When Jeff Bezos launched Amazon in 1994, the business took off beyond his wildest tech-titan dreams. Amazon today represents 38% of all online retail in the US and somewhere north of 60% of all US households have an Amazon Prime account. From its beginnings as “Earth’s Biggest Book Store,” Amazon today commands 82% of the US e-book market alone. Compared to other retailers Amazon is a colossus amongst giants. At $1.3 trillion, its market capitalization is roughly equal to Walmart, Home Depot, Costco, Lowes, TJX and CVS combined.
But is big necessarily bad? Maybe, but that’s not the key point. The Federal Trade Commission and 17 states have sued Amazon “not because it is big, but because it engages in a course of exclusionary conduct.” The sprawling 172-page suit alleges monopolistic practices that lock sellers into its platform, shut out rivals from fairly competing, and “hike prices on American shoppers.”
The case is complicated, but it centers on Amazon’s relationship with sellers on its Marketplace platform. The FTC accuses Amazon of “charging costly fees” and virtually insisting that sellers purchase additional services, such as search ads, or use “Fulfilled by Amazon” logistics and shipping. As reported in the Wall Street Journal, the FTC chair Lina Khan claims that “Amazon now takes one of every $2 that a seller makes.”
Merchants on the marketplace are also subject to “anti-discounting measures that punish sellers and deter other online retailers from offering prices lower than Amazon,” according to the suit.
All that, the FTC says, results in a worse experience and inflated prices for shoppers.
Naturally, Amazon (along with other commentators) disagrees. Amazon has posted a lengthy statement on its website asserting that the “FTC’s lawsuit...would lead to higher prices and slower deliveries for consumers - and hurt businesses.” Amazon highlights its history of “bringing low prices to customers,” assisting its sellers, and innovating with Amazon Prime (particularly on delivery speeds). To counter the perception of market dominance, Amazon also reminds the reader that “consumers still buy over 80% of all retail products in retail stores.”
That may be true, but there is also no doubt that retail has been forever changed by Amazon. For better or worse, many of us buy into the Amazon Prime ecosystem, purchase everything from toilet paper to technology products via Prime, and are addicted to the speed of delivery that Prime affords. Our expectations constantly rise too - where 2-3 day delivery used to suffice, now we often expect packages to arrive same-day.
Along with its ubiquity and our frequency of usage, we have also fallen in love with the Amazon brand. According to BrandAsset Valuator research, Amazon is up there with the most powerful and highly regarded brands in the US - as well known, well-regarded, and relevant a brand as Walmart, for instance, but much more highly differentiated. So, in the FTC fight, consumers and shoppers may well be on Amazon’s side.
If the FTC succeeds in “pry(ing) loose Amazon’s monopolistic control to restore competition,” will sellers come out on top, and will consumers be the winners? The jury is out and we are a long way from that decision and (perhaps) Amazon being broken up. It’s worth noting too that the FTC has not made much headway in challenging large tech companies in particular. But it will be a fascinating tussle that is worth watching closely because it could well have ramifications for the way Amazon does business...and the way America shops.
- Jon Bird is Executive Director at VMLY&R Commerce
Originally published in Forbes