The Amazon behemoth that’s now in SA

LINA KHAN, the US Federal Trade Commission (FTC) chairperson, was sitting behind her desk in a blush suit, the Stars and Stripes behind her. It was a red-letter day for the revered 106-year-old government agency (the American version of South Africa's Competition Commission).

The US government and 17 states had just filed a lawsuit against Amazon, the world's largest online retailer, accusing it of abusing its dominant market position by inflating prices, overcharging sellers and stifling competition.

Khan outlined the agency's bold case to reporters.

“We set forth a detailed set of allegations laying out how Amazon is a monopoly that is raising prices on American consumers and small businesses and engaging in a concerted strategy to unlawfully exclude rivals and undermine competition,” she said.

“Sellers are effectively paying a 50% Amazon tax that has steadily been increasing over the last decade. And prices are higher for shoppers as a result. In fact, Amazon’s one-two punch of seller punishments and high seller fees often forces sellers to use their inflated Amazon prices as a price floor everywhere else. And so as a result, Amazon’s conduct causes online shoppers to face artificially high prices, even when they’re shopping somewhere other than Amazon.”

The case came down to two major claims, writes Dana Mattioli in her riveting new book, The Everything War: Amazon's Ruthless Quest to Own the World and Remake Corporate Power. Mattioli is a reporter for the Wall Street Journal and has spent years investigating Amazon.

Key to the case against Amazon was how it treats sellers on its platform. The FTC alleged that merchants were coerced into using Amazon's shipping programme (Amazon has now surpassed UPS and FedEx and is the largest non-government parcel carrier in the US) and forced to buy advertising from Amazon for their products to show up in search results.

Mattioli explained that Amazon had evolved into a “pay-to-play" company, where sellers' success depended on paying Amazon a range of fees so onerous that it was becoming harder and harder for them to preserve their margins — Khan claimed Amazon takes half of every dollar a seller makes.

Rising tide

By the time the FTC filed its case last September, Amazon had spent years battling a rising tide of concerns about its influence over the online retail market and potential anti-competitive practices.

Mattioli said the company became an 800-pound gorilla in several industries, gobbling up competitors and putting them out of business.

That changed in 2019, during the Donald Trump administration, when a flurry of regulatory activity aimed at Amazon's anti-competitive behaviour began. It involved the FTC, the Department of Justice and later, during Joe Biden's administration, the US Senate.

Trump was almost pathological in his hatred of Amazon founder Jeff Bezos, largely because Bezos also owns the Washington Post, which was critical of Trump's presidency.

“Amazon was a constant bête noire for Trump," writes Mattioli. “The scene would play out time and time again in the Oval Office. Members of Trump’s cabinet discussed serious issues, such as trade policy or the economy, and the president would weigh in with a rant about Jeff Bezos.

“Cabinet sources recount that once Trump began a rant, Larry Kudlow, head of the National Economic Council, and Steve Mnuchin [Secretary of the Treasury] would often make eye contact and roll their eyes as if to suggest ‘here we go again'."

Amazon hoped its relationship with the White House would improve under Biden, but it remained distinctly frosty.

Biden is not amused

He made his opprobrium for Amazon clear when he invited Chris Smalls, an Amazon employee from Staten Island who was galvanising colleagues to form a union, to the White House. Biden once said he intended to be “the most pro-union president in American history”, and this meeting included union organisers from Starbucks and retailer REI.

Mattioli says it is ironic that Smalls had an easier time getting a meeting at the Biden White House than Bezos, who has never been invited to a presidential event or roundtable.

“Smalls wore a flashy jacket that said ‘Eat the Rich’ on it with an Amazon Labor Union shirt and Yankees baseball cap. To everyone’s surprise, Biden walked in to greet them all. He went over to Smalls with a big grin on his face, giving him a handshake and a hug. ‘You’re trouble, man,’ Biden said with a chuckle.

“Yeah, I am,” Smalls replied. ‘I like you, you’re my kind of trouble,’ Biden said.

“Good trouble,” replied Smalls, referencing civil rights activist John Lewis’s famous line.

“I got in a little trouble, you may recall. I was saying I was looking forward to [Amazon] getting organised. But you got it done in one place. Let’s not stop,” said Biden, who even tweeted a video of the exchange.

Amazon executives were apoplectic, writes Mattioli. “To see the president embrace Smalls was just too much. ‘It was a kick in the face,’ said one policy executive."

Some weeks before the FTC filing, Biden again made his feelings clear in a speech. 

“Between them, the two [president] Roosevelts established an American tradition — an antitrust tradition. It is how we ensure that our economy isn’t about people working for capitalism; it’s about capitalism working for people. But, over time, we’ve lost the fundamental American idea that true capitalism depends on fair and open competition. Forty years ago, we chose the wrong path, in my view, following the misguided philosophy of people like Robert Bork, and pulled back on enforcing laws to promote competition."

Snotty tweets

A Twitter spat in 2021 between Amazon and the prominent Democratic senator from Massachusetts, Elizabeth Warren, illustrates the deeply fraught relationship between the tech giant and progressive lawmakers. 

Warren had long said that Amazon was too big and needed to be broken up. She tweeted that it didn’t pay its fair share in taxes and  she would be introducing a bill to address that.

Amazon responded from its corporate account in a string of tweets starting with: “You make the tax laws @SenWarren; we just follow them. If you don’t like the laws you’ve created, by all means, change them. Here are the facts: Amazon has paid billions of dollars in corporate taxes over the past few years alone.”

Warren responded: “I didn’t write the loopholes you exploit, @amazon— your armies of lawyers and lobbyists did. But you bet I’ll fight to make you pay your fair share. And fight your union-busting. And fight to break up Big Tech, so you’re not powerful enough to heckle senators with snotty tweets.”

Snapshot

Bezos founded Amazon as an online bookseller in 1994 and has expanded it into a retailer of breathtaking scale and range, including groceries in brick-and-mortar stores after its $13.7bn purchase of Whole Foods Market. It also runs data centres and makes TV shows.

Mattioli paints a compelling picture of Amazon’s massive reach as of 2023: “More than 200 million people globally pay for Amazon Prime accounts, using the membership to shop on Amazon and stream television, movies, music, and video games. Years of their purchasing data, from what they buy to what they add to their carts and later delete, is stored and used by Amazon employees. They use it to drive more sales across seemingly disparate and unconnected categories, businesses, and services.

“More than 500 million Alexa-enabled devices sit in people’s bedrooms, living rooms, and even bathrooms across the globe, answering commands and gobbling up incalculable data from all those homes. These devices know your favourite podcasts, what time you set your alarm for each morning, how many times your child asks it to play ‘Baby Shark,' and what’s on your grocery list. They can control your smart home devices, such as your front door lock and garage door opener.

“Meanwhile, AWS [Amazon Web Services] is the largest cloud computing company in the world. Millions of companies, government agencies (including the CIA), and even Amazon competitors feel that they have no choice but to store their businesses’ data on the company’s cloud. Netflix, Apple, and NBCUniversal — to name but a few — compete fiercely with Amazon, yet use and pay for AWS.

“In the world’s retail infrastructure, the company has amassed an army of merchants who sell their wares to Amazon shoppers. These third-party sellers, which rank in the millions, are the backbone of the nearly limitless selection of goods on its Marketplace. Amazon collects all the fees required of sellers to operate on the site. On top of those fees, it also collects massive amounts of seller data. It then competes with them using its private label division to sell Amazon-branded goods on the same platform."

Private label

One of Amazon's practices that did not make it into the FTC anti-competitive behaviour indictment is the issue of private label products, but Mattioli has investigated this extensively and written about it in her exposés for the Wall Street Journal. At issue is the allegation that Amazon allegedly uses data it harvests from its third-party merchants to create Amazon (private label) versions of successful products which then are pushed out on the platform (and given preferential placing) to compete with the originals.

She recounts one case study relating to a beloved American workwear brand that makes durable pants and jackets worn by construction,  electrical and agricultural workers.

“While Sutton [a top lawyer at Amazon] was defending the company’s private brands practices, that very team was at that moment ripping off a beloved American brand.

“In September 2019, an executive from workwear apparel maker Carhartt walked the floor of the Chinese factory that assembles their clothes, inspecting the products. As he did so, he also came across, in another part of the same factory, a production line making what appeared to be Carhartt’s bestselling bib overalls and workwear pants. But that area was not designated for Carhartt.

“The executive was confused. The product on the competing line was the exact same material as the family-owned business from Dearborn, Michigan — the same colours and even the exact same zippers and trims. He asked the factory who had commissioned the line and learned it was for Amazon Essentials."

Mattioli says this discovery “set off a chain reaction within Carhartt and Amazon. Just as the Seattle-based giant exploited third-party sellers on its website by making fast followers of their bestselling items, it frequently alienated national brands that sell on the first-party side of the business, which means they sell their products directly to Amazon in bulk, and Amazon then resells them to customers."

Lawsuits do not move quickly, and the FTC's case will take years to be finalised.

“Amazon’s dominance has not lessened despite numerous regulatory investigations into the company’s business practices," says Mattioli.

“The company has only gained more power, forging ahead into more industries. As I was reporting for this book, Amazon acquired 1Life Healthcare, a primary-care practice better known as One Medical. It means that my doctor’s office and all of my corresponding data, lab [test results], and other charts are now owned by Amazon. Its power continues to grow. Amazon also did what was once thought impossible — it surpassed both UPS and FedEx to become the biggest delivery business in the US by parcel volume. It is now the largest nongovernmental parcel carrier in the country.

“Consider how difficult it would be to avoid the conglomerate for a week if you tried. If you call a Lyft or stream on Netflix, you are within their ecosystem. Both companies use Amazon Web Services. If you buy a Peloton bike, there’s a good chance that Amazon will deliver it. Going to watch the new James Bond film? Amazon now owns MGM, which has a giant film catalogue, including the Bond films. Three-fourths of people who use a robotic vacuum cleaner in North America use the iRobot Roomba. Amazon agreed to buy iRobot in 2022, creating concerns that the company would soon have detailed data about the insides of customers’ homes since it ‘maps' spaces through its technology. It was yet another incursion that began with Alexa. (In this case, scrutiny from the European Commission caused Amazon to abandon the acquisition in early 2024.)

“Amazon has indeed become the daily habit that its founder envisioned."

♦ VWB ♦

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