Saturday, February 24, 2018

"Amazon Doesn’t Just Want to Dominate the Market—It Wants to Become the Market"

The Nation put together a special issue on monopolies.
The tone is a bit irritating at times, it is, after all, The Nation; comfort the afflicted, afflict the comfortable, it's what they do; but taken together the six pieces are a good counterpoint to the Bezos apologists who seem to be popping up.

Trust me, I've looked at the arguments, from the simplistic "No one is making consumers go to Amazon" (no one was making people burn John D. Rockefeller's kerosene either) to more sophisticated philosophical issues. As noted, this series is just an opposing opinion, not received wisdom.

From The Nation, February 15:

The company is a radically new kind of monopoly with ambitions that dwarf those of earlier empires.
Chris Lampen-Crowell started to feel the undertow four years ago. Gazelle Sports, the running-shoe and apparel business he founded in downtown Kalamazoo, Michigan, in 1985, had grown steadily for decades, adding locations in Grand Rapids and Detroit and swelling to some 170 employees. But then, in 2014, sales took a downward turn. From the outside, at least, it was hard to see why. Gazelle Sports was as beloved as ever by local runners. People continued to flock to its free clinics and community runs. And scores of enthusiastic reviews on Google and Yelp, along with an industry ranking as one of the best running-shoe retailers in the country, gave Gazelle Sports and its e-commerce website plenty of prominence in online searches.

The problem wasn’t so much that customers had made a conscious decision to buy their running gear elsewhere, Lampen-Crowell says. Rather, a number were doing more of their overall shopping on Amazon—and as the online giant became a pervasive, almost unconscious habit in their lives, they had started dropping into their Amazon shopping carts some of the items they used to buy from Gazelle Sports. Lampen-Crowell’s initial response was to double down on marketing his company’s own website. But while that helped, there were many potential customers who still had little chance of landing on it. That was because, by 2014, nearly 40 percent of people looking to buy something online were skipping search engines like Google altogether and instead starting their product searches directly on Amazon.

By the fall of 2016, the share of online shoppers bypassing search engines and heading straight to Amazon had grown to 55 percent. With sales flagging and staff reductions under way, Lampen-Crowell made what seemed like a necessary decision: Gazelle Sports would join Amazon Marketplace, becoming a third-party seller on the digital giant’s platform. “If the customer is on Amazon, as a small business you have to say, ‘That is where I have to go,’” Lampen-Crowell explains. “Otherwise, we are going to close our doors.”

Gazelle Sports isn’t alone. Faced with Amazon’s overwhelming gravitational pull on the Internet’s shopping traffic, thousands of Amazon’s competitors—from small independent retailers to major chains and manufacturing brands—have felt compelled to join its orbit.

Setting up shop on Amazon’s platform has helped Gazelle Sports stabilize its sales. But it’s also put the company on a treacherous footing. Amazon, which did not respond to an interview request, touts its platform as a place where entrepreneurs can “pursue their dreams.” Yet studies indicate that the relationship is often predatory. Harvard Business School researchers found that when third-party sellers post new products, Amazon tracks the transactions and then starts selling many of their most popular items itself. And when it’s not using the information that it gleans from sellers to compete against them, Amazon uses it to extract an ever larger cut of their revenue.

To succeed, sellers need to “win the buy-box”—that is, be chosen by Amazon’s algorithms as the default seller for a product. But according to ProPublica, “about three-quarters of the time, Amazon placed its own products and those of companies that pay for its [warehousing and shipping] services in that position even when there were substantially cheaper offers available from others.” As more third-party sellers have agreed to sign up for these services, Amazon has repeatedly raised its fees, with fulfillment fees rising this year by as much as 14 percent for standard-size items (and more for oversize goods), on top of similar increases in 2017.

For now, Lampen-Crowell’s primary suppliers have chosen not to sell directly to Amazon, giving Gazelle Sports and other independent retailers exclusive access to their products and, with it, a measure of insulation from Amazon’s predatory tactics. That could change, however. In 2016, Amazon backed Birkenstock into a corner, threatening to allow a deluge of counterfeit Birkenstocks onto its site—many from overseas sellers—unless the shoe company agreed to sell directly to Amazon the niche products it had previously reserved for specialty retailers. Birkenstock pushed back, but other companies, including Nike, appear to have caved to a similar demand....MORE