Did Amazon really kill Zulily and Jet.com?

FTC Chair Lina Khan says the two companies are among a generation of would-be e-commerce players that never made it thanks to Amazon’s monopolistic practices. “These are a set of tactics that ultimately Amazon has pursued to deprive actual and potential competitors of the ability to gain the scale and momentum needed to effectively compete online,” she said in September in comments at Bloomberg’s Washington office. Bloomberg

Newly unredacted portions of a Federal Trade Commission lawsuit claim that Amazon punished sellers with lower prices on Zulily by limiting their visibility on Amazon. Amazon supposedly also focused pricing algorithms and competitive monitoring teams on Zulily. Newsflash to the FTC - the entire retail and e-commerce sector does price matching via algorithms so implying that only Amazon does this is narrative building.

To claim that Amazon negatively impacted Zulily and Jet.com showcases a fundamental misunderstanding about how e-commerce operates. Zulily was a vertical-specific platform that focused on off-price sales of kids-and-moms merchandise. Jet.com was a marketplace that offered sellers the opportunity to reach customers by offering lower prices based on location and other variables.

Zulily and Jet both made mistakes but both were sold to incumbents for billions. Zulily was acquired by Liberty Interactive, the parent company of QVC for $2.4 billion in 2015. Walmart acquired Jet.com for $3.3 billion in 2016.

Zulily was an off-price platform focused on a specific vertical, kids-and-moms merchandise, but the business struggled to scale as part of Qurate Retail. Their biggest challenge was they churned out customers who were not interested in paying full price for items. Jet grew very fast by spending heavily on advertising, which was not long-term sustainable.

Does a free market not determine the winners? Amazon provides sellers with the highest converting customers who intend to purchase goods that no other platform offers. Which other marketplace in the US provides sellers with the opportunity to create generational wealth by selling goods to consumers?

The FTC hopefully has evidence that backs up these accusations as Amazon will defend itself in court. This unredacted portion of the Federal Trade Commission feels desperate to make Amazon seem like a bad actor.

I would argue (from a legalistic, almost trolling perspective) that Tesco Direct (UK) was similarly impacted by Amazon in the way the FTC case describes, potentially more so because the Tesco Direct customer offer was more closely aligned to Amazon (including books and physical media), and that alignment was explicit internally at the time.

Including “same prices, but with ability to earn and burn Tesco Clubcard points” (which is a significant point in the UK, at least then). Some overlap in enrolled sellers (although there were some sellers very much competing with Amazon e.g. Wayfair).

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Jet was overrated. It had no viable path forward except to scare Walmart.

Zulily - please. Really, are we talking about zulily?

I’m sort of amazed at how much defending of Amazon I see. The argument “others do it, too” or “they sold for billions” doesn’t really address the impact of the alleged monopoly power and how it is wielded.

In my mind, Jet isn’t the story. The real story is Quidsi and how Amazon flagrantly set out to destroy them unless they yielded and agreed to be acquired.

Free markets should pick winners and losers, no doubt. But a market isn’t “free” if there is a firm with monopolistic power that is wielding it to restrict the market. Amazon didn’t beat Quidsi at the sale of diapers on their merits, they did it by being capable of running the diapers business at a net loss for however long they needed in order to take a growing competitor off the board. That’s not a free market. That’s predatory behavior by a company attempting to monopolize a market.

Quidsi is a case of Amazon overstepping what is deemed fair. However, the FTC trying to make the case that Amazon harmed Zulily and Jet is desperate.

I guess it depends on the evidence.

Amazon used to have a price parity clause in their enterprise seller agreements (perhaps the professional agreements, too). Price parity or most favored nation clauses are antitrust timebombs. Once the company has monopolistic power, those terms quickly become anti-competitive issues. It isn’t clear to me how the laws will apply to removing the buy box for a product, but that seems quite a bit safer than the contractual requirement of price parity from previous years.

As for Zulily, I think it will matter quite a bit whether there is specific evidence. If the DoJ has emails or inside testimony that Amazon specifically targeted Zulily with their price crawlers to specifically suppress listings from shared sellers/suppliers, that’s going to be different than just “we crawl the IR-100+ for market data” or whatever. Intent and targeting is going to matter, I think. I will stress “IF” is the critical word in that 2nd sentence.

Ultimately, I think the pattern of behavior is going to be what works against Amazon. Price parity requirements, Quidsi-type targeting, how they favor FBA vs. SFP, lots of examples of Amazon 1P seemingly acting on 3P inside info, promoting private label items on 3P PDPs, etc. With all of that said, I’m also inferring there are emails and other evidence to support it and not just outside allegations and assumptions.

I think it is also important to remember that activities you do engage in when you’re 1% of the market aren’t necessarily still legal when you’re 70% of the market. Time will tell, but my money is still on a Consent Decree once Amazon loses enough early motions. No structural remedy, but a bunch of policy changes. The biggest potential structural remedy might be to spin-off the private label business that isn’t explicitly Alex/Fire TV/Blink devices. I think that’s a < 25% chance, though.

I think there is a 0% chance of Amazon taking this to trial and prevailing on the merits.

That structural remedy sounds like a nothingburger and not material. Amazon Basics spun off … to be honest they may even do better as a third-party seller

Agreed, re: nothingburger. Just the only one I could remotely see happening. They aren’t going to force marketplace and retail to be split, they aren’t going to force supply chain or AWS to split off, etc. Rephrasing that, I see < 5% chance of AWS or Supply Chain being spun, < 10% chance of Retail, and < 25% chance of private label ex-devices, but > 50% chance of either a consent decree or a ruling about certain policies and processes. You guys seem to be somewhere between “Amazon didn’t do anything wrong” and “maybe they did, but no punishment will happen” which I find kind of surprising.

I think the right structural remedy here is “you shall not sell 1P below supplier cost”, which is a core restriction that is part of retail environment for all retailers in some countries. Maybe “not below cost plus x%” (which, as it happens, is a intercompany/intercountry invoicing rule within the EU for related company transactions, to mitigate tax arbitrages). Which of course would mean Amazon’s supply contracts would become discoverable in a court action.

Or maybe that Amazon must offer Amazon basic brands (etc.) to other sellers as same cost price as it charges internally, as a semi-spin out.

I’m not enough of a detailed expert to know if there are other legal considerations that might be part of, say, Robinson-Patman (RPA) or similar, or whether legal remedies (commercial in nature) could be inspired by the spirit of RPA, or whether a new set of laws will be enacted that are, in effect, RPA for a new millenium. Certainly if Amazon was required to make Amazon Basics etc. available for others to sell within the US, then RPA should be in scope. And would also be in scope if other manufacturers sold to Amazon at lower cost than competing websites.

(For retail/legal history nerds, the first, and intentional, target of RPA was the "Great Atlantic & Pacific Tea company–yes that A&P, now defunct for some years, which, in the last century was the largest retailer of the US, maybe the world, with similar dominance to Wal*Mart or Amazon)

Those would be behavioral remedies, not structural.

Behavioral remedies change policies and processes, usually involves some kind of ongoing monitoring, etc. Structural literally changes the make-up of the company by divestment of assets (think Ma Bell becoming Baby Bells).

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Look the things that cannot be remedies include (and I have seen all these)

  • using a higher margin business to subsidize a lower margin business

  • raising your prices.

  • strongarming suppliers

If the private label business is sold off it’s a waste of time. If there are behavioral and policy remedies they are probably needed as you suggest.

That said what is happening is so not unique and you would have to take down all the major internet companies at the same time.

Perhaps that is the plan and I agree intellectually that may be the only honest path and is better than “everyone is doing it” attitude.

Otherwise no new industries would ever get regulated.