Take Five: How Amazon is raising prices across the internet
The conventional wisdom is that Amazon drives down prices for the average consumer, but that’s not the case, according to former Amazon seller Jason Boyce, founder and CEO of Avenue7Media and co-author of The Amazon Jungle: The Seller’s Survival Guide for Thriving on the World’s Most Perilous E-Commerce Marketplace. In reality, Boyce charges that the online retail behemoth is raising product prices across the entire internet through a tactic known as “buy box suppression.” In this Take Five interview with IB, Boyce explains why he believes this gives Amazon monopolistic power over the entire internet and what Congress can and should do about it.
You note that Amazon, as part of this suppression tactic, uses bots to scour the internet. What is the role of these bots in suppressing the “buy box?”
“They play a critical role. So, Amazon scans, multiple times a day, every e-commerce sales channel online to look for products that are being listed on Amazon.com. The minute they find a product that matches a SKU [stock keeping unit], UPC [universal product code], or even generally matches the product from the brand that’s selling on Amazon.com, they will suppress the listing … It’s within hours that your listing gets suppressed.”
How does buy box suppression impact other sellers?
“That’s very esoteric and a lot of people don’t know what that means and how it affects the listing and how it affects the seller’s sales, but I’ll start at the very top. If you are a brand that’s selling to Walmart for $10 less than you’re selling your product on Amazon, and you’re a top seller on Amazon, within hours your listing will be suppressed and you can expect within a week to lose, at a minimum — at a minimum — 30% of your sales. Now, I don’t care what business you are, or how big you are, if you lose 30% of your sales, you feel it.
“The problem with it is that Amazon has over 1 billion listings and so, they are actively scanning the entire internet for about 1 billion products or more every day, multiple times a day, with their significant technological resources. And so, if I’m the seller, and I’m getting 7% or 5% of my revenue from Walmart, and I’m getting 50% to 70% of my revenue from Amazon, and Amazon’s fee structure is much higher, and I can’t lower my price $10 on Amazon and be profitable, guess what I’m going to do? I’m going to raise my price on Walmart. I’ve even had clients remove their products from Walmart for fear of buy box suppression on Amazon.”
How aware are retailers that this tactic is being used by Amazon?
“Well, look, I would say that Walmart is probably doing the same thing and scanning bots. It’s not a brand new practice. In the 1980s, Sears would hire mystery shopper companies and market research companies to go walk the aisles of its competitors and identify products and prices, and then they would collaborate and put these reports together so that merchandisers could know if their prices were competitive. But what’s happening now is that it’s almost on this digital, industrial scale of which the world has never seen.
“Let’s say Walmart has mystery shoppers looking at its competitors on the retail side. An average Walmart store carries anywhere from 150,000 to 200,000 SKUs within one of those supercenters, and that’s a lot of products. That’s a lot of unique products to be sold, but it’s a drop in the ocean compared to the number of products that Amazon has listed on its website. There is very little barrier to entry. If you’re getting a mystery shopper, that’s somebody with shoes who’s going to walk the aisles, there is a lot of work involved. It’s limited in terms of what you can do. Amazon essentially can push a button and get the answer to that question multiple times daily on more than 1 billion products. The scale at which they are able to do it, in my opinion, is what’s most troubling and what’s most staggering in terms of their capabilities.”
And since this gives Amazon a huge advantage over competitors, including their own sellers, you believe it should be considered a form of illegal price fixing that should compel congressional action, correct?
“Well, I definitely think that congressional action is required. Sen. [Chuck] Grassley and Sen. [Amy] Klobuchar are trying their darndest to get a bill to a vote. [Sen.] Chuck Schumer, the Senate majority leader, is blocking it. We’re not quite sure why. It can take one of many steps to rein in the power [of Amazon]. There is no doubt in my mind that the biggest and most important piece of legislation that could happen in order to open up competition and let the capital markets do what they are supposed to do is to outlaw this practice of buy box suppression. That will prevent Amazon from essentially digitally punishing listings on its website if Amazon finds the product is being sold for less anywhere else.
“So, in other words, I don’t care if they are scanning the internet. Go ahead and do it. There is cost involved with that, but what you do with that information is what’s most important to me. You should not be allowed to essentially destroy the sales of a small business’ brand because they are selling their products for less on a lower-cost marketplace or a lower-cost sales channel. That’s the piece in my mind that is like price fixing that should be outlawed, and I believe when it’s outlawed, when that practice is outlawed, overnight the doors of competition will be swung wide open. All of a sudden, Walmart and some of the smaller [entities], and it’s hard for me to say smaller when you talk about Walmart, but they are tiny online in comparison to Amazon. Walmart and Wayfair and eBay and some of these other online marketplaces with lower cost structures will be able to compete for the Amazon shopper more effectively, the e-commerce consumer, because they will be incentivized to come to those other marketplaces because they could offer lower prices. I believe that strongly. If there is a silver bullet, that’s it.”
OK, so there are bills under consideration in Congress to prohibit this practice and outlaw forced arbitration in order to sell on Amazon. You mentioned Senators Grassley and Klobuchar, but which bills do you like best and why?
“I think a new bill that outlaws the practice of buy box suppression would be a better start. However, let me just say this. One of the bills, SB 2292 from Sen. Klobuchar and Sen. Grassley, which was sort of a copycat of Rep. [David] Cicilline’s bill in the House, goes a long way to prevent overly powerful marketplaces like Amazon, like Apple, and like Google from engaging in buy box suppression. I think that’s a really good start, and I’m ticked that Sen. Schumer has not put it on the floor for a vote. It’s got the votes to pass, and for the life of me, I don’t understand why it hasn’t happened. I’m sure Sen. Schumer has his reasons, but there is no reason that bill should not be on President Biden’s desk. So, that’s number one.
“There is an Open App Markets Act that’s also floating around the floors of Congress. I think it’s sponsored by Sen. [Richard] Blumenthal. I’m less familiar with that bill, but any action that can be taken with the sole purpose of opening up competition and innovation in our U.S. markets is long overdue. I would support any of these bills that take that action.”
You also note that Congress has been asleep at the wheel for too long, and I would add that Amazon has plenty of money to buy members of Congress. But it seems that these measures have bipartisan support, so what are the realistic prospects for corrective legislation?
“I just think it’s a foregone conclusion that legislation will be passed at some point. It could be on Biden’s desk right now if Schumer would just put it up for a vote. I don’t get it. Your guess is as good as mine, but you bring up another important point, which is the amount of lobbying dollars and money being spent by Amazon, Google, and Facebook to prevent legislation from making its way to the floor for a vote. It’s unlike anything we’ve ever seen. I joke that it’s like Big Tobacco money, but Big Tobacco money pales in comparison to the lobbying effort and the public relations effort that Amazon is spending on to prevent any crack in their power, in their monopoly power. I have no doubt that those dollars are playing a significant part in preventing these bills from getting enacted into law.”
They don’t have to buy the members; they only have to buy the leadership.
“It’s very clear to me that those with the money, with the most amount of money to apply to get in front of our congressional leaders, get the most action. It shouldn’t be that way. There are millions of Amazon small business sellers that help make Amazon what it is today, and they just don’t have a voice. They deserve a voice and that’s what the vote is supposed to be for. I hate to say it, but there is way too much lobbying money and powerful influence. The more powerful these Big Tech companies become, the more influence they have, and it’s this vicious cycle that just keeps going.”
I was initially critical of AOC [Alexandria Ocasio Cortez] when she prevented Amazon from building a new facility in New York City, but now I’m beginning to see her point.
“Well, look, I have my issues with AOC for sure, but I don’t have a problem at all with Amazon investing its profits or borrowing money and paying interest to banks to build facilities in any community. My problem is with the amount of money that they extract from the taxpayers in that community in order to build there. They basically hold these communities and these legislators hostage and extract blood money in exchange for bringing good-paying jobs into their community.
“Amazon doesn’t even pay taxes. I was an Amazon seller from 2003–2018. My tax rate was infinitely greater than Amazon’s tax rate every year. I don’t have a whole high-rise building full of accountants moving money offshore through all these different tax schemes in order to pay nothing in taxes or a 2% effective rate in taxes. And so, not only are they not paying into the governments of the people, but they are also extracting money from the governments of the people in order to do something that they are very well financed and have more than enough funds to build on their own. That’s my problem with it. So, maybe this is one example where AOC and I do agree and maybe that was her main beef. If you want to come and build an office building or a headquarters in New York, go ahead, but do it on your own dime, not the taxpayers’ dime.”
If Congress changes hands to the Republicans, do you think it will be any different with a Senate Majority Leader [Mitch] McConnell?
“I’m not so sure that’s going to happen, but if it does happen, I will say this: if there is one thing that brings the left and the right together, it’s hatred for Amazon. Nothing brings two opposing sides together like a common enemy, so I believe that legislation will be enacted under a McConnell-led Senate, and even if, God forbid, [Kevin] McCarthy becomes the speaker of the House … I believe there will be legislation enacted or certainly sent to the floor for a vote, but it will be a different kind of legislation. Look at SB 2992. Klobuchar and Sen. Grassley have worked together on this one, but the Republicans will be more likely to rein in Amazon’s ability to disallow the sale of certain leaders’ books on Amazon. They want to do those kinds of things and force Big Tech to be more open-minded toward the right wing of the aisle. That’s sort of a long, clunky way of saying there definitely will be Amazon legislation. It will just be in a different format than it will be if the Dems maintain both sides of the Congress.”
Are there any other points that I haven’t asked about?
“You’ve asked all the good questions. This is the most important piece. I’d like more members of the press to say, ‘Sen. Schumer, what gives? You’ve got the votes. It’s clear that you have the votes to push action against Amazon and these Big Tech companies to rein in their power and you’re not doing it. What the heck? What’s your reason?’ Now, maybe they will surprise us and maybe it will go up for a vote in September or even after the mid-terms. Maybe that’s what he’s waiting for, but our lives don’t revolve around their election cycle. They need to act because it’s required.”
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