At Amazon, TANSTAAFL

By Nick Slepko - May 3, 2012 | Tickers: AMZN, AAPL, COST, INTC | 0 Comments

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In “Part 4: Worked Over in the Warehouse – Amazon warehouse jobs push workers to physical limit” the Seattle Times explores current labor issues at Amazon (NASDAQ: AMZN), but fails to ascertain if rigorous metrics and the There-Ain't-No-Such-Thing-As-A-Free-Lunch atmosphere can carry it into a third decade of operations.

With the opening of 17 new locations (bringing it up to 70 around the world), Amazon is increasing its workforce dramatically. As the current economic climate improves, management should begin to experience problems endemic to a mature labor force (which its primary competitors have been dealing with for much longer). A major incentive for workers is the chance for upward mobility in the company and the belief that it is possible. However, as the opportunity to convert from a warehouse or call center job to a local manager position (let alone something back at corporate) diminishes, the ability to use the stick will wane and this is where complications and sclerosis will set in as talent abandons Amazon for better options with upstart competitors. It is not clear that Amazon’s current intensity will be able to adapt. More detrimental, will every new worker still be able to be a shareholder of any consequence? Amazon had no comment.

The most elusive piece of the puzzle is Amazon’s employee turnover rate. Companies like Costco (NASDAQ: COST) tout their low turnover of 10.1% every chance they get. Amazon (highly secretive in most regards) is particularly opaque with any information having to do with employees, and there is good circumstantial evidence that turnover is high.  This might actually be one manifestation of the Bezos philosophy that sees a steady stream of new super stars and the loss of burnt out talent as beneficial. Perhaps, the idea is that massive turnover keeps Amazon young and vibrant, but Amazon would be the first enterprise in history to make this insecurity approach work in the long run and it seems unlikely to hold up as Amazon moves into its third decade.

One former 'Zoner professional reflected that “the business of Bezos is business,” and that unlike Steve Jobs of Apple (NASDAQ: AAPL) who was obsessive about the Beatles and struggled to bring them to iTunes, or Costco Co-founder Jim Sinegal who is passionate about retail, “Bezos is different. Everything to him is a widget. There’s nothing wrong with that, but the only time I ever saw him get passionate was when he talked about Star Trek.” As writer Amity Shlaes points out in her upcoming book, Coolidge, in the same speech that the president “uttered the famous line about the chief business of America, he also said ‘the chief ideal of America is idealism.’”

It is this incongruity of how business happens in Amazon with how the idealism was presented that seems to be most problematic. The former 'Zoner went on to note that the company originally recruited people by telling them they wanted them for their domain expertise, but that this changed over the years. "We gradually began to see that the purpose of the [low-margin] business was really to develop computer systems and programming skill for the much more ambitious undertaking you see now. It really began to feel like we were just a development exercise for them."

Currently the long list of people in Seattle complaining about Amazon’s philanthropy and other seemingly petty issues is partly self-serving, but it could also be coming from a sense that the city is, “being used like a development exercise.” Whatever the case, in the short-term, there is a concern that a time is coming when Amazon will find it hard to attract the talent it needs to sustain itself, and one key to attracting high-fliers which has been demonstrated over and over again in Seattle as various multinationals have exploded on the scene before ossifying into respectable maturity, is the need for idealists.

Writing in A History of the American People (1997), British historian Paul Johnson encapsulates what drives great achievements:

The bomb was a democratic bomb spurred on by genuine idealism…Oppenheimer was of Jewish immigrant origins and believed the future of the Jewish race was involved in the project…It was equally true that Dr. Edward Teller, part immigrant Hungarian origin, who built the first H-bomb, was convinced that by doing so he was protecting America from the Stalinist totalitarian system…

Similarly, the book Start-up Nation: The Story of Israel's Economic Miracle (2009) by Senor and Singer tells the story of how Israeli engineers and scientists (not just business managers) actively worked to keep the Intel (NASDAQ: INTC) factory operating while missiles rained down all around their town because it was important to show to the world that multinationals and others could trust that their investments in Israel would not be jeopardized by the seemingly insurmountable problems faced by the Israeli state.

For a company like Amazon which is heavily built around programmers and technologists to realize its customer service and convenience edges, it must be able to attract the best in its field. The majority of scientists and engineers do not go into their profession for the money, so the ability for their employers to keep them challenged, engaged, and happy is paramount. It will be interesting to see when the recession recedes if Amazon really does have a culture that can sustain its people – or if it can at least present itself as relatively more attractive then the other options available to them.

Of course in the long-term, Amazon may find itself on “Day Two” and end up being just another middleman in a red shirt while content originators use tools and distribution systems created by others (maybe even for free). At the moment though, Team Amazon will not go quietly without a good fight according to one mid-level ’Zoner:

Every day I am blown away. I feel on a daily basis that I am so far out of my league. People I work with are the best of the best at what they do. I’ve never met people that are more focused and more driven and more fantastic at making [things] happen. Now I can’t say it’s always like that at the call centers or in the facilities, but here at the home office it’s a [beeping] symphony.

Next: John Carter of Amazon
Previous: Amazon is a Harsh Mistress

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