Tags: amazon | e-commerce | consumers | retailers | innovation

Susan Akbarpour: 3 Ways Amazon Hurts Consumers, Retail, Innovation

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By    |   Thursday, 07 March 2019 02:46 PM

“Amazon, is not only the largest river in the world…It blows all other rivers away!”

When Jeff Bezos founded Amazon in 1994, he named it after the Amazon River which, in Bezos’ own words, “is not only the largest river in the world…It blows all other rivers away.”

He wanted his company to do the same to whatever competition it faced. Bezos has largely realized this vision, with Amazon the world’s most valuable retailer and himself the world’s richest person. The giant from Seattle (and soon-to-be New York City and Northern Virginia, too) currently controls half of American e-commerce. And Amazon is only growing, with its sales up almost 30% in 2018.

Amazon’s relentless expansion is spilling offline, with the 2017 acquisition of Whole Foods and the recent spread of Amazon Books, Pop-Up, and 4-Star.

And then there’s Amazon using its weight to manipulate and exploit local and national politicians, like the recent circus surrounding the search for its HQ2, during which local governments bent over backward to give Amazon the largest subsidies. Ultimately, Amazon selected New York City where set to get nearly $3 billion in tax breaks in the “ low-income opportunity zone” of Long Island City—an area where the median household income is $130,000. But it was not to be. Outraged local residents applied pressure on their legislatures and were able to stir up enough resistance for this deal to send the spooked Amazon packing. There wasn’t even an attempt to renegotiate the deal, Amazon simply picked up their ball and left the playground.

However, this was the rare occasion where Amazon may have been defeated. While there’s been some vocal backlash to Amazon’s moves, little substantive action has occurred. The more power Amazon acquires on its unabated march, the more it risks derailing the American retail ecosystem.

Here are three ways Amazon’s dominance or monopoly is hurting consumers, retailers, and innovators.

1.Amazon Is Not Providing Compliant Products to Consumers

It is common knowledge that Chinese businesses sell in America using unfair practices, but what is less well-known is that Amazon is one of the worst enablers of this trend. Chinese businesses constitute 10% of all Amazon marketplace sellers. There are widespread reports of these Chinese retailers engaging in sketchy or downright illegal activities like selling counterfeit goods, astroturfing biased reviews, and copying product descriptions.

Amazon also has a tendency to sell shoddy products or not provide sufficient warnings about product safety in their marketplace. A Nashville family learned this the hard way when the Chinese-made “hoverboard” they bought off Amazon spontaneously caught fire and burned down their house. Government mandated warnings can also be conspicuously missing on Amazon. This basketball hoop’s Amazon page lacked the consumer safety warnings required by California law. By contrast, the Walmart page for the same hoop clearly stated those warnings.

Amazon argues that it’s not at fault in these matters because it is just the host platform for these goods rather than the seller itself, and cites that it has procedures for dealing with marketplace rule violations. However, it’s allowing all these sales to happen and taking a cut of the earnings. If Amazon isn’t accountable here, then who is?

2. There’s No Competition to Hold Amazon Accountable

In a properly functioning market, competition holds businesses accountable to its customers. When a company does something that consumers don’t like, it suffers consequences. Amazon isn’t currently beholden to the check of competition. We saw a textbook example of the accountability that market competition provides in 2017’s #DeleteUber campaign. Uber was hit with a series of scandals, including undermining New York City taxi drivers protesting the Trump travel ban an rampant sexual misconduct at the company. #DeleteUber was largely successful, with Uber losing customers and market share.

While #DeleteUber is partly a story of consumer backlash to a toxic corporate culture, it also demonstrates the value of marketplace competition. Consumers disgusted with Uber could switch to Lyft with little friction. Before #DeleteUber began in January 2017, Lyft had a modest 20% market share, but that shot up to 35% by May 2018. Consequently, Uber, led by new CEO Dara Khosrowshahi, has moved in a more image-friendly direction.

Amazon has faced no shortages of scandals and many of its retailers are dissatisfied with the platform. In fact, a whole cottage industry of helping retailers appeal to arbitrary Amazon decisions has emerged. Despite all these problems, Amazon has not faced any similar #DeleteAmazon campaign because there’s no credible online marketplace for consumers to turn to. The biggest backlash we’ve seen to Amazon was the successful Bernie Sanders-led campaign to get all Amazon workers a $15/hr wage.

We need more defenses against Amazon than a charismatic politician, as well-intentioned as he may be. The competition of Lyft provided just that for Uber, but such a counter to Amazon would be impossible as it has no credible peer.

3. Amazon Is Crushing Innovation

Amazon can also crush startup competition with its massive resources, preventing the next wave of e-commerce innovation. E-commerce made up 9% of American retail in 2017, with Amazon constituting just under half of that. E-commerce is expected to reach 12.4% of retail by 2020, and only continue growing. Yet we all risk being undermined by Amazon. Take for example the startup Nucleus. Amazon invested in Nucleus’ home intercom system, only to then clone it in the new Amazon Echo Show.

Amazon can also undermine competition by cutting prices, leveraging its partnerships and subsidiaries, or simply gobbling up threats. This fits with Amazon’s overarching strategy viewing everyone as a competitor. As e-commerce grows in importance, it needs to be open to disruptive competition, not subject to Amazon’s whims. E-commerce can’t stay a healthy sphere for startups if they’re always trembling in fear that they’re going to be the next target in Amazon’s crosshairs.

We Can’t Trust Antitrust to Make E-Commerce More Competitive

Current antitrust laws aren’t equipped to deal with the challenges posed by platforms like Amazon that dominate markets without necessarily raising consumer prices. Lina M. Khan, former Director of Legal Policy at the Open Markets Institute, writes in the Yale Law Journal, “the current framework in antitrust—specifically its pegging competition to ‘consumer welfare,’ defined as short-term price effects—is unequipped to capture the architecture of market power in the modern economy.”

Modern antitrust law isn’t built for modern platform economics, which prioritizes growth over short-term economic gain, Khan argues. Reworking antitrust law to counter the increasing monopolization of Amazon in e-commerce is no simple task. However, it is imperative that we acknowledge Amazon’s threat to the current e-commerce environment and consider how to rework government’s antitrust approach to counter the new era of monopolistic platforms.

The three most important American antitrust laws are all over 100 years old. During the intervening century, our country has moved from an industrial economy to an information economy. Just as the Gilded Age saw mega-corporations like U.S. Steel and Standard Oil consolidate their sectors and dominate the economy, we are seeing tech companies like Amazon begin to do the same in our current Silicon Era.

Updating Our Antitrust to Keep E-Commerce Fair and Fragmented

We’re seeing lots of interesting ideas in e-commerce space, like Markable, a startup that uses AI to create product recommendations, and Blue Apron, a food delivery service. My own company Mavatar has created the mCart e-commerce platform, which uses blockchain technology to pay influencers, celebrities and content publishers for the sales they drive. We all risk being gobbled up or undercut by Amazon.

As e-commerce grows as a proportion of retail, there needs to be a more competitive landscape. #DeleteUber was effective because Lyft was ready in the wings for consumers to use. Amazon currently has no such peer. The public and our policymakers should wake up to the fact that Amazon will hinder innovation and harm consumers if it is allowed to continue its reign of dominance. Amazon’s free two-day shipping can be great, but it’s not without its costs.

Antitrust law is like antivirus software. Just like antivirus software makes sure that some malicious code doesn’t slow your computer to a dysfunctional crawl to the benefit of bad actors, antitrust law keeps the economy running smoothly and fairly. To keep the 21st century competitive for business and fair for consumers, we need to update our antitrust software to take into consideration the reality of modern digital platforms, like Amazon, that prioritize growth and market share above all else. You wouldn’t let your computer run on generations-old antivirus software, but that is exactly what we’re allowing to happen by not updating our 100-year-old antitrust laws.

Susan Akbarpour has over 30 years of hands-on experience building innovative products and businesses at the nexus of technology, media, and advertising. Susan is currently the CEO and Co-Founder of Mavatar, the developer of the mCart omnichannel commerce platform. She sits on the Forbes Advisory Council and travels the country speaking at major events and addressing government regulators on various issues.

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While there’s been some vocal backlash to Amazon’s moves, little substantive action has occurred. The more power Amazon acquires on its unabated march, the more it risks derailing the American retail ecosystem.
amazon, e-commerce, consumers, retailers, innovation
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2019-46-07
Thursday, 07 March 2019 02:46 PM
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