Lost in the Supermarket
Lost in the Supermarket
Examining the Impact of the FTC Amazon Lawsuit with Special Guest Adam Kovacevich
Are you ready for a deep dive into the world of e-commerce law and how it could impact your daily life? Strap in as we navigate the tumultuous legal waters surrounding Amazon Prime, joined by Adam Kovacevich, founder of the Chamber of Progress. We'll examine the monumental FTC lawsuit against Amazon, a six-year-long battle that could be a game-changer for mega retailers. Ever wondered what might happen if Amazon Prime is broken up? We're breaking down the possibilities.
Beyond the lawsuit, we'll scrutinize the potential merger between grocery giants Kroger and Albertson's, and what it could mean for the grocery business. Hear our thoughts on Lina Kahn's paper 'Amazon's Antitrust Paradox' and the future of her position as FTC chair. We'll also shed light on how the Biden administration's economic agenda might clash with the FTC's approach to Amazon Prime. What does this mean for small businesses, individual sellers, and Amazon Prime members? Listen in and find out.
Welcome to Los Angeles Supermarket. Adam is CEO and founder of the Chamber of Progress. Before founding the Chamber of Progress, he served as a Google executive for over a decade and led government relations at the Scooter company line. For his leadership in the field of tech policy, Adam was selected by Washingtonian magazine for its 2023 list of DC's 500 most influential people. The Chamber of Progress is a center-left tech industry policy coalition promoting technology's progressive future and working to ensure that all Americans benefit from technological leaps. Their corporate partners include Amazon, apple, meta, google and others, but their partners do not have a vote or veto over their positions. So, Adam, let's talk about this lawsuit, potential lawsuit between the FTC and Amazon. Let's start there.
Adam:Sure. Well, I think. In some ways this goes back six years to when the current head of the Federal Trade Commission, Lina Khan, was a law student. She wrote a paper called Amazon's Antitrust Paradox, which argued that Amazon's behavior in business actually probably does jive with the traditional application of antitrust laws, but she argued for a more expansive application and interpretation of antitrust laws that would apply, for example, to Amazon's treatment of its marketplace sellers, and argued for really expanding the traditional application of antitrust laws to apply to some of Amazon's practices. So, as FTC chairs for the last two years, this has been sort of widely expected that she would launch a lawsuit an antitrust lawsuit against Amazon. Last year she directed the investigators and attorneys of the Federal Trade Commission to spend more time devoted to investigating and researching and developing a case against Amazon, and so I think we're likely to see that, and now it's very soon.
Phil:So in the grocery business and I'll get back to Amazon in a second clearly everybody is watching very carefully what is going to happen between the Kroger and Albertson's potential merger. So we have that. We have the FTC going after Amazon. When I look at the grocery business, if the FTC is successful with this effort on Amazon's behalf, what does that mean for all supermarkets?
Adam:Well, I think the Kroger merger is probably more likely to have a direct impact on the supermarket business, because that's really what's called a horizontal merger of two companies in the same business, and I do think the FTC is taking a close look at that as well, and they're looking at what the effects of that will be on pricing for consumers and in choice in terms of having competition among different markets and different chains at the local level.
Adam:In many ways, I think the Amazon case, as it's been reported, in terms of the things that the FTC is looking at, is really less about groceries specifically and mostly about Amazon Prime, and Prime is all the services that includes, and, of course, part of Amazon Prime includes things like grocery delivery, and so I think that that could come into it, but it's largely been. It's largely likely that the FTC's arguments against the, against Prime, are that the Prime bundle, on the one hand, is unfair to competing kind of mega retailers like Walmart, Target, Costco, but also that the way in which Amazon links Prime to what's called fulfillment by Amazon is unfair to sellers and deprives them of choices, and so neither one of those things are about grocery specifically, but it could be some indirect effects.
Phil:But if we take a look at Amazon, Amazon sells a lot of grocery products both on Amazoncom and obviously with Whole Foods, you know. I just have to wonder if it is so linked to Amazon Prime that the effect that Walmart Plus will have IV Plus, I mean all these, all these grocery retailers have basically copied Amazon Prime and put in their own products, if you would, that offer delivery, that have other services bundled with with their $99 or $129 package for all these grocers as well. So if the FTC is able to do this with Amazon, is the next step for FTC to go to Walmart and everybody else that has these kinds of programs and try to do the same thing there.
Adam:I don't think that's their agenda, but I think you're raising a really interesting point, which is that Amazon's competitors and kind of this mega retailer space if you think of it as a market, but I think it's probably Amazon's competitors are broader than that. They're all doing something similar Walmart, target, costco they all have their version of Amazon Prime. You sign up for Walmart Plus. You get access to things yes, you get all the Walmart benefits but then you get access to Paramount Plus streaming service, which is roughly analogous to having access to Amazon Prime video, and so I think these bundles are competing with each other. They're understandably trying to vie for customer loyalty and make their bundles to no more attractive than the other bundles. The fact that they are competing with each other frankly undercuts the FTC's case that there's something about the Amazon Prime bundle that's anti-competitive. It was anti-competitive. You wouldn't see Walmart and Target competing with Prime.
Phil:So reading between the lines, you don't think that the FTC has a good case moving forward?
Adam:I don't, and in some ways I think one of the things that's interesting about this is that I think Chairwoman Khan has staked a lot of her reputation on pursuing Amazon and in some ways it's a little bit of a culmination of that pursuit. But this case won't likely see the inside of a courtroom for another two to three years, just because the normal pattern of these cases is that once they're announced, there begins a long, long process of legal jousting between the government and the company involved around discovery and data and depositions. That usually takes that long, and so we won't likely see a court or a case to go to trial for that long. And it's very likely that Lina Khan is no longer at the FTC when a ruling on this case comes down. So I think she'll benefit perhaps from the headlines of bringing in the case, but not have to necessarily own what I think will ultimately be an FTC loss.
Phil:So let's take the other hand. Let's say the FTC moves forward, they don't have a loss on it. What's gonna be the impact for me as a Amazon Prime member? Am I just gonna lose all those services? Are they gonna have to make it less expensive, or are they gonna break it up? So I've gotta pay $5 for this, $10 for this.
Adam:Yeah, I think that's right. I mean so I think based on what's been reported about this likely lawsuit. There's really three elements, and two of them are primarily about Prime. One is this idea that the Prime bundle of services that includes free two-day shipping and discounts and Amazon Prime video and Amazon music and all these other things is somehow unfair to competing retailers like Walmart and Target. And, as we just discussed, the existence of these other loyalty programs undercuts that argument to some degree. But if you were to break up Prime, if that was found by a court to be a anti-competitive bundling, then a government might break up Prime. And what would be the result of that? Well, that you'd have to. You wouldn't have sort of all of that convenience packaged together. You might go revert back to the time of having to pay individually for packages.
Adam:The second argument is really about the linkage between Prime and what's called fulfillment by Amazon, which is Amazon system for fulfilling goods from marketplace sellers through their warehouses. Amazon requires that if you get the Prime, you want the Prime label, you have to sell your. You have to use fulfillment by Amazon. That's how they ensure that the good arrives there within the promise two-day window. Some sellers don't like that. They have to pay fees for that. They don't like those fees particularly.
Adam:Amazon does have a program called Seller Fulfilled Prime which is an alternative to that, although there have historically had been some issues in terms of the quality control associated with that. Amazon's made concessions to European regulators on that point which I think actually have illuminated the path for settlement here. But if that part via where the FTC be successful, frankly one consequence could be that your Prime packages just might not get there in time, you know, might not get there on the same delivery promise, because right now that that's part of the value proposition. The third you know just happy to go into more detail about, is really about the buy box and how Amazon sets the policies for what retailer, which retailer, which offer is highlighted in the buy box.
Phil:So, before we get to the buy box, what would be the impact on, you know, these small businesses that sell through Amazon, that have built their businesses from Amazon, from Amazon Prime. Do they have a risk of going out of business if Amazon Prime is not allowed to continue?
Adam:Well, I think one of the things that is always sort of an inherent tension with a kind of a platform business like Amazon is some people call it a three-sided marketplace. You know you've got Amazon, but you also have the seller and you've also got the consumer right. And ultimately Amazon, in any platform in this situation, is going to make decisions and policies that some individual seller may not like. Right, say, you don't have the best price of the good or you have the lowest quality, or you know, maybe you have low ratings that's gonna hurt you and you don't like that. But those steps also ensure high quality of end services for the consumer, right. So one individual seller may not like that, but the consumer benefits from the system having integrity and having very high quality, and so that might involve them. You know that are the result of Amazon enforcing its policies. So, and then all sellers who sell on Amazon benefit from that.
Adam:Why do people come? Why do consumers come to Amazon? Because they can have a really high quality customer experience and Amazon's rules those sellers some sellers may not like them help ensure that quality of experience. So it's all inextricably linked and to the extent that that you know, the FTC is seeking remedies here that make the its service less useful and smooth for consumers. They may think they're helping sellers, but they can actually be doing real damage to the integrity of Amazon's service in a way that you know that keeps consumers coming back and that makes it attractive to sellers in the first place. So it's all kind of intertwined in an interesting, complex way.
Phil:And basically, from a consumer standpoint, going on Amazon, you can buy just about anything. So you know it has become a marketplace that probably, if it disappeared, would hurt consumers, hurt small businesses, hurt large businesses, you know as well. So for me, when I look at this suit, nobody really wins, if in fact they're able to do this. And, as you talked about, she gets a lot of publicity, khan gets a lot of headlines and publicity and reinforces you know what she wrote, you know in college. But basically we're going to spend, you know, millions and millions and millions of dollars of the FTC's money to go after this company and probably lose. So why are we even allowing something like that to happen? How does it get this far, I guess, is my question.
Adam:Yeah, Well, again, I think that you know, I think again for some, for several years now, ftc chairwoman Khan has had a pretty clear negative view of Amazon and in some ways this suit again is sort of the culmination of that view and her work. But it is really important to say that it is really a minority view. We did a survey earlier this year of my organization, chamber of Progress, and we surveyed voters and we found that voters it was 2000 registered voters were very happy with Amazon Prime. 89% of Amazon Prime users were members, were satisfied with their membership and, by the way, democrats were actually more satisfied or more likely to be Amazon Prime members than Republicans.
Adam:Interesting, and you know, I think, one of the things that's interesting right now from a macro, if you take a step back about kind of politically speaking, the Biden administration has been talking for the last couple of months about what they call kind of Bidenomics, which is this idea that Biden's economic agenda has helped tamp down inflation and has created more opportunities and that we're seeing kind of. We're seeing an upspank in the economy, real wages are up, consumer spending is up, the policies are working, in my view, as is this Democrat. So why are we going after Amazon Prime, which is a service that a lot of consumers use to, you know, to find deals and keep their shopping budgets low. So it just seems at odds with the rest of the administration's economic agenda.
Phil:Let's talk about the buyer's box. You mentioned that. How does that work and what's the FTC worried about that for?
Adam:Yeah, this is an aspect that I think a lot of people don't understand. With that, you know, for any given product let's say I'm buying, you know, nail clippers Amazon has several competing merchants who are trying to sell nail clippers to their site, but only the end. So if you look carefully on the item page, you'll see over on the right hand side there are multiple sellers of that Amazon. You can pick one of them, but only one seller is highlighted in sort of the box where it says you know, buy it now, click here. One click order me, and that's called the buy box.
Adam:And retail and sellers spend a lot of energy trying to figure out strategies to quote unquote win the buy box.
Adam:And one of the things that Amazon tell sellers is we will, you may, if you are selling this product for more expensively online somewhere else, we may, you may not win the buy box.
Adam:There's a good chance that you're not going to win the buy box in that situation, and the reason why is that Amazon wants to be able to assure consumers that they are getting the best price on the internet, and so that's why they factor that in, and there has been a plaintiff's law firm who has actually been suing Amazon for probably about two years now, arguing that this policy causes sellers to actually raise their prices on other retailers' sites.
Adam:And, by the way, there's not much evidence for this, or any evidence that I'm aware of, but this has been a claim. And last year the California Attorney General brought a lawsuit on the same terms and but previously to that, the Washington DC Attorney General tried to bring a case on this, had the case thrown out, of course, and was told that essentially, you know it was there, had provided no evidence for it, so you know that its central allegation was not plausible. So it seems odd to me that the FTC would kind of pursue this path, although again, there is, you know, a dedicated group of kind of plaintiffs lawyers who have been pushing this, this theory.
Phil:I want to get into your tech brain, being a techie, being part of it for a long time, forgetting totally about the lawsuit. Let's just look at Amazon. When I look at Amazoncom, to me it's very cumbersome, antiquated technology that I've got to scroll through things. We've heard a lot about the metaverse being. You know the replacement, if you would for shopping. That hasn't happened yet. But this whole you know virtual experience that I can immerse myself in when I want to buy something, versus just a flat ugly webpage that I've got to scroll down to find something. What do you think about? You know the graphic and the user experience on Amazoncom.
Adam:Well, I'm not a design critic. I don't feel particularly qualified to render judgment there. I do think that there are lots of different ways that people shop for things, and so I think sometimes there's a little bit of a mistaken idea about kind of just how popular Amazon is. Offline shopping is still really popular.
Adam:Walmart is really popular and you know interestingly, from a seller perspective, probably one of if you're a seller and you want to sell your goods online probably the leading way in which, if you don't want to use Amazon Marketplace, your best option right now is to go to Facebook and Instagram and run a lot of direct-to-consumer advertising and use Shopify for fulfilling your orders, and that's incredibly successful for a large number of online sellers. And so I just think there are a lot of ways which you know, which people can buy things on the internet. I don't think there's any shortage of ways. I don't think anybody's suffering from lack of knowledge about it how to buy things and you know, if Amazon becomes complacent with the design or their logistics or the quality, all those things like they deserve to lose customers. That's part of the game. People aren't locked in to using them, and so somebody comes along with a better service.
Phil:That's great, so is Amazon complacent?
Adam:You know, in some ways I think Amazon is probably one of the least complacent of the big tech companies, partly because Jeff Bezos, when he led the company, would talk all the time about this day, one mentality right which is sort of you know, never resting on your laurels, and I think that is so.
Adam:I think that's infused in the company's culture. They've had challenges, though I think anybody's been covering Amazon the last year had a scene. They've had layoffs, they've made some bets on new lines to business that haven't worked out, and Andy Jassy is the CEO has scaled back some of those investments and so, like anybody, some of those things are gonna work out and some of things are not gonna work out. But in some ways I think, like I think today's leader, today's generation of tech CEOs, be it Amazon or Microsoft or Google or Apple they saw the previous generation of tech companies like Cisco and Intel and Dell rest on their laurels and kind of let new waves of trends kind of pass them by, and I think that has left them pretty determined not to let that happen. And, by the way, that's great, because feeling that competitive pressure, even amongst each other, causes you to innovate more in ways that are ultimately beneficial for the consumers.
Phil:Totally agree, Adam. Thanks so much for joining us today on Lost in the Supermarket. Please keep your eye on this I know you will and feel free to come back and give us updates when you see more things happening. Thanks for having me.
Adam:Thank you, I'll see you next time.