Amazon CEO Jeff Bezos, in a historic and chaotic congressional hearing Wednesday, touted the opportunity his company has created for hundreds of thousands of independent businesses to sell products to millions of customers via its vast marketplace.
But that business line, established in 1999 and now accounting for some 60% of the physical goods sold on Amazon and more than a fifth of its revenue, was also the subject of some of the most pointed questions asked by lawmakers conducting a wide-ranging antitrust inquiry into digital platforms and marketplaces, including Apple, Google and Facebook, whose chief executives, Tim Cook, Sundar Pichai and Mark Zuckerberg, also testified via video conference.
“These companies as they exist today have monopoly power,” Rep. David Cicilline, D-R.I., chairman of the House Judiciary subcommittee on antitrust, said at the conclusion of the five-hour-plus session in which lawmakers tried to pin down four of the most powerful people in business on their companies’ impacts on competition, political discourse and democracy. “Some need to be broken up. All need to be properly regulated and held accountable.”
Amazon is simultaneously a facilitator, competitor and rule-maker for third-party sellers. This provides it a range of competitive advantages, from access to sales, inventory and shipping data that have informed its own product-development decisions, to new business lines, including advertising and fulfillment services that third-party sellers increasingly see as necessities to succeed on Amazon, lawmakers asserted.
Panel members also pointed to how the sprawling marketplace has been plagued with counterfeit goods — which Amazon still profits from selling — and probed Bezos for details about operations that he said he was unfamiliar with.
Nearly two hours into the hearing, Rep. Pramila Jayapal, whose Seattle district includes Amazon’s headquarters, opened a focused line of questioning into how the company runs its third-party marketplace.
“So you can set the rules of the game for your competitors, but not actually follow those same rules for yourself,” Jayapal said. “Do you think that’s fair to the mom-and-pop third-party businesses who are trying to sell on your platform?”
“I am very proud of what we’ve done for third-party sellers on this platform,” Bezos said, before Jayapal cut him off with another question, a pattern that characterized much of the day’s exchanges. Bezos noted the company’s ongoing internal investigation into its use of third-party seller data.
Jayapal said the goal of the subcommittee’s work in this investigation is “to make sure that there are more Amazons, that there are more Apples, that there are more companies that get to innovate, and small businesses get to thrive. … That is why we need to regulate these marketplaces so that no company has a platform so dominant that it is essentially a monopoly.”
While lawmakers hearkened back to the antitrust subcommittee’s role in regulating railroads and trusts in the late 19th and early 20th century, and AT&T and Microsoft more recently, the issues at play today are far more complicated.
Some analysts and lawmakers suggest none of the companies violate antitrust laws using existing standards, such as control of at least two-thirds of a given market or through harm to consumers from higher prices, and that such laws need to be revised to address the complexity of modern tech behemoths. But Wisconsin Rep. Jim Sensenbrenner, the ranking Republican on the subcommittee, said he doesn’t think the antitrust laws need to be changed, but rather enforced more vigorously.
Cicilline said a report summarizing the bipartisan investigation, begun more than a year ago, would be forthcoming. “We need to ensure the antitrust laws first written more than a century ago work in the digital age,” he said.
Lawmakers presented examples of Amazon’s competition strategies against traditional rivals, not just businesses that sell on its platform.
Rep. Mary Gay Scanlon, Democrat of Pennsylvania, citing internal Amazon documents the subcommittee obtained, described the case of Quidsi, the operator of Diapers.com, which emerged in the late 2000s as a challenger to Amazon as e-commerce sales accelerated.
First, Amazon cut prices on diapers, losing as much as $200 million in a single month, she said.
Bezos said that’s a common retail pricing strategy to attract new customers, particularly young families.
Quidsi struggled to compete, and Amazon went on to buy its rival, then raise diaper prices, Scanlon said. Asked if he personally had signed off on that strategy, Bezos said: “I don’t remember that at all. We matched competitor prices.”
Scanlon noted Amazon’s mantra of customer focus and then asked, “How would customers — especially single moms, new families — how would they benefit when the prices were driven up by the fact that you’ve eliminated your main competitor?”
Bezos said he disagreed with her premise, noting that diapers are a very large product category sold many places.
Therein lies a fundamental question in the debate over Amazon’s market share. Bezos, in his opening statement, said that Amazon has only 4% of the total U.S. retail market. He dismisses the notion that there are separate online and physical retail markets, telling the subcommittee that Amazon today competes with Target, Costco, QFC- and Fred Meyer-parent Kroger, Walmart, Shopify and Instacart, among others.
“Regardless of how the best features of ‘online’ and ‘physical’ stores are combined, we are all competing for and serving the same customers,” he said in prepared remarks.
But Cicilline asserted that Amazon’s share of U.S. e-commerce, estimated to be nearly 39% this year by eMarketer, almost seven times the share of its nearest rival, Walmart, is the more relevant market, particularly given the data Amazon gathers through detailed tracking of customer behavior. That yields insights physical retailers typically don’t have, and has implications for third-party sellers.
“There are 2.2 million active sellers as of yesterday; about 37% of those sellers rely on Amazon as their sole source of income,” he said. “… We’ve heard from third-party sellers again and again during the course of the investigation that Amazon is the only game in town.”
He recounted small sellers who have told the committee that, after building their businesses on Amazon, the company copied their best-selling items and drove them out of business.
Bezos said that opening Amazon to third-party sellers was “a very controversial decision inside the company.”
“We did that because we were convinced that it would be better for the consumer,” he said. “… They’re making the decisions about what to buy, what price to buy it at, who to buy it from.”
Rep. Hank Johnson, D-Ga., questioned Bezos on Amazon’s ongoing struggles to purge counterfeit items — “medicine, baby food, automobile tires and other products” that can kill, he said — from its marketplace.
“Amazon customers are not guaranteed that the products purchased on your platform are authentic,” Johnson said. “Amazon acts like it’s not responsible for counterfeits being sold by third-party sellers on its platform. … Even though Amazon makes money when a counterfeit good is sold on its site.”
Bezos acknowledged that counterfeits are a “scourge” that are bad for third-party sellers and cost customer trust, and recounted “hundreds of millions of dollars” invested in trying to fight back.
Johnson said the CEO of phone-grip maker PopSockets told the subcommittee in January that “it was only after his company committed to spending $2 million on advertisements that Amazon appears to have stopped diverting sales to these knockoffs.”
Bezos said “that’s unacceptable” and pledged to look into it.
The tech executives sounded patriotic notes, particularly in their opening statements, noting that the United States remains the best place to build innovative companies. “The rest of the world would love even the tiniest sip of the elixir we have here in the U.S.,” Bezos said.
He highlighted the role his parents — a teen mother and immigrant father — played in his success, recounting a literal rags-to-riches story.
The wealthiest man in the world described the “jacket sewn entirely out of cleaning cloths, the only material they had on hand,” made by his paternal grandmother for Bezos’ adopted father, Miguel, for his journey from Fidel Castro’s Cuba to the U.S. “We still have that jacket; it hangs in my parents’ dining room,” Bezos said. They were the first investors in Amazon.
The narrative echoes the stories of the industrialists of another era. John D. Rockefeller rose from modest roots to run Standard Oil and become the richest person in America. Andrew Carnegie immigrated from Scotland to build an empire of steel.
In his closing statement, Cicilline invoked these monopolists, reined in through the work of the antitrust subcommittee.
“The names have changed,” he said. “The story is the same. Today, the men are named Zuckerberg, Cook, Pichai and Bezos. Once again, their control of the marketplace allows them to do whatever it takes to crush independent business and expand their own power. This must end.”