Source: House Committee on the Judiciary – Live streamed: Jul 29, 2020
Did Amazon execs mislead Congress about how it uses third-party sellers’ data?
Members of the House Judiciary Committee are wondering whether testimony given in recent years by Amazon.com executives about the company’s use of the sales data from third-party sellers and search rankings may have been misleading or perhaps a direct attempt to deceive Congress.
Democrats and Republicans from the committee, including its chair, Jerrold Nadler (D-NY), and David Cicilline (D-RI), Ken Buck (R-CO), Pramila Jayapal (D-WA) and Matt Gaetz (R-FL), sent a letter to Amazon CEO Andy Jassy yesterday offering the company the opportunity to correct the record of prior testimony and statements made before it. The company has until Nov. 1 to respond.
The letter follows articles over the past year-plus by news organizations including Reuters, The Markup and The Wall Street Journal that contend Amazon used marketplace seller sales data to determine items it should pursue for its own private label lines. The retail giant then allegedly arranges its search results to place its own brand goods higher on the list than competitive, better-rated items from marketplace sellers, a charge that Amazon has denied.
“At best, this reporting confirms that Amazon’s representatives misled the Committee. At worst, it demonstrates that they may have lied to Congress in possible violation of federal criminal law,” wrote the Congressional representatives. “In light of the serious nature of this matter, we are providing you with a final opportunity to provide exculpatory evidence to corroborate the prior testimony and statements on behalf of Amazon to the Committee.”
Amazon, as it has repeatedly done in the past, maintains that its corporate policy strictly prohibits the type of predatory behavior that it has been accused of.
A report published last week by Reuters concludes that what Amazon says and what it does are two different things. The news organization reports that it examined thousands of pages of internal documents from Amazon’s India unit, including emails, business plans and strategy papers. The documents confirmed “the company ran a systematic campaign of creating knockoffs and manipulating search results to boost its own product lines.”
The Journal last year interviewed more than 20 former Amazon employees and also reviewed similar internal documents that showed the very same practice. Company employees accessed data about a marketplace seller’s car-trunk organizer including sales, marketing and shipping costs and Amazon’s cut before then rolling out a private label line of organizers.
- House Judiciary Antitrust Subcommittee Members Provide Amazon with Final Chance to Correct the Record Following a Series of Misleading Testimony and Statements – House Judiciary Committee
- Amazon copied products and rigged search results to promote its own brands, documents show – Reuters
- Amazon Puts Its Own “Brands” First Above Better-Rated Products – The Markup
- Amazon Scooped Up Data From Its Own Sellers to Launch Competing Products – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: How do you see investigative reporting about Amazon’s alleged predatory business practices affecting its ability to attract and retain third-party sellers? What would be the repercussions if the Justice Department were to pursue an investigation of Amazon executives’ testimony before Congress?
Poll
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The congressional hearings will not impact Amazon’s ability to attract and retain third-party sellers in the short-term, as it remains the most successful marketplace available. However there may be long-term consequences as alternatives become available, such as Walmart’s own marketplace. As far as any Justice Department investigation, I doubt that it would get very far. Whatever happened in the past would likely be brushed off as a few misguided managers making poor decisions, etc.
Third-party sellers are naive to think Amazon was not doing this. The issue is that Amazon said one thing and did another – so they lied. This seems to be a trend (look at Facebook).
Amazon’s business practices are troubling to say the least. In India, for instance, credible investigations revealed that Amazon used a proxy seller on their marketplace, to sell their products. India does not allow private labels from foreign companies like Amazon. And further, Amazon used the data to stifle other sellers on the marketplace.
Customer-first for Amazon means everyone else in the ecosystem has to come last. Even customers eventually lose, with loss of privacy, and invasive, pervasive, and predatory marketing that makes people buy far more than they need.
Unfortunately, Amazon, Facebook, and Google have become so big that billions of dollars in fines don’t make them stop and think. In fact, the standard operating procedure seems to be to do what is necessary to win marketshare/profits first, even if it is a blatant flouting of rules, and pay fines later as a cost of doing business.
There was always an underlying implication that Amazon’s practices are not exactly ethical and the more the retailer is questioned, the better for the consumer and marketplace sellers. Repercussions may be minimal but it’s important for Congress and investigative reporting to continue to dig into Amazon’s practices.
The practice of “knocking off” branded product to include in a retailer’s own private label offering is as old as the hills. But the ability to subordinate that branded product in favor of your own private label reaches a new level in the e-commerce environment. The physical selling floor can be a relatively level playing field, understanding that there are definitely hot spots and cold spots. Manipulating how search results appear to a shopper is flat out unfair. I suppose Amazon could say, “It’s my store. I’ll run it the way I want to” just like the operator of a brick-and-mortar store. But it quickly becomes a question of scale and reach, and what is fair and appropriate business behavior. Sounds like Amazon is walking a very thin line.
Wait – Amazon figures out how to make knock-offs and then promotes its own knock-offs on its own website and we think this is news? Kroger, Walmart (Equate, Great Value) and others are all doing this with food and HBA products – why aren’t we up in arms about that? I don’t see anything here that says patent infringement or trademark infringement. And if Congress thinks any company is going to be open and honest with them, we need to see what they’re smoking or drinking.
First, we will have to see how this plays out. That said, I don’t think there’s much question about whether Amazon misled Congress. They are masters of PR but often use their PR to mislead the market.
Does it matter? Amazon has also left themselves an arguable position – like suggesting these reports are primarily from overseas where laws are different, etc.
I really don’t see much impact, at least in the short term. Until a viable alternative market place is available, third-party sellers will just absorb this news as a cost of doing business with Amazon.
I don’t know whether Amazon misled Congress. What I do know is that retailers looking at popular lines and developing their own brand alternatives is nothing new. Aldi does it. Costco does it. Walmart does it. Target does it. Everyone does it. It’s not new and it is not strange. Unfortunately, Amazon comes into the firing line because it is “big” and therefore “bad.” Quite honestly, given the mess this country is in, Congress should have more important things to deal with than trying to persecute successful companies.
There is a qualitative and legal difference between developing private label brands of generic products and what Amazon is doing for their marketplace sellers. There could be patent infringements in developing private labels, but it is on a case-by-case basis.
Amazon Marketplace is different from Walmart (the store, not the marketplace) or Costco. If Amazon the retailer is not allowed to share the data with Amazon the marketplace, there is no issue. But right now the data is shared freely, and the conflict of interests abound — eventually benefiting Amazon and hurting the sellers.
If separation is mandated between Amazon the retailer and Amazon the marketplace, it will be analogous to the wall of separation that exists between securities advisory and investment banking.
In an age of big data, lines between what drives data-based decision making and taking advantage of third-party seller-related data become increasingly blurred. Layer in making money from advertising revenue that drives product placement and it becomes difficult to discern where there may be “unfair” advantages. There is no clear cut simple answer.
I think Amazon will dodge this bullet, largely because there is nobody in the Congress with enough tech savvy to understand the nuances of how their system works. The real question is whether or not knockoffs and targeted marketing constitute predation. If it does every supermarket operator in America is in real trouble, along with some fashion lines, foodservice operators, tool makers, etc.
Most sellers would still leverage the Amazon platform to engage in expanding sales to the largest internet audience possible. I would be quite surprised if any substantive seller was unaware of Amazon’s practices. Sellers are making a killing selling through Amazon and that won’t change dramatically, especially as most sellers are not OEMs but middle distributors. Also, I’m not sure the impact is specific enough if only carried out in the Amazon India unit – which few Americans are purchasing from and Congress has no jurisdiction over. Amazon’s algorithms are driving the positioning, and the algorithms are proprietary and dynamic. Even a 1 cent lower price point may be enough to push private label products to the top of their lists. Are they lying? Maybe. Will it matter to sellers? Probably not. An investigation will be scandalous and great for media play, but sellers won’t put much importance on it or the outcome so long as they can sell.