Sen. Elizabeth Warren’s bold proposal to break up big tech companies —including Amazon, Google and Facebook — has ignited a debate over the power that the industry wields, while raising a big question: Is it even possible to put the genie back in the bottle?
Warren’s proposal, issued last week as part of her bid for the Democratic presidential nomination, would force big tech companies to register as “platform utilities” and prevent them from operating as players on those platforms. It would also unwind previous acquisitions by the companies deemed anti-competitive.
Although the plan that Warren unveiled Friday would impact many of the biggest names in tech, it would have particularly significant consequences for Amazon. The Seattle tech giant would have to spin off some companies it has already acquired. Warren cited Whole Foods and Zappos, specifically. Amazon would also have to stop selling its own “Amazon Basics” private label products on Amazon.com or stop operating as a marketplace for third-party sellers.
Warren’s proposal may be a long shot, but it’s worth examining as a reflection of the growing backlash against tech, after two decades in which the industry has flourished under a light regulatory touch.
Warren’s keen interest in Amazon, which she says has “used its immense market power” to bully smaller competitors, is especially noteworthy. The company escaped some of the anti-tech rhetoric that has dogged Facebook and, to a lesser extent, Google over the past year.
But Warren’s plan and other recent antitrust-related critiques of Amazon’s business model shows that Amazon is now in the crosshairs with the rest of its peers as Democrats target corporate power in their bids for the White House in 2020.
So if they became a reality, how would these proposals play out? Is it realistic to roll back acquisitions and spin off business units in this way? We talked with legal and retail experts and examined Amazon’s financials with these questions in mind.
How does Amazon un-acquire companies?
Warren wants to reverse a number of completed acquisitions by big tech companies. In Amazon’s case, she cited Whole Foods and Zappos as “anti-competitive” mergers she would seek to unwind, but she did not explicitly limit her proposal to those two. Amazon has made a series of other high-profile acquisitions in recent years including gobbling up the video streaming service Twitch and smart home startup Ring.
The tech industry’s recent trend of keeping acquired companies largely separate from existing operations is one factor that could make this part of the proposal more realistic. Jack Kirkwood, a former FTC official and Seattle University law professor specializing in antitrust issues, told GeekWire that Whole Foods and Zappos “could be separated easily” under Warren’s proposal.
“Whole Foods, I imagine, would be relatively easy to separate because it did exist as a free-standing business not long ago,” he said. “It’s not like breaking up Amazon more internally, like separating out its cloud services business from its retail business. Those are, as I understand it, much more deeply linked and that would raise much more serious problems.”
But Daniel Lucht, global director of research for the retail consultant firm ResearchFarm, said that spinning out Amazon’s businesses would be “in practice difficult to do” because each relies on the company’s infrastructure, such as Amazon Web Services. He also noted that Amazon takes lucrative businesses, like Amazon Web Services, and invests those funds into new ventures, including the company’s burgeoning film studio.
“One key benefit of Amazon is unlimited range,” he said. “Tinker with that and you threaten the whole business model.”
Amazon: Store or seller?
Amazon would need to make a big decision under Warren’s proposal. The company could continue to operate a marketplace for third-party sellers, or it could keep selling private-label goods on Amazon.com. It couldn’t do both.
“Companies would be prohibited from owning both the platform utility and any participants on that platform,” Warren’s proposal says. Addressing Amazon specifically, Warren says the company “crushes small companies by copying the goods they sell on the Amazon Marketplace and then selling its own branded version.”
She continues, “Amazon Marketplace, Google’s ad exchange, and Google Search would be platform utilities under this law. Therefore, Amazon Marketplace and Basics, and Google’s ad exchange and businesses on the exchange would be split apart. Google Search would have to be spun off as well.”
For Amazon, this would present a huge dilemma. The company could theoretically divest its third-party marketplace and stop allowing other companies to sell goods on Amazon.com, but that would mean kissing billions of dollars goodbye. Services for third-party sellers accounted for $43 billion revenue for the company in 2018, or 18 percent of Amazon’s $234 billion in revenue for the year, according to GeekWire’s analysis of the company’s annual financials.
What’s more, third-party goods make up more than 50 percent of unit sales on Amazon, up from 40 percent five years ago.
There could be bigger picture implications, too. In a 2014 letter to shareholders, Amazon CEO Jeff Bezos said allowing third-party sellers “accelerated the Amazon flywheel.”
“The success of this hybrid model accelerated the Amazon flywheel. Customers were initially drawn by our fast-growing selection of Amazon-sold products at great prices with a great customer experience. By then allowing third parties to offer products side-by-side, we became more attractive to customers, which drew even more sellers. This also added to our economies of scale, which we passed along by lowering prices and eliminating shipping fees for qualifying orders. Having introduced these programs in the U.S., we rolled them out as quickly as we could to our other geographies. The result was a marketplace that became seamlessly integrated with all of our global websites.”
Note especially the part about seamless integration.
Amazon’s other option would be spinning off its private label brands, which compete with third-party sellers in the marketplace. That would mean abandoning a business that Amazon has been investing heavily in over the past few years.
If there were a U.S. antitrust crackdown on tech giants, one question is whether Amazon could implement the remedy just in the United States. But differences in its business by geography could make that impractical or ineffective in reducing the impact.
Amazon made $160 billion in the United States in 2018, or 69 percent of its global net sales. North America is Amazon’s most lucrative market geographically. Amazon loses money internationally overall, reporting a $2.1 billion operating loss internationally in 2018, vs. a $7.2 billion operating profit in North America.
Warren isn’t the first to raise concerns about Amazon’s private label brands, but just days after her proposal surfaced, the company changed one of its most controversial marketplace practices: Amazon will stop telling third-party sellers that they can’t sell their products for a lower price on another website. Democrats had been sounding the alarm over the practice, claiming it could violate antitrust law.
Ultimately, Warren’s proposal may be unlikely to become a reality, and it may be impractical to implement even if it does. But already it is amplifying the discussion about Big Tech and fairness, and as 2020 approaches, this appears to be just the beginning of the conversation.
GeekWire’s Nat Levy and Todd Bishop contributed to this report.
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