The E-commerce Leader

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[00:00:00] MV: they are trying to determine whether Amazon’s actually broken the law and, are you being anti competitive or harmed consumers, primarily.
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[00:01:10] MV: so, ladies and gentlemen, we are talking today about the FTC, the Federal Trade Commission and Amazon, not your average topic, but it is something that is kind of being the elephant in the sort of looming at the edge of the room and now it’s in the room. And so basically the FTC has taken Amazon to court, has lodged a complaint in the legal sense of the word complaint, alleging all kinds of abuse of their power and fundamentally that they are.
[00:01:35] Creating or have created a monopoly with lots of bad effects on consumers, third party sellers and indeed the competition, other e commerce platform providers. So I thought we’d better get into this and Jason’s agreed wisely or unwisely. I don’t know. So we’re going to plunge into this deep topic.
[00:01:53] JM: , this is obviously a massively important topic. And, Amazon is the Godzilla of e commerce operations. And so, what happens there of course, is. Incredibly important. I’m interested as well as not only the American version of this occurrence, but also the European activities that are occurring that are similar, in the courts or whatever.
[00:02:14] So is that also you’re up to speed on all of it? I’m sure there’s a
[00:02:19] , part of
[00:02:19] MV: I don’t think there’s anything much going on in the UK. there is, however, the CMA, the Competitions Emergence Authority or Monopolies Authority here, has been taking Microsoft to task. So they have got their eye on big tech here as well. And Europe has got its eye on various things, including certain chat GPT type functions or meta.
[00:02:40] things I think threads, for example, that just is not available in the European Union or UK because that’s been dealt with. So in, in the broader sense, yes. And in the, in the narrow sense of Amazon, no, not yet.
[00:02:50] JM: okay. So then tell us a bit more about why do you think this is happening now? What’s the context and all that?
[00:02:57] MV: Sure. So, this is a Brit telling an American what’s going on in his country. So do you correct me if you. No better. but my understanding is that, there’s been a sort of political build up off feeling in the U. S. Not only in the U. S. But particularly important because obviously that’s where these big tech companies are based.
[00:03:11] So they have more power. They have bigger, percentage of the user base and so forth. So the politicians in Congress have been making a lot of noises more and more across the last couple of administrations. Really? That big techniques raining in. They’ve obviously had Mark Zuckerberg again and done. maybe a mediocre job of quizzing him if big tech and if you watch these things Lena khan is the head of the ftc and she actually when she was a student so fairly recently in 2017 wrote a paper about amazon and why it was, pretty much abusing its position so She’s had a personal be in her bonnet about amazon and she’s now the head of the ftc So you can’t help thinking there’s a little bit of a personal not a personal extra grand, but she’s got a, a, a particular professional interest in this.
[00:03:54] It will be nice to think as well that the lobbying by the third party sellers led by people like Paul Raffles and Raffles and, and other such people has had an impact. I’m not quite sure how big an impact that’s had, but that’s part of the overall scene. So that’s, a bit of a part of the overall.
[00:04:09] background and just to give a bit of context as we’re implying the beginning There’s been antitrust action against microsoft and meta and the the department of justice the doj in the u. s Is also taking action against google So it’s part of a wider trend as well.
[00:04:25] JM: , it’s interesting to me. I crypto, of course, plays into this as well. That’s been sort of the prominent, element in the news lately is all of the back and forth related to, I guess you could say regulatory control of, crypto and, and how that’ll play out. I heard one interesting perspective on all of this.
[00:04:44] I think it was after Zuckerberg, I was, was, interviewed or went to Congress or whatever. And somebody’s commentary was, there’s a lot of people who will basically say in the industry. Yes. What we’re doing is a lot of gray area and yes, it needs to be regulated and and the government should come in and regulate it.
[00:05:03] And somebody pointed out that obviously that is a strategy that the, the, the incumbent who scaled massively to the 1st position and sort of the market dominant position would use once they have. Dominance so that regulatory burdens and hurdles and frustrations are imposed onto the, operators in the, in the space and it really suppresses competition ultimately.
[00:05:30] And it really hurts the little guys trying to start up because there’s a whole bunch of bureaucracy that they have to comply with. Whereas the early adopters who scaled quick at the beginning had no such. Regulatory hurdles. They were in the gray spaces and they made magic happen and they got huge.
[00:05:47] It’s kind of interesting idea that, there’s always a mixed motive, when people say, yes, this should be a higher, more clearly regulated space. who’s saying it and why are they saying it? And is it ultimately to their benefit to have that occur? hmm.
[00:06:02] MV: , I think you make a really wise point. I think One is chess, sophisticated strategic thinking, which Amazon is, I would say that as a company and Jeff Bezos as a founder, still around as a chairman. they’re the masters of it. I mean, par excellence. And then there’s the opposite, which is the law of unintended consequences.
[00:06:24] That politicians who are not necessarily as people individually stupid, it’s hard to know, but they say a lot of dumb things, probably because their publics in, in the U S and the UK. and anywhere else. Demand them to say dumb things because the public’s led by, sometimes the public face of the public, shall we say, the media.
[00:06:43] It’s led by emotions and simplistic answers to complex problems. And then you get the law of unintended consequences. Exactly what you just said, which is, the irony is, the public pushes for more regulation, it gets the regulation and that hits the little guys, that’s excluding them from the market. And that, that happens all the time with, it could be anything to do with GDPR compliance when, you’ve got to go and jump through a bunch of hoops.
[00:07:04] The big companies have a set of lawyers that just deal with that. The small companies you’re up to one in the morning, trying to figure out if your website’s GDPR compliant and you’re right. Unfortunately, a lot of these things don’t work the way they’re supposed to at all. They work the opposite way.
[00:07:16] JM: , , . Okay. Well, tell us a little bit more about when this all kicked off and then let’s get into some of the specific, complaints, I guess you could say that are being, accused or charged on Amazon because they are interesting for us as e commerce sellers. There is real grist for the mill here to talk about in terms of how these marketplaces operator in particular Amazon operates.
[00:07:36] I think it, it’s very practical actually, as you look at some of the examples of concern. So when did it all start? And, and,
[00:07:43] MV: So, I mean, like all these things, there is going to be a grinding, long process, probably. so phase one, as somebody put it, it’s not officially what it’s called, I think, is that they are trying to determine whether Amazon’s actually broken the law and, are you being anti competitive or harmed consumers, primarily.
[00:08:00] and I the complaint was filed in late, september I think about the 26th. So we’re speaking now mid october in the next phase if amazon is found guilty of breaking the law or laws, then what actions will be taken and by the way federal level actions But also I think there were 17 states involved some of the usual suspects new york state always seems to be involved in these amazingly California didn’t seem to be involved.
[00:08:25] It seems very fond of regulating e commerce, but actually wasn’t involved in this one. Washington state, your state, well, your formal home state and, Amazon’s home is not involved. One wonders whether perhaps Amazon had some good friends in the, in the legislature. Not sure. I have no evidence for that, by the way.
[00:08:41] so that’s the next question is what happens. And one of the obvious questions is, will Amazon be broken up? that’s actually quite rare. I think in antitrust or anti competitive law history, obviously the antitrust law was put in place because of Standard Oil and I think Rockefeller, if I got the right person, back, I think 120 odd years ago, something like that.
[00:08:59] 110 years ago. And, that was, that did lead to the breakup of a massive, huge, obviously clearly a monopoly into some pretty major companies. that is not something that I think the legal [00:09:10] experts, seem to feel is likely. more likely they’ll impose a bunch of regulation. And as you said, then that will have a lot of unintended consequences.
[00:09:18] JM: . . Interesting. Okay. So, let’s talk specifically about what is the, heart of the concern. that it’s not just that they’re big, like, and I don’t think that’s the, that’s not the, cause for concern. and so let’s talk about the 1st party versus 3rd party seller tension there.
[00:09:35] I think that’s sort of the, the biggest rub in my view. you want
[00:09:39] MV: I think it is for us as e commerce sellers. That is, the biggest thing I think that the FTC is kind of in the broader language, they’re putting out, bundling together the, the consumers and the. third party sellers at effect on them, but they have split it up and amazingly the the FTC’s complaint legal documents are normally pretty unreadable, but that the the table of contents makes interesting reading because it’s actually pretty clear and simple, and as to what they feel is going on.
[00:10:09] So the areas are Amazon’s operations and its monopoly power. both of which they feel need addressing. So let’s take the operations first. I mean, the, the third party marketplace versus first party retail, there’s multiple things around that none of which is new, but it has a bit of teeth behind it, for example, does Amazon prefer its own products in terms of showing them on the marketplace?
[00:10:30] does it, preferred third party sellers that comply with its own rules and so on and so forth. Three other areas that they are particularly looking at amazon’s advertising services and obviously the question of whether they are charging a heck of a lot of money and benefiting amazon and not betting for the third party sellers and driving at consumer prices All of which we can discuss because I have some views on those amazon prime particularly forcing sellers or sort of quasar forcing third party sellers to get amazon prime because otherwise you Don’t get You can’t, get ranked very easily and for search results and then fulfillment by amazon as then again, are they actually basically are accusing amazon of coercing people into using fba again, because then you don’t prime budget.
[00:11:14] Otherwise, you don’t get ranking So nothing that any third party seller wouldn’t have told you a few years ago But it is actually being articulated by a government agency and I think they have very good points So that’s the first area of that any any thoughts or responses on that?
[00:11:30] JM: I mean, the first party versus third party seller tension is interesting to me. And I realize people who are steeped in Amazon selling understand exactly what this is. But for those who maybe sell on shopify or other platforms, maybe it’s worth mentioning. I’ll mention this one little anecdote and you can kind of tell me how what your thoughts on it.
[00:11:49] All right. Thank you. Was at a conference event last week and, just sat down next to a guy whose background was, he worked at Walmart, for many years and then he moved on to other, Pursuits and we were talking about e commerce and, I mentioned how, people who sell on Amazon 3rd party marketplace frequently have the complaint or the end is in the industry.
[00:12:14] There’s the complaint that Amazon will just see what you’re doing. See the data and then go, source the product itself and sell it directly. and he said, well, they learned that from Walmart and he started giving me all the specific details about the pre Amazon version of all of that was in his view, Walmart would sell through any product and as soon as they saw velocity, they would literally go to China and say, make us this item.
[00:12:47] And then they’d cut out the 3rd party seller in essence in their system and, or the whole, the wholesale manufacturing provider and go straight to their own. branded product for the customers. and so it was interesting to hear sort of that old school version was perfected or refined at Walmart originally.
[00:13:07] And then Amazon adopted question is, is it illegal? And it’s obviously. Horribly, horribly unkind, I would say to the, to the to the seller who gets the shaft. and, and that’s the real heart and soul of it. I would just frame it this way. It should be interesting to see your point of view on it.
[00:13:27] I would frame it as. This is the real underlying issue is Amazon created a third party marketplace for the purpose of quickly scaling up 25 years ago, whenever it was 20 years ago, to try to win. dominance and as an e commerce leader, and they did that by partnering with many, many people who could, come into the marketplace.
[00:13:55] And then another tension emerged. The tension, the secondary, the 2nd order attention on Amazon was profitability. And somehow, somewhere inside their system, people started to say we could be more profitable if we just looked at our data and started selling direct to consumer. first party these items now, if that’s, if that is what they’re doing and I don’t have any firsthand experience with that, them doing that.
[00:14:21] But if that is what they’re doing, I would just say it was a misguided, requirement to have profit inside their company emerge from the first party, third party marketplace and that tension for profit. is really the heart of the issue. They obviously have AWS, and other revenue streams that are scaling.
[00:14:40] The problem is, I don’t think those add enough money, to the party to make a difference. AWS is getting there, obviously. But, so they had to come up with other things like prime and AWS to generate. Profit and, I think if they could go back in time, they probably would have never done that. I’m with that walmart trick of saying, hey, what sells really well, let’s sell it direct first party, but I could be wrong.
[00:15:05] But I would imagine that’s probably part of the tension here at sort of the 30, 000 ft level.
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[00:16:00] MV: Okay, so I’ve got lots to say on this. So, first of all, very interesting to hear that Walmart did it first. And by the way, Walmart did a lot of things first. So I think Amazon was smart enough to pinch the person who did all warehousing. For Walmart and bring them over to Amazon. Cause at a certain point, I guess in the early 2000s, something like that, Amazon was not as good as Walmart at doing that.
[00:16:19] And they had to really, really, really iterate on what they were doing. Cause all Walmarts were excellent at sending out fairly standardized size packages in pallets and, bulk to a lot of stores from a centralized warehouse and of course, going directly to the consumer is way more sophisticated.
[00:16:34] But they started with that. Now, so my, my thoughts on this, number one, this is a common paranoia by Amazon sellers. I don’t think it’s very guide, very, I think it’s, it’s old half. I think it was a problem. I think Amazon’s realized, and this is based on some sort of sleuthing by another fellow Brits sort of based in Washington himself, Robin Guster, who I had on as a guest.
[00:16:54] Who, is a kind of a bit of a Washington insider as much as a brick can be, I suppose. And he did an investigation into Amazon as a company as a whole and tried to dig out where the profit centers and where the cost centers were because they don’t reveal it in, in any of that documentation. And his conclusion was pretty simple.
[00:17:09] Like every time Amazon sells anything as a first party, it loses money. And Amazon has figured this out because they’re not dumb people and they actually aren’t very interested. In private labeling stuff that third party sellers do because third party sellers do often a better job of it. But even if they don’t, the business of charging somebody a toll fee being on your marketplace, such as an Amazon commission and or obviously the advertising spend, is way more profitable than shipping goods all around the world and having to pay for all that infrastructure and pay for the goods themselves every single time.
[00:17:40] So, they figured out, I think that, that was a losing game. Now, I’m not sure because I haven’t read all 170 pages of the complaint. How much the FTC is harping on that. But if they do, I think it’s a real red herring cause it probably was historically a problem. And I don’t think it’s going to be ever again.
[00:17:57] Cause Amazon doesn’t want to lose that money. So,
[00:17:59] JM: how Right. . how like that phrase, like the, like the, well, I’ll just use, I’ll just say it directly. I won’t use some silly metaphor. I think the original issue here could be traced back to one classically famous incident and that’s the diapers. com acquisition and the big, big beef between [00:18:20] Mark Lohr, who ultimately found a jet.
[00:18:22] com. Now that is such a well documented drama and is, it puts Amazon in such bad light. That I think they could literally be being getting punished for something that they did 15 years ago, whenever it was, the, that’s I, I, to me, I, I just wonder because it’s such well, it’s such a huge lore story now, the guy’s name is Mark lore, but, Lori, I don’t know, but, it is such a, it’s, it’s very, very.
[00:18:49] seared into the mind of people, that story of how he basically, he created diapers dot com. he didn’t want to, sell to Amazon. They competed with him. Then ultimately they bought diapers dot com. and, and then. Then when he created jet. com, he really became a master at competing, made something that actually worked well.
[00:19:11] And then he became that got acquired by Walmart. So that whole intrigue piece between that origin story of the original drama there, and then how his career has played out against or opposed to Amazon. I think all of that being so public is probably one of the things that. It just lingers, and just people hear that stuff.
[00:19:33] And so it’s out there.
[00:19:35] MV: I think what happens with things like that is that you get a big news story, the politicians have to react because the public they serve is reacting, or at least their perception is that they are because the media is kind of everything’s put through the prism of media, nevermind social media, which is even worse at distorting everything.
[00:19:51] And then you end up with politicians pushing federal people who want to make a name for themselves. And none of this is terrible behavior or evil, by the way. I’m not a conspiracy theorist most of the time. I just think human beings act in their own interests. And if you put them into political situations or whatever, then they’ll act certain ways.
[00:20:06] And. And, and often the underlying problem is ancient history by the time they address it, and law is often that way, isn’t it? I mean, don’t forget there’s still people getting arrested for, for war crimes in the Nazi era, just about. They’re very, very, very old people. so, the, the law can be very behind the times.
[00:20:24] So I think it’s a massive red herring. And I think the, the other ones that they are, that, that really affect the third party sellers. And I think You could maybe argue that the consumers is Amazon’s advertising services. I think, the red herring of the first party seller thing is massive because Amazon loses money every damn time it sells anything to anyone that it owns.
[00:20:45] And that doesn’t surprise me because it’s easy to do that as a third party seller. We’ve all done that. And whereas if you own a platform, which is the de facto entry to the internet discuss for e commerce, then people will pay an awful lot of money to get visibility and we do, and it’s called advertising and you’re lucky if you can get your advertising sales ratio down to 15 percent now,
[00:21:05] JM: And so
[00:21:05] MV: that is all going to come from the bottom
[00:21:07] JM: the specific, the specific claim there is that somehow having advertising be available to third party sellers and in essence, having that be the way in which you gain velocity and exposure is somehow wrong. To have an advertising
[00:21:24] MV: they’re saying is that, I mean, I haven’t read all the detail from what I have read. I think that they’re basically saying that the quality of the experience for consumers is degraded because they’re such a big percentage of the search results is sponsored. So not necessarily driven by being a good match, which I think is true.
[00:21:40] And also that they are forcing sellers to pay more and more money and Amazon is profiting, but the sellers are not and the consumers are not, which I would say is hard to argue with because in so far as you can run the numbers, they are getting a bigger and bigger percentage of the money that’s going through the system
[00:21:55] JM: , but
[00:21:56] MV: any obvious benefit to consumers.
[00:21:58] JM: think before the Internet, at least in the U. S. I don’t have it in the U. K., but in the U. S., the only thing that you had to find businesses whatsoever was the yellow pages. The entire thing is pay to play. I mean, it’s an advertising tool to get your message out there. So
[00:22:15] MV: Well, there you go. I’m
[00:22:16] JM: be upset that
[00:22:17] MV: feel the same way. . I mean, discuss, I mean, it’s an interesting one, isn’t it? I mean, but I mean the whole. Internet is, is going towards
[00:22:24] JM: pay to play?
[00:22:25] MV: as would not be the case, but what percentage are you spending? And these are, these are the waters.
[00:22:30] I mean, Amazon’s got some very robust defenses against all this, which we haven’t even mentioned. I mean, we can talk about Amazon’s response in a minute and we can unpick that. I think that’d be quite interesting. I think it’s fulfillment by Amazon thing again, this is where the FTC is basically saying it’s creating a quasi monopoly, which I don’t think is wrong necessarily.
[00:22:48] by making a lot of people are effectively forcing them pretty hard in the direction of using fulfilled by Amazon, not other fulfillment networks. However, I would say in that case, the reason for that is because things like the Royal Mail, which has been in existence for longer than America has probably in the UK, hasn’t yet learned how to deliver parcels on time.
[00:23:06] rather like our rail system, which was the first in the world. And we still can’t get trains to run. at some point, maybe in the Victorian era, it worked, but there’s about a 1 percent error rate with the Royal Mail, which is horrendous. If you sell thousands of units a day or a week or whatever, whereas Amazon is incredible at fulfillment.
[00:23:22] So I would say FBA is a quasi kind of monopoly within the Amazon system. It works incredibly well. So I think that serves consumers and sellers pretty well. And I think this is one of the places where the FTCs make a rod for their own back. ’cause they’re criticizing things that work incredibly well in some cases for consumers.
[00:23:39] And in this case I think they’re fulfilled by Amazon for consumers and sellers. And they’re therefore handing the defense team at Amazon a great gift. And I think this is one of them.
[00:23:50] , them
[00:23:50] JM: I would totally agree that it seems like an odd thing to pick on the, the story that comes to my mind was, my sister in law’s visiting us right now from Alaska. And so I don’t know how we got on the topic of Amazon and buying things from Amazon yesterday around the dinner table. But, she said for people in Alaska, the way it works is.
[00:24:10] if you buy something from Amazon, that it all the product goes to some barge somewhere. They all know this is like everybody in Alaska knows this is how it works and they think it’s in Alaska and. Seattle that the barge, the location, so all the items go to the barge and then the barge set sail for Alaska and then it goes up there and then your items are delivered.
[00:24:31] She said it’s usually like 10 days to, 2 weeks to get your items. There is no like next day delivery or anything like that in Alaska for Amazon. So. I mean, if you’re at Amazon and you’re trying to solve these problems, it’s kind of like you make a genius system that literally changes lives.
[00:24:47] I mean, it’s so amazing to me now that, I’ll, I’ll say to cinnamon, we should drive to Sacramento so I can go to half price bookstore. Cause I want to look for a few books. She’s like, you can order them on Amazon and they’ll be here in a couple hours. I’m like, Oh , nevermind.
[00:25:02] I guess we don’t need to go to the city to look at the bookstore, but, But they’re solving these problems for us. And then I just, I don’t, I don’t see the logic. And I mean, maybe the people in Alaska could have a class action lawsuit against Amazon cause they don’t get next day delivery and they want it to be faster.
[00:25:21] But to say that there’s somehow a monopolistic system involved in delivering items quickly seems sort of funny to me.
[00:25:30] MV: Well
[00:25:30] JM: thank you very much. like,
[00:25:32] MV: but I
[00:25:32] JM: else would you like me to do for you?
[00:25:35] MV: So I think there are two and this is the fascinating thing about the Amazon situation because I think it is monopolistic personally and I’m not a lawyer, so we’ll see what the lawyers argue between them, but I think there’s a difference between that.
[00:25:46] And is it harmful? Now, I think what’s interesting is that normally monopoly harms competition and generally that pushes prices up by the mechanism of supply and demand determining price. But I don’t think that’s the case with prime necessarily. I’m sorry with fulfilled by Amazon. Thanks. And so that comes down to the sort of legal principle of monopoly versus free trade versus the practical harm.
[00:26:09] And I think there is a distinction in that particular case, which probably brings us to Amazon’s response. I mean, I’ll, I’ll talk a bit more about the FTC’s other complaints, some of which I think,More more valid, but, Amazon’s rebuttal unsurprisingly says, we’re proud of what we do. We’ve helped to spur low prices, innovation and competition.
[00:26:27] And we intend to keep doing that. We fundamentally disagree with the FTC’s allegations, which in many cases wrong or misleading. And with that overreaching approach to antitrust, which has harmed consumers, hurt independent businesses and upend longstanding and well considered doctrines. I mean, in a sense, what else would a defendant say, but I think there’s, I would say a really big difference.
[00:26:49] If I cut it, into the bits that make the most sense for me, harm to consumers is a, is a hard thing to prove. I think because they have got a lot of low prices and as you say, incredibly quick delivery as a consumer, my experience of Amazon is pretty much a hundred percent positive in terms of, is it overreaching for them to say that it’s hurting third party sellers.
[00:27:10] It’s. It’s not historically been the role of an antitrust legislation or monopolies emerges in the UK to say that we’re there to protect small businesses. Now, obviously, I’m a small business owner. So are you. And so I have my heart is with those people. And is that overreaching or is it good? I personally feel it’s good, but it’s an interesting [00:27:30] legal question.
[00:27:31] If it is not overreaching, if that is legitimate, I would say that is where the heart of the is Amazon taking an inordinate percentage more and more off of the, profits of, third party sellers? Yes. I would say I would agree with that. The FTC says in many cases, it’s 50%. I think based on what I’ve seen, that’s accurate based on the, the PNLs I’ve reviewed of possible businesses I’ve considered buying or, My, my clients, and I think at some point that is the frog getting boiled and people either going to jump or somebody’s got to intervene.
[00:28:03] So I think for me, that’s the heart of the matter, really.
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