Ama­zon’s lat­est deal puts growth in fo­cus

Plan to buy Whole Foods, on sur­face, doesn’t raise any an­titrust is­sues.

Austin American-Statesman - - BUSINESS - By Án­gel González Seat­tle Times

Ama­zon.com, Amer­ica’s fifth-largest com­pany by mar­ket value, is still grow­ing like an ado­les­cent and plant­ing flags in new mar­kets.

That is prompt­ing some pol­i­cy­mak­ers and le­gal ex­perts to ask: How big is too big?

It’s a key is­sue for an econ­omy be­ing rapidly re­shaped by e-com­merce, a sec­tor where Ama­zon and the mer­chants op­er­at­ing on its plat­form ac­count for up to a third of all U.S. sales, ac­cord­ing to some es­ti­mates.

E-com­merce is not Ama­zon’s only game. It also dom­i­nates cloud com­put­ing, and it may soon have a sig­nif­i­cant brick-and-mor­tar pres­ence, with its pend­ing ac­qui­si­tion of Austin-based Whole Foods Mar­ket. The un­ex­pected $13.7 bil­lion deal an­nounced in June spurred an out­cry from crit­ics and some mem­bers of Congress who asked the Fed­eral Trade Com­mis­sion to take a close look at the deal.

Last month Marc Per­rone, pres­i­dent of the United Food and Com­mer­cial Work­ers In­ter­na­tional Union, which rep­re­sents gro­cery work­ers, wrote to the FTC that Ama­zon’s pro­posed takeover of the or­ganic food pur­veyor “is a com­pet­i­tive threat to our econ­omy that will hurt work­ers and com­mu­ni­ties.”

Le­gal ex­perts, how­ever, say it’s hard to build an an­titrust case against the Whole Foods deal, be­cause it would give Ama­zon just a small per­cent­age of the U.S. gro­cery mar­ket.

Ama­zon’s bud­ding dom­i­nance in other mar­kets, too, is likely to re­main un­chal­lenged in the long term, un­less the phi­los­o­phy

un­der­ly­ing an­titrust reg­u­la­tions changes. In fact, U.S. reg­u­la­tors have sided with Ama­zon against its ri­vals’ anti-com­pet­i­tive moves — such as when they charged Ap­ple Inc. and top New York pub­lish­ers with con­spir­ing to raise prices for e-books, a mar­ket Ama­zon dom­i­nates.

Un­der the cur­rent U.S. an­titrust view, how con­sumers are treated is the prime fac­tor, not the com­pany’s dom­i­nance in a mar­ket. To take an­titrust ac­tion against Ama­zon, reg­u­la­tors would have to prove that the com­pany some­how harms shop­pers — for ex­am­ple, by con­spir­ing to make the prod­ucts they buy ar­ti­fi­cially more ex­pen­sive. An­other way Ama­zon could run into trou­ble is by un­der­min­ing ri­vals with strate­gies such as sus­tained preda­tory pric­ing or forc­ing sup­pli­ers to lock out com­peti­tors.

But rather than us­ing tac­tics like that, some ex­perts say, Ama­zon has built its em­pire just by giv­ing cus­tomers what they want — prod­ucts at low prices with lots of choices — which is not against the rules, no mat­ter how big it grows.

“An­titrust law doesn’t make it il­le­gal to get mar­ket power,” pro­vided it was done prop­erly, said A. Dou­glas Me­lamed, a pro­fes­sor of an­titrust law at Stan­ford Univer­sity and a former U.S. Depart­ment of Jus­tice an­titrust of­fi­cial.

Ama­zon’s hu­mon­gous size is “po­lit­i­cally im­por­tant,” but not an an­titrust is­sue. “Not if they got there by be­ing more in­no­va­tive and more cre­ative than the next guy,” he said.

At the same time, the huge role oc­cu­pied by Ama­zon — and other big tech firms such as Google and Face­book — is fos­ter­ing a re­think­ing among pol­icy wonks about how gov­ern­ment can over­see the power of these large tech com­pa­nies.

“A lot of peo­ple are wak­ing up to the fact that Ama­zon has po­si­tioned it­self as a cen­tral piece of in­fras­truc­ture for the 21st cen­tury econ­omy,” said Lina Khan, a fel­low at the New Amer­ica Foun­da­tion, a Wash­ing­ton, D.C., think tank. She also is au­thor of “Ama­zon’s An­titrust Para­dox,” which has at­tracted wide­spread at­ten­tion since it was pub­lished in Jan­uary by the Yale Law Jour­nal.

“We need to re­think how to go about pre­serv­ing com­pe­ti­tion,” she said in an in­ter­view.

Ama­zon down­plays the an­titrust is­sue. Dur­ing a re­cent call with re­porters, Ama­zon Chief Fi­nan­cial Of­fi­cer Brian Ol­savsky said that “the busi­nesses we are in are all very large mar­ket seg­ments with lots of very se­ri­ous com­pe­ti­tion.”

Nev­er­the­less, the com­pany last year hired a veteran D.C. an­titrust ad­viser, Seth Bloom.

Mak­ing ri­vals quake

Ama­zon’s North Amer­i­can re­tail sales, which in­clude Canada, to­taled about $80 bil­lion in 2016. That doesn’t in­clude sales by third-party mer­chants op­er­at­ing on Ama­zon’s site, which some ex­perts es­ti­mate to be about the same, or more.

To­gether, Ama­zon and its mer­chants ac­count for about a third of all on­line sales. But e-com­merce is a tiny part — about 8.15 per­cent — of the huge U.S. re­tail sec­tor.

Ama­zon grows fast, how­ever. In the lat­est quar­ter, the com­pany’s sales grew 25 per­cent, to $38 bil­lion, and the com­pany is on track to be­com­ing the sec­ond-largest U.S. em­ployer among the For­tune 500, af­ter Wal-Mart.

It dom­i­nates some mar­kets, such as e-books. In others, it’s grow­ing so quickly that it makes in­cum­bents quake. For in­stance, an­a­lysts with Cowen es­ti­mate that Ama­zon might sur­pass Macy’s as the big­gest seller of clothes this year.

When a ru­mor arises that Ama­zon might dip its toe in a new mar­ket, stocks for po­ten­tial ri­vals trem­ble, as hap­pened to Zil­low in June amid re­ports of a po­ten­tial Ama­zon ser­vice for real-es­tate agents.

Even more im­por­tant than its re­tail power, in the eyes of some pol­i­cy­mak­ers, is Ama­zon’s in­creas­ingly cen­tral role as a plat­form widely used by other re­tail­ers. Brands now feel com­pelled to hawk their wares on Ama­zon’s site, the big­gest des­ti­na­tion for on­line shop­pers.

Many mer­chants also pay to use Ama­zon’s logistics, hav­ing their prod­ucts stored and shipped by the Seat­tle gi­ant. Ama­zon, the largest pur­veyor of cloud com­put­ing, even rents com­peti­tors the com­put­ing ca­pac­ity they need to op­er­ate their busi­nesses.

Khan, the New Amer­ica fel­low, likens Ama­zon to the 19th cen­tury rail­road em­pires that farm­ers and man­u­fac­tur­ers re­lied on to get their prod­ucts to mar­ket — and whose power gen­er­ated pub­lic con­cern that led to the creation of the first fed­eral an­titrust laws.

“To­day you have to ride Ama­zon’s rails,” she said.

Cur­rent an­titrust laws, which fo­cus on pro­tect­ing ef­fi­ciency and con­sumer prices, are ill-suited to reg­u­late that type of power. They also don’t fully take into ac­count how Ama­zon’s bevy of mu­tu­ally re­in­forc­ing busi­nesses can un­der­mine com­pe­ti­tion, Khan said.

Still, ex­perts say the Whole Foods deal is likely to sail through the ap­proval process.

Me­lamed, the Stan­ford pro­fes­sor, said that the gro­cery chain and Ama­zon to­day barely com­pete. Whole Foods, with an­nual sales of about $16 bil­lion, rep­re­sents a tiny sliver of the $600 bil­lion U.S. gro­cery mar­ket. And Ama­zon’s U.S. gro­cery and pantry sales to­taled just $400 mil­lion in the first quar­ter of 2017, ac­cord­ing to cal­cu­la­tions by One Click Re­tail, an e-com­merce con­sul­tancy.

In the longer term, Me­lamed said he sees a rel­a­tively clear run­way for Ama­zon — as long as it be­haves.

ELISE AMEN­DOLA / AP

Ama­zon plans to buy Whole Foods in a deal val­ued at about $13.7 bil­lion. The two com­pa­nies have not yet de­tailed how their pro­posed union might change the ex­pe­ri­ence for cus­tomers, but reg­u­la­tors likely won’t de­ter­mine that the on­line shop­ping gi­ant will dom­i­nate the gro­cery in­dus­try.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.