Friday, June 13, 2014

Pfeffer on Amazon

Jeffrey Pfeffer, who oscillates between Machiavellian calculation and almost gullible open-heartedness, as a good article on why Amazon is more ruthless than Walmart:
But it’s Amazon’s relationship with its suppliers that makes the company worse than Walmart. There’s no doubt that Walmart pressures suppliers for the lowest possible price. But once the products are in the stores, both Walmart and the chosen suppliers’ interests are well aligned — to sell as much as possible of the stocked items. It costs money to build stores and ship products to them. Having chosen a supplier and negotiated a deal, there is at least some degree of temporary commitment by Walmart to the vendor.
By contrast, Amazon — with no stores and an IT infrastructure that makes the cost of adding items to sell close to zero — doesn’t care what you buy, or even which of their online partners you use, as long as you buy the product through Amazon. Simply put, Amazon has less incentive to make any specific supplier successful. To Walmart, for books or anything else, selling a million units of one item is great; selling one unit of a million items is impossible in its physical stores. For Amazon, who cares?
To a certain degree, Walmart and it's suppliers are dependent on one another, while Amazon's suppliers are more interchangable, and thus, disposable. Walmart also engages in extensive supply chain integration requiring co-investment, and this co-dependency means that Walmart really does not want suppliers to completely fail. Not so with Amazon.

I would guess that reporters who write critical stories about Walmart tend not to shop there, but they do shop at Amazon. I'll be curious to see how, if it all, that influences how they choose to frame their articles.


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