What An Amazon Breakup Would Look Like And Why It Is A Win For Brands
What an Amazon Breakup Would Look Like and Why It's a Win for Brands
Amazon is on the verge of dissolving, and marketers should be prepared to capitalize on the opportunity.
It's difficult to imagine life — as we know it — without Amazon. Amazon is the starting point for 63 percent of consumers' online shopping searches, and the online retailer is expected to capture 50% of the entire e-commerce market by 2021.
However, with a new administration in the White House and ongoing congressional antitrust investigations, there is a real possibility that Amazon's e-commerce hegemony will soon come to an end.
Consider how a breakup of Amazon might look – and why it's almost certainly a win for brand marketers.
Why Do Lawmakers Want To Breakup Amazon?
Amazon's retail model is one-of-a-kind. They combine the functions of a direct retailer, a third-party marketplace, and a logistics company. That is the crux of the matter. Legislators want to know if Amazon is slanting its marketplace in its favor and creating an uneven playing field for third-party sellers. There is compelling evidence that it is.
To begin, consider a central focus of congressional investigation — Amazon's exploitation of the data it collects on its marketplace sellers. The Wall Street Journal reported last year that Amazon used seller data to create competing products under its own brand. Amazon's rip-off of Allbirds' sneakers is a well-known example.
Additionally, Amazon leverages data insights to keep its brands front and center by designating them as "Best Sellers." For example, when a consumer searches for "stapler," Amazon prominently displays its own Amazon Basics product, frequently above all other brands that are not sponsored (paid-for) listings.
These anticompetitive practices are merely the beginning. The Buy Box is another tool in Amazon's toolbox that is being scrutinized by the federal government. This is the widget that appears on product listing pages and enables buyers to make an instant purchase regardless of whether they are purchasing from Amazon or a third-party seller.
This seemingly innocuous box is fiercely competitive, and Amazon is aggressive in its pursuit of victory. How? When you conduct an Amazon search, the likelihood is that numerous third-party sellers will offer the same product at the same price. To ensure that competing brands have an equal chance at a sale, Amazon's algorithms rotate competing brands, weighing price and performance metrics. For instance, a top-ranking seller of Lysol Disinfectant Wipes may retain the Buy Box for 65% of the day, while a lower-ranking seller retains it for 35% of the day.
However, when Amazon sells its own products in competition with other sellers, that parity vanishes. Amazon adjusts its algorithm in these scenarios to give itself preferential treatment on the Buy Box, thereby capturing 100% of the sales.
Third-Party Brands 'Bullied'
These anticompetitive practices continue to exist because Amazon is both the rule maker and the arbiter of everything that occurs on its platform.
To preserve its monopoly Amazon has the ability to alter policies, control what it considers "critical" products, and prioritize their shipment. It can even suspend third-party seller accounts without prior notice or explanation for months.
The House Judiciary Subcommittee on Antitrust described these and other practices as tantamount to "bullying" third-party sellers in a 2020 report. Additionally, lawmakers agree that Amazon's dual role as a direct retailer and operator of a marketplace for third-party sellers "creates an inherent conflict of interest."
Many of these sellers are small or emerging brands that must compete on Amazon or face extinction. Others become involved in advocacy. Small business trade associations recently formed a national coalition to advocate for stricter antitrust laws.
How Breaking Up Amazon Might Work
What might the breakup of Amazon look like if it occurs?
As recommended by Congress, the most likely scenario is that Amazon will be divided into three companies. Notably, this separation of Amazon's core products (Kindle, Alexa, and subscription services) and e-commerce site from its third-party marketplace will be significant.
Additionally, the highly profitable Amazon Web Services (AWS) business is on the chopping block, as is the company's low margin retail business. AWS is being scrutinized because it provides cloud infrastructure services to a large number of Amazon's competitors, creating a conflict of interest that lawmakers fear Amazon will exploit.
A Win for Brands and Consumers
Even in the event of a breakup, Amazon's status as an online shopping mecca is unlikely to change – and any changes would almost certainly be imperceptible to consumers. For example, even if the relationship ends, Amazon-branded and third-party products will almost certainly continue to be available on Amazon.com with the same promise of convenience.
However, if the merger fails, Amazon will revert to being a third-party seller. Its ability to dominate the Buy Box or search results will dwindle. Antitrust controls will also restrict its ability to profit from its access to the data of competing sellers.
This leveling of the playing field is enormously beneficial for brand marketers and sellers who have struggled to earn the Buy Box or have been squeezed out by Amazon's algorithms and business practices. Without that hegemony, Amazon's direct sales share could fall below 50%, while third-party sales would skyrocket.
Additionally, as Amazon abandons its anticompetitive practice of subsidizing negative margin products, we can expect Amazon to refocus on its proprietary products — Alexa, Kindle, and private-label items — providing additional opportunities for brands to compete for retail business.
This is a significant development, particularly for small brands that have struggled to find a viable alternative to Amazon in their quest to reach online consumers. Breakup legislation is the only way to ensure they have an equal opportunity to compete and grow without fear of anticompetitive behavior.
What Comes Next?
It's difficult to predict what will happen next. According to critics, dismantling Amazon would be anti-American, anti-free market, and an overreach by big government. However, as the debate over Amazon and fairness heats up, marketers should brace themselves for the opportunity that will undoubtedly result.
