Yesterday the FTC along with 17 states initiated a lawsuit against Amazon, accusing the e-commerce giant of exploiting its marketplace dominance to artificially raise prices both on and off its platform, impose excessive charges on sellers, and suppress competitive practices.
In this episode, Chris McCabe and Leah McHugh analyze the repercussions this FTC lawsuit could have on sellers and consumers.
[00:00:00] Chris: Hey everybody, welcome back to the Seller Performance Solutions podcast. I'm Chris McCabe. I'm here with Leah McHugh. And we're recording on the day that the FTC announced their antitrust lawsuit against Amazon.
[00:00:13] Leah: And 17 other states.
And 17 other states, not against 17 other states, with 17 other states.
The FTC, in addition to 17 other states announced the lawsuit that Leah has spent most of the last few hours reading, most of it's redacted.
[00:00:26] Leah: Yeah, every time it gets juicy, it's just black bars.
[00:00:28] chris: Right, and it's blacked out text in very convenient, and interesting, and almost in a way humorous spaces. If you read through the entire hundred and four page...
[00:00:39] Leah: 172 page document.
[00:00:40] chris: Sorry, 172 page document.
[00:00:42] Leah: I'm not all the way through yet.
[00:00:43] chris: Right. We're still reading through it. We will include the link to the FTC lawsuit announcement, and also maybe some articles that have already showed up in the national media about it. But the gist of it seems to be, my quick take, is that they're very focused [00:01:00] on pricing issues.
[00:01:02] Leah: Which we had predicted based on previous information from the FTC.
[00:01:07] chris: Right. Fair pricing issues. Bugging sellers about, are you pricing your items the same on Amazon as you are on other platforms? What that means for pricing across the internet and e commerce sales in general, number one. The second thing was, is Amazon making it an unfair, uneven playing field by making sure that the people who pay the most in fees have the best product placement and have the best chance of winning a sale. Is that fair to say?
[00:01:35] Leah: Well I think that's what some of it is getting at in the redacted portions. Certainly there's a lot of focus on the fact that Amazon has increased their fees to sellers by about 30 percent in the last few years and how that hasn't reduced the number of sellers on Amazon. And also how Amazon advertising has essentially made [00:02:00] it more expensive to sellers to sell on Amazon while simultaneously making it worse for consumers who aren't necessarily seeing the best results when they search, they're seeing the results from people that pay the most for advertising. So yeah, the focus is very much around cost and price on both the seller and the consumer side.
Also interesting again, they go into pretty good detail about how amazon is tracking prices across the internet, but again, every time it gets good, it's just like a page of black bars.
[00:02:35] chris: Yeah. So the pricing one. I think there'll be more coming out in the days to follow. We can maybe focus for a few minutes just on the idea that unless you're an FBA, you're paying those fees. It'll hurt you in terms of the algorithm, in terms of which products are selected to be featured. Do you have to spend more and more and more in ads just to stay current, just to compete?
[00:02:57] Leah: And this is saying that yes, you do. And it's actually [00:03:00] using internal Amazon communications, which also are basically saying "you're dead in the water unless you're spending on advertising."
[00:03:08] chris: So essentially a lot of the blacked out portions, you would say are from emails. Internal emails where they're talking about how are sellers going to compete if they don't do this and then maybe somebody else says, yeah, they won't.
[00:03:19] Leah: Yeah, it seems like most of the blacked out sections are either internal communications from Amazon, or parts that would be considered proprietary information. So anytime the percentage of sales or any sort of monetary amount is mentioned, it's blacked out, which I assume is because Amazon said that was proprietary information that can't be shared.
[00:03:40] chris: And I'm curious when we get into the details of it, if things like paid account management.
[00:03:46] Leah: I haven't seen that mentioned yet, but I'm not finished.
[00:03:48] chris: Yeah, I mean, we're still reading it, but the overall sense seems to be all the different ways you would be asked to pay more. Impacting your ability to compete would be a key portion of the [00:04:00] lawsuit. And we've been talking about that for years because there are people who pay.
I think most of our clients pay 5, 000 a month for the account manager. And some of them love their account manager, and what they do, and their knowledge base, and some of them don't like it. Some of them think it's mediocre or in between and they dump it. When they're on the fence, they choose not to continue with it.
Just the other day, I can't remember if it was LinkedIn or elsewhere. I saw a post where it was just a litany of people complaining, you know, we paid for an account manager for six months on a trial basis or for a year or whatever. And they can't do this and they can't do this and they won't help with this and they kick us to another team for that.
[00:04:36] Leah: Right.
[00:04:36] chris: And it's like, what are you paying for? And is it like a sense that is that you have to keep paying otherwise you'll be somehow algorithmically or otherwise punished, right?
[00:04:46] Leah: Yeah. Again, they haven't gotten into quite that level of detail. It's mostly focusing on the cost of regular seller fees, um, and, and essentially that Amazon is taking, well, they say of every 2 dollars a [00:05:00] seller makes on Amazon, Amazon is taking 1 dollar.
[00:05:03] chris: And just pulling it back a second, in terms of paying for ads, and the fees up 30 percent over the last two years, is it?
[00:05:14] Leah: I think in the last few years
[00:05:16] chris: And no one left. So it's like, that'll just encourage Amazon to say, you know what, we can kind of do whatever we want with fees because no one can afford to leave because that's the stranglehold we have on e commerce sales, at least in the United States today. If that is true, and if that's the way Amazon sees it, whether they're publicly acknowledging that or not, how can they say in their defense we have such a thin slice of e commerce versus all of retail.
[00:05:44] Leah: That is essentially what this is saying. It's saying that Amazon is only able to get away with raising prices on sellers without seeing any drastic impact on Amazon side of the business, because it's a monopoly and sellers don't have a choice [00:06:00] to leave the marketplace and sell somewhere else.
One thing that it did mention that I thought was particularly interesting, and unfortunately it is proceeded and then followed by a whole bunch of black bars, but there is a line there that talks about how Amazon hikes its fees, even after it failed to adequately protect sellers, commercially sensitive data. So it does, in fact, mention the many data breaches and the huge amount of data that's available on the black market currently, which is negatively affecting sellers.
I'm hoping that they come back to that because again, like I said, everything around it is blacked out, but I thought that that line was particularly interesting to be included.
[00:06:38] chris: More will unfold as the lawsuit gets unpacked. I've written a lot. I wrote some comments for the Prosper newsletter, The Prosper Show, the other day.
There will be national media stories, of course, the rest of the week about this. But in terms of can Amazon effectively manage this marketplace, can they do it efficiently? Can they do it fairly? Are there unfair business practices? That [00:07:00] sprouted up or evolved over the years that no one really had the incentive to assess or review or eliminate because they have such a stranglehold on e commerce sales.
Those are all questions. There's so many questions that'll be answered, I suppose, over the course of months and years.
[00:07:15] Leah: Yeah, and of course, this is just one side of this suit, because Amazon obviously hasn't had an opportunity to respond yet. But I think what I find interesting is that the tone isn't saying that Amazon isn't able to do these things, it's saying that Amazon is intentionally not effectively and fairly managing their marketplace. That it is by design, that it's not being managed fairly because they are trying to stranglehold the marketplace, and that's how you do it.
[00:07:44] chris: They'll probably say it's an unfair burden to them to request that they essentially burn down everything they built and used so far and rebuild from the ground up.
In a much more, you know, equitable, fair system that would appease all parties. They're probably going to say [00:08:00] something like we shouldn't have to create all new technology just to appease all the complainants and all the terms of this filing, because no business owner and no company in America has really been asked.
[00:08:14] Leah: I don't get the sense that they're asking them to do that. From what I've read so far, my sense is that they're asking them to stop doing some of the things that they're doing. Such as requiring the lowest prices to only be on Amazon, otherwise you get penalized. It seems like it's less of an ask to do more things, than it is an ask to stop doing the anti competitive things that they're doing.
[00:08:36] chris: Right. And then obviously some of it's proprietary. Will Amazon have to acknowledge anything about favoritism. Like if you use FBA, what slice of the algorithm is that? If you're spending a certain amount on ads, does that contribute to search rank, and sales algorithms? That is proprietary, algorithmic information. I mean, is that something you can squeeze out in a lawsuit like this?
[00:08:58] Leah: I think it is in [00:09:00] there. I think that's part of what is blacked out. Because they do talk quite a bit about FBA fees and how FBA is a large part of their anti-competitive advantage. So I think that will be included and I think a lot of it is internal information because that was just pages of redacted information for that section.
[00:09:18] chris: Right. And I got the sense that there wasn't anything in there yet that you've seen about breaking the company up into different parts.
[00:09:24] Leah: No. But I haven't gotten to the recommendations yet, so.
[00:09:26] chris: Right. It could be in there.
[00:09:28] Leah: Sorry guys, this only came out a few hours ago. I'm getting through it as quickly as I can.
[00:09:31] chris: As of today, September 26th. Perhaps was considered in the final phase of writing this up, putting it together, too radical and just too big an ask.
[00:09:42] Leah: Well, this is also just the initial filing. This isn't the entire suit. This is just the beginning. This is something that's going to most likely take years to come to fruition. So, you know, this is the beginning of a process. It's not the whole thing. So who knows what it'll end up actually being, but it is interesting that they do [00:10:00] mention the price parity wording coming out of Amazon's policy, but then they have internal communications within Amazon saying that the policy hasn't changed. It's just not there anymore. So they're still enforcing it as they always were, if not more, they just removed it from the T O S after the monopoly issue in the EU. I forget which senator, after a senator complained to the F T C about it.
[00:10:26] chris: We're in Massachusetts, so we had a seller send us the Elizabeth Warren statement about it.
If anyone has anything else to share, whether it's articles, or comments by political figures, members of Congress, even local members of state and local governments. Feel free to share that.
[00:10:46] Leah: I do want to say also, it's interesting to me that neither California nor Washington state were one of the states named in this suit. That's sort of interesting to me. I thought California for sure would be one [00:11:00] of the states involved in this, but Washington not being involved is kind of strange since that is where Amazon is.
[00:11:05] chris: That's one of the shocking pieces to this. We'll try to get some info and word of mouth on that. This is kind of our initial reaction podcast. There'll be more to come. We're going to share relevant articles, posts from people with different takes on it, I'll be interviewing some thought leaders and industry leaders in terms of their take on how this will impact Amazon business owners, brands, Amazon sellers. Diffferent stakeholders in this entire process.
Of course, this is a year's long process, but presumably there'll be little dribs and drabs being analyzed and assessed and coming out as we go. Our focus of course will be on how it impacts business owners, but also consumers, right?
[00:11:47] Leah: Yeah, not necessarily professionally, but ethically, how this stuff impacts consumers is always something that is forefront in my mind, particularly, I guess, because I deal with product compliance [00:12:00] and safety.
Even though it doesn't necessarily affect us professionally, I think as human beings, the effect on consumers affects us. So that is always interesting.
[00:12:09] chris: Yeah. This should impact anyone who buys anything on Amazon. So, maybe the wider conversation around e commerce marketplaces and, how they're managed, how they're regulated by the U S government.
[00:12:21] Leah: They do make a big part. There's a very big part of the filing that goes into the difference between an online superstore versus just an online store, and how they need to be regulated differently because they behave very differently. So that was quite interesting to read.
It's very well written. As somebody who has read many legal things about Amazon that totally didn't understand how Amazon works. So far, this knows how Amazon works.
[00:12:49] chris: This is not one of those. So Leah is saving and will be sharing her favorite snippets/ passages. Hopefully not just one of those documents where [00:13:00] there's one sentence in the middle sandwiched by two giant chunks of black boxes.
[00:13:03] Leah: There is a lot of, Amazon says black box, black box, black box. Yes. According to Amazon, black box, black box, black box.
[00:13:09] chris: So if you're just opening this up and starting to read it, you can savor that and we'll be getting back to this topic very soon. More to come. Thanks for listening. Questions? Let us know.