The New Capitalist Manifesto

“Amazon is working on a solution that could revolutionize digital gift buying. The online retailer has quietly patented a way for people to return gifts before they receive them, and the patent documents even mention poor Aunt Mildred. Amazon’s innovation, not ready for this Christmas season, includes an option to “Convert all gifts from Aunt Mildred,” the patent says. “For example, the user may specify such a rule because the user believes that this potential sender has different tastes than the user.” In other words, the consumer could keep an online list of lousy gift-givers whose choices would be vetted before anything ships.

Amazon’s idea has raised the ire of the Miss Manners crowd, which thinks the scheme rather uncouth. After all, receiving an e-mail notification of a forthcoming gift - and thereby being able to check its price - is hardly the same as unwrapping the item at home.

…The proposal has also brought into focus a very costly part of the e-retailing business model: Up to 30 percent of purchases are returned, and the cost of getting rejected gifts back across the country and onto shelves has online retailers scrambling for ways to reduce these expenses.

“It’s in the millions of dollars, and it might even be billions,” said Carl Howe, a Yankee Group consumer technology analyst. “If you can get the right gift to a person the first time, this could be a huge cost-saving invention. From a retailer’s perspective, this is like gold.”

Amazon’s timeline for introducing the idea to consumers is unclear, as is its plan for marketing the concept without offending gift givers who take great pride in their selection of unfortunate Christmas sweaters for their favorite nieces and nephews. Officials from the Seattle retailer did not return numerous e-mail and phone requests for comment. But Amazon appears to be quite serious: Its patent was awarded not just to Amazon, but to its founder, Jeff Bezos.

Amazon’s patent is 12 pages long, with numerous diagrams, including a “Gift Conversion Rules Wizard” that shows how a user could select rules such as, “No clothes with wool.” The document makes for curious reading, reducing the art of gift giving to the dry language of patentry.

“It sometimes occurs that gifts purchased on-line do not meet the needs or tastes of the gift recipient,” the patent says. “In some cases, concern that the gift recipient may not like a particular gift may cause the person sending the gift to be more cautious in gift selection. The person sending the gift may be less likely to take a chance on a gift that is unexpected but that the recipient might truly enjoy, opting instead for a gift that is somewhat more predictable but less likely to be converted to something else.”

Kind of awesome? It’s a small but textbook example of one of the world’s biggest companies shifting from an industrial cost advantage, to it’s more powerful, more evolved 21st century counterpart: a loss advantage. 

Loss advantage is one of five new sources of next-level advantage. I argue are making yesterday’s obsolete in the Manifesto. Think about it this way: Amazon’s no longer hopes to sell you stuff, slightly more cheaply (a cost advantage). Instead, it hopes to not have to sell you stuff you don’t want, so you lose less. And crucially, so less is wasted by not just Amazon, in terms of marketing, sales, and distribution—but also by people, communities, and society (fewer natural resources utilized, less carbon emitted).

You can think of a loss advantage as minimizing what economists call a deadweight loss, the sum total of potential gains that are foregone in a given transaction, allocative inefficiency. And, intuitively, in this example, you can consider just how sharply, thanks to a smaller loss, the incentives for gift-givers to send via Amazon, and for gift-receiver to ask for Amazon proliferate. Why? Because Amazon’s offering people something just a tiny bit more useful: it’s creating thicker value.