Cory Doctorow, cape wearing internet superhero explains how Amazon’s monopoly rents are cheating their vendors, their customers, and people who don’t even shop at Jeff Bezos’ monster.
The short version is that Amazon extracts upwards of 45% from independent vendors in fees to be listed in Amazon’s Prime service, fees to be distributed from Amazon warehouses, and ad revenue extorted in order to appear on the first page.
When juxtaposed with Amazon’s requirement that its vendors offer its lowest price on the hellsite, meaning that anything sold through any other service, online or offline cannot be offered at a lower price.
This has the effect of raising the prices for everyone, and makes other sales venues subsidize Amazon.
Lina Khan, are you listening?
In Bezos’s original plan, the company called “Amazon” was called “Relentless,” due to its ambition to be “Earth’s most customer-centric company.” Today, Amazon is an ensh%$tified endless scroll of paid results, where winning depends on ad budgets, not quality.
Writing in Jeff Bezos’s newspaper The Washington Post, veteran tech reporter Geoffrey Fowler reports on the state of his boss’s “relentless” commitment to customer service. The state is grim.
Search Amazon for “cat beds” and the entire first screen is ads. One of them is an ad for a dog carrier, which Amazon itself manufactures and sells, competing with the other sellers who bought that placement.
Scroll down one screen and you get some “organic” results — that is, results that represent Amazon’s best guess at the best products for your query. Scroll once more and yup, another entire screen of ads, these ones labeled “Highly rated.” One more scroll, and another screenful of ads, one for a dog product.
Keep scrolling, you’ll keep seeing ads, including ads you’ve already scrolled past. “On these first five screens, more than 50 percent of the space was dedicated to ads and Amazon touting its own products.” Amazon is a cesspit of ads: twice as many as Target, four times as many as Walmart.
How did we get here? We always knew that Amazon didn’t care about its suppliers, but being an Amazon customer has historically been a great deal — lots of selection, low prices, and a generous returns policy. How could “Earth’s most customer-centric” company become such a bad place to shop?
The answer is in Amazon’s $31b “ad” business. Amazon touts this widely, and analysts repeat it without any critical interrogation, proclaiming that Amazon is catching up with the Googbook ad-tech duopoly. But nearly all of that “ad” business isn’t ads at all — it’s payola.
Amazon charges its sellers billions of dollars a year through a gladiatorial combat where they compete to outspend each other to see who’ll get to the top of the search results. May the most margin-immolating, deep-pocketed spender win!
Why would sellers be willing to light billions of dollars on fire to get to the top of the Amazon search results?
If you are a seller, you have to be on Amazon, otherwise no one will find your stuff and that means they won’t buy it. This is called a monopsony, the obscure inverse of monopoly, where a buyer has power over sellers.
Back in June 2021, DC Attorney General Karl Racine filed an antitrust suit against Amazon, because the company had used its monopoly over customers to force such unfavorable terms on sellers that prices were being driven up everywhere, not just on Amazon.
Here’s how that works: one of the unfavorable terms Amazon forces on sellers is “most favored nation” status (MFN), which means that Amazon sellers have to offer their lowest price on Amazon — they can’t sell more cheaply anywhere else.
Then Amazon hits sellers with fees. Lots of fees:
- Fees to be listed on Prime (without which, your search result is buried at the bottom of an endless scroll):
- Fees for Amazon warehouse fulfillment (without which, your search result is buried at the bottom of an endless scroll)
And finally, there’s payola — the “ads” you have to buy to outcompete the other people who are buying ads to outcompete you.
All told, these fees add up to 45% of the price you pay Amazon — sometimes more. Companies just don’t have 45% margins, because they exist in competitive markets. If I’m selling a bottle of detergent at a 45% markup, my rival will sell it at 40%, and then I have to drop to 35%, and so on.
But everyone has to sell on Amazon, and Amazon takes their 45% cut, which means that all these sellers have to raise prices. And, thanks to MFN, the sellers then have to charge the same price at Walmart, Target, and your local mom-and-pop shop.
This brings me back to the ensh%$tification of Amazon search, AKA late-stage (platform) capitalism. Amazon’s dominance means that many products are now solely available on the platform. With the collapse of both physical and online retail, Prime isn’t so much a choice as a necessity.
Remember that one of those search-results for a cat-bed was a product for dogs? Remember that Amazon made that dog product? How did that end up there? Well, if you’re a seller trying to make a living from cat-beds, your ad-spending is limited by your profit margin. Guess how much it costs Amazon to advertise on Amazon? Amazon is playing with its own chips, and it can always outbid the other players at the table.
Those Amazon own-brand products? They didn’t come out of a vacuum. Amazon monitors its own sellers’ performance, and creams off the best of them, cloning them and then putting its knockoffs above of the original product in search results (Bezos lied to Congress about this, then admitted it was true).
Historically, we understood that businesses couldn’t be trusted to be on both sides of a transaction. The “structural separation” doctrine is one of the vital pieces of policy we’ve lost over 40 years of antitrust neglect. It says that important platforms can’t compete with their users.
Ms. Khan, tear down that wall!