Amazon CEO Jeff Bezos is famously particular about the number of attendees in Amazon meetings—he believes two pizzas should be sufficient to feed everyone who’s there. But Bezos is going to need a lot more pie than that to feed an entire House Judiciary Subcommittee hungry for a look into Amazon’s business practices.
Why is Amazon in trouble?
Rather than sending packages to our billing address instead of our shipping address, Amazon is being investigated for allegedly using the data it’s collected on third-party sellers improperly.
Since third-party businesses use Amazon’s marketplace to sell their own goods, Amazon has access to a treasure trove of product and pricing data it can then use to create its own competing products.
- Bezos told shareholders that third-party sellers accounted for 58% of the physical gross merchandise sold on Amazon in 2019.
There is also an issue of size, particularly the size of the company’s Amazon Web Services (AWS) cloud storage unit. AWS brought in 12.5% of Amazon’s total revenue in 2019, but accounts for a whopping 63% of its total operating income.
- That level of profitability allows Amazon to subsidize its less-profitable e-commerce operations. The cash AWS brings in empowers Amazon to ruthlessly lower prices, giving it a huge—and potentially illegal—competitive advantage over other e-commerce players.
The Federal Trade Commision (FTC) has been asking small businesses that sell on Amazon whether they feel they’re at an unfair disadvantage on the platform. The EU is also investigating Amazon over its treatment of third-party sellers.
- The big one: Amazon, along with Facebook, Google, and Apple, are the subject of the House Judiciary Antitrust Subcommittee’s far-reaching investigation into the four horsemen of Big Tech.
Lawmakers began the antitrust probe in the summer of 2019, requesting huge amounts of documents from the four different companies over the course of five public hearings. The FTC also turned its sights on Amazon later that year, in September.
The latest developments
The biggest news has been that CEO Jeff Bezos agreed to testify. Amazon and lawmakers had been tussling over the appearance of the world’s richest man. Amazon initially said it would provide the “appropriate” executive, but that didn’t satisfy lawmakers, who argued “no one is above the law.” They got their wish—Bezos’s compliance shows the magnitude of this investigation.
While Bezos will make his inaugural appearance in front of Congress on Monday, it’s certainly not Amazon’s first rodeo.
- Nate Sutton, associate general counsel to Amazon, told the House Judiciary Subcommittee at a July 2019 hearing that the company does not use data from third-party sellers to inform its own product creation.
David Cicilline, Chairman of the House Subcommittee on Antitrust, wasn’t satisfied with that answer. He asked Bezos to appear because he believed that Sutton may have misled the committee in his testimony. Bezos agreed, and we will have Antitrust vs. Amazon Round 2.
What to expect at the hearing
Bezos will likely point to a few key stats, including that third-party sellers now outsell Amazon products on Amazon’s own platform, as evidence of Amazon’s fair and equitable treatment of those sellers.
Lawmakers are very interested in one question: Did Amazon use data from third-party sellers to inform the development and selling of its own products?
- Also: Expect at least one “so what is the cloud?” question from the committee, who will probe the relationship between Amazon and AWS.
Is Amazon really going to be broken up?
Potentially. Remember, AWS makes up a massive portion of Amazon’s net income, so it’ll be a point of focus for trust-busting regulators. Bezos himself may be the breaker-upper if he feels that there is sufficient risk that lawmakers may do it themselves.
Bottom line: Atlantic writer Franklin Foer told CNBC that “AWS exists as its own fantastically profitable business. There’s no reason that it needs to be connected to Amazon the e-retailer….I think that eventually Bezos, who is seeing around corners, is going to break up his own company.