Say you were invited to enter your famous homemade chili in a county fair. Winner receives $1,000. But there were a few caveats. First, you had to pay upfront to be in the competition. The people running the venue claimed they needed the initiation fee to help with advertising and setting up a booth and providing the equipment. Second, they wanted to know your recipe to make sure it could be served to the public, safely.
You comply with all of the laws and spend hours and more money making a huge batch of your famous homemade chili. When you show up at the venue, there are 10 other competitors, one of them being the person that runs the festival. Of course, you’re a little upset because you know they probably didn’t throw in their own money to invest in the advertising and booth and equipment, but you think “Whatever, he has as much right to be here as I do. It’s his booth.”
So everyone at the county fair tastes all the chilis and declares that the winner is the same guy that put on the chili cookoff. To add insult to injury, the guy pockets the $500 and is able to sell his chili at a lower cost because of the profits he made by winning.
You go home and stew about it (pun intended), only to realize later that this guy had access to all of the chili recipes that were entered into the contest. Who’s to say he didn’t steal someone else’s recipe or recipes and decide to benefit from the information, win the contest, then sell it at a lower cost than all the competitors.
Now, take that feeling of frustration, defeat, and hurt and you may understand what many Amazon sellers go through when taking on the conglomerate to compete and make sales. With Amazon’s over-100 private brands (not including Amazon Basics), many feel duped by the very marketplace they rely so heavily on to sustain their dreams and business.
An Email Seen World-Wide
In mid-August of 2021, many Amazon merchants and vendors received an ominous letter from a third-party site warning them of the following:
“We’re reaching out to a small group of our sellers to make them aware of a package of legislative proposals, currently in Congress, that is aimed at regulating Amazon and other large technology companies,” the email states. “It is early in the process and the bills are subject to change, but we are concerned that they could potentially have significant negative effects on small and medium-sized businesses like yours that sell in our store.”
Because this email didn’t come directly from Amazon, many speculated it was a scam. But it wasn’t. In fact, on the heels of this email hatched a dedicated website solely purposed for vendors and sellers to stay informed on what implication these new policies might have on their future as third-party sellers.
Here’s what you need to know about the 6 bills introduced in the Anti-Trust Tech bill and what it really means (if anything) for third-party sellers.
What is the Anti-Trust Tech Bill?
In early June of 2021, House legislatures introduced sweeping antitrust legislation (a total of 6 bills) aimed to dismantle the power of companies like Amazon, Apples, Facebook, and Google to prevent them from advertising their own company on their own platform in ways that impede other sellers’ success in marketplaces that can be construed as a monopoly in many skeptics’ eyes.
The bills that were passed by the House of Representatives would make it easier to break up businesses that used their dominance in one area to get a stronghold in another. This would potentially create obstacles for conglomerates trying to procure/monopolize rivaling companies. Conversely, it would also provide funding for regulators to police company protocol.
Should the legislation go into effect, it would change the playing field for many, first and foremost increasing the threshold at which any acquisitions or mergers by big-tech from obstructing competition from third-party sellers or start-ups within their own platform. More specific to Amazon, the new legislation could revoke Amazon’s privilege of selling their over-100 companies on its platform which indefinitely allows the behemoth the ability to sell cheaper items and utilize PPC strategies that undercut their competitors. More importantly, it would prevent Amazon from utilizing data from its sellers to compete in high-demand products.
While Amazon claims that the use of their proprietary sales data is simply meant to inform their private label businesses of opportunities and sales trends, this information would obviously give them an edge over any company on their platform (even though Amazon remains unwavering in their claim that they do not look at individual seller data but rather aggregated data).
Regardless, access to information that only can be known at a platform level is an unfair competitive advantage over individual sellers. At the heart of these antitrust accusations is the accusation that Amazon has taken advantage of the very people that they rely on to keep Amazon a multi-functioning platform.
Amazon’s Unique Platform Allows Sellers Multiple Advantages
There is no doubt about it – Amazon’s pledge is to always serve their customers first.
To deliver on that promise, the strategy has been a long game. It took 7 years for Amazon to turn a profit as they reinvested in building infrastructure and working on their now-famous operational capacity that has set them high above any other marketplace. But with such concern over their customers, the question remains: What about their sellers?
While Amazon holds strong that their unique FBA management solutions and their unrivaled bandwidth provides all their sellers a fair market with the promise of true capitalism, some merchants would disagree. The behemoth’s pay-to-play set-up (which can be evidenced in PPC rates skyrocketing within the last year) suggests that third-party sellers really aren’t utilizing a fair playing field.
Amazon’s Attempt at a Monopoly Isn’t New
As a result of rising PPC costs and competition, many sellers started to expand to other sales channels that didn’t require such high fees, Amazon came back with a “most favored nation clause’ to add to their seller agreements. The “most favored nation” stated that “You will maintain parity between the products you offer through [other platforms] and the products you list on any Amazon site.” This effectively stated that price, product description, and standards needed to be maintained across all platforms. Amazon’s stance was that it was trying to prevent sellers from price gouging. Yet many contended that it was really to ensure traffic wasn’t driven away from Amazon due to better pricing and advertising.
In 2019, Amazon updated this clause after antitrust scrutiny, following suit from 6 years prior when they were forced to remove it for similar backlash in the UK. Stories came in of sellers who tried to lower their prices on other platforms only to have their listings suppressed on Amazon within a week. Reports say this wasn’t coincidental given that, when these other competing listings were removed, their Amazon listing was reinstated.
Should Amazon Be Allowed to Compete with Their Sellers?
With FBA fees incrementally increasing (particularly around the holidays) and advertising spend pushing self-fulfilling, organic sellers further and further down SERPs, many Amazon sellers have found it nearly impossible to compete with Amazon brands, big companies like Reebok and Apple, and recent aggregators/M&A’s that can afford egregious amounts of advertising real estate.
Amazon has reported that 92% of their third-party sellers utilize FBA, and in 2020 contributed $80.5 billion to their bottom line. This comes as little surprise given the practices highlighted above. Merchants can feel left with little choice other than to utilize FBA services, particularly with the Prime Badge incentivizing Prime members to only purchase products that offer 2-day delivery. Which, for a free marketplace, doesn’t seem so free after a while.
With over 100 private-label brands – not including Amazon Basics – it would appear that Amazon is in direct competition with the same sellers who’ve bolstered and grown the marketplace.
So, What is Happening Washington?
In May of 2021, suits were filed against Amazon by the Attorney General of Washington D.C. over their unfair price tactics. This joined the ongoing anti-trust cases against other big tech firms – Google and Facebook. The House Judiciary Committee brought forward 6 bills in an anti-trust legislative sweep that was approved to continue in June. These bills are not directed solely at Amazon, but send a message to big tech companies in general that so far have been able to grow untouched by government regulation. If this move is for better or worse seems to be up for personal opinion. On the surface, the House legislators are trying to even the scales of government intervention across all public sectors and prevent price-fixing or manipulation under the concept of consumer protection.
Of the 6 bills, the one most pointed towards Amazon is the Ending Platform Monopolies Act, which is sponsored by Rep. Pramila Jayapal, D-Wash. Her district covers Amazon’s headquarters in Seattle along with many other tech companies such as Microsoft. This bill aims to prevent platforms from offering a product or service that users must purchase or use in exchange for access to the platform. More specifically, the bill states that:
“The Ending Platform Monopolies Act is bipartisan legislation that eliminates the conflicts of interest that arise from a dominant platform’s ownership and reach across multiple business lines. This monopolistic behavior allows a company to leverage its control to disadvantage competitors while hurting small businesses, consumers, and innovation. Representative Jayapal’s H.R. 3825 addresses this anti-competitive conduct by making it unlawful for a dominant online platform — such as Google, Apple, Amazon, and Facebook — to simultaneously own another line of business when that dual ownership creates a conflict of interest. Companies in violation could have to divest lines of business where their gatekeeper power allows them to favor their own services or disadvantage rivals.”
If enforced, this could essentially fly in the face of Amazon where sellers pay the FBA premium in exchange for a competitive advantage. Conversely, you could look at it as a premium service offering that in no way bars other sellers from accessing the platform. Where this will land depends largely on the information that only Amazon knows and litigators hope will be uncovered in the upcoming months.
Amazon has doubled down on their efforts to claim that their actions are justifiable and in no way jeopardize or hurt the integrity of the very companiesthat rely on their platform.
They’ve also decided to try to mobilize their sellers – those very people that the legislation is attempting to empower. Amazon’s approach is that big government is going to make it harder for Amazon to do business, thus affecting both vendors and sellers that rely on their domain. In conjunction with an email they sent to all of their merchants, They’ve set up a website to help sellers stay up to date on the newest news, branding both communication attempts to launch fear among the very people Amazon relies on to serve its customers.
The question then becomes, “Will Amazon completely change its business model if these 6 bills are formally instated? They certainly have the right to, as perfunctory as it may sound. But what becomes of the millions of sellers that currently depend on the marketplace to make money? It seems as though sellers are being put in a tough situation: capitulate with Amazon’s commitment to utilize their own platform by selling their own products or support a bill that may change the course of their business forever.