Is Amazon Playing Fair?

In the online world, it's hard to remember a time before Amazon. Today, it dominates the ecommerce space, and is rapidly becoming equally dominant in the ebook world. Against that background, a story that broke yesterday is rather...


In the online world, it's hard to remember a time before Amazon. Today, it dominates the ecommerce space, and is rapidly becoming equally dominant in the ebook world. Against that background, a story that broke yesterday is rather worrying.

Simon Phipps has perhaps the most complete background to the events, but the basic facts are as follows. A Norwegian lady was unable to access her Kindle device, which had developed a fault. While she was trying to get this fixed, she unexpectedly received the following email from the Executive Customer Relation department at Amazon:

We have found your account is directly related to another which has been previously closed for abuse of our policies. As such, your account has been closed and any open orders have been cancelled.

It gets worse. When she tried to find out what the problem was, the same customer services department sent her the following:

As previously advised, your account has been closed, as it has come to our attention that this account is related to a previously blocked account. While we are unable to provide detailed information on how we link related accounts, please know that we have reviewed your account on the basis of the information provided and regret to inform you that it will not be reopened.

Please understand that the closure of an account is a permanent action. Any subsequent accounts that are opened will be closed as well. Thank you for your understanding with our decision.

Roughly translated, this means we don't have to tell you, so we won't. The lady contacted them again, and received an even more insulting reply:

We wish you luck in locating a retailer better able to meet your needs and will not be able to offer any additional insight or action on these matters.

AKA, "get lost".

As Simon's post explains, in the wake of the Net-wide outrage at this treatment, the lady's account has now rather magically been reactivated (curious coincidence, no?) Simon has also received the following response from Amazon:

We would like to clarify our policy on this topic. Account status should not affect any customer's ability to access their library. If any customer has trouble accessing their content, he or she should contact customer service for help.

This is not a helpful or even sympathetic response. After all, the customer tried not once but three times to contact customer service for help, and customer "service" told her to where to go with varying degrees of arrogance and contempt. Amazon's useless reply only compounds its previous shoddy service, where it should have been offering grovelling apologies for it.

There are a number of issues here. First, of course, is that this episode underlies the fact that you do not really own ebooks on a Kindle: you merely rent them, and Amazon can always revoke permission to access those titles you foolishly thought you had purchased. This is a consequence of DRM, which means that you are not fully in control of your files: it's another huge reason never to touch DRM with a bargepole, but to insist on files that you can copy and use wherever you want.

This problem arises because of Amazon's near-monopoly power over users of its Kindle: it can really do what it likes, and there's not much people can do about it. Here's some rather similar behaviour, but with a different set of victims:

Amazon is forcing British publishers to cover the cost of a 20% VAT charge on ebook sales – even though the true VAT cost to the online retailer is only a fraction of that amount under its generous Luxembourg-based tax regime.

The firm is able to wield such power over publishers because it has a near monopoly of the UK digital book publishing market. According to reliable estimates, it sells nine out of 10 ebooks in the UK, while using its Luxembourg tax status to wring more profitable terms from publishers.

Companies such as Amazon collect the VAT levy from consumers before passing it on to governments. In the case of Amazon's UK ebook sales, it only has to pass 3% to Luxembourg. If it was based in the UK it would have to hand over 20%.

Now, in truth, this is partly the publishers' own fault, as Charlie Stross explained a few months ago:

By foolishly insisting on DRM, and then selling to Amazon on a wholesale basis, the publishers handed Amazon a monopoly on their customers—and thereby empowered a predatory monopsony.

He also explains why DRM is doomed – or the publishers are:

If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011 (more than the entire global publishing industry) that has expressed its intention to "disrupt" them, and whose chief executive said recently "even well-meaning gatekeepers slow innovation" (where "innovation" is code-speak for "opportunities for me to turn a profit").

So here we have two cases of Amazon really abusing its monopoly power. Well, all's fair in love, war and ecommerce you might say. Interestingly, the company is already coming under scrutiny, not for these, but for another reason:, Britain's biggest online retailer, generated sales of more than £3.3bn in the country last year but paid no corporation tax on any of the profits from that income – and is under investigation by the UK tax authorities.

Regulatory filings by parent company with the US securities and exchange commission (SEC) show the tax inquiry into the UK operation, which sells nearly one in four books sold in Britain, focuses on a period when ownership of the British business was transferred to a Luxembourg company.

The SEC filings, highlighted by Bookseller magazine, show that in the past three years, Amazon has generated sales of more than £7.6bn in the UK without attracting any corporation tax on the profits from those sales.

So here we have the top ecommerce player arbitrarily cutting off users from their accounts, and locking them out of their ebook collections – and refusing to say why. We also have the same company that is well on the way to turning the publishers into little more than dependent vassals, with no real economic power when it comes to negotiating deals. And on the other hand we have Amazon using accounting tricks to avoiding paying any tax in the UK, despite massive sales there.

The question then has to be: putting this all together, is Amazon really playing fair? Should it be allowed to bully customers and suppliers alike, while thumbing its nose at the tax authorities in the UK? Or, put another way, does the company really think that people are going to be very sympathetic if the UK and perhaps other EU governments start imposing fines on it using some pretext or another? Something for Jeff Bezos to think about, maybe, when he gives directions on how his company should comport itself in the future.

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