WASHINGTON, D.C. – The Federal Trade Commission (FTC) continues to prepare an antitrust lawsuit to “challenge the power” of Amazon. As reported in an Aug. 7 article in the New York Times, an anonymous source revealed that the potential lawsuit would invoke antimonopoly laws.
“The F.T.C. is nearing a decision on whether to move forward with a lawsuit arguing that Amazon has violated antimonopoly laws,” wrote Times reporter David McCabe. “Such discussions are sometimes known as ‘last rites’ meetings, after the prayers some Christians receive on their deathbed. The conversations, which are usually one of the final steps before the agency’s commissioners vote on whether to file a lawsuit, give the company a chance to make its case.”
McCabe characterizes the potential lawsuit as one of the “most significant challenges” to the $1.4 trillion dollar company. “The F.T.C. has investigated Amazon’s business for years,” added McCabe. “The company’s critics and competitors have argued that the once-upstart online bookstore has used its power as one of the world’s largest online retailers to squeeze the merchants that use its platform.”
Would the lawsuit be a positive development for the online sellers who make up the Prosper audience? If the lawsuit succeeded in “breaking up” Amazon, would online sellers be better off, worse off, or about the same? While a legal resolution may take up to a decade, the question figures prominently in any discussion of long-term prospects for online sellers.
Jason Boyce, founder and CEO of Oregon-based Avenue7Media has followed the topic for about a decade. With the election of Joe Biden to the presidency, prospects for a lawsuit increased but Boyce confirms that Congress and previous administrations had been tip toeing around the antitrust possibilities even prior to Biden.
Prosper sat down with Boyce (pictured), a veteran of the online selling world, to talk about the potential pluses and minuses of antitrust action against the giant that is Amazon.
Prosper: Do you think Amazon views itself as a monopoly?
Boyce: Amazon claims that they are not a monopoly. I’m not a lawyer. I just know that they own the online internet for sales in the United States. They own it. The closest to them in terms of GMV [gross merchandise value] online is Shopify. Of course, it’s not a marketplace but if you aggregate all the direct-to-consumer websites that are selling products online on Shopify, they get a little closer to 30% market share—but they’re not really a head-to-head competitor. They’re just competing for those online purchase dollars. Amazon has been fighting tooth and nail to prevent this.
Prosper: What are the odds that the FTC actually files the suit?
Boyce: I’d say 99 percent. I thought it would happen two weeks ago. Amazon got its ‘last rights’ meeting, which is their final opportunity to break the company up on its own or to take action to prevent a lawsuit.
Prosper: Has Amazon shown any stomach for “spinning off” parts of their company?
Boyce: Amazon has been uninterested in spinning off departments like AWS [Amazon Web Services] or spinning off the marketplace or spinning off Amazon retail, or spinning off FBA.
Prosper: Any chance Amazon agrees and decides to break up the company on its own?
Boyce: My guess is that Amazon is going to tell the government to pound sand. In my opinion, the FTC lawsuit is imminent. I still believe the suit will come soon. The surprise is that it has taken this long.
Prosper: If an antitrust suit went through and succeeded in breaking up Amazon, would it be good, bad, or somewhere in between for independent e-commerce sellers—the very people who attend the Prosper show?
Boyce: I care about the sellers more than anything in this. I know that Andy Jassy [CEO of Amazon] has come out and said in the press that it [the lawsuit] would be bad for consumers and bad for sellers. Amazon PR firms have tried to enlist sellers to tell Congress that this [lawsuit] would kill their business.
Prosper: Do you agree with that assessment?
Boyce: Respectfully, I completely disagree. I believe that more competition, where sellers can have success in other marketplaces, is a very good thing. I don’t think anyone selling on Amazon today routinely says, ‘Boy I love selling on that platform. It’s such an easy platform.’ They would love to have a better alternative, or at least be able to diversify their revenue streams on other marketplaces.
If you’re a seller, and you sell on Amazon and every other online marketplace that’s available in the United States, all of them combined don’t match probably 10 percent of the revenue that can be gained from Amazon. That puts Amazon in a very strong position. More competition is not only good for sellers, it’s good for the country. Because that’s where innovation comes from; that’s where choice comes from. When Amazon has to compete more on retail price with other marketplaces, that’s good for consumers. It’s good for everyone.
Prosper: How important have third party sellers been to Amazon?
Boyce: I believe wholeheartedly that Amazon would not be what it is today without third-party sellers. Small businesses have basically propped that business up—from a cash flow perspective, a product selection perspective, and innovation perspective. What third party sellers have done for Amazon cannot be overstated.
Prosper: What are Amazon’s biggest competitors?
Boyce: If we’re talking about what Wall Street likes to talk about, which is AWS, there’s quite a few competitors. You’ve got Microsoft and Google. And then there are other smaller players on the cloud computing side. But if you’re talking about the marketplace, it’s really Amazon and then everybody else.
The closest competitor to Amazon in terms of marketplace would be Walmart, and depending on who you talk to, Amazon has anywhere from 40% to 60% online market share and Walmart is hovering around 5% to 7% market share. Walmart is second place. Walmart has made a lot of great strides recently, but there is no comparison when it comes to the market place. Consumers start a search to buy a product on Amazon more than they do on Google.
Prosper: Do you think these competitors are rooting for the suit?
Boyce: Depending on the competitor, I think there are varying responses. In the short term, Walmart would probably welcome the idea of being able to open up more competition in online marketplaces due to successful action by the government against Amazon. That being said, they’re also looking ahead and see themselves as gaining market dominance at some point. It’s sort of a two-way street.
Yes, they would like to be able to compete more fairly or more intensely with Amazon right now with a little help from the government, but when and if they were to reach a sort of critical mass for their own marketplace, I don’t think they would appreciate the laws being enacted or enforced. It’s a double-edged sword.
Prosper: How do you think investors will react to the FTC suit if it goes forward?
Boyce: If the government were to be successful, the investors of Amazon would be infinitely more wealthy. If AWS was spun off as its own entity tomorrow, it would be valued as a trillion dollar company. The valuation of it right now is actually being suppressed, as it is tucked under the Amazon.com banner.
And then there would be other parts. The third party marketplace would have an astronomical value—because the third party marketplace makes a ton of money. Unfortunately, the money it makes is being put toward other revenue streams that Amazon has, such as their storefront, their physical stores, and their grocery business—to cover losses for all of those other revenue streams. Therefore, Amazon doesn’t want it to be broken up.
Prosper: What about AWS?
Boyce: AWS would immediately be worth a trillion dollars—as in the next day. Every investor will tell you that. If the marketplace was broken out, its valuation would go through the roof.
Prosper: So the downside for Amazon would be?
Boyce: Amazon would be exposed in terms of their other revenue streams. I literally believe that they’re losing billions of dollars a quarter on some of those other less effective revenue streams to the marketplace—such as Amazon retail, the marketplace, and AWS.
Prosper: What’s a comparable case to Amazon?
Boyce: The last big antitrust case was Microsoft in the 1990s. The government actually lost that case. It went on for a decade, and they lost. However, they were able to gain enough concessions that many in the industry would say that it allowed Google to be born. If those concessions had not been enacted by Microsoft, it is unlikely that Google would be the company that it is today. The irony is now Google is under antitrust lawsuit.
Prosper: How effective has the DOJ been in recent years?
Boyce: There’s the Department of Justice [DOJ] and then there’s the FTC. The DOJ has an antitrust wing, and they have been very successful in their actions. The FTC, at least recently, has been a little bit less successful. In fact, they’ve had some embarrassments. I would say the DOJ has been much more effective, blocking a Simon & Schuster merger recently. But the FTC, even though they filed a case earlier with Google that still stands, there’s just a lot of questions about the effectiveness of the FTC to be able to handle antitrust lawsuits with a company like Amazon. After all, Amazon has more lawyers than the government.
Prosper: What do you say to FTC critics who view the lawsuit threat as heavy handed?
Boyce: My opinion is that this discussion deserves to be had in the courts. I think Amazon deserves its day in court. I believe that what the government is doing is well intentioned and I would not make it go away if I could waive a magic want. I think it [the suit] is a good thing for the brand, a good thing for sellers, and a good thing for the country.
Our government is finally taking a stand. The big tech companies are as powerful, if not more powerful, than the robber barons were in the 1920s. The market power that all these companies have at META, Google, Amazon, and Apple is stifling competition and innovation.
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