Amazon & Antitrust, Revisited
Growing Larger Faster
Nearly 4 years ago, I published a piece on Medium, titled “The Trouble With Amazon.” In this piece, I explored the problematic implications of Amazon’s dominance, from an antitrust perspective.
At the time, Amazon had recently acquired Whole Foods, and in 2016, accounted for 43% of all online retail sales. In 2017, the company reported more than $177 billion in revenue, which was 30.8% higher than in 2016.
Today, Amazon is even more of a juggernaut. In 2019, the firm reported $280.5 billion in revenue. This is an increase of more than 58%, in just 2 years.
While we don’t have full data for 2020 yet, it appears the firm had a blockbuster year. Fourth quarter earning guidance suggested the firm would hit $380 billion in revenue.
This would be a 34% increase over 2019 — and more than double that of 2017. By late October 2020, it was already clear that the firm was on track for it’s most profitable year yet. Amazon is not only growing fast, but it’s rate of growth seems to be increasing.
In many respects, COVID-19 was a boon for e commerce. This benefited not just Amazon, but also Walmart, and several others. As lockdowns took effect, and Americans were forced to stay at home, online shopping exploded. Even as COVID-19 winds down, and things reopen, this shift is likely to remain for the long term.
Of course, Amazon does not just sell prodigious amounts of clothes, books and household goods. Amazon has a strong foothold in a plethora of other businesses, from groceries to television to film to business lending.
Let’s not leave out it’s cloud storage services arm (Amazon Web Services, or AWS) which counts the CIA and Netflix as clients. In short, Amazon is everywhere.
How Amazon’s Size Benefits Their Consumers
Is this a good thing? My answer might surprise you: In some respects, yes. Economies of scale are real. Amazon is operating at a size that is, to speak frankly, gargantuan.
As a result, Amazon is able to offer a retail experience that few others can. As Jeff Bezos famously said of his competitors “Your margin is my opportunity.” Amazon maintains a relentless focus on cash flow, and constantly reinvests back into the company (rather than focusing on profits), in order to maintain market dominance.
How many other companies can you name, which deliver such a range of goods, the very same day as you order? How is it that with Amazon, everything seems to be in stock — always? Even during the peak of the COVID-19 pandemic, Amazon quickly regained it’s footing.
It’s unlikely a smaller firm could make this work. Scale can facilitate a positive customer experience. This is true not just for consumer goods, but also for services like cloud storage.
Additionally, Amazon enjoys monopsony power. This means they operate in markets where there are multiple sellers, but only (one) major buyer.
For example, since Amazon sells so many books, they are able to obtain reduced pricing from publishers. At least some of these savings are passed on to consumers.
Thus, Amazon is not without it’s benefits. With that said, it’s dominance has become very problematic. There are some things we know today, which we did not in 2017, that raise further concerns. I believe recent events / findings strengthen the case for fundamentally altering Amazon.
Parler, Deplatforming, & Amazon Web Services
On January 6, 2021, a group of protestors, mostly supporters of former president Donald Trump, breached the United States Capitol. These protestors were opposed to the certification (by the Senate) of the November 2020 presidential election.
Many of the protestors attended a rally held by President Trump, just minutes earlier. Several people died during and after the events of that day, including police officers and protestors.
In the aftermath of these events, members of both parties condemned President Trump, alleging that his statements incited violence. The House once again impeached the president. While a majority of Senators voted in favor of conviction, this fell short of the required 67 votes.
The events of January 6 also drew considerable attention to social media platforms. Law enforcement, as well as outside observers, noted that those involved in breaching the Capitol shared information, organized and interacted on a variety of online platforms. These included mainstream platforms like Facebook, as well as YouTube and Twitter.
In the analysis which immediately followed the events of January 6, considerable attention was paid to Parler, a social media platform. Parler was founded in 2018, by John Matze Jr. and Jared Thompson. Rebekah Mercer, a wealthy backer of conservative causes, was also involved in funding the company.
By mid 2020, Parler surged in popularity. It gained a particularly strong following amongst supporters of President Trump, including many backers of the Qanon movement. By November 2020, the app had 10 million users.
On January 9, 2021, shortly before being pulled off the Apple App Store, the app was the #1 most downloaded app on the App Store. Parler was also pulled from Google Play Store, which essentially blocked Android users from use of Parler.
Either of these moves, on it’s own, was devastating to Parler. After all, like every social media platform, Parler relies on a mobile-first approach. An inability to function on Apple or Android systems, is incredibly damaging.
However, the final blow came from Amazon. As mentioned earlier, AWS provides cloud computing and storage services to a range of small and large enterprises. Parler was one of them. By December 2020, Parler was spending around $300,000 per month with AWS, as growing traffic demanded more hosting spend.
On January 9, Amazon booted Parler from it’s servers, which effectively took Parler off the Internet temporarily. In February, Parler found a new hosting service). AWS informed Parler that it was violating AWS’ terms of service, by failing to moderate violent content. Amazon employees, as well as outside organizations, had also pressed AWS to remove Parler.
AWS’ broad reach / influence over so much of the Internet is quite problematic. In just a matter of hours, AWS (which is the dominant cloud provider), was able to take down an app where millions of people engaged, communicated and shared their thoughts.
There is plenty on Parler which one might find objectionable. The same is true of Twitter, Facebook, and every other social platform.
Yet, only Parler was targeted for negative action. There is something deeply problematic about a huge company (like Amazon) deciding the fate of a growing app, and shutting it down overnight.
How AWS Competes With It’s Customers
It’s worth taking a look at a recent report, put out by the Democratic members of the House in late 2020. In their discussion, they concluded that AWS effectively subsidizes Amazon’s overall profits. AWS generates considerable net income (i.e. profit), while Amazon’s retail business operates at a loss.
The report also raises concerns around what Amazon does with the data it gathers through AWS. Amazon employees have alleged that Amazon observes which products (hosted on AWS) are gaining traction. These employees claim that Amazon then creates copycat products, and targets these new versions to the original product’s current consumers.
In at least one instance, Amazon allegedly copied features of a software hosted on AWS, and sold it to customers. This led to a lawsuit. Industry observers, like venture capitalist Salil Deshpande, have raised serious concerns, with Deshpande warning that AWS is “using it’s market power to be anti-competitive.”
All in all, AWS exercises an inordinate amount of power over other companies whose business involves a large online component, and requires Web services. Let’s not forget that AWS also plays a crucial role in our national defense infrastructure, due to it’s relationship with the Department of Defense.
There is a simple, obvious solution here: spinning off AWS into a seperate company. Some observers have even suggested Jeff Bezos might do this voluntarily, if he sees a government-induced breakup of Amazon as a real possibility.
However, separating AWS from today’s Amazon isn’t the only solution. There are other steps we might take, to curb the anti-competitive behavior of AWS. We’ve discussed that in more detail below.
The Dark Side of Amazon’s Private Label Brands
One of the first products my family ever purchased on Amazon was an advanced chemistry workbook, for my AP Chemistry class. This was in late 1999 to early 2000, when I was a junior in high school.
At the time, it wasn’t easy to find such niche content, in local bookstores. That book helped me do well on the AP Exam, which ultimately paved the way for my college admissions, and everything else that followed.
Ever since that purchase, I’ve felt a sense of awe towards the incredible range of products you find on Amazon. It really is pretty remarkable. I’d be hard pressed to think of a (legal) product, with any degree of popularity, which you couldn’t locate on Amazon.
Sadly, as we know, not everything that glitters is gold. Amazon’s Marketplace is no exception. In my earlier article, we examined the market dominance Amazon has achieved as a retailer, and how this harms consumers.
At the time, we didn’t know as much about how Amazon competes with the creators of products which it sells. A 2020 Wall Street Journal investigation changed that.
This piece revealed that Amazon’s private label business (composed of dozens of brands, selling tens of thousands of products), used data regarding sales on it’s platform (by independent sellers) to create it’s own products. Essentially, Amazon figured out what customers wanted, and created it’s own versions of these products.
In one particularly egregious example, Amazon took a close look at a top-selling car organizer, offered by a brand called Fortem. Employees of Amazon’s private label took a close look at how much Fortem paid Amazon for marketing and shipping, as well as how much Amazon was earning per sale.
Amazon’s private label later started offering it’s own (very similar) car organizer. In effect, Amazon used data which Fortem (and other private sellers) were required to share, to compete with those same sellers. If this is not a conflict of interest, and anti-competitive behavior, I don’t know what is.
Ending Platform Conflicts Of Interest
Writing in Medium, tech observer Will Oremus takes note of a proposal in Congress, discussed by representative David Cicilline (D-MA). Cicilline takes note of the Glass-Steagall Act, which separated commercial and investment banking. Glass-Steagall was passed in the aftermath of the Great Depression (and repealed in 1999). It separated commercial and investment banking.
As Oresmus sees it, a Glass-Steagall Act for Congress would restrict Apple from running the iOS operating system, while also offering a service like Apple Music. After all, Apple Music competes directly with apps like Spotify. Similarly, Amazon would be restricted from offering private label brands on it’s marketplace, or operating Amazon Web Services, while competing with it’s customers.
Oremus goes one step further, and refers to the Bank Holding Company Act of 1956. This law restricted banks from holding any ownership stakes in non-banking industries. As the thinking went, banks might try to promote their non-banking businesses.
This might be done through offering highly competitive loan terms to such businesses. Or, the bank might press their non- existing customers to do business with the non-banking entity, and thus give it an unfair advantage.
Similarly, Oresmus worries that platforms like Apple, Amazon and Google are attempting to promote their own offerings unfairly. Restricting their ability to participate in the offering of services might prevent such conflicts.
I agree with these proposals. It is time to take drastic action. Amazon should be required to choose between it’s marketplace, and it’s private label brands. If it wishes to keep one, it must spin out the other, to a third-party private company.
Amazon Web Services must make a similar decision. If it wants to continue to offer Web hosting and similar services, it cannot compete with customers. This means no offering of competing software / software features.
If we fail to reign in Amazon, we’ll regret it. They’re simply becoming too large and too strong.
Restrictions on Deplatforming
Let’s return to our discussion of Parler. It is important that platforms like AWS have some level of control over whom they serve. They should also be able to exercise some discretion over what sort of content their users (i.e. businesses like Parler) are hosting.
At the same time, users of platforms using AWS should know that if they run into disagreements over content, there is a formal appeals process. I would argue for passing federal legislation which codifies this appeals process.
Specifically, platforms must develop a detailed roadmap for “firing” a customer. What’s more, a customer must have a meaningful opportunity to appeal any termination decision.
In a sense, this already exists. Platforms typically make consumers sign an arbitration clause, whereby disputes are resolved outside of court. A company like Parler could file for arbitration, and Amazon would be responsible for paying many of the expenses of arbitration.
Yet, the arbitration clause isn’t enough. We need an outside body, which decides whether the firing and removal of a customer was appropriate.
This body doesn’t need to be a governmental one. In fact, it probably shouldn’t be. It might be made up of former corporate executives, attorneys, and of course, consumer advocates.
This process should involve hearing from both sides, and taking a close look at why a business was removed from the platform. Companies should have detailed policies in place, governing why a company might be removed from a platform.
Ultimately, we need balance. I don’t think that a company should be completely restricted from removing a party from a platform. However, there must be some parameters in place, to ensure against arbitrary behavior.
The Final Word
Over the past few years, Amazon has only grown larger, and more powerful. The company’s imprint on every aspect of our economy continues to grow.
Amazon isn’t just winning in the marketplace, due to a superior customer experience. Rather, Amazon actively competes with companies which use it’s platforms. Often, it does so by making use of proprietary information.
This is not just unfair. It is profoundly damaging to consumers, whose choice is limited. Amazon can easily lift features from a product it sells on behalf of a retailer, and sell the product for less. The car organizer example is just the tip of the iceberg.
Meanwhile, AWS allows Amazon to choose winners and losers, in the app / software marketplace. If a company runs afoul of Amazon’s policies (as Parler did) it can be summarily removed from AWS.
In a practical sense, this means being stripped of it’s existence. Parler today is a shell of what it once was. Now, there is plenty of content on Parler which I find profoundly troubling. Yet, I could say the same of Twitter, Facebook, Instagram, Snapchat and others. Yet, Parler, simply because it ran afoul of AWS, has been crippled.
Since I first wrote about Amazon in 2017, the situation has only grown more troubling. We need to reign in Amazon now, or damage our future, forever.
