On questioning by Representative Joe Neguse (D-CO), who is also the vice-chair of the subcommittee on antritrust, Amazon founder and CEO Jeff Bezos conceded that Amazon accounts for 40% of “online retail sales in the e-commerce market stream”. In his prepared testimony, Bezos had said, “Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the US”, characterising retail as everything — including restaurants, bars, gas stations, Neguse pointed out. At the Big Tech CEOs’ hearing before the House subcommittee on antitrust on July 29 (available to watch here), multiple revelations were put on the record about Amazon and its anti-competitive practices.
As both the marketplace and a seller, Amazon is in fundamental conflict of interest: “Isn’t it an inherent conflict of interest for Amazon to produce and sell products on its platform that compete directly with third party sellers, particularly when you, Amazon, sets the rules of the game?” Cicilline asked Bezos. Amazon, as a data company, has a huge advantage over third party sellers, Cicilline said. This is precisely the argument that AIOVA and CAIT have been making against Flipkart and Amazon in India. The European Union was to file formal antitrust charges against Amazon in June due to its treatment of third-party sellers due to its dual role as a marketplace operator and a seller of its own products.
- Amazon is a gatekeeper to content and producer of content: Representative Jamin Raskin (D-MD), citing the WarnerMedia-Amazon Prime Video deal over HBO Max app — which is still under negotiation and whose details Bezos did not know —, said that Amazon was asking for more content from WarnerMedia and exploiting its position as the “gatekeeper” in the streaming device market to undermine a competitor in the content market. Raskin argued that Amazon was “essentially converting power in one domain into power in another domain where it doesn’t belong”.
It is significant that a 40% market share would send alarm bells ringing in the US and force the dominant player to attempt to mischaracterise the facts. In India, on the other hand, when All India Online Vendors Association (AIOVA) contested Competition Commission of India’s clean chit to Flipkart in the National Company Law Apellate Tribunal (NCLAT) and said that Flipkart would account for 40% of the market share, the judge refused to accept it, and instead asked AIOVA to prove “abuse” before dominance.
Third party sellers only effective choice is Amazon but Amazon treats them as competitors: David Cicilline (D-RI), the chair of the subcommittee, said that Amazon controls 75% of all online marketplace sales and its market share is seven times the market share of its closest competitor. Of the 2.2 million active sellers on Amazon (as on July 28, 2020), Amazon is the sole source of income for 37% of them. Cicilline cited internal Amazon’s documents wherein these sellers were described as “competitors”.
“The evidence we’ve collected shows that Amazon is only interested in exploiting its monopoly power over the e-commerce marketplace to further expand and protect this power. This investigation makes clear that Amazon’s due role as a platform operator and competing seller on that platform is fundamentally anti- competitive, and Congress must take action.” — Chairperson David Cicilline (D-RI)
Amazon uses data from third party sellers, potential investees, and AWS clients to build competing products
1. Amazon’s policies on accessing third party sellers’ data have been violated: In a major concession, Amazon founder and CEO Jeff Bezos told the House Judiciary’s subcommittee on antitrust that although Amazon has a policy against using [not accessing] seller-specific data to aid its private label business, he “cannot guarantee that that policy has never been violated”.
2. Amazon uses aggregate data from third party sellers to build its own competing, private label products: US Representative Pramila Jayapal (D-WA) cited a Wall Street Journal article that reported that Amazon has detailed access to aggregate data of third party sellers, even if there are only one or two sellers of the product. Jayapal reminded Bezos that in July 2019, Amazon’s Associate General Counsel (Litigation and Regulatory) Nathan Sutton had testified before the same subcommittee on antitrust that Amazom does not “use individual seller data to directly compete with them”.
- Amazon’s rules allow employees to access aggregate data even when there are only one or two sellers of a product: Jayapal’s further questioning revealed through this aggregate data, Amazon employees have access to “highly detailed data”. This aggregate data could relate to only a couple of sellers as well, thereby defeating the entire point of aggregating it, questioning by Representative Kelly Armstrong (R-ND) revealed. This is an important factor for India’s committee of experts on non-personal data to keep in mind.
- On prompting by Armstrong, Bezos committed to sharing the results of the internal inquiry about this with the subcommittee.
- In India, while the chairperson of NLCAT recognised that Flipkart Flipkart earns by selling data, customer likes and dislikes to earn money, he refused to buy the concept of “preferred sellers” and classified Flipkart’s private label products as “third party” products.
Case in point — Fortem, a company that sells car trunk organisers and had no competitors except Amazon Warehouse Deals that had sold only 17 units. An Amazon employee accessed the aggregate data, figured out how much they invest on promotion, and helped Amazon launch a competing product in October 2019.
3. Amazon used its venture capital fund to use start-ups’ data to launch its own services: Neguse and Representative Ken Buck (R-CO) cited another Wall Street Journal article that reported how Amazon used its venture capital fund — Alexa Fund — to gain access to start-ups’ finances and other confidential information to then launch almost identical products/services later which consequently lead to “disastrous results results for the original start-up company”.
For instance, Amazon asked Vocalife, a start-up with speech detection technology, for a meeting, got insight into its proprietary data, and then stopped all communication with the company — without investing —, but the technology was used in Amazon’s Echo device. Bezos claimed ignorance about the specifics.
4. Amazon uses confidential information gained via AWS to build competing services: Neguse said that Amazon had used its cloud service providing arm, Amazon Web Services, to identify best technologies and roll out replica product and services. According to him, a former Amazon engineer had posted online that he and his team “proactively identified growing businesses on AWS”, built competing products, and then targeted those products to the business’s customers. Bezos did not say that AWS did not use the data it got access to by servicing its clients; he just said that AWS didn’t stop servicing their competitors.
“I think there may be categories. I know some databases of different kinds and so on where we see that it’s an important product for customers and we make our own product offering in that arena. But it doesn’t mean we stopped servicing the other companies that are also making those products. We have competitors using AWS and we work very hard to make them successful. Netflix is one example. Hulu is another, and so on.” — Jeff Bezos
- Start-ups fear IPR theft and first-mover advantage of Big Tech: Neguse pointed out that start-ups are extremely dependent on Big Tech but fear them stealing their core ideas by exploiting their existing dominance in the market.
Amazon’s MO with sellers: predatory pricing, coerce into buying promotional plans
5. Amazon engages in predatory pricing to obliterate competing sellers: Cicilline and House Representative Mary Scanlon (D-NY) cited two cases where Amazon launched competing products at massively slashed prices, causing the sales of a third party seller to drop to zero overnight in one case, and to significantly reduce in another.
Amazon obliterated Quidsi-owned Diapers.com by first slashing Amazon’s own diaper prices to undercut Diapers.com’s, and then buying it once it started to struggle. Amazon’s profit-and-loss statements from 2010, that Scanlon cited, showed that Amazon was “willing to bleed” over $200 million in losses over diapers. After Amazon bought Diapers.com, it cut promotions like Amazon.mom and increased prices of diapers. Bezos initially claimed amnesia since it happened 10-11 years ago, but then said that diapers are a very large product category. Scanlon pinned him with one remark, “But this was the online diaper market.” Amazon ultimately shut down Quidsi in 2017, citing profitability issues. Cicilline too cited a case where
- In India too, sellers have long claimed that Flipkart (and potentially Amazon) engage in predatory pricing to the benefit of their own “preferred sellers” and private label products.
Interested readers may consider reading Brad Stone’s 2013 book The Everything Store: Jeff Bezos and the Age of Amazon that gives more details about the Amazon-Quidsi incident. As per that account, Amazon actively manipulated its own diaper prices to keep undercutting Diapers.com’s.
6. Amazon favours sellers whose opt for Fulfilment by Amazon and Buy Box services: In response to questioning by Scanlon, Bezos said that “effectively”, the Buy Box (sellers who get the “Buy Now” button on their product page) favours whose products are available on Prime. Despite asking, Bezos did not clarify if Buy Box’s algorithm favoured third party sellers who bought Fulfilled by Amazon services over those who did not.
7. Amazon lists counterfeit products above original products to coerce sellers into signing marketing deals with Amazon: Buck and Representative Henry C. Johnson (D-GA) both cited the case of PopSockets wherein Amazon listed counterfeit products over PopSockets’ original products and did not remedy the situation until PopSockets agreed to a $2 million marketing deal with Amazon. Bezos called such a practice “unacceptable”, said that Amazon has a counterfeit crimes unit, and encouraged “this body to pass stricter penalties for counterfeiters, and to increase law enforcement resources to go after counterfeiters” as they are “bad actors”. Indulging in a bit of grandstanding, Bezos called counterfeit products “a scourge” but fumbled when Johnson asked him why Amazon is not responsible for keeping all counterfeit products off its marketplace.
8. Alexa might have been trained to recommend Amazon products and services by default: In response to questions by Raskin who cited a New York Times article that said that Alexa recommended AmazonBasics products, Bezos conceded that he didn’t know if Alexa had been trained that way he wouldn’t be surprised if Alexa “sometimes does promote our own products”.
9. Amazon prioritised its own non-essential products over other companies’ during the pandemic: Scanlon pointed out that although Amazon had announced in March 2020, at the onset of the COVID-19 pandemic, that it would delay the shipment of non-essential products, the policy was selectively applied as “Amazon appeared to continue to designate its own products as essential, even as it delayed competing products from third party sellers”. Bezos simply said that since there was no playbook for the pandemic, despite Amazon’s goal to deliver only essential supplies, “I’m sure we did not do that perfectly”. While Amazon’s Ring doorbell continued to be delivered without delay, Bezos wasn’t sure if the same was true for Ring’s rivals. He, however, did say that the company did not focus on profitability while designating products as essential or not.
Bezos on using slave labour, social media
Despite Bezos promise to the contrary, Amazon uses slave labour: In response to Buck’s question that none of the platforms would tolerate slave labour “in manufacturing your products or in products that are sold on your platforms”, Bezos agreed “completely” but no one held him to account for Amazon’s dismal labour practices in its own warehouses.
Social media is a “nuanced destruction machine” according to Bezos: In response to Representative Jim Jordan’s (R-OH) question whether “cancel culture mob” was “dangerous”, Bezos said, “I am concerned in general about that and what I find a little discouraging is that it appears to me that this social media is a nuanced destruction machine. And I don’t think that’s helpful for a democracy” and agreed with the Bari Weiss’s characterisation of social media as a “digital thunderdome”.
Bezos has a bad memory, and doesn’t know a lot of things.
Bezos couldn’t decide if counterfeit goods are sold on Amazon or not. In response to a question by Representative Lucy McBath (D-GA) about whether counterfeit goods are sold on Amazon, he eventually said “I guess so”. But in response to Representative Gregory Steube (R-FL) question on whether the Chinese government steals technology from US companies, he said, “Certainly there are knockoff products, if that’s what you mean, and there are counterfeit products and all of that.”
Bezos didn’t know how sellers are verified before being allowed to sell on Amazon, or how big that verification team is: Bezos did not know about Amazon US’ recent policy change that makes it mandatory for sellers to show their business names and addresses. To answer McBath’s question about requiring phone numbers — which Bezos could not —, numbers are not required. Bezos similarly did not know that instead of an email address, the company advises sellers to rely on Amazon’s Buyer-Seller Messaging system for electronic communication with customers to prevent spam and abuse. And this was already a requirement in Europe, Japan and Mexico.
- Bezos didn’t know much about the impending deal between Amazon Prime Video and WarnerMedia about provision of HBO Max app on Fire devices.
- He did not know how Twitch operates, and that it doesn’t license music.
- He did not know why the shipment of Amazon’s own devices, despite being non-essential, was not delayed during the pandemic like its competitors’?
- He didn’t remember Gazelle Project that basically pressurised booksellers to give Amazon better financial deals.
During the first 90 minutes of the hearing, Bezos faced some technical issues with his audio feed which is why no question was addressed to him; it was fixed during the first recess. He also forgot to unmute himself once, suggesting that 2020 may have caught up with the richest human on the planet.
Documents cited by respresentatives:
Documents from the Hearing on “Online Platforms and Market Power: Examining the Dominance of Amazon, Apple, Facebook and Google” pic.twitter.com/dXHMzWOTnJ
— House Judiciary Dems (@HouseJudiciary) July 29, 2020
Documents from the Hearing on “Online Platforms and Market Power: Examining the Dominance of Amazon, Apple, Facebook and Google” pic.twitter.com/Ypvxhm7asA
— House Judiciary Dems (@HouseJudiciary) July 29, 2020
- Amazon email thread between Cristobal Sierra and Sarah Jane Gunter re: diaper customer P&L
- Amazon email thread between Amazon employees re Amazon Mom Data Collection
- Amazon email thread between Amazon employees re Diapers.com 1
- Amazon email thread between Amazon employees re Diapers.com 2
- Amazon email thread re Ring and Blink
- Amazon doc re diaper customer P&L
- Amazon email from Peter Krawiec to Jeff Wilke
- Amazon email from Doug Herrington to Chance Wales re Soap.com
- Amazon email from Sebastian Gunningham to Doug Herrington
- Amazon email from Jeff Wilke to Sebastian Gunningham re “From China”
- Amazon Inc. 4(c)-4 – Nov. 2, 2010
- Amazon COGS Cost Out Update
- Amazon Inc. 4(c)-11 – Mar. 9, 2018
- Amazon email from Jeff Bezos to Dave Limp re Ring
- Amazon email from Robert Stites to Dave Limp re Ring
News articles cited by representatives:
- Amazon Met With Startups About Investing, Then Launched Competing Products, by Wall Street Journal (July 23, 2020)
- Amazon Scooped Up Data From its Own Sellers to Launch Competing Products, by Wall Street Journal (April 23, 2020)
- How Amazon Steers Shoppers to Its Own Products, by New York Times (June 23, 2018)
- Google wants to be only destination for Search and digital advertising: 14 key takeaways from Pichai’s deposition before the antitrust subcommittee
- Apple’s preferential treatment in App Store, coercive practices: 8 key takeaways from Cook’s deposition before the antitrust subcommittee
- Facebook bought, copied, threatened competition: 11 key takeaways from Zuckerberg’s deposition before the antitrust subcommittee
***Update (August 5, 1:24 pm): There was a blank [_ _ _ _] in place of “antitrust” in one place. That has been corrected. Oversight is regretted. Originally published on August 3 at 10:50 am.