December 16, 2016 – On December 14th, The Capitol Forum hosted a conference call with Stacy Mitchell of the Institute for Local Self-Reliance, during which we discussed various economic effects of Amazon’s market dominance in e-commerce. The full transcript, which has been edited slightly for clarity, is below, or click here to access our library.
MR. BO BARTLEY: Good morning, everyone. Thank you for joining The Capitol Forum’s conference call on Amazon’s Economic Effects. I'm Bo Bartley, Correspondent at The Capitol Forum. And I’m joined here today by Stacy Mitchell of the Institute for Local Self-Reliance, the ILSR. Stacy and the ILSR recently released an in depth report entitled “Amazon’s Stranglehold: How the Company's Tightening Grip is Stifling Competition, Eroding Jobs and Threatening Communities,” a link for which we included in the invitation to this call.
A quick note before we get underway, for the first 20 minutes or so of the call, I’ll be interviewing Stacy and then we'll move into a Q&A format where we’ll entertain questions from the audience. If you do have questions for us, please email them to editorial@thecapitolforum.com. That’s editorial@thecapitolforum.com and capitol is spelled with an “O”. Stacy, thanks for joining me.
MS. STACY MITCHELL: Thanks, it's great to be here.
MR. BO BARTLEY: Great. So just off the bat, would you like to take a few minutes to sort of discuss your work on the report and some of the key takeaways, some of the key points?
MS. STACY MITCHELL: Yeah. Well, Amazon has been growing quite dramatically and spreading its tentacles into all different parts of the economy. And despite its reach, we really feel like it's remarkably invisible. I mean, most people maybe, you know, they see the package on the front doorstep, but that's about it. And we really wanted to pull back the curtain and look at what this company is doing, how it's changing the economy. And what we found is that it’s having a really profound, harmful effect on competition that's making it harder and harder for competing retailers and manufacturers to have a level playing field and be able to compete. That has all kinds of implications for consumers and for the dynamism of the economy over the long term.
We also found that it has been really undermining labor, that it's reducing the overall number of jobs in the economy and that its wages are lower than average for warehouse work. And we looked at how it's affecting communities. What does it mean to sever the relationship between commerce in place? What happens when the businesses that contribute so much to the financial health of our communities and to the liveliness of our streets disappear? That's something new in human history, not to have commerce and place connected. And so we explore some of the implications of that.
And then the final section looks at the role of public policy and what we found is that Amazon has benefited substantially from subsidies and tax advantages, lax antitrust enforcement, that there are all kinds of ways in which policy has really driven its growth and its power. And so we look at that and then return to the question of what should policymakers be doing to address the implications that we raise in this report?
MR. BO BARTLEY: You mentioned in the report that in a lot of ways, Amazon is looking to build the infrastructure that commerce relies on. That includes the Amazon platform that everyone’s familiar with, the website, as well as moves to focus on shipping and its Amazon web services for cloud computing. What are the competitive implications of Amazon obtaining infrastructure control? And what effects could it have in the short and longer term?
MS. STACY MITCHELL: Yeah, it's a great question. We spent a long time as we were doing the research and interviewing people in industry, we interviewed dozens of manufacturers and other retailers. Mostly manufacturers gave people who insisted on speaking off the record out of fear of retaliation. And it took us a while in doing all that research and having those conversations to figure out what Amazon is. You know, we tend to think of it often as a retail company? Some people say, oh, it’s a tech company. But really what we think Amazon is about at its core is controlling the infrastructure that commerce depends upon. And that's its platform as an online retailer. Amazon is now capturing about half of all online retail spending. And the point that we make in the report is that many consumers used to start their online shopping with a search engine like Google and then they would get an array of different businesses that would pop up.
What's happening now by about three years ago, a third of all shoppers were starting directly on Amazon and not a search engine. Now fifty-five percent of all shoppers are starting on Amazon. And so what this means is that they really control the traffic. They have the traffic. And so for competing retailers and manufacturers, they have this terrible choice. They can either continue to hang their online shingle as if it were out on a search engine byway that is less and less traveled by people, or they can become third-party sellers on Amazon's platform. And more and more are concluding that they have to do that, but it's incredibly risky to rely on your biggest competitor for the infrastructure that you need to reach the market.
So the platform is one way. And then the other two ways than Amazon controls infrastructure is their control of cloud computing. They’re now a third of the world’s public cloud computing capacity. And a lot of their competitors rely on them for that service. And then finally, they're making this big move into shipping and logistics in a way that seems that their interest is really in not only moving their own products, but being a mover of goods for other companies. And so again, we have a company that wants to compete and supply the infrastructure that its competitors need. And that’s a real threat to competition and an inherent set of conflict of interest issues that we think need to be looked at.
MR. BO BARTLEY: Right. And sort of building off that, you mentioned that Amazon is sort of invisible in its influence that it has on competition. And you sort of compare its control or desire to control infrastructure to railroad barons of different times.
MS. STACY MITCHELL: Mm-hmm.
MR. BO BARTLEY: Would you say it's harder for people or policymakers to recognize Amazon's influence because it's not as tangible as like a railroad network? Does that build into Amazon’s sort of invisibility?
MS. STACY MITCHELL: I think that's absolutely right. We argue in the report that as a society, we've been really slow to recognize Amazon as a company that has maybe monopoly power. It certainly does in the book industry, I think it would be hard to argue, and a growing amount of power in other sectors as well. And it's been hard for people to recognize that for a number of reasons. One I think is that we think the web is so fluid. You know, that any – we’re used to this world in which a new startup comes along and they upend everything. You know, overnight everything’s different.
But as we document in the report, that's really not possible in the context of Amazon. Because when those startups have come along, whether it's Quidsi or Zappos, Diapers.com, Amazon has simply used its financial might to crush them and absorb them. So it's really unclear that that's possible in the online world. And the more that they control the sort of basic infrastructure and the market power that they have, I don't think that's going to change.
And to your point, I think that's true. You know, we because this is a -- you know, that there are all these ways in which, you know, it's easy to get caught up in Amazon’s sort of digital trappings and it's modern entity, not to see these parallels in history. And the railroad one I think is really quite apt. I mean, that was -- the same thing happened back then where you had a set of people who took control of a new technology and used it in ways that disadvantaged competition and was really the genesis of our thinking about common carrier, public utility legislation and the origin of the beginnings of our antitrust policy as well. Amazon we think is very much a modern day parallel to that.
MR. BO BARTLEY: In your report, you say Amazon’s Echo devices with their Alexis services, their digital assistant is currently losing money for the company, much in the way that eBooks were originally sold at a loss as the Kindle was released. Can you sort of explain that strategy in terms of how it affects competitors and how it works to sort of manufacture this like popularity, the sort of zeitgeist around these different devices? And how does that work to keep people sort of in Amazon’s ecosystem?
MS. STACY MITCHELL: Yeah. Well, Amazon’s had this strategy all along of selling goods and services below its own cost in order to gain market share and to grow its market share. And it's done in a couple of different ways. I mean, in the book industry selling eBooks and possibly many physical books over the years below cost in a way that if you're a competing specialty bookstore, it's very difficult to compete with because you don't have other lines of business to make – you know, you can’t match those prices and making up somewhere else the way that Amazon can. That's been part of the story of how they have come to control seventy percent of all online book sales. And seventy percent of the book industry, both print and eBook, is now online. So they have a bigger share of that market than Standard Oil did in 1911 when they were broken up.
So that's one way that Amazon has used low-cost selling. But the other that you mentioned in your question is that by making these sort of perks that they sell below cost, whether it's Prime, which they lose money on, or their new Echo speaker and Alexa, its voice assistant that powers that speaker, they're losing money both on that as well as the streaming music service that they're offering to people who buy the Echo. All of those things are a way to ensure that consumers never shop anywhere else. Because once you're a Prime member, you know, it's never been about the $99 fee. It's never been about collecting that fee. What that does is once you’ve paid that money, the more you shop on Amazon, the more value and free shipping you get.
So Amazon charges you that money not because that's an important source of income, but because they know once you've handed it over, you’re very much less likely to shop anywhere else. And there's a there's a lot of research that we cite in the study where they find that in fact people who are Prime numbers do not comparison shop. Once we have this Echo speaker at our beck and call, once Alexa is installed in new cars and all these other appliances, how much is just sort of the convenience and habitual nature of that going to mean that we don't look around? And what does that mean in terms of the prices we’re paying? What does it mean in terms of Amazon's ability to steer us to certain products instead of others? That's a lot of power to give to a single company.
MR. BO BARTLEY: In your view, should antitrust enforcers take action against that type of predatory pricing? Enforcers often take the view that low prices are a good thing, even if it makes it impossible for others to compete with the market power in the longer term. What have been the effects of such thinking when it comes to Amazon?
MS. STACY MITCHELL: Absolutely, I think – yeah, yeah. I think that we should absolutely be taking a much stronger line in investigating and looking at this and what it means for competition. You know, I think we've --you know, my feeling is that the pendulum has swung too far in terms of where antitrust enforcement has gone over the last 35 years or so. I think the kind of ideological shift that began to happen in the late 1970s and early
80’s was a mistake in a lot of ways and we have not been well served by the view, you know, the way that we approach antitrust now. And this is part of what's led to just this enormous consolidation in the economy of which Amazon is a very important example, but obviously not the only one.
There are direct consumer effects from predatory pricing. There is the loss of options and choices. There's the way in which – and this is what we heard when we talked to manufacturers over and over again. They talk about the destruction of the ecology of their industries. You know, where right now they are able to -- what drives their ability to invent and introduce new products with having multiple channels, and in particular having independent retailers. You know, we tend to just sort of write off, you know, the society has kind of written off independent retailers. But if you talk to small midsized manufacturers, they will say, yeah, these guys are not a huge part of the market, but they play a disproportionate role in our success. Because that's -- those are the guys that sell our full line. They’re the place that we go when we need to introduce a new product. They’re the ones that introduce it to customers. And they say we can't do that on Amazon. You know, we can put a new product, but it just gets lost. It’s not part of, you know, the mass merchandisers do not steer traffic in that way and are not good partners at doing that kind of product introduction.
So, you know, consumers stand to lose. But I think part of the problem with our antitrust law is that we forget that we're not just consumers. We’re also people who need to earn a living. We’re citizens of a democracy. We’re stewards of the communities that we live in. And antitrust was originally designed, and I believe really should be about protecting all of those values, protecting our ability as producers to have a fair chance to go out and ply our trade in a fair market. And there are all kinds of ways in which Amazon is making that impossible and is really undermining our ability to make a decent living.
MR. BO BARTLEY: Okay. And sort of building off that, you mentioned in the report that there is sort of an image of Amazon does bring jobs and it's like distribution centers and things like that, but you say that’s sort of a flawed notion. Could you talk a little bit about that?
MS. STACY MITCHELL: Yeah, what we found is that we did an analysis of Amazon's jobs impact and we counted all their jobs in the U.S., both their warehouse jobs, as well as their headquarters jobs, their tech jobs and the whole bit. We were very, you know, we counted them all, even if they didn't really have to do with retail. We counted AWS jobs and that makes Amazon web services. And then we looked at what the job losses are for retail workers because they're displacing sales from existing retailers. And we found that the net impact of Amazon has been -- so far has been a net loss of about 149,000 jobs. And that, of course, is going to grow over time. Now, we're not the only people reporting on this. There are a number of analysts who’ve been tracking this too and tracking these job losses in the retail sector and how this is really being driven by Amazon. They require fewer people to do the same amount of sales that a brick-and-mortar store. And retail is one out of every eight jobs in this country. It's a big part of the jobs at the low end of the wage spectrum. And not only is Amazon displacing more of those jobs than it's creating, but it also only locates those jobs in select places where it has warehouses. If you think about it, right now retail jobs are very widely dispersed. Almost every neighborhood, every tiny town just about, has at least a few of those jobs. They're close to where people are. And we're now moving to a scenario where there are not only fewer of those jobs, but they're located in select places.
And one of the questions that we raise that I think is particularly pertinent in light of this past election season is there a lot of regions of the country that have suffered a lot of economic dislocation. We think about that in terms of factory job losses which is part of the story. The other part of the story, the loss of small businesses and the loss of sort of agency that communities have over their own local economies. And now we're in the process of possibly even destroying the Walmart jobs that came in and replace those small businesses. So what does that mean for those communities? And how can we have a healthy country if we don't really address those kinds of issues?
MR. BO BARTLEY: Right. And sort of entangled in that is you talk about government subsidies in the report and how Amazon is taking advantage of those and it has allowed them to sort of grow at the rate they have in certain areas. Could you talk a little bit about that, how they’ve been able to use government subsidies to grow?
MS. STACY MITCHELL: We think of Amazon as the company that's grown by its own merits, and certainly that's part of the story. And there are a bunch of myths and everything else that they’ve brought to the market. But they have also benefited from day one from an enormous amount of public support. Their ability to operate for many years without having to collect sales tax was a huge gift and one that their own actions as a company over the years make clear was absolutely essential to their ability to grow, both where they located warehouses was all very strategic and designed almost exclusively around how to minimize [inaudible]. That's a big deal. That really tilted the marketplace in their favor. And there's a lot of academic research that we cite in the report that shows even today in the states where they still don't collect sales tax, as much of ten percent of their sales is driven by that factor alone which is pretty remarkable. And you think about what it might have been ten years ago when they had even less reach and power.
We also did an analysis. We looked at all of the warehouses and fulfillment facilities that they built between 2005 and 2014 and they built about 77 large facilities in that ten year time period. We found that they got local and state economic development subsidies for 52 percent of those facilities. And we know that we're probably missing some because there's not a great way to track those things completely. So more than half of their facilities have been subsidized. And we talked -- we've got local governments that are subsidizing the development of a warehouse that's actually just in the end displacing more jobs than it’s creating. So it just really doesn't make any sense, not to mention the fact that this is a company that has quite a lot of financial resources and could pay its own way.
MR. BO BARTLEY: And they’ve sort of taken advantage of the U.S. Postal Service's in some ways, correct?
MS. STACY MITCHELL: Yeah, absolutely. I mean, they have taken advantage of the Postal Service. They have in a way, in certain ways, degraded the quality of Postal Service jobs through the kinds of demands that they've made. I mean, not only does Amazon create fewer jobs, but as we document, they pay less for their warehouse jobs than average. And they're incredibly grueling jobs. And their labor practices, which involve a lot of temporary workers, a lot of like gig workers, you know, sort of Uber like delivery drivers and so on through the Amazon system. Those sort of low road wage practices, labor practices, kind of have tainted to some degree the Postal Service and have kind of pulled down job quality a bit in the Postal Service.
But the other thing that's happening that I think is quite alarming is as Amazon grows its own ability to ship packages and to do that last mile, they’re beginning to displace UPS. UPS is unionized. I mean, between UPS and the Postal Service, you've got nearly a million unionized family wage, middle-income workers. This is a surviving corner of the working middle class. And that's now under threat and a threat, you know, of being displaced by an Amazon approach to labor which I think is quite distressing.
And what I can see happening -- I mean, who knows? But I can see Amazon strategically picking off the most lucrative, you know, they’ll do the urban deliveries and then leave the expensive rural deliveries to the Postal Service. And how is that going to strain the Postal Service's ability to be solvent over time? And what does that mean for the rest of us?
MR. TEDDY DOWNEY: This is Teddy, Executive Editor here. So you mentioned Walmart. You mentioned UPS. These are big powerful companies. At what point do you expect that they'll begin to fight back against Amazon and use their political power to try to stop Amazon from taking all their business?
MS. STACY MITCHELL: That’s an interesting question. I mean, Walmart has certainly been trying to match Amazon in terms of e-commerce. And it's been striking that -- you know, they do a certain amount of business online. And because they're Walmart, it's not a small number, but it's a small share of their overall business. And they really have not yet been able to crack that nut. And I think there's a thing that business scholars document, which is that companies that have made their success doing one thing are not often very good at mixing it up and doing something else. And there's a way in which all of Walmart’s internal incentive structure has been geared towards sales in store. And so getting their sort of management all the way down to store managers to support an e-commerce strategy hasn't really worked. And they have really struggled to figure out how to do it. And I think that that's notable. Because if they, with all their resources and capacity, can't figure out a way to be competitive in this market, it gives you a sense of how closed it is to new startups as well.
MR. TEDDY DOWNEY: You know, we talk about Walmart not be able to compete or not being able to sort of go head-to-head from a business standpoint with Amazon. And you mentioned all these government subsidies that Amazon is getting and all this favorable treatment. At what point are we going to see Walmart, UPS, real estate folks who are getting hurt by the decline in retail, retailers, start to say, “You know what? We're going to weigh in at Congress and with the new administration to attack these subsidies and to attack Amazon,” not as a legitimate business strategy, but of all people I just think it would be funny if Walmart turned around and said, you know, this predatory pricing law actually looks pretty good right now. Or UPS comes in and says, hey, you know, Postal Service, you're going to let Amazon rip you off like this? So, I mean, to me it just seems like we've been waiting for a political reaction. And I'm just wondering if you get the sense of what's the moment we’ll see something along those lines happen?
MS. STACY MITCHELL: I think you sort of allude to in the question the idea that Walmart is going to suddenly get bullish on antitrust enforcement is -- I mean, I’m not going to hold my breath for that. Because we’ve done a lot of research on big retailers over the years, including on Walmart. That's a big focus of our work. And they’re a company that also exercises their power in all sorts of ways that we think damages competition. So they're sort of part of the larger story of concentration.
Just to give one fact on that that I think is really striking, Walmart captures one out of every four dollars that Americans spend on groceries right now, and that's growing. There are many parts of metro areas where your only viable choice of where to buy groceries is Walmart now. So they're not going to be out there championing a return of competition and antitrust policy.
What is encouraging, and this is very grassroots, but there are lots of independent business associations. You know, whether it’s the American Booksellers Association and the other trade associations like that that represent different independent business groups. And they are increasingly vocal about this and engaging their members in calling their Congress folks and saying this is something we need more investigation to have hearings looking at the consequences of Amazon. We need more analysis. We need the DOJ to step in and start looking at this and wanting to bring the evidence of what they’re seeing.
As I mentioned, we did a lot of interviews with manufacturers. Because we felt like you can go out and talk to a competing independent retailer about Amazon, but the real view I think that’s powerful is the manufacturers because they really speak to the whole way this is changing industry. And none of them were able to go on the record with us. Because Amazon is a company that has this history of just incredibly destructive retaliation against any business that questions them. We saw this with the Hachette dispute, the publisher Hachette, a couple of years ago, where they just, you know, they took away -- they made it difficult or hard for people to buy books, some 3,000 books published by Hachette. And they caused authors to see their sales drop by 50 percent or more overnight. And they've done that kind of thing in one area after another when anyone challenges them.
So we interviewed all these manufacturers who say, who talk about the ways that Amazon uses its market power, but they couldn't do so on the record. So I think sort of the onus has to be on our public officials to really demand and find ways to get that information out.
MR. TEDDY DOWNEY: My last question along that same line is if we take away antitrust as the main way in which we’re looking at some political reaction to Amazon, could it be one of these other laws, your local laws, your tax laws, your subsidies, your USPS rules, are these avenues in which you could see the political restructure respond even if it's not a sort of Brandeisian shift toward antitrust crackdown on predatory pricing or something like that?
MS. STACY MITCHELL: Yeah, we certainly call for an end to the subsidies. And I hope that the research we've done is going to – you know, more local officials are kind of going to wake up to the fact that they're using tax dollars for something that's not really benefiting the economy. So that can be helpful. We also -- we do a lot of work on local and state policies and strategies that can support entrepreneurship and local economies. So we certainly encourage that kind of approach. Labor law is another area where part of Amazon's ability to out compete is because it really squeezes a lot from its workers. And probably I think there’s a good case to be made is misclassifying a lot of temporary workers and good workers as a way of getting out of being responsible for the injuries and other things that they suffer on the job. Because those workers really are working for Amazon.
So there are ways in which we should be holding them to a higher standard across the board. And that would certainly help to level the playing field. But I think at the end of the day, they raise some big questions about what our orientation as a democracy is toward the issue of concentrated economic power? And I think we've got to continue to push to have more focus on that. Because it's not just Amazon, but we're seeing this across the economy in ways that are alarming a lot of economists. We’ve seen the number of new businesses created each year in this country has fallen by half since the 1972. What does it mean to be a democracy in a free market if there is less dynamism and entrepreneurship? And that seems to be connected to concentration. Inequality seems to be connected to concentration. We’ve got these few businesses, few large companies, that are really taking rent. And that's undermining wages all the way down through the line. So we think Amazon is a really, you know, bringing us into pretty stark relief on some of these issues. And all this other stuff helps, but that's really what the core problem is.
MR. BO BARTLEY: Just a reminder if anyone in the audience has any questions, you can email them to editorial@thecapitolforum.com.
When it comes to political responses, it's kind of hard to ignore Donald Trump and his recent election.
MS. STACY MITCHELL: That's the understatement of the year.
MR. BO BARTLEY: Yeah, he's willing to point out singular companies for practices that he views as negative for whatever reason. He said some things on the campaign trail. He hasn't said a lot since. Is there anything that would lead you to believe that maybe Trump or his message or any of his policies that he’s set forth so far could affect Amazon in any way? I know Jeff Bezos is in Trump Tower today?
MS. STACY MITCHELL: Oh, is he? I didn’t know that.
MR. BO BARTLEY: Yeah, there's a tech conference going on. So we’ll have to see what comes out of that.
MS. STACY MITCHELL: Yeah, I saw that [Bezos] tweeted kind of an olive branch a couple of days after the election. Yeah, Trump said some things on the campaign trail about Amazon has an antitrust problem. He said some other things about telecommunications mergers and so on. What’s been hard is that you hear that rhetoric and then you look at who's on the transition team and what’s actually, you know, who's being talked about for various appointments and so on. His point person on antitrust is a guy named Joshua Wright who my understanding looking at his biography is not someone who's interested in really reviving a more democratic approach to anti-monopoly policy. He had a piece in The New York Times a few weeks ago in which he said something along the lines that just because an industry is highly concentrated doesn't means it lacks competition. He's worked a lot to defend -- in his papers to defend Google against antitrust, accusations of violating antitrust law and so on. So he seems to really come from a much more lax approach to these issues than I would certainly want. And if that's a signal from Trump of what we're going to actually get, it seems to be pretty far from what we heard in terms of the rhetoric.
You know, I am, you know, as we’re talking about in terms of the kind of economic losses that a lot of regions of the country have suffered and some of which seem to play into, you know, some of which led to people voting for Trump out of a sense of really wanting, you know, a sense of incredible deep economic frustration. What is encouraging is that there's a lot of evidence that on both the Democratic and Republican side in terms of voters, people are very much concerned about concentration. There's a sense that the biggest companies have too much power. They control too much of the economy. They control the fates of the places where we live. You know, a lot of the decisions that affect the future of our communities are not made by us. They're not made by our city council. They're made by distant boardrooms. They’re made by Wall Street. And people are frustrated about that. And there’s a sense that, especially at the national level, that our government is -- has been very much compromised by big business.
And so, I am encouraged by the fact that as divided as the country seems in some ways, on the issue of concentrated economic power, there's a lot of consensus all the way across the political section. So the question it seems to me going forward is how do we as a country sort of rise up and demand change. And frankly, this is the only way that the issue of concentrated power has ever been addressed in history, right? You know, whether it was dumping all that tea into Boston Harbor, and that tea, of course, being owned by the East India Company, the global corporation of its generation, you know, whether it was sort of a populous response back in the first Gilded Age that led to a lot of our antitrust laws. I mean, it's mostly come from the bottom up. And so we're now finding ourselves in another moment in history where we're going to have to kind of draw on our own citizenship to move forward.
MR. BO BARTLEY: And then just one more thing I wanted to make sure we covered. You discussed it in the report and we recently released a report along the same lines, sort of about Amazon’s own private labels and how they use their data collection to sort of figure out what to jump into if they want to manufacture something on their own. Could you just sort of discuss that sort of process and how Amazon makes its own -- Amazon Basics, it makes its own clothing labels, how they figure out how to do that, what they want to focus on?
MS. STACY MITCHELL: Yeah, what we’ve consistently seen is that Amazon uses its role as a platform to gather data about industries and then to move into those industries. It’s done this in terms of retail competition where rather than having to go out and learn about the jewelry industry and have buyers on staff who could learn and understand everything about jewelry, they would invite third-party sellers onto their platform, watch what they do, see what sells, see how the whole industry works and then take, you know, skim off the cream of their best products and run with it.
And now we're seeing them go a step further with that same strategy where they're beginning to manufacture a growing share of the product that they sell. They have their Amazon Basic line which is batteries and your basic household supplies of all kinds. They sometimes do direct kind of knockoffs of best-selling products. Often, they buy small companies who have been innovative in one way and Amazon will watch their sales and just make something that looks just like it. They're also making a growing, as you know, growing lines of apparel. They’ve made a big push. And again, you know, they spent years coaxing apparel brands to sell to them and to be sellers on their site, learning about the industry, watching how it works. And then sort of quietly turned around and said, oh, we're going to do it ourselves. And they have a huge advantage over their suppliers because they have all of this data, you know. And they have the ability to use their algorithms and their site to steer consumers selectively to their own product and to preference their own products in various ways that disadvantage the companies that gave them all that knowledge in the first place.
And that, of course, not only – it’s worth pointing out -- not only harmful to manufacturers as an example of Amazon using its power in one market to gain power in another, which is a real problem. But it also has negative effects for consumers. How is Amazon using all of the data that it gathers on us and what we look at, what we click on, what we browse, what we're doing when we're on other sites, you know, when we're online, what we're watching on Amazon Prime. combine it all this sort of demographic information that they must have about each of us. How is Amazon using that data to determine what we each encounter and to steer our choices in ways that we know must be to its own benefit, but probably are not harvested yet. And I think we should see more investigative reporting really looking at those questions.
MR. BO BARTLEY: Right. One industry analyst of the book industry describe when Amazon takes its dominance in one area and goes into another, described it as a shock and awe campaign, sort of like Desert Storm.
MS. STACY MITCHELL: Yeah.
MR. BO BARTLEY: But is there any sort of like redress for these manufacturers who just find that their item is sort of produced by Amazon now? Or I mean is it just sort of these grassroots type of thing that you were talking about earlier?
MS. STACY MITCHELL: Yeah, what can you do? There was one that Bloomberg reported on that we talk about in the report, Rain Design, which is a small company out in California that has these great laptop stands that have been top sellers on Amazon for years and years and years. And now Amazon sells its own line of laptop stands that look exactly the same except they have the Amazon arrow across them instead of the Rain Design logo. And the company said to Bloomberg, “Yeah, we're not happy,” you know. And they're certainly trying to build up their own web business.
But as I said earlier, when you've got so much of the traffic, when Amazon has created these strategies to ensure that consumers just start there and never look anywhere else, what do you do? I mean, it's like you're out on a dirt road in the country and they own all the streets in the city where all the people are, you know. So if you want to have a shingle out on the streets where all those people are, you're going to have to pay rent to them. You're going to have to turn over all your product knowledge. You're going to have to turn over your relationship with your customers.
If you’re a third party seller on Amazon, you don't even get to communicate with customers except through Amazon’s system. And it monitors all of those exchanges. And if you do so much as a URL in an email to a customer, they will come down and slap your hand pretty hard. And you can have your entire account suspended as a result of violating a rule like that.
As a business, especially the retailer or manufacturer, your ability to build a relationship with customers is so much a part of your success. So what does it mean if the entire world of online commerce is a platform in which there is this overlord that controls – I mean, it’s sort of like being a serf on a medieval estate or something. I mean, it's not competition. That's the thing that we just think is such a profound conflict of interest. It's going from an open public marketplace to a privately controlled one.
You know, the best sort of analogy we could come up with in the report is it would be as if Walmart not only came into your town, but they bought up all the real estate. And all the other retailers who wanted to be there, they would have to get permission. If they were going to get the best corner location, it would be only if Walmart would let them. And Walmart would tell them what kind of rent they would pay, would skim off a significant share of their sales and they would have no choice because Walmart’s the only landlord in town. And it would know every sale that they made, every transaction. It would control all the customer information. We think about that in the offline context, it seems absurd. But that's exactly what Amazon is doing online.
MR. TEDDY DOWNEY: So is that one of the big takeaways here which is that this platform seems open, seems free for the customer to access? But in reality, if you want to start a product and you want to access a certain customer, the only way to access that customer is to offer it on Amazon? Because otherwise, you cannot access the Amazon Prime customer for a retail sale? Is that one of the things here? Because that seems like a very closed, walled garden, when you put it in the terms that they actually simply will not buy retail goods outside of the Prime ecosystem?
MS. STACY MITCHELL: Yeah, it's very true. It’s a big takeaway from this report. We spent some time sort of interviewing and sort of hanging around on message boards for the third-party sellers. And we talked to people who provide services and support for third-party sellers, you know, training and technology and so on, to help them sell on platforms. And there are other platforms. Walmart’s got a platform, eBay and so on. And so if you spend time in that world, you know, a big sort of mantra right now, and has been, is “diversify, diversify, diversify.” Build up your own site, build up your sales on these other platforms. Because obviously, if you’ve got one company with 50, 60, 70, 80, 90 percent of your business, that's an incredibly precarious place to be. But what we would find when we would sort of probe some of these consultants who service this industry is that for a lot of these sellers, no matter how hard they try, these other platforms are so anemic. Traffic on the rest of the web in terms of being able to drive it to your own site is just not there. It is the country dirt road out there. And that it’s trending more and more and more in that direction. And that in reality, as much as these third-party sellers will kind of sort of bluster that they are diversified and are on different places, the reality is that ninety percent of the sales is on Amazon’s platform. So it is a walled garden as you say. It is a medieval state. You know, whatever the right metaphor is, it is a privately controlled market. And the entity that controls that is competing directly against you.
One of the things that we -- you know, it's notable that as slow as the broader society comes in and policymakers have been to recognize this threat to competition that this poses. Investors haven't been by and large. There are a number of investors who are quite giddy and open about the fact that Amazon – we quote somebody in the article who says, you know, a venture capitalist, who says, you know, Amazon is a $3 trillion monopoly hiding in plain sight. And he's not wrong. And what he talked about is the idea that this is an entity that can -- has set itself up to basically levy a tax on much of the commerce that goes on, whether it’s AWS levying a tax on all the traffic, even in the cloud, or it's a retail platform as a way to not only control and learn and sort of steal knowledge from manufacturers and competing retailers, but also to just charge a 15 percent tax right off the top of everything that they do.
Amazon can adjust its own prices in a way that effectively sets the selling price of a good on its platform. And because it controls a big share of your costs, they control your margin. They can put you in a situation where you can't sell anything as a third party seller because the price is now below your cost of operating. Or you can meet that price and they're not taking a share of your profits, they’re taking a share right off the top. They’re taking it off the growth. You know, all these things I think combined is just an area that it's startling to me that there has not been a more concerted investigation on the part of regulators.
MR. TEDDY DOWNEY: Yes, I mean, especially since -- usually if someone announces that there's a private tax on the people, that would upset somebody. I don't know. Just like normally, people don't tend to like their tax -- I mean, taxing by private -- they don't even like the government taxing them, let alone a private entity. So it seems like screaming for attention once you say that they can levy a tax on the people.
MS. STACY MITCHELL: Yeah, it's kind of like an arbitrage play, right? You know, it's like a massive, you know, we're going to skim off these huge channels of commerce, whether it's cloud traffic or retail sales or maybe all the movement of goods, the shipping industry. We're going to set ourselves up so that we can take a chunk of all of that activity that's happening. It is sort of like a tax. Sort of like the government levying a tax on income or sales. They take a percentage of what is a very large stream and it's a lot of money.
MR. BO BARTLEY: The Amazon tax. I think that's all the time we had here today. I want to thank Stacy for the really interesting conversation we just had.
MS. STACY MITCHELL: Thank you. It was great to be here.
MR. TEDDY DOWNEY: Yeah, thank you so much. This was really, really interesting. And I know a tremendous amount of work went into this project and this research and it’s really fascinating and seems very important.
MS. STACY MITCHELL: Thank you. Yeah, we've had a great response to the report. And yeah, we're going to be doing more over time. So we encourage people to sign up for our newsletter.
MR. TEDDY DOWNEY: Have policymakers been interested as well as the general public?
MS. STACY MITCHELL: Yeah, we’ve gotten some calls and some feedback on that front that I think is a little bit encouraging. So we’ll see where it goes.
MR. TEDDY DOWNEY: Yeah, it will be interesting to see how bipartisan that is also. I mean, you've got Trump on the one hand. I’m sure he’s giving Bezos an earful right now. And then on the other hand, I think certainly Elizabeth Warren has mentioned that she wants to get back into antitrust and there’s been some sort of uptick there. So I’m interested to see how this plays out.
MS. STACY MITCHELL: Yeah, me too.
MR. BO BARTLEY: Great. And like I said, that report was available in the email invitation that was sent, also on the ILSR website. So check them out for sure if you haven’t. And that will conclude our call.
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