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The Ruthless Tactics Keeping Amazon on Top
Welcome back to Pattern Matching, OneZero’s weekly newsletter that puts the week’s most compelling tech stories in context.
As the world wheezes through a pandemic, its richest are profiting as never before. Since mid-March, America’s billionaires have seen their wealth spike 25%, a gain of $755 billion in a four-month period that has left 150,000 dead and put tens of millions out of work. Tech companies and their founders have gained most of all, led by Jeff Bezos, Mark Zuckerberg, Bill Gates, Elon Musk, and Larry Ellison. Shares of Amazon, Apple, Microsoft, and Netflix have hit record highs. Bezos — the world’s richest man — got $13 billion richer on July 20 alone, thanks to an Amazon stock bump.
This illustrates the degree to which Big Tech’s fortunes have decoupled from those of the rest of society. When times are good, they fend off or buy up rivals and make piles of money. When times are awful, they consolidate their market power and make even more. When you control the software platforms that dominate online communication, productivity, and commerce, you can’t lose.
That control is what’s at issue in a series of antitrust hearings in the U.S. House, the next of which had been scheduled for Monday but has been postponed. When the hearing does take place, Bezos will testify to Congress for the first time, alongside Zuckerberg, Apple’s Tim Cook, and Google’s Sundar Pichai. I’ll have more on what to expect from that landmark hearing once the new date is announced, as well as an interview with Stacy Mitchell, co-director of the Institute for Local Self-Reliance and an influential critic of Amazon.
In the meantime, it’s worth a closer look at some of the specific ways that a company like Amazon wields its size in the marketplace. As Mitchell notes, the consumer-focused approach to antitrust policy that has prevailed in the United States since the 1970 and ’80s holds that big does not equal bad, as long as companies harness their scale to keep prices down rather than to jack them up. No doubt Amazon does that. But a series of reports have made clear over the years that Amazon, like Apple, Facebook, and other top tech firms also leverage their size in another way: to bully smaller rivals, take their best ideas, and squeeze them out of business.
Amazon fights dirty.
- Amazon is one of America’s most trusted brands. But for many startups, trusting Amazon as a business partner has turned out to be a ruinous mistake. The Wall Street Journal’s Dana Mattioli and Cara Lombardo reported this week that the Seattle giant has often used its Alexa Fund, a venture-capital fund for startups involved in voice technology, to gain access to startups’ business plans and private data, only to launch its own competing products later.
- In some cases, Amazon ended up crushing the startup it had invested in as a result, but that was a trade-off the company could afford to make. In other cases, Amazon declined to invest at all, then simply took the idea and ran with it. An Amazon spokesperson denied to the Journal that the company uses confidential information to build competing products and characterized the spurned developers as “self-interested parties who complain rather than build.”
- If the story sounds familiar, it’s because Amazon has a long-standing pattern of bullying, backstabbing, and bigfooting smaller business partners. Another Journal investigation by Mattioli in April found that the company routinely used its access to data about third-party sellers on Amazon.com to develop its own, competing private-label product lines — something the company had told Congress explicitly that it doesn’t do. “We knew we shouldn’t,” one former employee told the paper. “But at the same time, we are making Amazon branded products, and we want them to sell.”
- Even Amazon’s cloud platform, Amazon Web Services, has become feared by third-party developers for allegedly copying and incorporating their third-party tools into its own proprietary products, Andrew Leonard reported for OneZero last year. “Because AWS has thousands of customers, the company has a godlike perspective of broad industry trends, including insight into which third-party tools are most popular,” he wrote.
- The ruthlessness has deep roots in the company’s culture, according to Brad Stone’s 2013 book The Everything Store. Way back in 2009, Amazon offered to buy Quidsi, the startup behind Diapers.com. When it declined to sell, Amazon allegedly slashed prices on diapers to the point of driving the startup out of business — and then bought it. In 2017, Amazon shut Quidsi down.
- None of this is to say that Amazon is uniquely unscrupulous. Facebook is famous for either copying or buying any social media startup that starts to make inroads against its dominance — with the threat of copying looming over every acquisition overture it makes. I wrote in depth in February about how Apple uses the home-field advantage of its App Store to give its own apps a leg up on third-party app developers.
- The point is not that these companies or their leaders are evil. It’s that their ownership of dominant platforms, coupled with their sheer size and market power, allows them to both quash upstarts and expand ceaselessly into the new markets that their platforms enable. The more software eats the world, the more the dominant software companies feast. The pandemic has accelerated both.
- In the long run, that not only stifles competition and inhibits innovation, it puts the largest internet companies in absolute control of ever larger swaths of the economy and everyday life. Amazon is now a leader not only in e-commerce, but cloud infrastructure, the internet of things, face recognition, streaming media, groceries, and more. Axios reported this week that it has become America’s top advertiser. And Bloomberg reported that it has been spending record amounts on lobbying in response to the antitrust proceedings. “I think the pandemic has laid bare their incredible power in our society, and it’s undeniable now,” Mitchell told me. “Arguments that I had been making for a long time about the fact these companies have become like essential infrastructure really have proven to be the case.”
- It’s true, the pandemic has made clear just how much we’ve all come to rely on Amazon and other internet platforms. But by now, it has also made clear that their tide of success has not been lifting others’ boats — because they keep raiding those boats and cutting holes in the bottom.
Under-the-radar trends, stories, and random anecdotes worth your time
- Slack has filed an antitrust complaint against Microsoft. The workplace chat company, which has been losing its edge over Microsoft Teams, alleges that Microsoft is competing unfairly by bundling Teams with its Office productivity software, the Washington Post reports. The timing is noteworthy, given that Microsoft is the only one of the five biggest tech firms not included so far in U.S. antitrust investigations. The Post’s Jay Greene had a good piece last month looking at how Microsoft has stayed out of trouble since its famous antitrust case in the late 1990s.
- Two clickbait companies merged, and what the DOJ did next will astound you. Just kidding: The DOJ announced this week that it won’t block the deal to combine Taboola and Outbrain, which run those “Around the Web” and “You May Like” ad chumboxes that clutter websites. No word on what one weird trick they used to get the merger past regulators.
- Doctors are using A.I. to help make decisions about patient care. What’s concerning, according to a report from STAT (login required), is that the A.I. tools are unproven, and patients often aren’t informed that they’re being used.
- Let’s not put the federal government in charge of verifying social media users’ identities and citizenship. Former Facebook VP Sam Lessin made that proposal in The Information, suggesting that a government stamp for verified U.S. citizens online could be a useful tool to counter foreign manipulation and moderate online speech. Glitch CEO Anil Dash posted an extremely convincing rebuttal on his blog, one that’s worth reading even if you were already inclined to disagree with Lessin’s idea.
Headlines of the Week
— Maura Judkis, Washington Post
— Owen Thomas, San Francisco Chronicle
— Kevin Truong, Motherboard
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