Amazon becomes the latest giant to face Europe’s antitrust wrath

The European Commission has formally opened an antitrust investigation into Amazon’s dual role as a retailer and marketplace and how it uses data derived from independent retailers.

Europe has a track-record of taking on the industry’s biggest players on the grounds of antitrust and Amazon is next in-line. The case which the European Commission will attempt to prove is that Amazon abused its position of power as a leading eCommerce platform, using this position to aid it in selling its own products.

“European consumers are increasingly shopping online,” said Margrethe Vestager, Commissioner for competition policy. “eCommerce has boosted retail competition and brought more choice and better prices.

“We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behaviour. I have therefore decided to take a very close look at Amazon’s business practices and its dual role as marketplace and retailer, to assess its compliance with EU competition rules.”

This investigation is based around two points which the European Commission hopes to prove are anticompetitive. Firstly, Amazon collects marketplace data from its third-party partners to inform its own sales strategies. Secondly, with a ‘buy box’ only available to certain partners, and the Commission wants to understand what impact this differentiation has on competition.

On the first point, as the overarching platform owner, Amazon is privy to sensitive marketplace information from independent retailers who sell products through the platform. Using this insight to create more effective sales strategies is very likely to fall foul of Europe’s competition rules, should Vestager be able to prove a competitive advantage.

On the subject of Vestager, perhaps this is not the last we will hear from the bureaucrat. Vestager has worked up a reputation over the last few years for taking on some of the US’ most influential, and sometimes slippery, technology companies. With Vestager’s tenure at the European Commission ending in October, perhaps she will be aiming to make a bigger splash.

This is also not the first time Amazon has found itself on the bad-side of Vestager either. In 2017, Amazon was forced to pay €250 million in back taxes to Luxembourg, after the relief which was offered to the internet giant between 2003 and 2016 was deemed illegal.

The second point focuses on the ‘buy box’. This feature allows customers to add items from some retailers directly to their shopping carts. As not all retailers are able to access the feature, the European Commission would like to understand how this impacts competition. It is also not entirely clear why some retailers are able to access this feature and others are not.

Unfortunately for Amazon, this difficult situation is not one which will be resolved quickly. In such cases, due to the complexity of digital businesses and the vast amount of information involved, the European Commission has not set itself a deadline to conduct the investigation.

Another element to consider is the criticism faced by Amazon in the US. Not only has the eCommerce platform found itself as an enemy of the White House, the other aisle is poking. Senator Elizabeth Warren, a Democrat candidate for the 2020 Presidential campaign, wants to ban companies from operating and selling on a platform simultaneously.

With an antitrust case in Europe, potential enemies on both sides of the Presidential campaign, various Congressional committees investigating big tech, Germany’s anti-trust authority sniffing at the front door and its fulfilment centres never too far away from controversy, Amazon is not in the most comfortable of positions.

Speed more than security is key for eCommerce success

New research from GoCardless has suggested extended authentication processes is costing online retailers sales as a notable chunk of consumers favour convenience over security.

Security is an on-going issue in the technology industry and while it should have been addressed years ago, it wasn’t. What we are now seeing it a desperate attempt to catch-up and put in place the technologies, processes and regulations to create what would be deemed an acceptable level of security. The result is a tsunami of changes which are causing complications all over the place.

One such example is the introduction of Strong Customer Authentication (SCA), a European-wide initiative to set in place two-stage verification for authentication of online purchases. The rules are slated for September and will likely see some notable changes in the way retailers engage customers.

Worryingly for the retailers, the GoCardless research suggests consumers are already frustrated with the authentication process as is. Any further changes could see heightened churn on sales.

According to the research, 43% of UK respondents to the survey said ‘speed and ease of payment’ was the most important factor when purchasing products online. The numbers are certainly smaller in other European nations, but very notable. Security is a consideration in all the markets in question, as you can see in the table below, though it seems there is only a certain amount consumers will stomach before looking elsewhere.

UK France Germany Spain
Speed is the most important factor 43% 32% 33% 17%
Security is a large consideration 55% 62% 61% 58%
Abandoned purchase because of security process 44% 33% 48% 40%

As you can see from the final row, a notable number of customers can become easily frustrated by extended security, validation and authentication processes. This might be down to the idea that too much is being thrown at the consumer at once.

Generally, consumers seem to favour being eased into a change. Take Facebook for example, what the platform is today is remarkably different from when it started, and this includes the amount of personal information which is being requested and processed. If all of these changes were introduced at once, there would have been uproar, but like the boiling frog, consumers were eased into the current situation.

For years, the technology industry ignored the importance of security, refusing to make it a priority voluntarily. Now governments and regulators are stepping in to force through changes; it might give the consumer a shock and a negative experience.

“In the eyes of UK consumers, convenience is virtually neck and neck with security in terms of importance when shopping online,” said Duncan Barrigan, VP Product at GoCardless. “Protecting shoppers from fraud when they pay online is crucial, and new regulation which achieves this should be welcomed.

“The flipside is that these measures, if implemented badly, could significantly disrupt consumers and lead to a significant conversion drop off for businesses. Online retailers must work with their payment providers to find the right balance between security and convenience at checkout – not waking up to this new reality could seriously harm e-commerce. Major retailers like Amazon are already sounding the alarm.”

Amazon almost takes to the skies and rids itself of pesky humans

Amazon has announced another step forward towards the promise of drone delivery and the ambition of a human free business.

Speaking at the re:MARS Conference in Las Vegas, Amazon’s show looking at machine learning, automation, robotics and space, the eCommerce giant has suggested it is close to introducing autonomous drones to its delivery force. Reports suggest the business could be ready to scale during 2020.

“Can we deliver packages to customers even faster?” said Jeff Wilke, CEO of Amazon Worldwide Customer. “We think the answer is yes, and one of the ways we’re pursuing that goal is by pioneering autonomous drone technology.

“We’ve been hard at work building fully electric drones that can fly up to 15 miles and deliver packages under five pounds to customers in less than 30 minutes. And, with the help of our world-class fulfilment and delivery network, we expect to scale Prime Air both quickly and efficiently, delivering packages to customers within months.”

Looking at the wider business model, not only does this enable Amazon to further streamline delivery operations, one of the largest overheads at the business, but it potentially takes it towards new revenues.

With the promise of delivery within 30 minutes, there is potential for Amazon not only to move into the same day delivery world, but also offer services for takeaways, coffee shops and supermarkets. If the focus of this service can be honed, perishable items can be factored into the logistics mix.

And this is not the only new idea which Amazon is testing to get rid of that pesky reliance on fragile humans and their troublesome right to rest.

Scout is another interesting development. Here, the team are developing a small, autonomous robot with six wheels, which will be able to deliver small packages. Currently the small robot is being tested in Washington, accompanied by one of the Amazon testers, but it does look like it can deliver on the same promise as the drone; small deliveries in the local area.

It’s not hard to see the greater ambitions of the Amazon business here. Yes, this is one of the most influential companies on the planet, one of the most trusted brands, revenues are astonishingly large, but it is actually quite a poor profit generator. Over 2018, roughly 59% of profit could be attributed to the 12% share of revenues brought in by the cloud computing business AWS.

Total sales Percentage Net income Percentage
Consumer $207,119 billion 88% $5,125 billion 41%
AWS $25,655 billion 12% $7,296 billion 59%
Total $232,774 billion $12,421 billion

The core eCommerce platform might have made Bezos and Amazon famous, it may well have offered the brand recognition and scale which is enabling profitability elsewhere, but it is not a massive money maker.

There is a solution to this financial conundrum; generate more efficiencies in the most expensive part of the business. At Amazon, as with everywhere else, the biggest financial outlay is down to us, the human employees of the business. Not only do we insist on getting paid, but also require sleep, time to go to the toilet and those irritating laws mean Bezos has to allow his staff a break to eat, the cheek!

Reports constantly emerge that Amazon is a bit of a horror place to work, but Bezos and co. seem to be trying to do something about that; removing the necessity for humans.

Supreme Court ruling threatens tax raid on eCommerce

A ruling in the US Supreme Court may force internet based businesses to collect sales tax in States where the company does not have a physical presence, killing off any advantage which may exist over brick-and-mortar businesses.

The Supreme Court ruled 5-4 to overturn a law dating back to 1992, potentially offering states the opportunity to collect billions in sales tax from eCommerce. The ruling in question, Quill v. North Dakota, focused specifically on mail-order and catalogue purchases stating a business must have a physical presence in the state for purchases to be subject to sales taxes.

While the 1992 ruling has been used as precedent for many other decisions throughout the US, two years ago South Dakota challenged the precedent, passing a law which required any business which has more than $100,000 in annual sales or engages in 200 or more separate transactions, pay a 4.5% tax on all sales. The Quill v. North Dakota was brought to the Supreme Court by South Dakota as a means to reconcile its own law, with the latest 5-4 ruling set to cause chaos for the digital economy. While the individual states generally operate somewhat independently, there should be little surprise if the internet players start getting taxed from all directions.

In terms of justification, Justice Anthony Kennedy was quite plain when delivering the opinion of the court; times have changed and therefore so should laws.

As you can see from the above tweet, there are certainly some supporters for the move. President Trump has made no secret for his dislike for the Amazon business model, though only philosophical thinkers will be able to determine whether this is a hatred of eCommerce on the whole, or simply a distain for Amazon CEO Jeff Bezos. Amazon has been the focal point of Trump’s attacks to date, but the Supreme Court ruling will not be as laser focused; every eCommerce business will be hit.

Although not exactly the same, the effort to hold online retailers accountable to greater taxation is very similar to the work taking place in Europe to get the internet giants, such as Facebook, Amazon and Google, to pay more taxes in the European Union. The message across the world seems to be quite simply; we’re going to stop you from taking advantage of the grey areas in the law.

While the man on the street might revel in the thought of big business being held accountable, we suspect this elation might be short lived. The cost is likely going to be passed onto the consumer with goods increasing in prices to compensate for the extra tax. Trump and his cronies might preach about a victory for Americans, tackling injustice as crafty lawyers circumnavigate the murky waters of legislation and regulation, but ultimately the consumer will end up with less money in the bank account.