The world’s richest man, Jeff Bezos, testified before US Congress members for the first time on Wednesday, but he said little to assuage one of their biggest concerns: that Amazon’s grip on online retail gives it the power to make or break small merchants on a whim.
Bezos, along with the CEOs of Apple, Google, and Facebook, appeared via videoconference before a bipartisan group of 15 US House members who have been investigating the four tech giants over the last year. The stated goal of this antitrust subcommittee’s investigation has been to document whether these corporate titans abuse their power in industries ranging from retail to social networking, and to evaluate whether the country’s antitrust laws are modern enough to guard against such abuses.
“Their ability to dictate terms, call the shots, upend entire sectors, and inspire fear represent the powers of a private government,” Rep. David Cicilline (D-RI), the chair of the subcommittee, said in his opening remarks at what was a five-hour-plus hearing.
For Bezos, much of the questioning from lawmakers focused on how Amazon competes against, and profits from, the 1.7 million small and mid-sized merchants who help stock Amazon’s digital shelves. Amazon boasts that 60 percent of its retail sales now come courtesy of these sellers rather than from Amazon stocking and reselling goods itself.
But some Amazon sellers have complained over the years that as Amazon’s market share in US online commerce has increased — to about 40 percent today, which is about seven times more than the next competitor — the company has squeezed and otherwise harmed them in new and different ways because they have no viable online alternatives.
According to Cicilline, Amazon sellers have told the subcommittee that “[Amazon has] never been a great partner, but you have to work with them.”
One concern has been the data Amazon uses from its own merchants to help inform what products to develop under its own private-label brands, such as Amazon Basics. In April, the Wall Street Journal published a report stating that Amazon employees have used data from individual sellers to help Amazon decide which private-label products to pursue. That contradicts what a top Amazon lawyer, Nate Sutton, told Congress earlier this year when he said that Amazon’s policy is to only use data on a product when there are at least two sellers selling it.
On Wednesday, Bezos told Rep. Pramila Jayapal (D-WA), who represents Amazon’s hometown of Seattle, that the company’s investigation into violations of the policy outlined in the Journal report was ongoing. “I’m not satisfied that we have gotten to the bottom of it, and we’ll keep looking at it,” he said.
And Jayapal made her point clear: “So you might allow third-party sellers onto your platform. But if you’re monitoring the data to make sure that they’re never going to get big enough that they can compete with you, that is the concern that the committee has.”
Bezos argued that other retailers don’t even have such a policy, which is completely beside the point — no other US retailer operates a marketplace even close to the size of Amazon’s. But worse, Bezos not providing an update on the investigation just means that the concern over these potentially anti-competitive practices remains unsettled.
The lawmakers also questioned Bezos on what some view as an increasing cut of sales that Amazon takes from small merchants. According to a recent study by the Institute for Local Self-Reliance, a nonprofit that advocates for a strong economy built on independent businesses versus giant corporations, Amazon collected 30 percent in fees on average in 2019 from a given sale that a seller made. That number was up from 19 percent five years earlier, according to the ILSR estimates. Some sellers have said Amazon’s cut is even higher than that. In an episode of the Land of the Giants: The Rise of Amazon podcast last summer, one Amazon toy seller told Recode that Amazon now collects fees that equate to nearly half of each of his company’s sales, when including the cost to advertise his products on the site.
Bezos’s defense of these increases centered on the value he says Amazon is providing in exchange for these fees. The CEO talked up Amazon’s advertising platform as a way for businesses to get discovered — but some sellers and brands see the cost as a tax that has to be paid in order to do business on the platform. The CEO did little to put to rest the open question of whether small businesses on Amazon can be successful without giving his company a bigger and bigger cut of their earnings.
Bezos also mentioned how Amazon’s warehousing program Fulfillment by Amazon (FBA) allows merchants to store, ship, and have customer service taken care of through Amazon. In order for most sellers to qualify their goods for Amazon Prime delivery, they have to pay for FBA storage. And Bezos admitted that Amazon’s algorithm that determines in real time which seller wins a given sale indirectly factors in whether a seller is a customer of FBA. This admission could offer additional ammunition to critics who argue that Amazon is using its control over the largest US e-commerce marketplace to essentially force its merchants into paying for more and more services, such as FBA.
Then there’s the frequency with which Amazon changes its policies and the algorithms that power its platform in ways that can make or break its merchants’ businesses, essentially overnight. One Congress member told Bezos the story of a textbook seller on Amazon who says her business was kicked off of the platform without notice or explanation after her business had grown large. Seemingly arbitrary suspensions by Amazon are not a new complaint.
Bezos said he was “surprised” to hear about such a story and that he would like to speak to the seller. But he also countered with a defense that he believes such treatment is not “systemic” at Amazon.
For Bezos, this was his first time testifying on Capitol Hill, at least in part because Amazon has, for the most part, been a good thing for millions of online shoppers. As I’ve written before, Amazon offers buyers incredible convenience, good prices, fast delivery, and a vast selection. And US antitrust enforcers tend to favor companies that treat consumers well and keep prices low, while typically targeting business practices or mergers that they believe will harm consumers, such as by raising prices for a product or service.
But Amazon is now worth $1.5 trillion, and Bezos is the world’s richest man. Along the way, media and regulatory scrutiny has intensified. The Federal Trade Commission has been probing various Amazon business practices over the last year to see if Amazon has violated existing antitrust laws. And the House antitrust subcommittee will next issue its own report concluding its investigation that could argue for new or modified antitrust legislation that can account for the harm to innovation and competition that some legislators say is done by tech giants like Amazon, even while they seemingly treat consumers well.
Even if Bezos didn’t shut down lawmakers’ concerns about potentially anti-competitive practices, his first congressional testimony at times came across as the most authentic of the CEOs at the hearing. At the same time, on several occasions he politely dismissed anecdotal seller complaints presented during the hearing as one-offs rather than being core to Amazon’s DNA.
And therein lies one of his problems. Even if Bezos is right and Amazon only rarely abuses its position over its own sellers, the complaints shared during the hearing show that the company has grown so big and powerful that even abuses of neglect have the power to crush the small businesses that power Amazon’s success — but also are so dependent on the platform that it can crush them without even noticing.