Is It Time to Break up Amazon?
Let’s get this over with first: It’s an understatement to say consumers love shopping on Amazon.com.
Year after year, the 23-year-old e-commerce and cloud computing behemoth ranks near the top in the emotional connections a company has with its customers. In another survey it beats even Apple as the most well-liked tech brand.
More than 100 million Amazon Prime subscribers worldwide helped the company generate more than $160 billion in net sales last year. Amazon.com is now the top destination for product searches, beating Google at its own game. Amazon and its third-party sellers (from whom Amazon collects fees and commissions) are expected to capture 49 percent of the massive U.S. retail ecommerce market by the end of the year.
Now that we’ve addressed this American consumer love affair “the Everything Store,” let’s look at some of the problems some people have with the Amazon Way.
Amazon has been a target of criticisms on different fronts in recent years, from itstreatment of warehouse employees, to its efforts to collect tax abatements and other state and local subsidies, to the way it uses data collected from third-party sellers on its Marketplace platform, allegedly to undercut them.
Salon reached out to Amazon to address these criticisms. Regarding working conditions in the company's warehouses, a spokesperson said by email that Amazon investigates “any allegation we are made aware of and fix things that are wrong.”
“These are good jobs with highly competitive pay and full benefits,” the spokesperson wrote. “We encourage anyone to compare our pay and benefits to other retailers.”
Regarding allegation that Amazon uses seller’s data to compete against them, the spokesperson said in the email that Amazon has “the same information any retailer, online or offline, would have about the items sold in its store,” and that “information such as Best Sellers, Movers and Shakers, Recommendations, and Reviews are publically available.”
Regarding its pursuit of state and local incentives, like tax abatements and other credits, Amazon has said it’s making use of incentives offered to all companies by local governments and that, in 2016, the company created 3,600 direct and 2,400 indirect jobs in each of 44 cities with populations of less than one million people. Amazon says it has invested more than $100 billion in the U.S. from 2011 to 2016.
Critics of corporate consolidation argue that being a consumer-first company — something Amazon.com takes pride in — doesn’t mean its business strategy should be free of antitrust scrutiny. Americans, they say, aren’t just consumers of goods and services; they’re workers, taxpayers, small-business owners, and citizens, too. By focusing almost exclusively on consumer protection issues, U.S. antitrust regulators have ignored problematic corporate behavior that create other problems in the economy.
The inability of U.S. antitrust law to deal with how tech companies, including Amazon, operate was the topic of a widely read research report last year by Yale University law student Lina Khan. In the paper titled “Amazon’s Antitrust Paradox,” Khan argues that this laser focus on “consumer welfare” makes U.S. antitrust regulators “unequipped to capture the architecture of market power in the modern economy.”
Amazon’s size and clout has led to calls by some for antitrust authorities to take a longer, harder look at the company’s fundamental business model, and to consider historical precedents for intervention, including the railroad trusts of the late 1800s that led to the first Supreme Court ruling supporting the U.S. federal government’s right to regulate private enterprise that impacts the public interest.
Olivia LaVecchia, senior researcher at the Institute for Local Self-Reliance and co-author of a 2016 report calling Amazon “a novel kind of power,” says the company has an anti-competitive influence in any online business it chooses to dominate.
“People throw around the word ‘monopoly’ and they hear ‘mono’ and they think ‘one,’” LaVecchia told Salon. “And people will say, ‘but Amazon only controls 50 percent of the U.S. market for e-commerce.’ And I think the thing we have to look at isn’t that the bar for this is Amazon controlling 100 percent of the market for e-commerce, or 90 percent of the market for e-commerce.”
A company representative said Amazon controls less than four percent of U.S. retail and less than one percent of the market globally. Those figures include all brick-and-mortar retail. An eMarketer report in July estimated that Amazon now controls five percent of all U.S. retail and 49 percent of U.S. ecommerce.
In an interview with the Wall Street Journal last year, Jeff Wilke, Amazon’s head of its Worldwide Consumer division, vigorously defended his company’s business model.
“I think there’s a big difference between horizontal breadth and vertical depth,” he told the Journal. “In every one of the businesses that you describe, we have incredible competition.”
What Wilke is basically saying here is that while Amazon’s has a lot of online business segments — from selling books and gadgets to providing cloud services to companies worldwide — there is no single segment in which Amazon has an unfair competitive edge. The veracity of this defense lies on the interpretation of what “incredible competition” means.
According to business intelligence provider L2, when online purchases account for at least 20 percent of all retail purchases in a product category, Amazon is, or becomes, the dominant player in that category. So far, Amazon is easily a big and influential player in books (print and digital), consumer electronics, and cloud computing.
While the apparel market remains highly competitive, Morgan Stanley predicts that Amazon will overtake Walmart as the country’s top apparel retailer, online or offline, as Millennial consumers embrace the convenience of Amazon (there’s that love affair) and rapidly shift their clothing and apparel purchases to the web.
Sandeep Vaheesan, policy counsel at the Open Markets Institute, a think-tank devoted to exposing monopolistic behavior in corporate America, says U.S. antitrust law is ill-suited for tackling issues like Amazon’s alleged use of data from its third-party vendors to compete directly with them.
“This is not unprecedented,” Vaheesan told Salon. “CVS, Walmart and other retailers develop private labels in a similar fashion. But Amazon is so powerful and so essential if you want to sell products online. Suppliers have no option but to take their business to Amazon.”
Salon asked critics to explain how Amazon’s dominance in online retail could be tamed, and they agreed that the crux of the matter lies with Amazon’s dual role as a direct seller of retail goods and the provider of an ecommerce platform for itself and its third-party sellers. There’s an inherent conflict of interest in that relationship, because Amazon is often selling the same goods as the vendors on its web store, from which it collects not just fees and commission, but also an immense amount of valuable data.
LaVecchia says an argument could be made that Amazon’s marketplace platform should be regulated like a utility, in which common carrier laws could be applied to ensure that all sellers would have equal access and equal advantage. Spinning off Amazon’s business of selling directly to the consumer would cut off its preferential access to the proprietary data from the Amazon web store the third-party marketplace platform.
Another possible antitrust intervention could target Amazon Web Services, which commands a third of the world’s cloud infrastructure. This service is used by giant companies like Comcast, Siemens and Kellogg’s, as well as government agencies like the CIA to store and crunch a massive amount of data. AWS belongs to Amazon, so Amazon the company can use revenue from AWS to support growth in its retail business.
Separating Amazon’s retail business from its third-party seller platform would give everyone equal footing on the online store. Hiving off AWS would have a similar impact, forcing Amazon’s retail business to pay for the cloud services, just as its entertainment-related competitor, Netflix, does.
These aggressive antitrust actions may seem like radical solutions to Amazon’s online market dominance, and also highly unlikely with a federal government and Supreme Court that seem more friendly than they have been in a century to corporate consolidation. And consumers would love Amazon less if it were forced to charge higher subscription fees and scale back on free shipping, which would be an inevitable result of breaking up the company.
But the question American consumers might need to be asking themselves is what kind of U.S. economy do they want?
This question doesn’t involve just Amazon; it could be asked about other huge companiesthrowing their weight around the U.S. economy. Research has shown that consolidated corporate power in the economy can lead to wage stagnation and exacerbate income inequality, hurt small business development, reduce state and local corporate tax collection, and put too much political sway into the hands of wealthy investors who benefit from monopolistic behavior in corporate America.
But there might be social change coming. A decade after corporate America and sleepy government watchdogs caused the worst recession in 80 years, inflicting immense economic harms to tens of millions people, leaving younger Americans economically worse off than their parents, the country might be re-evaluating how the U.S. economy should be managed.
“I think there this growing anti-monopoly movement,” LaVecchia said. “I don’t know on what timeline this happens, but there is this growing coalition of advocates, lawmakers, policymakers, also from the grass roots, connecting a lot of the problems that we’re seeing in the country — growing income inequality, increasing regional inequality — with corporate concentration, particularly in big tech.”
But for now, it’s party time for Amazon investors.
Amazon’s stock price has doubled over the past 15 months and is now trading at over $1,800 per share. Its market value is larger than the gross domestic product of Turkey. The company is probably a quarter or two away from becoming the second U.S. publicly traded company to hit a market cap of $1 trillion after Apple reached that milestone earlier this month.
Maybe amid this current and caustic period of national soul-searching, U.S. consumers should think about their love affair with Amazon.