The Big Uneasy

Forbes ASAP , August 25, 1996

For the past several years, independent bookstores and their intellectual friends, have been attacking book superstores -- those 100,000-plus-title Borders and Barnes & Nobles that sell coffee and atmosphere along with their books. They fear the big stores will run the independents out of business. Critics paint dire scenarios of monopolies stamping out diversity and quirkiness.

"What frightens the independents most [is] that decreasing competition in the bookselling marketplace necessarily results in decreasing competition in the marketplace of ideas," wrote Chris Goodrich in The Nation. "Their ultimate concern is for values."

Nothing upsets stasis-loving social critics more than new institutions for buying and selling, institutions that are often among the first applications of information technology. Just about every innovation that makes trade easier, especially for consumers, meets social and political resistance -- often in the name of values.

When credit cards were new, critics tried to stop them. Wright Patman was among the most powerful and vocal. A determined foe of shopping innovation during his long tenure in the House of Representatives, Patman had also attacked chain stores in the 1930s. In the late 1960s, he wanted to ban credit cards. Nor was Patman alone. Americans, numerous critics predicted, would become addicts, "credit drunks," unable to manage their financial affairs.

And the introduction of credit cards wasn't very pretty. Banks lost millions of dollars in bad loans. Theft and fraud boomed. Some people couldn't handle their newfound access to credit. It took years of experimentation before the banks and the public made the system work smoothly -- a classic example of how truly original inventions require a startup period of risk and imperfection.

"Most credit card veterans now view the late 1960s as a time of madness, culminating in staggering losses to the banks, public embarrassment, and federal legislation," writes Joseph Nocera in A Piece of the Action, a fascinating history of credit cards and mutual funds. But they also now believe that the madness was necessary. From that chaos emerged the electronic credit card system that now exists.

If values are real -- if people truly "value" them -- institutions evolve to serve and reinforce them. New institutions of thrift, the other half of Nocera's story, grew alongside credit cards.

Or take the values independent booksellers celebrate: diverse literary voices, personal service, support for unknown authors. Jeff Bezos is delivering those values -- and just about any English-language book -- via the World Wide Web. His year-old Seattle-based company, Amazon.com, is the world's largest bookstore, a store with a million titles and no inventory. "Amazon.com cannot exist in the physical world," says Bezos, a 32-year-old former hedge fund manager. "No metropolitan area could support a million-title bookstore."

When a customer places an order from its Web site ( http://www.amazon.com), Amazon's computer checks with several large distributors. If a distributor has the book, the customer gets it from Amazon in two to three days. If not, Amazon orders by phone from the publisher -- including places so small they carry only a single title -- and the process takes a bit longer. The on-line customer finds out immediately how soon to expect the book. "From the customer's point of view, it doesn't feel any different ordering a hard-to-find art book than ordering Primary Colors," says Leslie Koch, vice president for marketing.

Amazon.com threatens old-fashioned physical bookstores -- and we can expect to hear them squawk -- but it furthers their professed values. It's great for tiny presses and obscure authors. By tracking customer order records, it plans to offer the sort of knowledgeable recommendations a small-town independent bookseller might make to a regular patron, while drawing from many more titles. And by boasting that it carries every book in print, it's agreeing not to let political pressure or slow sales stand between readers and their books.

The information technology that makes all this possible includes the once-vilified credit card. Without credit cards, electronic commerce would be all but impossible. On-line services and Internet service providers would have to run huge billing departments, just to collect small monthly fees. Most e-cash schemes build on the knowledge developed in the credit card business. And by making four-figure purchases easier, credit cards encouraged the spread of personal computers in the first place.

Neither the critics of credit cards nor their banker defenders saw such ramifications. The stakes are rarely clear when people like Patman go after new technologies. Book lovers -- whether they shop online, in superstores, or in independents who've spruced up to compete -- can be grateful that he had so little success.