Amazon May Have Invited Big Risk Without Much Reward

(Bloomberg Opinion) -- A question for Amazon.com Inc.: Why ever bother?.The European Commission opened an investigation on Wednesday into whether the e-commerce titan uses data from sellers on its marketplace to make competing products of its own. If the suspicion is confirmed, it might expose Amazon to billions of dollars of fines. Another tech behemoth, Google parent Alphabet Inc., has run afoul of European antitrust authorities and paid $9 billion in various penalties over the past few years..Given the relative profitability of Amazon’s businesses, what the EU is contending would seem to be a foolish risk. Broadly speaking, Amazon’s website sells products in two ways: Through its own store and through its marketplace. The store buys goods from a supplier and then sells them to a customer, much in the style of any classic retailer. The marketplace, however, simply connects a customer with a seller. That seller might pay Amazon to store or deliver its goods, but it’s essentially a platform. That also means it’s a far higher margin business because Amazon incurs few costs. It doesn’t have to pay to make the product or for its distribution unless the seller contracts it to do so..The EU is accusing Amazon of using that marketplace to identify popular products and then create copycat versions with its own branding, displacing the original. If true, it may have made itself vulnerable to billions of dollars in fines. It says that its own brand products account for about 1% of its retail offerings. That translates to about $1.4 billion of revenue. Given the low-margin nature of so many of the products (batteries, crockery, paper clips), profit is significantly less than that. The regulatory risks surely outweigh the financial benefits..That’s even taking into account the side effect of reducing prices for competing products. After being undercut by an Amazon private label offering, a seller might slash its prices to win customers. Lower prices mean more products sold on the marketplace, which is also good news for Amazon, though if the EU’s assertion is right and the intention was to mimic products that already sell well, it’s hard to see why lower prices might have been necessary..Amazon said it “will cooperate fully with the European Commission and continue working hard to support businesses of all sizes and help them grow.”.Given the headaches and potential cost of the EU investigation, the company would do well to take that statement to heart and simply focus on being a marketplace..To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners..Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco..©2019 Bloomberg L.P.

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Amazon May Have Invited Big Risk Without Much Reward

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