In August, a federal judge ruled that Google had illegally maintained a monopoly in online search. The Department of Justice is considering breaking up Google to remedy its monopoly on the search market. Last Monday, September 9th, a second trial starts. Google has faced complaints about how it dominates the online advertising market. The concerns stem from software known as Google Ad Manager, which websites around the world use to sell ads on their sites. The remedy here could be forcing Google to sell Ad Manager.
However, Google is not the only big tech company that has antitrust problems. The Federal Trade Commission and 17 state attorneys general sued Amazon.com, Inc. alleging that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.
The FTC and states allege Amazon’s anticompetitive conduct occurs in two markets—the online market that serves shoppers and the market for online marketplace services purchased by sellers.
Aftermarket services is based on Amazon’s logistics business, Fulfillment by Amazon. According to the FTC, this service “conditions sellers’ ability to obtain “Prime” eligibility for their products—a virtual necessity for doing business on Amazon—on sellers using Amazon’s costly fulfillment service, which has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms. This unlawful coercion has, in turn, limited competitors’ ability to effectively compete against Amazon.”
Fulfillment by Amazon is a significant source of revenue for Amazon. In the last quarter, sales generated by third-party seller services rose 12% on a year-over-year basis to $36.2 billion.
Amazon will undoubtedly argue that this service is good for consumers. In the first-quarter earnings report, Amazon reported that it delivered to Prime members at its fastest speed ever. In March, across the top 60 largest U.S. metro areas, nearly 60% of Prime member orders arrived the same or next day. In 2021 it was estimated that 73% of all Amazon sellers use FBA as part or all of their fulfillment strategies. That includes 65% of the top Amazon sellers, including a large percentage of private label brands. Because Amazon lists over 9.7 million individual sellers selling some 3.4 billion products per year, FBA is one of the largest logistics service providers in the world.
According to the FTC, Amazon charges “costly fees on the hundreds of thousands of sellers that currently have no choice but to rely on Amazon to stay in business. These fees range from a monthly fee sellers must pay for each item sold, to advertising fees that have become virtually necessary for sellers to do business,” and logistics fees associated with fulfillment. “Combined, all of these fees force many sellers to pay close to 50% of their total revenues to Amazon. These fees harm not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.”
As bad as the FTC makes Amazon’s activities sound, the book The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power, by the whistle-blower Dana Mattioli, makes Amazon sound ten times worse.
Fulfillment by Amazon requires that sellers jump through numerous hoops to prepare their products for storage and shipment into Amazon’s fulfillment centers. This is called FBA Prep. Item labeling, shrink wrapping, bundling, kitting, of inbound products is complicated as every product has a different preparation requirement. Outsourcing this work is difficult because it is manual, hard to scale, and high-touch. Consequently, few logistics service providers do take work involving FBA prep. It is
One of the 3PLs that do take this work is MyFBAPrep. MyFBAPrep has over 100 warehouses and 85 million square feet of warehouse space, and they offer a range of services that help third-party sellers navigate the complexities of FBA requirements. However, when I talked to their CEO, Tom Wicky, he told me that they work with Amazon’s larger third-party sellers, so this still leaves smaller sellers at Amazon’s mercy.
Just as the Department of Justice may seek to break Google into smaller independent companies to fix the antitrust issues, if the government wins its suit against Amazon, it could seek to have Amazon divest Fulfillment by Amazon.
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