I haven’t always been a fan of Amazon.com as a company. There was a time early on in the company’s ascent that its innovators pushed through a patent application for the process behind its one-click purchasing mechanism. It seemed to be such a basic feature for any e-commerce website, including websites in existence before Amazon.com, that I couldn’t believe that the company’s patent application would be approved.
Nevertheless, Amazon.com was successful with this tactic, and sued other companies for daring to allow their customers to purchase items online with one click. The fight over the rights to this basic functionality inspired a boycott.
Amazon has obtained a US patent (5,960,411) on an important and obvious idea for E-commerce: an idea sometimes known as one-click purchasing. The idea is that your command in a web browser to buy a certain item can carry along information about your identity… Amazon has sued to block the use of this simple idea, showing that they truly intend to monopolize it. This is an attack against the World Wide Web and against E-commerce in general.
The above is from the GNU Operating System and the Free Software Foundation, the group that organized a boycott in response to Amazon.com’s actions.
Despite this frustration, over time I’ve become an Amazon.com fan. For music, movies, and books, I can only occasionally find other stores with lower prices. I even pay extra each year for membership in Amazon Prime. This ensures I can receive what I order in less time and for less money; two-day shipping is free on most products “fulfilled by Amazon.” Apparently Amazon Prime also includes free movie and television streaming, similar to the service from Netflix, but I’ve never found anything available for free that I’ve wanted to watch.
This program reportedly loses money for the company. The cost of a regular subscription to Amazon Prime is $79 a year, but Amazon spends more than that to cover the extra services provided with membership like free two-day shipping and media streaming. Even with a loss of $11 per customer per year, Amazon offer limited-time free and discounted membership to students and stay-at-home parents.
On paper, analyzed in a vacuum, this is crazy. The company is expanding a program that does worse than just not paying for itself. It’s clear, however, that the company’s loss on Amazon Prime membership has other benefits. Customer loyalty, in general, is a remnant of the past. Consumers, particularly through this recession, shop around more, putting the bottom line ahead of all other dimensions of comparison. When a commodity is roughly the same, the only thing that matters is the lowest price. Why should I buy an album at my local record store, a camera lens at my local camera shop, or a book at my local independent bookstore if these products are identical and cheaper from Amazon.com?
Not only does Amazon.com want to be the best choice by price, the company wants to be the only place you look. The members-only approach — membership has its privileges — ties the customer to the company, particularly if membership is not free. If I’m paying $79 a year to be able to receive products I order one day earlier for the same price, I want to maximize that benefit by shopping at Amazon.com as often as necessary. Even if the company loses $11 on each Amazon Prime member each year, Prime members buy products from this particular online retailer more often. Taking a loss with one program allows the company, as a whole, to grow.
This is a concept that is occasionally lost on the more narrow-minded corporate executives. Not every program or product needs to meet the same financial goals if there is some other way of measuring the benefit to the company. The financial benefit may not appear to be a direct link between the program and the bottom line, but a program exists as an expense while allowing the company to grow further, to reach a different audience, or to build a brand reputation in the market, can certainly be worthwhile. The problem usually comes down to a corporate structure that involves too many layers of management. You might see some corporations with all managers being held to the same fiscal standards regardless of their responsibilities. A multitude of managers need to appear effective, so they make choices that look good on paper — focusing on the bottom line — but do more harm to their company than good. There’s no point in saving some pennies in by cost-reducing one area if doing so will cause significant losses or hardships, measured by numbers or reputation, in another area.
The one illustration I’ve come back to often is simply the value of human assets. I’m not normally a fan of the writing of Stephen Covey, the author of The 7 Habits of Highly Effective People. In general, a person’s effectiveness is more a function of his or her value to an employer rather than to any intrinsic value. Nevertheless, with his recent passing, I was pointed to a poignant quotation from his writing:
We need to break away from the Industrial-Age psychology that labels people as expenses and cell phones as assets. Jobs should cater to our interests. Instead of telling people what they’re hired to do, we should ask them what they love to do. Then create a marriage between that passion and your needs.
This quotation mainly addresses the idea that human might be more effective — in fact, perhaps even more fulfilled, an intrinsic value — by aligning their daily work with their passions. But I want to focus on the first sentence. Look at any corporate profit and loss statement or income statement. Salary and benefits are expenses. These should correspond with line items on a balance sheet: employees as assets. But they don’t. In the business world, employees are not considered assets.
All assets — for example, houses, cars, and investments in the stock market — need to be maintained in order for them to retain value or to grow. Good corporate leaders understand that employees are assets too, also needing maintenance, even if they don’t appear on the balance sheet. Once all goals are set aside other than the short-term bottom line, a workforce looks like nothing more than a significant opportunity for expense reduction. There’s always a case to be made for evaluating the quality of a workforce, but good corporate leaders make the best decisions by looking at the big picture.
Published or updated July 16, 2012.