Keeping Score is a column that will appear periodically by Digital Commerce 360 editor at large Don Davis, who has been covering ecommerce since 2007.
Jeff Bezos and Donald Trump haven’t had much good to say about each other, but it turns out the former president came along at just the right time for Bezos’s company, Amazon.com Inc.
Don Davis, editor at large, Digital Commerce 360
Trump turned off the lights in the U.S. Justice Department’s antitrust division and defanged the Federal Trade Commission so that big companies could largely do as they pleased while he was in office. And those four years coincided with a massive increase in Amazon’s profits, thanks primarily to its hugely successful cloud computing unit Amazon Web Services. And those profits fueled a big expansion of Amazon’s reach into consumers’ lives.
Now there’s a new sheriff in Washington town. And the retail story of 2022 is likely to be how much the threat of legal and regulatory action from President Joe Biden’s avid trustbusters forces Amazon to pull in its sharp claws that have torn up so many retail competitors in recent years.
One thing seems certain: Amazon can’t even contemplate the kind of acquisitions it made during the Trump years when it snapped up high-end grocery chain Whole Foods Market, electronic doorbell manufacturer Ring and online prescription retailer Pillpack. Those deals put Amazon squarely into the important businesses of selling groceries and filling prescriptions, while providing a strong home-security complement to its Alexa-powered home speakers.
More such acquisitions are not going to happen on the watch of FTC chair Lina Kahn and DOJ antitrust chief Michael Kanter, two prominent legal critics of the power of Big Tech companies like Amazon.
How Amazon will pull back its expansion plans
Amazon is plenty smart enough to know its under intense scrutiny, and I see it responding in at least three ways this year:
- Policing itself carefully to make sure it’s not copying successful products of Amazon Marketplace sellers. While there have been only a handful of strong examples of Amazon doing this, when you’re as successful as Amazon that’s enough to get a company a series of negative headlines on the front page of the Wall Street Journal about how the biggest online retailer was allegedly taking advantage of the sellers on its platform.
- Limiting introductions of its private-label products. It’s just too easy for antitrust enforcers to claim Amazon is using the data it sees about the sales of third-party sellers to create its own products. Private-label is not a big business for Amazon. And it cuts across Amazon’s desire to lure more big-name brands to sell on its sites. Amazon might eventually just phase out all its house brands as they seem more trouble than they’re worth.
- Cracking down on the many Chinese sellers on Amazon. The company already has been doing this, but the success of Chinese manufacturers and merchants on Amazon’s marketplace leaves the company open to attack from U.S. manufacturers looking to protect their market, not to mention from politicians looking to pose as tough on China. Amazon has to be careful here, because AWS has a growing business in China, so it doesn’t want to antagonize Beijing by seeming to be openly anti-Chinese. But it will move quickly against counterfeits and unlicensed knock-offs, as it has for years. That may make life a bit easier for other Amazon sellers.
Will the Biden administration break up Amazon?
What I don’t see happening is the federal government succeeding in dismantling Amazon in a major way. The most widely discussed remedy for curtailing Amazon’s market power is to force the company to separate its marketplace—where 2 million outside merchants and brands offer their wares—from the Amazon retail site where the e-retailer offers goods that it owns.
That’s going to be a hard sell in the courts. For one thing, consumers love the broad selection they get on Amazon. In fact, it was the No. 1 reason shoppers cited for purchasing on Amazon in a Digital Commerce 360/Bizrate Insights
survey last summer.
For another, so many competitors, including Walmart and Target, are emulating Amazon by opening up their ecommerce sites to outside sellers that as each year goes on it’s going to be harder and harder to make the case that Amazon should be singled out and prevented from operating a marketplace when so many big rivals are doing the same thing.
The most powerful move the feds could make against Amazon would be to force the company to divest itself of AWS, which has provided more than 60% of Amazon’s operating income since 2014 when Amazon began breaking out the cloud computing division’s results in its quarterly filings.
Without AWS would Amazon have been able to spend $1 trillion (by Bank of America’s estimate) over the past several years to make itself a major competitor to UPS and FedEx? Would it have been able to offer free next day, and increasingly same-day, delivery to Amazon Prime members? I doubt it.
The fact that Amazon was growing both the top line and bottom line so consistently in recent years is why the company’s stock market value increased by more than $1 trillion during the Trump era. Without the profits of AWS I doubt Wall Street would have been as enamored of Amazon.
Such a forced divestment makes some sense in that a cloud computing business like AWS is not integral to operating a retail business, even online. Plenty of other competitors buy their cloud computing services from outside companies—increasingly from Microsoft and Google rather than competitor Amazon. There is no reason Amazon could not become a client of AWS or of its competitors, rather than its owner.
It would be a bold move, and one that would seriously weaken Amazon and thus strengthen its competitors. And I don’t rule out that Biden’s anti-Amazon zealots will give it a try.
I just don’t think it will succeed, at least not for years. Amazon’s lawyers would fight such an action tooth and nail, and antitrust actions against tech companies have a history for going on for many years. Plus, the Biden administration is keenly aware that U.S. tech companies compete against big Chinese companies. They might hesitate to weaken a company like Amazon that goes head to head with such Chinese rivals as Alibaba and Tencent in both ecommerce and cloud computing.
My guess is that AWS and the marketplace stay with Amazon, and that the leading online retailer remains a formidable competitor. It just won’t be quite so formidable, given that it will have to be on its best behavior for the duration of the Biden years.
Amazon will bide its time. And some of its executives—and shareholders—likely are quietly hoping that Donald Trump gets reelected in 2024 so that Amazon’s quest for retail world dominance can resume without regulatory constraints.
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