The Daily - Amazon’s Most Beloved Features May Turn Out to Be Illegal

Episode Date: October 2, 2023

The U.S. government has filed a landmark antitrust lawsuit against Amazon, pointing to a set of familiar features that have made, the internet retail giant so beloved by consumers.Karen Weise, a technology correspondent for The Times, explains why those features may actually be illegal.Guest: Karen Weise, a technology correspondent for The New York Times.Background reading: The Federal Trade Commission and 17 states have sued Amazon, saying its conduct in its online store and services to merchants illegally stifled competition.The F.T.C. says there are two main tactics that Amazon used to undermine competition. The company says it will contest the lawsuit.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Michael Barbaro. This is The Daily. Last week, when the U.S. government filed a landmark antitrust lawsuit against Amazon, it pointed to a set of familiar features that have made Amazon so beloved by consumers. Today, my colleague Karen Weiss on why those beloved features may actually be illegal. It's Monday, October 2nd. Karen, now that the U.S. government has actually sued Amazon for monopolistic tactics, we wanted to talk to you, somebody who has covered Amazon for years, about the very specific ways that Amazon has allegedly broken the law.

So talk us through that. Yeah. So the Federal Trade Commission looked at a lot of things, but they said in the end, it kind of boiled down to two tactics that are behind the scenes of things that we all know. So one is how we buy things on Amazon. of things that we all know. So one is how we buy things on Amazon. When you click buy, the buy now button, and then also prime shipping, that super fast shipping that is part of how things get to your door so quickly. Right. What you just mentioned are basically the throbbing

heart of my relationship with Amazon. I assume everyone's relationship to Amazon. And you're saying those are at the center of this federal action against Amazon. Exactly. And the government is saying there are these very sophisticated mechanisms that let Amazon illegally maintain its monopoly. That's kind of the core of their argument, that behind the things that we all see, there's this grip of power over not just the sellers on Amazon's website, but over the whole Internet. OK, so I want you to explain this behind-the-scenes grip on the internet and consumers and sellers that Amazon has developed through these two items you mentioned. And let's start with the Buy Now button

and how, according to our government, that has been misused by Amazon. Sure. So the first thing you have to understand briefly is that most things we buy on Amazon are not actually sold directly by Amazon? Sure. So the first thing you have to understand briefly is that most things we buy on Amazon are not actually sold directly by Amazon. They're sold by outside sellers. And these are companies and brands that list their products on Amazon's marketplace. And as a consumer, that whole world of sellers is more or less invisible. Mostly what you see is you go to a product page and you see these big orange and yellow buttons that say, buy now and add to cart, or they entice you, free delivery,

this could be here tomorrow if you order in the next hour. That is called a buy box. And so the government says Amazon has used this buy box, those buttons, as one of its key ways it prevents discounting across the internet. And how does that work? Sure. So they're basically saying that Amazon wants to have the lowest price available for a product. And it does that, it enforces that by saying if a product is available on another website, it crawls the web. Amazon has these machines that go across, scrapes other websites. And if they find it's even one penny less elsewhere,

they will essentially punish the seller for that happening. And they do that by removing those big, bright buy now and add to cart buttons. And instead, they make this little button that says, you know, it's just plain black and white text that says, see all buying options. It's like the opposite of calling you to action, the opposite of enticing you to buy. Maybe you've landed on a page like this. I know I have where it just has, It's like the opposite of calling you to action, the opposite of enticing you to buy. Maybe you've landed on a page like this. I know I have where it just has it's like,

how do I even buy this thing? It looks like it's unavailable, even though technically it is available. You're saying that Amazon regularly scours the online retail world and figures out if one of its sellers is simultaneously selling on another online retail platform at a lower price. And if it discovers that's the case, it basically demotes that product, and I guess that seller, on Amazon and makes you not really want to buy their stuff because it doesn't even give you the buy now button. Exactly. Exactly. So for most sellers, Amazon is a huge portion of their sales. And so if the buy button goes away, their sales plummet. And then the sellers have to figure out what to do. And they can do two things. They can either raise their price on another website or lower their

price on Amazon. And what the FTC in this complaint against Amazon says is that they say Amazon knows that sellers often raise their price elsewhere. And here's an example of how that might work. So for a story a couple years ago, I spoke with a company called Vitacup. And they make those little coffee pods. Theirs have vitamins infused in them. And so they wanted to reach new customers and decided to offer a deal on a different website that has a different model. They basically do these splash sales,

so deep discounts, but with slow shipping. And so they offer their coffee pods at 30% off on this other website. But when Amazon's web crawlers find this, they remove that buy now button. And all of a sudden, sales plunge. And for Bite a Cup, like many sellers, like most sellers I've spoken with, Amazon is most of their sales.

And so all of a sudden, their biggest outlet, the sales go close to zero for them. And so they then scramble and they email the other website and said, please take the listing down immediately. Because I can't afford to lose my Amazon sales like I am. So in this example with Vitacup, we clearly see that Amazon's decision to remove the buy now button is so meaningful that the seller takes their product off of a rival website once they lose that button. It doesn't just raise the price. It says, oh, I can't even do business with you anymore, which suggests just how powerful this tactic of removing the buy button really is. Exactly. I mean, I've talked to sellers who don't even list on other websites at all because they're like, you know, it's not worth losing my sales on Amazon. And so the complaint against Amazon is saying this has an

effect across the internet of preventing discounting. That yes, Amazon may have the lowest price, but it's actually raising the costs across websites because Amazon is essentially policing what people sell elsewhere. Amazon is basically preventing deals from happening elsewhere, which effectively means it has almost sole control over the price in the entire market. That's what the FTC is alleging. And if you know anything about antitrust law, what we are describing here, Karen, sounds a lot like something that is anti-competition and anti-consumer choice. Exactly. Because they're saying that this mechanism, is anti-competition and anti-consumer choice. Exactly. Because they're saying that this mechanism, this anti-discounting control that Amazon has, that's how they talk about it, that it has the effect of making it so competitors can't compete on price.

Got it. Okay. I think that brings us to the second example that you mentioned, Amazon Prime, perhaps even better known than the Buy Now button. Everyone enrolls in it, seemingly, because you get really good deals and you get them delivered in insanely fast ways. How does the government say that Prime is being abused here? They're really focusing on the shipping component of Prime. That Prime is this membership program that an estimated 170 million American people have. So this is, you know, most adults in America. Yeah, kind of like half the country. Half the country if you include kids. So like lots of people.

Right. And Prime works because people love Prime, right? And there's this idea at Amazon, people love great selection, great prices, and fast delivery. They will always love those things. And you focus on that, and you have this flywheel, this virtual circle that consumers love. Right.

And so what's the problem? So the way Amazon has done this is by building all of their logistics infrastructure, warehouses, delivery vans, those vans you see driving down your street all the time. Yep. Those vans you see driving down your street all the time. And the FTC is saying that they basically force sellers to use their logistics operation. How so? Basically, to get that checkmark, to get it to say that this is a prime product, the sellers have had to pay Amazon to use this program called Fulfillment by Amazon. They have to use Amazon's warehouses. They have to use Amazon's logistics, this vast system you just described. Exactly. So they send their product to Amazon. Amazon puts

it through all these buildings. When you click buy, pretty much immediately it gets put in a box and put on a truck and to your house. And it's doing that faster and faster every single day. But if you don't use Amazon's logistics and you don't use their warehouses, then you don't get that checkmark. You're not prime eligible. And then your sales are going to tank because customers are looking for that. We've seen that time and again. And so sellers know that. And it's very hard to build a business on Amazon if you don't ship through Amazon. So if you're a seller, this isn't really feeling like that much of a choice. You're basically being compelled to use Amazon's vast logistics system, or you're going to be locked out of half of America's buying habits, which are

Amazon Prime. That's exactly right. And when I talk to sellers, they say the more you get into Amazon's logistics, the more you're into the whole Amazon system, the harder it is, the more complicated, the more expensive it can be whole Amazon system, the harder it is, the more complicated, the more expensive it can be to sell elsewhere. Because, you know, so much of your sales are on Amazon that you then all of a sudden have to set up a whole different supply chain and figure out different warehouses just gets much more complicated. Right. And I'm going to guess that some sellers basically decide, ugh, this is too much of a headache. I'm only going to sell to Amazon, which then calls back to our earlier conversation about the buy button.

So what you're describing collectively is just a tremendous amount of control. Exactly. Amazon has so much scale, so many orders it's delivering. It can deliver them really efficiently, really, really quickly. And that's incredibly hard to compete with now. If you look at the number of warehouses, the number of drivers, the speed of their delivery, it's unsurpassed. I mean, it is incredible. Right. And so what we as consumers have come to understand as Amazon's brilliance,

its ability to be so fast and so cheap, this is why we all use it, what the FTC is saying is it's actually built on a couple of tactics that ultimately are kind of coercion for sellers. Exactly. That's exactly right. And that there's a broader effect on consumers. That it has an effect of both raising prices and an effect of limiting our choice, because there aren't that many places that can viably compete with Amazon anymore. We'll be right back. Karen, I imagine that Amazon and their lawyers have a very robust defense to this lawsuit. And I wonder if you can represent their counterargument both to the charges about these two specific tactics and to the larger allegation being made by the U.S. government that Amazon is being monopolistic, anti-competitive, and bad for the economy. Sure. So when you talk about that buy now button, the buy box, Amazon says,

why in the world should we show our customers bad deals? Why should we knowingly let our customers buy something that we think is not the best deal around? And people trust us because they know that we can give them the best deal around. So in some sense, it's kind of a simple argument. We serve customers and we're not gonna do wrong by them. And for Prime and Logistics, they say, look, we've made billions of dollars of investments in these warehouses and let sellers use it.

That this has actually made it very easy for sellers to build businesses. You can build a business without being a supply chain person. You can just be great at coming up with like this really cool new toy for kids or whatever it is. They say that it's very well priced,

which most sellers I talk to say is true. And they say it's very easy. And it's actually unlocked this business for so many people and let so many sellers get something that customers love, which is this unbelievably fast and reliable delivery that we all know, and that makes so many things so simple. And I would say broadly, their argument is the FTC

has this totally upside down. How so? Amazon says that they are the most customer-obsessed company in the world, and that every decision they make is what is best for customers. We're going to show them the best deal. We're going to get them things fastest. That they do things with the customer in mind that has had an effect of creating this whole world of sellers that didn't really exist. That it's lowered prices broadly over time. that it's lowered prices broadly over time, that it's just made this whole ecosystem work, essentially,

in a way that customers clearly love because they keep coming back for more. But in theory and in practice, it's possible for two things to be true at the same time, and I'm sure that's what the government is going to say in response to Amazon's response, which is you can be a customer-focused company, you can be great at delivering fast, discounted products to customers,

and you can simultaneously be making life very hard for sellers by eliminating their choices through coercive tactics that ultimately over time might be bad for consumers. I think that's right. There's kind of two sides to this coin. It's like, what is good in the Amazon universe for Amazon customers and what is good for customers broadly? Are we missing out on things that we don't even know? Are we paying more than we even realize we need to be? Are there other websites, other companies that could have started up and done things differently that we don't even, it's like, what don't we know? Right. What don't we know?

Because we so thoroughly live in Amazon's world. That's exactly right. So that, of course, raises the question of what will happen to Amazon if it loses this case? And what does the government really want here in the end? Does it want to basically turn back the clock, turn back the clock to a time where Amazon doesn't so thoroughly dictate the terms of the American retail landscape? And if that is the goal, what might that look like? The government doesn't exactly say what they want.

They don't say we're going to break Amazon up. They just say we want to undo these things. And what Amazon says is that it's going to force them to unwind all these things that customers love. They won't be able to offer their prices. They won't be able to make it as easy and as simple as possible. These are the things that keep us coming back for more. All these things, they have to unwind it. And that's very hard to do. And I know because I tried to do it myself. What do you mean? About a year ago, my husband and I did something that very few people do,

which is we canceled our Prime subscription. Huh. You predicted that there was going to be an antitrust case. And you just went ahead and said, what will this future potentially look like? Exactly. You know, it did come out of reporting, though. This was not a protest thing. This was not like an Amazon's bad thing. This was us looking at our finances.

And we felt like many Americans, we spent a lot of money in the pandemic. We were just buying a lot of stuff. And we wanted to buy less stuff. And so I know from reporting, we know from what Amazon tells sellers, we know from our own experience that the easier things are to buy, the more you buy them. Right. And nothing's easier than Amazon Prime. So you drop it. So we dropped it.

Yeah. It was an experiment. Would we miss it? We agreed we'd pay for fast shipping when we wanted it. We wouldn't when we didn't. We might put things in the cart but not click buy eventually. And we were just curious, like, what would happen? And so, what happens? Tell us about this alternate universe.

It's very weird. It's like you have to plan ahead a little bit. I found that I spent more on other websites as a result of it. You know, Target. There's one near my kid's swim class. I put things to buy online and pick up in their store, and I go and swing by and get it. I also found that we did buy less.

You know, there were things that I searched for, and when I saw it wouldn't be available in the time for when I wanted it, we just didn't buy it. You know, I remember we were going camping with friends, and I was considering getting these reusable water balloons, which are a thing with kids these days. They're kind of cool. They don't produce the scraps all over the ground.

And I couldn't get it fast enough. And so we just didn't buy it before we went camping. And guess what? Camping was okay. But then there were other times, like I had the Seattle Bureau for the New York Times over for a barbecue. And I wanted to get something for the kids to play with outside.

So I ordered these little tiny soccer goals and we paid $8 or whatever for the shipping. And I got there before the weekend. And the kids actually spent a ton of time playing with their soccer goals. Broadly, I definitely spent way less on shipping because I realized very few things are quite that urgent. It's striking to me, Karen, your experience.

In some ways, like you said, you are kind of making the case for Amazon because what you have found is that there's life beyond Amazon. You can opt out of it and you're fine. Therefore, it's a little hard to think of them as a coercive monopoly that you can't avoid in our economy. But on the other hand, what you're describing, the experience you're having, requires you to have a totally rethought version of being a consumer than the one the rest of us have gotten used to quite happily. And you have volunteered to have a more burdensome version of buying stuff, waiting for it,

diversifying your shopping experience, driving to a store, God forbid. So you're kind of making Amazon's point. You're also kind of undermining it. That's exactly right. Amazon fundamentally changed what we all expect. I mean, even in the years since I stopped having Prime, their shipping speeds for Prime have dramatically improved. They're faster than they've ever been. They've built all these warehouses in the pandemic, and now they are putting them to use like you would not believe. They're getting things so fast.

They have taught us how to shop online, basically. And that is very hard to unwind as a consumer. I did it as an experiment. And I'm an outlier. And I don't even know, like, we may still rejoin Prime. We haven't even decided because there are definitely times where I'm like, oh, man, this would have been really nice to have. oh man, this would have been really nice to have. Right. I mean, ultimately what you're saying is no matter what happens here, no matter how this case gets resolved, it's going to be really hard, perhaps even impossible, to unrewire our brains in the way that Amazon has as consumers.

Right. They have taught us that we can go to them, open, click, buy, the item shows up at your doorstep that day, done. I mean, that's a very hard loop to break. Well, Karen, thank you very much. We appreciate it. Anytime. We'll it. Anytime. We'll be right back.

Here's what else you need to know today. I have very good news for the country. Democrats and Republicans have come to an agreement and the government will remain open. We will have avoided a shutdown. Over the weekend, the U.S. government narrowly averted a shutdown that had appeared to be all but certain after Republican House Speaker Kevin McCarthy put forth a short-term spending bill that won more support from House Democrats than it did from House Republicans. Hours later, that bill was adopted by the Democratic-controlled U.S. Senate and signed by President Biden, moments before the government was scheduled to shut down. The bipartisan outcome was the exact scenario that McCarthy had sought to avoid for fear of upsetting the House's far-right membership,

who unanimously voted against the bill and who may now use it as a pretext to try to remove McCarthy as House Speaker in the coming days. During a news conference, McCarthy said he was willing to take that risk. If somebody wants to make a motion against me, bring it. There has to be an adult in the room. Democrats, especially in the Senate, celebrated the moment as both an economic and political victory and as a chance to scold House Republicans for their partisanship. If there is one lesson for House Republicans to take from the absolute chaos they have caused this past week, it is that partisanship is not a path forward, it's a path to chaos. Today's episode was produced by Rob Sipko, Asta Chaturvedi, Will Reed, and Jessica Chung. It was edited by Mark George, Lisa Chow, and Devin Taylor, contains original music from Marion Lozano and Dan Powell,

and was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Landfork of Wonderland. That's it for The Daily. I'm Michael Bilboro. See you tomorrow.