The Amazon v. Federal Trade Commission (FTC) lawsuit, which has captured everyone’s attention, represents a pivotal moment in the ongoing battle between regulatory bodies and technology giants. The FTC’s decision to take legal action against the company marks a critical juncture in the broader discourse on antitrust, competition, and the power wielded by tech titans. At its core, this lawsuit centers around allegations that Amazon has engaged in anti-competitive practices, stifled competition, and harmed consumers and sellers within its vast ecosystem.
Key allegations in the lawsuit revolve around Amazon’s treatment of third-party sellers operating on its platform. The FTC claims that Amazon has unfairly prioritized its own retail operations, giving its products preferential treatment over those of independent sellers. This alleged favoritism could stifle competition and potentially harm consumers by limiting choices and driving up prices. Additionally, the lawsuit contends that Amazon has imposed restrictive terms on its third-party sellers, potentially creating an environment that hinders their ability to thrive and innovate within the Amazon marketplace.
Amazon’s response to the FTC’s lawsuit will be closely watched by industry observers, legal experts, and investors. The company has consistently maintained that its actions benefit consumers by providing them with a vast selection of products at competitive prices. Amazon’s defense is likely to hinge on demonstrating the robustness of its marketplace, the opportunities it affords third-party sellers, and the positive impact it has had on consumers’ lives.
Ultimately, the crux of this lawsuit and its outcomes are focused on the buy box practices of the eCommerce giant. The FTC notes in its suit “Losing the buy box – and even the ability to qualify for the buy box – is an existential threat for sellers”. Another area of focus is on the ever increasing fees levied against sellers. Amazon’s current practices essentially force sellers into using Amazon’s costly fulfillment service to be prioritized.
A win for sellers would be the relaxing of certain restrictive buy box “rules” that dictate/enforce a Minimum Advertised Price (MAP) across the web and prioritize Amazon’s fulfillment services (i.e. FBA) usage, a restructuring or reduction of seller fees, and a de-prioritization of advertising as a necessity for brand growth (vs great customer experience).
What could be a potential net negative outcome of the FTC lawsuit would be the separation of Amazon’s different branches: Advertising, Retail, and Fulfillment. This would effectively force smaller brands to develop their own eCommerce fulfillment chains and likely prevent many new digitally native brands from ever starting up.
When evaluating how Amazon’s own brand is provided with preferred placements and badges, the direct impact on search results for high value keywords is striking. In the example shown below, the top position is occupied by an Amazon Basics listing noted as being a “Featured from Amazon brands” offer.
This is not an option for 1P or 3P sellers, because they are unable to bid against this free placement. While selling partners are left in the dust, it is also notable that this Amazon ASIN occupies the second organic position along with the “Overall Pick” badge, while a significantly lower priced product- with equal customer ratings – sandwiched in between the “preferred” products.
There are many other instances where other search queries result in similar SERPs with sellers paying a premium for these top of search positions while Amazon Basics lurks all across the page without advertising costs reducing their margins and ability to compete. No doubt that retailer proprietary brands, such as Walmart’s Great Value, Target’s Good & Gather, or Lowe’s Kolbat, enjoy advantages on retail shelves and website placements; it will be interesting to understand how the FTC draws distinctions for an online marketplace where over 2/3s of sellers are third parties.
The competition does not stop at the search results pages, but also can be found with sponsored display and alternative product ads on third party sellers’ product detail pages (PDPs).
In the example shown below, Amazon gifts themselves two positions to push their own brand’s offers to compel shoppers to click off of this product detail page. It is especially frustrating that they toss in an Amazon’s Choice badge offer under the “Similar items to consider” header below the bullets for their comparable item.
There is also an additional placement under the guise of “Add an Accessory” where they bestow themselves room to cross-sell three other products from their own brand. It is situations like this that make it feel as if there is no room to find profitability on the marketplace at times.
There has been exceptional growth in the number of available advertising placements costing sellers real dollars in order to get product exposure. As can be seen in the graph to the left, Amazon’s ad revenues have grown significantly over the last several years, and are forecasted to continue growing. No longer can strong sales history and organic strength at the keyword level propel more sales without strong advertising investments. While sellers can turn to alternative marketplaces with a more even playing field and lower advertising investments, lack of scale is a big concern. Runner-up Walmart has only a 2.2% share of US retail marketplace sales this year compared to Amazon’s 72%.
The current allegations against Amazon can have a significant impact on brands and sellers in various ways. To start, Amazon’s reputation is damaged from the current lawsuit. Because of this, consumers may question their ethics and values, potentially leading to decreased trust and loyalty. Additionally, Amazon may face increased regulatory scrutiny and legal challenges, which could result in fines, penalties, or changes to its business practices which will impact how Amazon operates and interacts with sellers and brands.
Overall, third-party sellers’ confidence in the Amazon marketplace will be negatively impacted by the current lawsuit, and Amazon’s competitors and the overall eCommerce landscape can be impacted. This creates an opportunity for competitors of Amazon to gain market share and become more dominant in the market while Amazon’s reputation is damaged.
It’s important for brands and sellers to monitor developments related to the current lawsuit and take appropriate actions to mitigate potential risks. This may include diversifying their sales channels, adhering to ethical business practices, and being transparent about their values and operations. Additionally, staying informed about changes in Amazon’s policies and practices is crucial for adapting to any shifts in the eCommerce landscape. Amazon has been a tremendous growth engine for our clients and owned brands and we hope self-regulation will occur, appeasing both sellers and the FTC.
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