sellers in its third-party marketplace. It recommended that Amazon be broken up like the railroad and telecommunication trusts of yesteryear.

  Defending the company with his usual combativeness, senior vice president Jay Carney said of the subcommittee’s report, “There was very little that I see that has a lot of credibility to it.” But Lina Khan, who had helped steer the report as counsel to the subcommittee and whose Yale Law Journal paper on revitalizing antitrust statutes had provided the intellectual foundation for Congress’s investigation, rejected the notion that the proceedings were political. Only thirty-one years old and already one of Amazon’s most credible adversaries, she told me in an interview that Amazon “can dictate terms to everyone dependent on its platform and increasingly enjoys the power to pick winners and losers throughout the economy. When information advantages and bargaining power are so skewed towards a single player that unilaterally sets all the rules, it’s no longer a ‘market’ in any meaningful sense.”

  * * *

  As politicians and pundits lobbed such rhetorical grenades at Amazon, the size of its global communications and policy department exploded. In 2015—the time of the infamous New York Times exposé—the global PR and policy group numbered 250; by the end of 2019, it had grown along with the company to nearly a thousand. The expanded division included a “rapid response team,” set up to monitor coverage and triage inbound inquiries at all hours of the day. “We are both brand ambassadors and brand protectors,” read one of the department’s sacred tenets, the principles forged in conjunction with the S-team that guided employee decision-making. “Although at times we are willing to be misunderstood, we respond quickly, forcefully, and publicly to correct the record when false or misleading information about Amazon appears in the press, analyst reports, or among policy makers.”

  The source of this obsessive sensitivity to the way Amazon was portrayed was of course Bezos himself. Employees shuddered at his ability to find and circulate any article or piece of analysis he viewed as inaccurate, then ask his PR team why they hadn’t pushed back on it more strenuously. Bezos’s longtime PR deputy, Drew Herdener, urged the communications staff to consider “every blade of grass,” to never overlook even minor facts and subtle insinuations if they were perceived as incorrect and merited a response. So when the zeitgeist around big technology companies shifted, and Amazon became a frequent subject of political discourse, the company was prepared to respond vehemently—if not always sensibly—to many of the criticisms directed its way.

  One of the company’s earliest adversaries was Massachusetts senator Elizabeth Warren, the former Harvard professor and Wall Street nemesis who had successfully advocated for and helped set up the Consumer Financial Protection Bureau after the great recession. In 2016, Warren delivered a clarion call at New America, a left-leaning think tank in Washington, D.C., declaring that “competition is dying” in the U.S. economy and that big tech companies like Amazon and Google exploited their status as dominant platforms to steer customers to their own products and services.

  Warren resumed this cause after entering the race for the Democratic Party’s presidential nomination, authoring an aggressively titled article on the publishing site Medium in March 2019, “Here’s How We Can Break Up Big Tech.” It argued that tech companies were too powerful and advised forcing them to surrender their largest acquisitions—in Amazon’s case, Whole Foods Market and Zappos.

  In the article and in a subsequent town hall discussion on CNN, Warren also charged that Amazon had a monopolistic stranglehold on e-commerce and that it undermined third-party sellers by introducing its own private-label versions of their most popular products. (As we have seen, employees in Amazon’s private-label group had, in fact, violated a loosely enforced internal policy restricting them from viewing sales data from independent merchants.) “You can be the umpire in the baseball game and you can run an honest platform, or you can be a player,” Warren said on CNN. “That is, you can have a
business or you can have a team in the game. But you don’t get to be the umpire and have a team in the game.”

  The day after Warren’s CNN town hall, Amazon punched back from its corporate Twitter account. It claimed that it controlled only a small share of overall retail (online and off-line) and denied that its private-label business was exploitive while minimizing its size:

  Amazon News

  @amazonnews

  We don’t use individual sellers’ data to launch private label products (which account for only about 1% of sales). And sellers aren’t being “knocked out” – they’re seeing record sales every year. Also, Walmart is much larger; Amazon is less than 4% of U.S. retail.

  Warren and other Democratic presidential candidates also seized on a report from the Institute on Taxation and Economic Policy, which revealed that Amazon had received a $129 million tax rebate from the federal government in 2018, despite recording $11.2 billion in profit. An especially adept navigator of tax law, Amazon was the benefactor of tax benefits attributable to its growing number of fulfillment centers and rising stock price. It had effectively offset its federal income tax obligation by deducting the cost of equipment in its supply chain and the value of its employee stock grants, as well as by taking advantage of tax credits arising from its vast R&D budget.

  The maneuverings, which were entirely legal, set off another wave of anti-Amazon attacks. “I have nothing against Amazon,” tweeted Joe Biden, the future president, on June 13, “but no company pulling in billions of dollars of profits should pay a lower tax rate than firefighters and teachers. We need to reward work, not just wealth.”

  The guardians of Amazon’s reputation tweeted back that same day:

  Amazon News

  @amazonnews

  We’ve paid $2.6B in corporate taxes since 2016. We pay every penny we owe. Congress designed tax laws to encourage companies to reinvest in the American economy. We have. $200B in investments since 2011 & 300K US jobs. Assume VP Biden’s complaint is w/ the tax code, not Amazon.

  At the same time as he instilled this type of combativeness in his communications teams, Bezos also advised that they should consider backpedaling on some battles. “What I teach and preach inside Amazon is [that] when you’re criticized, first look in a mirror and decide, are your critics right?” he said in an onstage interview in Berlin in 2018. “If they’re right, change. Don’t resist.”

  Amazon employed this strategy in late 2018, when another of its loudest critics, Vermont senator Bernie Sanders, extended his ongoing criticism of Bezos’s wealth by unleashing a blistering critique of Amazon’s compensation of its warehouse workers. He then unveiled what he theatrically called the “Stop BEZOS” bill (for “Stop Bad Employers by Zeroing Out Subsidies”), which proposed a new tax on companies based on the number of their employees that relied on public assistance programs such as food stamps.

  Instead of going into another protective crouch or ignoring the bill, which was destined to go nowhere in a GOP-controlled Senate, Bezos convened an S-team meeting to reconsider the issue of worker pay. Earnings in Amazon fulfillment centers varied by state, but some employees were making as little as $10.00 an hour, which was above the $7.25 federal minimum wage. The S-team weighed a number of proposals from operations chief Dave Clark, including incrementally raising wages to $12 or $13 an hour. Instead, Bezos opted for the most aggressive plan, raising the entry-level U.S. hourly rate across the board to $15. At the same time, he compensated for at least part of the additional expense by discarding supplemental sources of worker income, such as stock grants and collective bonuses that were awarded to employees based on the performance of their facility.

  The move was tactically brilliant. Amazon had surveyed its warehouse workers over the years and found a large majority were living paycheck to paycheck and would rather have the instant gratification of up-front pay than stock grants. By getting rid of the grants, Bezos not only helped to partially offset the pay increase but eliminated another incentive for unproductive or disgruntled low-level workers to stay at the company for more than a few years.

  The wage hike also satisfied many of Amazon’s critics, made arduous fulfillment center work more appealing to job candidates, and put the company in a position to lobby for raising the federal minimum wage, which its less affluent retail competitors could ill afford. But Amazon’s subsequent virtue-signaling of the pay raise also struck some executives as disingenuous. “We decided it was time to lead—to offer wages that went beyond competitive,” Bezos wrote in his shareholder letter that year. His colleagues knew all too well though that Bezos wasn’t really leading but reading—in this case, the rising criticism of the company by politicians and the press over what they characterized as penurious wages for warehouse workers. Bezos’s habit of only responding on an issue when public protests mounted would soon repeat itself.

  After the pay raise was announced, Bernie Sanders tried to get Bezos on the phone to thank him. When the senator was routed to Carney instead (“a frequent disappointment, I’m afraid,” Carney said), he thanked the S-team member and quizzed him on reports that some tenured workers might end up making less in the new compensation scheme. Carney assured him that no employees would emerge worse off.

  The explanation seemed to satisfy Sanders, who then held off on criticizing Amazon for a generous two months before returning to Twitter to harangue the company for paying nothing in federal income tax. This was the new reality for Amazon as it inched ever closer to $1 trillion in market value: an unceasing assault from both sides of the political aisle.

  * * *

  During his lone, four-year term, Donald Trump could barely conceal a raging, indiscriminate contempt for Amazon, Jeff Bezos, and for the newspaper he privately owned, the Washington Post. He ranted regularly on Twitter and in interviews about Amazon’s tax practices (“Amazon is getting away with murder tax-wise”), how it killed Main Street retail (“Towns, cities and states throughout the U.S. are being hurt—many jobs being lost!”), and implausibly, how it used the Post to further its own political agenda (“In my opinion the Washington Post is nothing more than an expensive [the paper loses a fortune] lobbyist for Amazon”). The cause of Trump’s animus toward Bezos was widely speculated upon; most armchair observers calculated that it lay not only in Bezos’s ownership of a media entity but in his wealth, which far exceeded the president’s.

  Ever since his 2015 tweet offering to “#sendDonaldtospace,” Bezos had listened to his advisors and restrained himself from responding to attacks from the White House. Jay Carney later said that there was no need to return fire, because most neutral reporters understood that Trump’s arguments were baseless and motivated by his fury over the Post’s journalism. “The fact that we were attacked episodically by the President had almost nothing to do with Amazon and everything to do with the fact that Jeff owns an independent newspaper,” he said.

  But several vectors of the president’s attack did get Amazon’s attention. In late 2017, Trump began regularly condemning Amazon’s contract with the U.S. Postal Service and charging that it underpaid for package deliveries and was responsible for the agency losing taxpayer money.

  Donald J. Trump

  @realDonaldTrump

  Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!

  As with many Trump charges, locating any truth in the miasma of misinformation was difficult. The Postal Service covered its own expenses by charging for postage and other delivery services. But the agency had lost money for years in large part because of congressional mandates to prefund its workers’ pensions and retirement healthcare accounts. Moreover, the post office’s contract with Amazon, like similar deals to deliver packages for UPS and FedEx, was required by law to be profitable.

  Despite these facts, Trump believed that the U.S. Postal Servi
ce could recover if it charged Amazon more. In several meetings over the course of 2017 and 2018, he demanded that postmaster general Megan Brennan double Amazon’s rates, the Washington Post reported. Brennan pointed out that postal rates were set by an independent commission and that package delivery was the fastest growing part of its business. The president’s logic also neglected the critical fact that if the agency raised prices beyond reasonable market rates, Amazon would simply accelerate the shift in deliveries to its own growing logistics service and leave the Postal Service in an even worse predicament.

  Trump finally commissioned a task force to review package delivery prices, which in late 2018 recommended a modest increase in rates, though a far less substantial one than he had hoped for. In this respect, Amazon largely escaped the president’s wrath. But in another, Trump’s vendetta against Jeff Bezos and the Washington Post would exact a significant toll.

  After Trump took office in 2017, leaders in the U.S. military arrived at an urgent conclusion: the Defense Department’s sprawling, fragmented technology infrastructure needed a massive overhaul. Trump’s then secretary of defense, Jim Mattis, embarked on a West Coast tour that summer to solicit advice from CEOs at big tech companies, meeting with Sundar Pichai and Sergey Brin of Google. He also met with Jeff Bezos, who tweeted a photo of himself and the defense secretary walking and talking in a Day 1 hallway.

  Mattis returned from the trip convinced that modern technologies were changing the nature of war and that the Defense Department needed to shift its war-fighting technologies into the cloud. He convened a steering group to pursue that goal, which after extensive consideration decided to select a single cloud provider for security reasons and to make data more accessible to troops in the field, instead of the usual matrix of multiple contractors and middlemen that service most government needs.