Amazon is everywhere. Here’s how the US could break it up

Of the huge 4, Amazon has actually offered the clearest image yet of how its company may alter if the proposed costs end up being law. And the very first piece of its empire to go may be its enormous third-party market,

The business just recently recommended that it might be required to stop running its market for third-party sellers and go back to the days when it merely offered all the items on its website itself. Such a relocation might have substantial ramifications for the countless sellers who count on it to run their companies and overthrow the shopping experience for customers accustomed to getting essentially anything they desire in one location.

Long time Amazon watchers are torn on whether Amazon would really follow through with this strategy if the legislation is passed — which itself is most likely a long method off — due to the fact that it might hurt the business’s bottom line. However the possibility shows the obstacles legislators deal with as they look for to temper the power of Amazon and its fellow tech giants.

“Breaking up companies is very, very hard,” said Joel Mitnick, a partner in the antitrust group at law firm Cadwalader. “Breaking up companies that consumers love is even harder.”

Unraveling Amazon’s web of businesses

Amazon was once just a bookseller. Now, a short list of Amazon’s businesses includes its cloud division Amazon Web Services; Whole Foods; advertising; gaming; entertainment and streaming; logistics, warehousing and delivery; smart devices; payment services and, of course, e-commerce.

A number of these divisions have become targets of critics in recent years. Senator Elizabeth Warren, during her 2020 presidential primary bid, suggested appointing regulators to “unwind anti-competitive mergers,” including Amazon’s $13.7 billion purchase of Whole Foods in 2017.
More recently, Amazon’s proposed $8.45 billion acquisition of legendary film studio MGM also faced pushback from Warren and other legislators. The Federal Trade Commission, under newly-appointed Commissioner and Amazon critic Lina Khan, is set to review the deal.

And while it’s yet to attract serious attention, regulatory action could also affect Amazon Web Services, the company’s most profitable division, which provides crucial IT infrastructure for companies and government agencies around the world, as well as for Amazon itself.

Some analysts — as well as one former Amazon vice president — have previously suggested that Amazon spin off AWS as a way of countering antitrust pressure and to fuel the business unit’s growth. In 2019, Andy Jassy, the former AWS head who recently took over as Amazon CEO, laughed off a reporter question about the possibility of spinning off the cloud business in the near future.

For now, at least, US regulators’ focus is on the core piece of Amazon’s empire: retail.

Ending the Amazon marketplace

When you search for products on Amazon’s site, many of the items listed for sale are not sold by Amazon itself, but by millions of outside sellers who use the platform to reach the company’s hundreds of millions of customers. But Amazon’s relationship with those third-party sellers has become a major focal point for the company’s critics.

Some have raised concerns about Amazon copying products from third-party sellers and selling them for cheaper because it has the scale and resources to do so. For its part, Amazon execs have argued that this has long been a common strategy for retailers.
During a Congressional hearing last year, Amazon founder Jeff Bezos faced sharp questioning about whether the company uses third-party seller data to support its own private-label business. Bezos stated Amazon has a policy prohibiting that practice, but, he admitted, “I can’t guarantee you that policy has never been violated.”
The District of Columbia in May sued Amazon, alleging that it prohibits third-party sellers from offering products at lower prices on other websites, which it claims helps Amazon maintain dominance. Some sellers have also complained about such terms. (Amazon said that sellers set their own prices, but it reserves the right not to highlight sellers who don’t price goods competitively.)

The Ending Platform Monopolies Act, one of the six bills introduced in the House last month, takes aim at Amazon’s relationship with sellers, although it doesn’t directly name the company. The bill would prohibit a dominant tech platform from owning multiple business lines that create conflicts of interest, or could be used to favor its own offerings or thwart competition — for example, a tech giant owning a marketplace platform and competing with others on it at the same time.

A complementary bill, the American Innovation and Choice Online Act, would prohibit Amazon from requiring sellers to buy other Amazon products and services as a condition of being on the platform. It would also block Amazon from using sellers’ sales data to promote Amazon-branded products and prevent the tech giant from trying to control how a seller prices its products.

In a statement after the bills were announced, Amazon’s vice president of public policy, Brian Huseman, suggested that if forced to choose one business model, the company could stop supporting independent, third-party sellers, a move it positioned as a potential detriment to the economy.

“More than a half million American small- and medium-sized businesses make a living via Amazon’s marketplace, and without access to Amazon’s customers, it will be much harder for these third-party sellers to create awareness for their business and earn a comparable income,” Huseman said.

Highlighting the potential threat to third-party companies is a politically savvy argument, analysts say. “They’re playing to their strongest suit, which is how Amazon makes money for others,” said D.A. Davidson analyst Tom Forte.

But it’s also a somewhat surprising claim, given how lucrative the third-party seller business is for Amazon. As far back as the end of 2018, independent, third-party sellers made up nearly 60% of total physical gross merchandise sales on Amazon — amounting to $160 billion in sales, Bezos wrote in his annual shareholder letter that year.

“Third-party sellers are kicking our first party butt. Badly,” he wrote at the time.

That’s still the case, analysts say. Amazon earns a “superior” profit margin on third-party sales compared to its own first-party sales, Forte said, because it keeps the prices of its own goods so low. Amazon also makes additional income when sellers use its shipment service.

Protecting the delivery empire

By threatening to sacrifice one arm of its business, Amazon may be trying to preserve another: the massive logistics and fulfillment system it has built out around the world.

The Ending Platform Monopolies Act might require tech giants “to divest lines of business — such as Fulfillment by Amazon — where the platform’s gatekeeper power allows it to favor its own services,” said Chris Evans, a spokesman for Rep. Pramila Jayapal, who co-authored the bill. Evans cited reports by numerous sellers who felt “they had no choice but to pay for Fulfillment by Amazon in order to sell their products.”

Amazon wants FTC Chair Lina Khan recused from all its cases

If Amazon only sold its own products, it would be more like any other retailer that has a delivery network to ship products to customers, potentially avoiding a spinoff of that section of the business.

“Think about the billions of dollars that they’ve put in capital and the construction jobs they’ve created by building these fulfillment centers,” said Edward Jones senior analyst Brian Yarbrough.

Amazon’s global logistics operation now includes a cargo air network with dozens of planes, a freight shipping system and a massive fleet of trucks, as well as its many fulfillment centers. In a hiring spree last year, Amazon brought on around 500,000 employees, many of them fulfillment workers, pushing the business’s total employment to over 1.3 million.

Some of those jobs could be at risk if the bills pass and Amazon sheds its third-party marketplace as a result.

“I think [regulators] have got to be careful being too shortsighted here, and think about the job creation and how large these companies have become and how meaningful they are for the overall economy,” Yarbrough said.

Amazon’s antitrust battle is likely to take years — the company is already pushing back by asking the FTC’s Khan to recuse herself from any Amazon-related cases, citing her previous criticisms of the company — and it will probably evolve over time.

But the e-commerce giant’s early reaction to the bills offers a glimpse at what parts of its company Amazon will defend the majority of in an antitrust world.

Jobber Wiki author Frank Long contributed to this report.