Opinion | The increasing diversity of Big Tech’s speed breakers
4 min read . Updated: 03 Feb 2020, 10:00 PM ISTPolicies need to be uniform the world over if we are to counter the uglier aspects of Big Tech
A short while ago, there was angst in social media over comments on Amazon Inc.’s proposed $1 billion investment in India made by Piyush Goyal, a minister in the Union government. I am not one to comment on political matters. I have, however, written before of the regulatory challenges that Big Tech companies will start to face all over the world. Goyal is not alone in expressing frustration with what many governments see as the predatory practices of Big Tech.
In September 2019, Bloomberg (bloom.bg/38WoVfI) reported that a team of investigators from the US Federal Trade Commission (FTC) has started interviewing small businesses that sell products on Amazon.com Inc. to determine whether the e-commerce giant is using its market power to hurt competition. Other Big Tech companies are also being investigated. Both Google and Facebook are under scrutiny by the FTC as well as by other US state and federal agencies for alleged antitrust practices.
An obvious question is whether Amazon has an unfair advantage over third-party sellers who use its platform to sell products that compete with the resellers’ offerings. More than 90% of the revenue of many sellers, especially in the US, comes from Amazon. This gives Amazon tremendous market power. News reports also allege that after shutting off a merchant, Amazon can hold on to their money and inventory for more than 90 days.
Senator Elizabeth Warren, a Democratic hopeful against President Donald Trump for the US presidential election later this year, has made public her plans to break up Big Tech. Most of her focus is on Amazon, Google and Facebook, which according to her “run the internet", but special attention is being paid to marketplaces that sell their own goods on the platforms they control. If her plans come to fruition, it would mean that the Amazon Basics brand will disappear from the US website. Her proposals will also affect some of Amazon’s other businesses, such as its Alexa hardware and its grocery business, but the most obvious impact will be on its own-label goods. In 2018, The New York Times conducted an analysis that determined that Amazon uses the data it gets from third-party sellers to help determine what actually sells, it provides advantageous placement or online “real estate" for its own products over those of its competitors. Sellers are dependent on the marketplace, so they cannot take their services elsewhere, and its status as a megacorp gives it the market power to sell products at lower prices than its rivals.
The upshot of Warren bringing this debate to the fore means that all other Democratic contenders will now have to formulate a set of policy promises on how to regulate Big Tech and, as a result, this will be a big election issue.
The EU has, meanwhile, started a formal probe to see if Amazon uses data from independent retailers who sell on the company’s marketplace to its own advantage. The investigation centres on Amazon’s dual role as both a retailer and a marketplace.
Last year, the Competition Commission of India dismissed a case brought by the All India Online Vendors Association against Flipkart (now owned by Walmart Inc.), Amazon’s arch-rival in India’s e-commerce space. India does not yet have a comprehensive set of e-commerce laws, though it has drafted a new policy on foreign direct investment (FDI) in marketplace platforms. The salient parts of the policy do not allow foreign-owned companies to exercise control over inventory or own retailers on their platform. In addition, if a vendor sells more than 25% of all its goods on such a platform, it bumps them into a new category as an inventory-based business, a sector that is barred to FDI. To add teeth to these FDI restrictions, the warranty of goods and services sold on marketplaces is the responsibility of the seller or vendor, and not the marketplace platform.
This unfortunately allows e-commerce sites to dodge responsibility for counterfeit products sold on their platforms. However, in the US, Amazon routinely classifies itself as a retailer, which allows it to calculate its market share of the entire country’s retail space as being in single digits. This works to its advantage when arguments are made about market power. Interestingly, however, this classification has now made it vulnerable to action in the US that makes it responsible for counterfeit goods sold through its platform. Evidently, Trump has just set in motion a slew of anti-counterfeit regulations. These were based on a report (bit.ly/3bfJ1DQ) filed by the US Department of Homeland Security, which is also responsible for customs checks on imported goods. According to it, the global sales volume of counterfeits is growing at 15% each year, and the report estimates that sales of counterfeits will reach $1.82 billion in value by the end of this year. Trump’s regulations will have the effect of putting Amazon on the hook for monitoring and policing counterfeits available on its platform, which is not the case in India.
Some time ago, in this column, I had mused whether it is time for an international body (such as a United Nations technology council) to start thinking of how the benefits of technology improvements could be more equitably distributed, just as advances in medicine are managed by the World Health Organization. It seems as if uniformity the world over on government policies might be needed to counter the growth of the uglier aspects of Big Tech.
Siddharth Pai is founder of Siana Capital, a venture fund management company focused on tech
