The Update Desk: Amazon's 'Monopoly'

In a Sunday School post last month, I shared Massachusetts Senator Elizabeth Warren's idea that tech companies need to be broken up. Warren's conversation with Ed O'Keefe on Face the Nation started with him asking her why she thought that needed to be done.

Because the giant tech companies right now area eating up little, tiny businesses, startups - and competing unfairly. 

In Warren's mind, platform companies should not be competing with platform users, putting their own products ahead of the competition in search returns, and so on.

So what I'm saying is we've got to break these guys apart. You want to run a platform? That's fine, You don't get to run a whole bunch of the businesses as well. You want to run a business? That's fine. You don't get to run the platform. Think of it this way, it's like in baseball. You can be the umpire or you can own one of the teams, but you don't get to be the umpire and own the teams.

So Facebook would have to sell off Instagram, Amazon would have to sell off Whole Foods, and "all those little businesses that they're running, competing businesses. Yup."

Warren says this can happen under our anti-trust rules that are already in place.

But is this a solution in need of a problem?  Let's take a look.

According to a recent article on Bloomberg, there's really nothing to fear.

The explosion of Amazon.com Inc's private-label products -- batteries, baby wipes jeans, tortilla chips, sofas - has prompted concern that the world's biggest online retailer could use its clout to promote these house brands at the expense of merchants selling similar products on the web store. The issue even surfaced in Senator Elizabeth Warren's recent proposal to break up big technology companies. 

Turns out, most Amazon-branded goods are flops that don't threaten other businesses at all, according to Marketplace Pulse. In a study, the New York e-commerce research firm examined 23,000 products and found that shoppers aren't more inclined to buy Amazon brands even when the company elevates them in search results.  

The study looked at 23,142 products under 406 of Amazon's own brands; together, the products had 1.4M customer reviews.  Here's what it found:

According to Marketplace Pulse research, Amazon-owned private label brands are not nearly as successful as many paint them to be. Amazon has been successful in creating generic items as low prices, but only when using the Amazon brand name (i.e. AmazonBasics and Amazon Essentials). Otherwise, the hundreds of brands and tens of thousands of products launched are not resonating with customers. 

So, while the company garners a ton of online spending (more than 52% of all US online spending this year, according to the Bloomberg article,

popular political and media narratives about Amazon's market power are overblown. 

 In fact, Jousaz Kaziukenas, Marketplace Pulse founder,

This idea that Amazon can introduce a product and magically use data to dominate a category is just a conspiracy theory. There are a couple of successful examples everyone uses, but most of their products aren't successful at all and many other companies continue to outsell Amazon even after it introduces its own competing brands. 

Batteries and other basic products are a hit, generally for people looking to save money by purchasing a 'generic' brand instead of the big hitters. However, where a household name matters, Amazon's house brands are not all that successful.  For batteries alone, in a 2016 study, Amazon had captured 94% of all online battery sales.  But, Kaziukenas notes,

Selling cheap batteries is very different than building brands. Even when Amazon says 'check out our own brands,' consumers don't know what it means and wonder why should they buy this thing they have never heard of before. 

So - do we need to break up tech companies?

Should we let media companies produce content, perhaps to the detriment of other companies, or just show other people's content?

Or, should, should we let a grocery store sell their own in-house brands, giving them prime product placement and promoting them, to the detriment of the national brands that that they also sell?

Seems that would make about as much sense.