The latest Big Tech player facing renewed scrutiny from US regulators is ecommerce giant Amazon. Last week, the Federal Trade Commision filed an antitrust lawsuit alleging that the company is undertaking monopolistic and anticompetitive behaviour that’s harming businesses and consumers alike. Here’s why an FTC victory could help both users of the platform, and the planet itself.
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How did we get here?
Two things have been growing at an unprecedented rate the last few years; Amazon’s market dominance and Lina Khan’s pursuit of Big Tech regulation. Back in 2017, Khan, now Chair of the FTC, made a name for herself by penning a Yale Law Journal article entitled “Amazon’s Antitrust Paradox” that took aim at Amazon’s many sprawling businesses. In the article, Khan alleged that Amazon was a tech giant of such size that it commanded not only several disparate industries (including film, fashion and fintech), but through a race to the bottom it had carved out an ecommerce platform that many businesses wholly depended upon. Growth at the expense of profits, exploitation of businesses utilising the platform and predatory pricing were several of Amazon’s strategies that were checked in that 2017 paper, many of which form the basis of the current lawsuit that has since been filed by the FTC.
But the FTC isn’t going it alone. They are joined by 17 states, including New York, Delaware and Massachusetts, as plaintiffs in the case against Amazon. It’s a landmark lawsuit, accusing the company of illegally roadblocking competition, disadvantaging rivals and abusing its power to further its monopoly of the online retail industry. The end goal for the FTC and its partners is to be awarded a permanent injunction to prohibit many of Amazon’s anticompetitive behaviours and provide “structural relief”. In other words, re-structuring the company itself, which may also include selling off several parts of it.
That’s a fate that many are expecting would be a worse-case scenario for Google, which is also facing its own antitrust lawsuit at the hands of the US Department of Justice.
Competition, consumers and companies
When it comes to online retail, Amazon is the 800-pound gorilla in the room. Within the US, it commands a 37% share of the e-commerce market, and in terms of competition, it’s not even close. The company weighs in at 6 times the share of its closest competitor, Walmart, which makes up a meagre 6.3% of the US market. Others have pinned that number as closer to 60%, based off recent US figures. But the FTC lawsuit isn’t about punishing Amazon for being a successful business, nor should it be. This is about the ways in which that success was achieved, maintained, and the inability of others to replicate that due to the strategic efforts of Amazon.
Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them.
Lina Khan, FTC Chair
There are the claims that Amazon has abused its position as the world’s leading e-commerce platform to keep prices artificially low, thus weakening rivals and boosting its own profits. Other accusations include the company making it harder for rival products to be found in search results, unless sellers opted into paying expensive fees and contract agreements to use Amazon’s shipping and logistics services. In an FTC statement speaking to the merits of the case, Khan claimed “Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them.”
Then there’s the revelation of Amazon’s Project Nessie, which has come to light at the worst possible time for the company. First revealed (in a heavily redacted form) within the pages of the original FTC antitrust lawsuit, a new report from The Wall Street Journal has helped to fill the gaps of the mysterious market initiative.
Allegedly, the project involved a secret algorithm that could play out manipulation of competitor pricing, with the aim of finding the highest number that could be utilised before other retailers would stop trying to price match. Nessie would ramp up prices whilst monitoring the pricing algorithms of other retailers (including popular, large-scale companies like Target), in effect locking them into higher pricing. If the competition returned its pricing to lower levels, Amazon would follow suit, reverting back to pre-inflated values. Likewise, if another company set prices at a lower rate as part of a sale or promotional event, Nessie would detect and match that price, but also keep those lower prices locked-in as the “new normal” for an extended period of time, often outlasting the duration of the other companies’ sale period.
The WSJ reports that these practices were used for years, helping to further inflate Amazon’s own profits by artificially upping prices across different product categories. The project was shelved in 2019, but not before Amazon made over $1billion USD through the efforts of the algorithm. Whilst price matching is a common strategy for many businesses, the fact that it was done at such a large scale, and automated to take advantage of other companies pricing models, is what’s being scrutinised here.
Amazon claims that its platform helps to elevate small businesses, but as recently as 2020 it was found to be spying on those same businesses in order to develop competing products and undercut the competition. This is a practice that has already landed them in hot water with international regulators, including the European Union, who threatened the company with a multibillion dollar fine and demanded it cease the exploitation of non-private user data to further its own business interests. Logic reasons that a more level ecommerce playing field, without Amazon at the center, would serve to empower smaller sellers and cultivate a healthy ecosystem of local retailers, supplanting the need to rely on internal shipping driven by artificially low prices overseas (and helping the environment, but more on that in a moment).
The human factor (sorry robots)
In the countries where Amazon has established a dominant local market position, its infrastructure litters the landscape. Distribution centers are in capital cities, along with sprawling depots, warehouses and office buildings. Supply-chain management mean these logistical necessities are becoming more and more common, especially as Amazon pushes its availability of same-day shipping to an ever-growing number of regions.
And whilst the promise of your package arriving on the very day you ordered it is tantalising, it also requires a small army of trucks to deliver said promise. All those vehicles require fuel and clog up our roads. It’s an environmental and societal blight, one of many industrial and commercial issues that needs to be addressed in the fight against climate change. A breakup won’t magically remove all that pollution and congestion, but it may reset expectations around delivery times, reduce impulse shopping and be a net benefit for both consumer’s bank accounts and the environment we live in.
That said, this fleet also (at least currently) employs a huge workforce who sort the packages, drive the trucks and make the deliveries to consumers around the world. End-to-end, that would seem like a net gain for our economy, namely off the back of a huge investment in human capital. Only, it’s temporary at best, and also comes at the expense of our environment.
There are two, plausible future outcomes to consider here. In the first, the FTC lawsuit is benign, offering little to no impact on the status quo for Amazon. Here we would continue to see the rapid spread of the company’s infrastructure, leading to an ever-growing presence in our cities, on our roads, and soon our skies. Yes – Amazon has been trialing delivery by drone for some time now, meaning that the high-pitched hum of aerial delivery bots (with onboard cameras) may soon replace many of those smaller-sized deliveries that are currently handled by human hands. Expect to see drones flying into your neighbour’s backyard on a regular cadence so they can get their popcorn and snacks for tonight’s movie, all without leaving the comfort of their home. Don’t like cameras filming your house? Too bad. Your privacy was never part of the same day delivery deal.
Likewise, the human-drivers manning the growing armada delivery vehicles, along with the ample legion of distribution center workers are also on borrowed time. Advancements in automation, along with investments in driverless vehicles mean more and more human jobs in Amazon’s supply chain will be displaced by machines.
And if the thought of robots replacing humans seems like it’s too abstract or “future focused”, then do I have some good news for you. There’s a growing chance that may not need to contend with thought anyway, as employees are just straight up striking, walking out and quitting en masse due to the terrible working conditions at Amazon. This includes constant monitoring, an inhumane focus on productivity, low pay, and timed toilet breaks – just some of the fantastic employee perks on offer at Amazon. According to internal company memos, drivers are also resorting to going to the toilet in plastic bottles and bags just to maintain strict schedules. Gotta get those deliveries out on time, or else.
Playing out an FTC win
In the second timeline, one where the FTC wins and enacts its desired functions to curtail Amazon’s anticompetitive behaviour, it’s people and the planet that stand to win big. For starters, it may mean (by Amazon’s own admission) the promise of same day delivery is no longer achievable, thanks to a reduction in “necessary” infrastructure and (temporary) human labour. But if the end goal is to automate the end-to-end delivery process, is this really such a bad thing?
Sure, you might not get your items immediately, but unless those goods are of the urgent medical variety (in which case you might be better served elsewhere), you’re going to actually be just fine waiting the extra day for your package to arrive. Could be that super-fast delivery was what tempted you to make an otherwise unnecessary purchase to begin with, money that could be better spent elsewhere (or saved).
Amazon have underscored this point. In a statement responding to the FTC lawsuit, David Zapolsky, Senior Vice President, Global Public Policy & General Counsel at Amazon, responded by claiming that if successful, the case “would lead to higher prices and slower deliveries for consumers—and hurt businesses.”
Then there’s the human capital to consider. The knee-jerk reaction is to reason that a weakened Amazon would mean less jobs, but on the flipside, it may only mean less jobs at Amazon itself, which was looking to replace its investment in people in anyway. A more competitive ecommerce and retail market means more jobs for more people at more companies.
If the FTC get their way, almost every party will come out better off; consumers, companies, people and the planet. Heck, Amazon itself may also end up in a better place long-term. Just look at what happened with Microsoft and the antitrust trials it endured decades ago. At the time, they were the big fish in a small pond. Now they are a bigger fish in a bigger pond, thanks to DOJ activity that threatened to split the company apart and which ultimately led to a more fair, balanced and open tech industry, becoming a launching pad for a cornucopia of companies, both big and small (including Amazon).
All that is to say, the case for a breakup (or at the least, a reigning in) of Amazon has been building for decades, and if executed correctly, would benefit everyone in the long term. Just remember to add fair pricing, workers’ rights, environmental conservation and economic benefits to cart, then select breakup at checkout.
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