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Amazon Follows Google’s Lead and Not In A Good Way

Amazon Follows Google’s Lead and Not In A Good Way

Amazon.com Inc. is getting the Google treatment.

Google’s years of punishment for antitrust violations meant the online advertising giant started booking “European Commission fine” as a recurring cost in its annual earnings reports — the cumulative figure has topped 8.2 billion euros ($9.7 billion). Amazon is the next in line.

On Tuesday, European antitrust chief Margrethe Vestager intensified an investigation into Amazon that started last year by issuing a statement of objections to how it uses data from third-party sellers of goods on its marketplace. She also announced a fresh probe into whether the e-commerce firm gives its own products preferential placement. If Amazon Chief Executive Officer Jeff Bezos thought the affair was inching closer to a resolution, he was sorely mistaken.

Amazon could yet be exonerated of any misdoing, though the objections raised do increase the likelihood of fines being levied or changes to business practices being imposed. That first inquiry focuses on whether the Seattle-based firm looks at data from its marketplace, where anyone can sell their goods, to determine which products are popular and profitable, then sells them itself. In some popular categories, Amazon lists less than 10% of the products available yet gobbles up 50% of the revenue, Vestager said, citing it as evidence that the company cherry-picks the most lucrative categories.

Amazon Follows Google’s Lead and Not In A Good Way

The Amazon defense tends to be two-fold: First, that this is no different to a supermarket stocking its own branded cereal; second, that if the effect is lower prices for consumers, then it can’t be deemed anticompetitive.

The first point is misleading. A supermarket can indeed stock own-brand goods, but it does so after having bought products from suppliers and determined their popularity. In short, the supermarket took the initial risk. Amazon takes essentially no risk, it just collects data from the sellers that use its platform. Indeed, the sellers often pay it for the privilege of a listing or for associated logistics services. Bezos has admitted that aggregated data on the performance of product categories can stem from as little two sellers.

As for pricing, this has since the 1970s been the lens through which regulators evaluate monopoly power. But the conversation is evolving — low prices may not always be in the consumer interest if they squeeze out competition, thereby damaging prospects for innovation and consumer choice.

It’s tempting to look at all this as a war of attrition, with Amazon on one side and the European Commission on the other. In that light, the Commission has demonstrated with its latest probe that it is hunkering down for the long haul.

But it needn’t be looked at as a zero-sum game, a case of the Commission winning and Amazon losing. There is scope for everyone to come out of this positively if you remember that what’s at stake is the success of small(er) businesses. There is no doubt that many have thrived by selling on Amazon. But it can be a precarious existence, often beholden to the whims of an algorithm, as Bloomberg News reporter Spencer Soper has chronicled.

Meanwhile, Amazon has a fiduciary duty to optimize the business for its shareholders — driving prices down generates more growth, and the market rewards it accordingly. But that growth seems to come at the cost of onerous conditions for many of its suppliers. The mounting regulatory pushback in Europe, the U.S. and Asia should give Amazon the cover to recalibrate those dynamics and make it easier for small businesses to flourish without the threat of a Damoclean sword. Investors would surely prefer that to the worst-case alternative: an internal separation of Amazon marketplace from the rest of the business.

Microsoft Inc.’s experience as the antitrust bete noire is well trodden, but nonetheless instructive. It weathered the storm and emerged as a gentler but nonetheless highly successful company — its market capitalization exceeds that of Amazon. Even if the European investigations don’t ultimately impose change on Amazon, they might yet encourage some new attitudes.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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