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Jeff Bezos letter to shareholders: Pushback against regulation of Big Tech; cites third-party profits

Amazon CEO Jeff Bezos has, in a letter to shareholders, spoken at length on the benefits of the company for their partner sellers, as well as for the market at large. He cites third party profits and setting standards in labour practices as the positive results of Amazon’s policies. Parts of the the letter are also seen as a response to US Senator Elizabeth Warren’s post on the need to “break up Amazon, Google, and Facebook“.

Amazon’s success and market health

Bezos extolled the fortunes of third-party sellers on the platform, citing a 50% growth rate of non-Amazon products sold through the platform over the past two decades. This beats the growth of the company’s own products on its platform, cited at about 25%. Bezos uses this to argue that the company’s services do more to create value for third parties than it does to further their own success. To put it bluntly, he writes:

“Third-party sellers are kicking our first party butt. Badly.

The letter is seen as a response to calls by American Senator Elizabeth Warren to introduce more effective regulatory mechanisms to ensure that Amazon’s growth does not stifle other market entrants from providing competition. She argues that the control that the companies posses over the way consumers use the online services compromise the interests of users:

“Venture capitalists are now hesitant to fund new startups to compete with these big tech companies because it’s so easy for the big companies to either snap up growing competitors or drive them out of business. The number of tech startups has slumped, there are fewer high-growth young firms typical of the tech industry, and first financing rounds for tech startups have declined 22% since 2012.”

On Size: How big is too big?

Bezos: Amazon today remains a small player in global retail. We represent a low single-digit percentage of the retail market, and there are much larger retailers in every country where we operate. And that’s largely because nearly 90% of retail remains offline, in brick and mortar stores.

“Nearly half of all e-commerce goes through Amazon. More than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook.”

Bezos makes a case for the justification of Amazon’s size: that the quality and range of services have won out in the market over time, despite significant competition. The size, it follows, is the market’s reward for providing the best services over an extended period of time.

“Why did independent sellers do so much better selling on Amazon than they did on eBay? And why were independent sellers able to grow so much faster than Amazon’s own highly organized first-party sales organization? There isn’t one answer, but we do know one extremely important part of the answer:

We helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build.”

Competing on labour rights and privacy

Warren uses the market statistics she cites earlier to argue that with the level of competition currently in the market, competitiveness compromised. Greater competition would lead to benefits for users in key areas — such as privacy:

“With fewer competitors entering the market, the big tech companies do not have to compete as aggressively in key areas like protecting our privacy. And some of these companies have grown so powerful that they… can act — in the words of Mark Zuckerberg — “more like a government than a traditional company.”

Bezos argues that its success is what allows Amazon to take the kinds of risks and plans it does, on the scale that it does. He highlights the diverging fortunes of two contemporaries – the Fire phone and the Echo – to make this point, and highlights how they are able to set an example for the market on an issue like wages.

“Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage. Do it! Better yet, go to $16 and throw the gauntlet back at us. It’s a kind of competition that will benefit everyone.”

Platform utilities

Warren introduces the concept of platform utilities as one prong of her proposal. The concept is similar to common carriage, a common law principle where a carriers of goods (in this case data) advertises to the public of performing that function and is thereby deemed a ‘common carrier’. Providing this essential function places them in a powerful position, and brings with it responsibilities of treating all users equally and without arbitrary discrimination. Warren explains how this can apply to large tech platforms:

“Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as ‘platform utilities.’ …smaller companies (those with annual global revenue of between $90 million and $25 billion), their platform utilities would be required to meet the same standard of fair, reasonable, and nondiscriminatory dealing with users, but would not be required to structurally separate from any participant on the platform.

Small businesses would have a fair shot to sell their products on Amazon without the fear of Amazon pushing them out of business. Google couldn’t smother competitors by demoting their products on Google Search. Facebook would face real pressure from Instagram and WhatsApp to improve the user experience and protect our privacy. Tech entrepreneurs would have a fighting chance to compete against the tech giants.”

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