Amazon’s Devoted Cloud Customers Face A Decision After Outages: Leave, Stay Or Diversify?

As companies increase their reliance on cloud providers to store vital data, a rash of AWS outages has riled clients, with some looking to hedge their bets with access to other platforms.

When Amazon Web Services suffered its third major outage in a matter of weeks last month – affecting millions of people, from Citi Bike riders to Disney+ viewers and Delta Airlines customers – almost none of its corporate clients expressed frustration publicly.

But within boardrooms and corner offices, the most recent outage on December 22 was the latest reminder of the risks of relying on a single cloud vendor. “The AWS outages were a black eye for the company as more enterprises race to the cloud,” says Dan Ives, an analyst at Wedbush Securities.

AWS has long been the cloud leader, holding 41% of the global cloud infrastructure market, and generated $16 billion revenue in the third quarter of 2021. Though as a first-mover cloud vendor since it launched in 2006 – becoming essential for small and medium businesses looking to outsource their networks – AWS has been fending off tough competition from Microsoft, which Gartner says grew twice as fast as AWS in 2020 as it moved to secure large corporations.

Microsoft doesn’t break out its public cloud revenue, but the most recent comparable figures from Gartner show that in 2020, Azure generated $12 billion revenue from public cloud infrastructure services, compared to $26 billion by AWS. (Google Cloud trailed at $4 billion).

Now that outages have reinforced the risks of relying on one vendor, signs that corporations are increasingly turning to Microsoft are starting to emerge. Research published this month by Bank of America shows that 23% of chief information officers at 185 large companies around the world expect to spend most of their cloud budgets over the next 12 months on Microsoft Azure, compared with 11% for Amazon AWS.

A spokesperson for AWS contended that the company has a better track record of reliability than any other cloud provider. “Pioneering this level of reliability at the scale of AWS is an unprecedented engineering accomplishment,” the spokesperson said in an email. “However, we understand how critical our services are for customers and their end users, and we’re not satisfied unless performance is indistinguishable from perfect.”

AWS also said it believed clients should stick to multiple cloud regions within AWS, rather than entering multi-cloud agreements with other vendors to manage exposure to outages. “A multi-cloud architecture is technically complex, creates increased latency, and results in lower actual availability and resiliency than architecting for high-availability on AWS,” the spokesperson said.

Microsoft declined to comment.

Companies are typically reluctant to talk publicly about their cloud strategies and how much they spend, especially if it relates to a single vendor. Forbes asked 45 companies affected by the AWS outages – including McDonald’s, Toyota and Coinbase – whether they use multiple cloud vendors or were considering doing so, and whether the recent AWS outages had prompted them to change their cloud strategy.

Ride-sharing service Lyft previously made perhaps the boldest statement against Amazon after the most recent AWS outage turned off the Citi Bike stations it operates in New York and New Jersey, saying “we’re as frustrated as our riders.” Lyft, which had said it planned to “build redundancy” into its system, declined to comment further, or say whether it was considering moving to another cloud vendor.

When asked about whether the AWS outages had prompted a rethink of its reliance on AWS, a spokesperson for Toyota underscored the need for companies to review their strategies when the system fails, and that for larger companies, it “may mean a more complex build-out utilizing more than one cloud vendor.”

American Express, another AWS customer, echoed the need for access to multiple clouds. Evan Kotsovinos, American Express’ global head of infrastructure, wouldn’t say whether Amex was affected by the AWS outages, but says the company has resiliency built in across its network because it has agreements with multiple vendors, in multiple regions. Amex has been building out its relationship with Oracle, for instance.

“Different clouds have different strengths,” says Kotsovinos. “And so if you really want to get the maximum value out of the clouds, you’ve got to put the right applications in the right cloud.” Others, meanwhile, affirmed their loyalty to AWS, despite the outages. Atlassian, which runs all of its products on top of AWS, told Forbes that it is not considering other cloud vendors.

Atlassian CTO Sri Viswanath added that the company is unconcerned by the AWS hiccups. “Our engineering teams regularly war-games downtime scenarios,” Viswanath said in a statement. “So when the AWS outage happened, we had mitigation plans in place and were able to limit the overall impact to our customers.”

1Password, a password management company valued at $6.8 billion after a funding round this month, confirmed it uses a single AWS region, but said it offsets the risks of outages by encrypting its clients’ data locally.

“At the end of the day, our decisions are made based on best-in-class infrastructure providers, and our choices aren’t triggered by any single event,” 1Password’s CTO Pedro Canahuati said in a statement. And a spokesperson for Slack said “our strategy for cloud platform partners has not changed and we look forward to continuing our work with AWS.”

To be clear, Microsoft Azure and Google Cloud also encounter outages. In October, Azure customers were unable to access a suite of services for eight hours. And in November, company websites of Snap, Home Depot and Spotify and others were down after Google Cloud experienced an outage caused by a network configuration glitch. Outages also occur as a result of issues with edge cloud services, which often provide “last-mile” connections from the vendors, such as Akamai and Fastly.

And a major migration to multi-cloud environments – where large companies use more than one vendor – has been underway since 2019, a movement accelerated by the pandemic, which forced companies to outsource their networks as their employees worked from home. A survey by cloud-research firm Futuriom published in October found that 55% of large companies were currently using two or more cloud vendors, while 83% were assessing multi-cloud networking.

Amazon’s efforts to keep cloud customers loyal has been increasingly suffering from the perception it may compete with them. Capital One, among AWS’ largest clients, announced at the annual AWS re:Invent conference in November 2020 that it was “going all in on the cloud” by closing all of its data centers and had migrated its networks to AWS. But Capital One told Forbes it has signed agreements with other cloud vendors, which it says it leverages “for niche use cases.”

Given Amazon’s lofty ambitions in the financial services sector, Capital One’s niche agreements with other vendors are likely to grow, says Steve Mullaney, the CEO of Aviatrix, which helps companies including Capital One manage multiple cloud environments. “What’s in your wallet?” Mullaney says, echoing the bank’s tagline. “Well, guess what: Maybe an Amazon card.”

For now, the outages are the most recent reminder for large corporations of the risk of relying on one cloud, Mullaney says. The AWS outages were “gasoline on the fire,” Mullaney says. “The last remnants – the laggards – it probably accelerated those people” to go multi-cloud.

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I’m a staff reporter at Forbes covering tech companies. Follow me on Twitter at @davidjeans2 and email me at djeans@forbes.com

Source: Amazon’s Devoted Cloud Customers Face A Decision After Outages: Leave, Stay Or Diversify?

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What’s The True Cost of Amazon’s Low Prices? The FTC and Congress Have Antitrust Concerns

This story is part of a Recode series about Big Tech and antitrust. Over the next few weeks, we’ll cover what’s happening with Apple, Amazon, Facebook, Google, and Microsoft.

On the heels of yet another year of record sales, Amazon is dealing with a couple of unwelcome updates in the new year. The Senate Judiciary Committee has announced it will soon be marking up the American Innovation and Choice Online Act, an antitrust bill targeting Amazon and other Big Tech companies. This follows reports that the Federal Trade Commission is ramping up its years-long antitrust investigation into Amazon’s cloud computing arm, Amazon Web Services, or AWS.

It’s clearer now than ever that Amazon, which was allowed to grow mostly unhindered for more than two decades, is caught in the middle of an international effort to check Big Tech’s power.

The Senate bill, one of several bipartisan antitrust bills in Congress, would prohibit Amazon from giving its products preferential treatment, among other things. It’s the bill that would affect the company the most, and the one it has been fighting hardest against. Meanwhile, the renewed scrutiny from the FTC about alleged anti-competitive behavior from AWS, which represents a significant and largely invisible source of Amazon’s profits, could threaten Amazon’s long-term dominance in a number of industries.

Just because a company is successful and dominates a market (or even several markets) doesn’t mean it’s violating any antitrust laws. But Amazon’s critics say it illegally uses its power to harm competition and consumers, particularly with its Marketplace, where outside, or third-party, businesses can sell their products to Amazon customers alongside Amazon’s own wares.

Amazon has been accused of copying popular products to sell under its own labels, using non-public seller data to inform its own decisions, and forcing sellers into agreements that essentially prohibit them from offering lower prices elsewhere. Amazon denies some of these allegations and says other actions are simply meant to provide the services its customers want at the best price.

Some of these complaints have been around a while, but 2022 may be the year that Amazon faces meaningful and real consequences for them. There are still caveats. State attorneys general are rumored to be looking into some of Amazon’s business practices, but only one has filed a lawsuit so far.

The FTC is still waiting for the confirmation of a fifth Democratic commissioner who would break up the deadlock of two Republican and two Democratic commissioners. And while antitrust bills are making progress in Congress, Democratic lawmakers currently seem focused on other initiatives ahead of the midterm elections — elections that could give Republicans a majority in one or both houses of Congress.

Amazon isn’t the only Big Tech company that’s been targeted, but it might have more reason than anyone else to worry about the FTC in particular. One of two federal agencies that enforce antitrust laws, the FTC is now run by Lina Khan, who basically built her career on research surrounding her 2017 Yale Law Journal paper, “Amazon’s Antitrust Paradox.”

The paper detailed how Amazon’s rise showed the flaws in antitrust laws and led to Khan becoming known as Amazon’s antitrust antagonist. Since her appointment to the FTC last June, it hasn’t seemed like the question is whether the agency will take on Amazon, but rather when and how. Amazon, meanwhile, has asked that Khan recuse herself from any antitrust matters involving the company.

Khan “is best suited to understand the various issues and problems with Amazon,” said Alex Harman, a competition policy advocate at Public Citizen, a consumer advocacy group. “And we are very excited that she will be able to bring a significant action against them.”

Khan has a lot to choose from. It’s hard to overstate Amazon’s role in the economy, or how many roles it has. It’s a technology company. It’s a delivery service. It’s an advertising platform. It powers about a third of the internet. It’s a movie studio and a streaming service. It’s a health care provider. It’s a surveillance machine and a data harvester. It’s one of the largest employers in the world and one of the most valuable companies. Also, it sells books.

In response to questions about whether its size and market share were too big in too many sectors, Amazon told Recode it faces “intense competition” in all of its lines of business. It says its expansion is part of a long-running strategy to make “big bets over the long term to reinvent the customer experience.”

Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly advocacy group, sees it differently: “Amazon leverages its power in one space to take over a new space, which is core to their business practice. They have the ability to combine the competitive advantages of different aspects of their business to take over new sectors of the economy.”

While the FTC, for now, seems interested in AWS (and Amazon’s attempt to buy MGM), most of the antitrust attention we’ve seen elsewhere is focused on Amazon’s retail business and how it treats the businesses that sell products through its Marketplace platform. Critics say Amazon uses its power to give its own wares an unfair advantage over third-party sellers, and effectively forces them to pay for extra services and make agreements that could inflate prices everywhere.

“That’s where there’s a lot of obvious harms, and where you have businesses who are unhappy with how they’re being treated,” Miller said.

Consumers may be paying more and missing out on new products, companies, and innovations that a more competitive retail space would have produced. And that may be a violation of the antitrust laws we have now, or those to come.

How Amazon’s power might lead to higher prices

Many antitrust complaints about Amazon’s practices are based on its position as both a platform and a seller on that platform. This gives Amazon a great deal of power over the companies it’s competing against, as well as an incentive to favor its products over theirs. About 60 percent of Amazon’s online sales come through Marketplace.

This can be a mutually beneficial relationship. Marketplace’s sellers — currently more than 2 million of them — get access to Amazon’s huge customer base, and Amazon gets a vastly expanded selection that has helped make it the first and only website many online shoppers visit.

This model brings in hundreds of billions of dollars in revenue every year for Amazon, which now has an estimated 40 percent share of the e-commerce market in the United States. The company with the second-largest e-commerce market share, Walmart, has just 7 percent.

At the same time, Amazon likes to say it has but a small sliver — 1 percent — of a competitive global retail market. But that’s online and offline combined, and it includes many industries in which Amazon doesn’t sell anything at all. Amazon is also on track to edge out Walmart and become the most dominant retailer, online and off, in the United States as soon as this year.

No company has the kind of ecosystem Amazon built around its retail business beyond Marketplace. Amazon collects tons of data about its shoppers — data it uses to optimize its services and to fuel its burgeoning and increasingly lucrative advertising business.

Meanwhile, Amazon Prime and its fast free shipping has not only created an intensely loyal customer base but also compelled Amazon to build up its own shipping and logistics arm, Fulfillment by Amazon, to reduce its reliance on outside services and give it more control over its sellers. Many of Amazon’s rival retailers — namely, Walmart and Target — do some or all of these things to a lesser extent, but they’re just playing catch-up.

Smaller companies simply don’t have the scale or money to offer such services. Amazon, which has turned itself from a bookstore to an “everything store” to an everything platform, is in a class by itself.

“There are dynamics in digital that are fundamentally different,” Andrew Lipsman, principal analyst at eMarketer, told Recode. “Access to data is fundamentally different than we’ve ever had before. And all the other things that has enabled — all these digital businesses that Amazon has spun off — are underpinned by completely different economics than traditional retail economics.”

Amazon is happy to tell you how good it’s been for the small- and medium-sized businesses making money using its platform and how proposed antitrust actions could harm them. Others argue that Amazon makes even more money off of third-party sellers who have to play by Amazon’s rules because their businesses wouldn’t survive without the e-commerce giant and its customer base. And those rules, they say, aren’t always fair.

Last May, the attorney general of Washington, DC, Karl Racine, sued Amazon for antitrust violations over its treatment of Marketplace sellers. In September, he amended that lawsuit to include the wholesalers, or first-party sellers, from which Amazon buys products before selling them to its customers.

Racine told Recode that he started to wonder what the price of Amazon’s much-touted “customer obsession” was, especially after seeing accusations that Amazon copied popular products on its platform and then sold its own similar products for a lower price. (Amazon says it’s standard practice for retailers to use data about customers’ interests to help determine what to make for their own private labels.)

“I found that offensive,” Racine told Recode. “I felt like Amazon was just a copycat and burying a creative source. They were not focused only on the customer. They were also focused on their bottom line.”

The DC attorney general’s office investigated and found that “Amazon, the dominant player, seeks to maximize its profits at the expense of consumers, third-party sellers, and wholesalers,” Racine said. “It’s kept prices for goods artificially high, hampered competition, stifled innovation, and illegally tilted the playing field, all in its favor.”

Racine’s suit echoes some of the issues raised in other lawsuits and investigations as well as those identified in a recent report from the Institute for Local Self-Reliance, a nonprofit that advocates for locally owned businesses.

The big sticking point is that Amazon’s policies can effectively force other companies to give Amazon the lowest price for their goods. This is due to Amazon’s “fair pricing” policy, which says it can downgrade or stop sales of third-party sellers’ products if they’re priced “significantly higher” on Amazon than at other outlets.

Meanwhile, wholesalers have to agree to give Amazon a certain cut of their products’ sales. But Amazon also sets the prices of those products. If it reduces them to price match another outlet, the wholesaler may end up eating the difference and even losing money. That keeps wholesalers from selling their wares to anyone else for less.

Amazon sees all this as looking out for its customers and making sure they’re getting the lowest prices. But Racine and those who have filed similar lawsuits believe sellers and wholesalers are being stopped from selling their products for lower prices in other stores.

Because of this, competitors can’t offer lower prices to get an advantage over Amazon, and customers end up paying Amazon’s prices even if they don’t shop at Amazon — and paying more. Sellers and wholesalers can choose not to sell to Amazon, but few of them have the size and brand recognition needed to survive in a world where so many shoppers do most, if not all, of their online shopping on Amazon.

“That’s the power of brands: Nike is able to say, ‘You know what, Amazon? We don’t need you,’” Lipsman said. “The more commoditized your product is, the more likely you have to sell through Amazon, and you’re dependent on that channel.”

Amazon has filed a motion to dismiss the DC attorney general’s lawsuit, arguing that it’s simply making sure its customers are getting the lowest prices. The policies don’t force sellers to offer the lowest price on Amazon, Amazon says; they simply discourage them from offering higher prices on Amazon than they do elsewhere. But this hasn’t always been the case.

Just a few years ago, Amazon had a price parity policy, which more explicitly said sellers couldn’t offer lower prices anywhere else. Amazon ended this practice in Europe years ago amid scrutiny there, and then did the same thing in the United States in 2019. Racine says the fair pricing policy that replaced it serves the same function and is similarly anti-competitive.

How Amazon uses its power over sellers to squeeze them for money and data

Even though one of Amazon’s selling points is its low prices, critics say those aren’t necessarily the lowest prices possible, in part due to the increasing costs to sell on Marketplace. Amazon charges sellers a referral fee, typically 15 percent, for items sold. Then it piles on optional services that many sellers feel compelled to buy if they want their businesses to survive, cutting into their margins and forcing some to raise their prices to maintain a profit.

Fulfillment by Amazon, or FBA, is one example of this. Amazon doesn’t require that its sellers use its fulfillment and shipping service, but doing so makes them eligible for Prime, and it’s exceedingly difficult to qualify for Prime if they don’t.

That recognizable Prime badge is important. There’s a higher likelihood that Amazon’s customers will buy Prime products, because the shipping is free for Prime members and because Amazon gives preference to Prime items when it assigns what’s known as the “Buy Box.” When multiple sellers offer the same product, the Buy Box winner is added to carts when customers click “buy.” More than 80 percent of an item’s sales go to the Buy Box winner, so sellers are very motivated to do everything possible to get it. That may include using FBA even if it costs them more than shipping items themselves.

This practice has already gotten Amazon into trouble abroad. In December, Italy’s antitrust regulators fined Amazon about $1.3 billion for giving sellers who use FBA benefits over those who don’t. Amazon says it’s planning to appeal the decision, but more trouble could be on the way: The company is facing a similar investigation from the European Union’s European Commission, and India is also investigating Amazon for violating its antitrust laws.

Sellers have also complained about ads, which give their items better placement in search results. Reports say that Amazon has increased the number of ads, upping its revenue and pushing organic results down even further — which, in turn, compels sellers to buy ads to regain the prominent placement they used to get for free. Amazon told Recode that sellers wouldn’t use FBA or buy ads if those services didn’t add value or come at the best price, as they can always use other fulfillment services and buy ads elsewhere.

But it’s not just fees that Amazon gets from its sellers. Critics say the company uses data it collects from third-party sellers to give itself a competitive advantage. This was the subject of a “statement of objections” from the European Union, and as the DC attorney general has made clear, Amazon is notorious for creating its own versions of popular products sold by third parties.

The company recently opened up some of its data to sellers, possibly in an effort to ward off some of this criticism, and says it prohibits the use of non-public data about individual sellers to develop its own products. But founder Jeff Bezos told Congress he couldn’t guarantee that policy has never been violated, and multiple press reports suggest that it has.

The company has also been accused of self-preferencing, or giving its products preferential treatment — and a competitive advantage — over those sold by third parties. This could take the form of giving its own products the Buy Box or prominent search rankings they didn’t earn. Amazon has total control over its platform, so the company can really do whatever it wants, and there isn’t much sellers can do about it.

Self-preferencing has become a catch-all term for many of Amazon’s alleged anti-competitive practices. It’s attracted the most attention from regulators so far. The company denies that it gives preference to its own items in search results and says the reports that it does are inaccurate. Many legislators aren’t buying that and have proposed bills forbidding self-preferencing, with Amazon specifically in mind.

How Amazon could be changed by new antitrust laws

Per its policies, the FTC has stayed mum on what, if anything, it’s investigating on Amazon. Congress, on the other hand, has been very public.

The House Judiciary Committee spent 16 months looking into competition and digital markets, focusing on Amazon as well as Apple, Google, and Facebook. Last year, a bipartisan and mostly bicameral group of lawmakers proposed a package of Big Tech-focused antitrust bills. The House’s bills made it through committee markup last June, but have yet to be put to a vote.

The American Innovation and Choice Online Act is the only Senate bill to be scheduled for markup so far. The House’s Ending Platform Monopolies Act, which still doesn’t have a Senate equivalent, is likely the most expansive of the bills in the antitrust package, forbidding dominant digital platforms from owning lines of business that incentivize them to give their own products and services preference over third parties. Should that bill become law, it could have a huge impact on Amazon, forcing it to split off its first-party store from its sales platform.

Amazon has fought back against the bills. It has sent emails to certain sellers and set up an informational website warning them about how the bills, if they become law, could negatively impact them. Amazon claims that it might have to shut down Marketplace or limit its ability to offer Prime services. The bills’ supporters say that companies would still be able to offer all of those services, but could finally compete on a level playing field.

“We urge Congress to consider these consequences instead of rushing through this ambiguously worded bill,” Brian Huseman, Amazon vice president of public policy, told Recode in a statement. He added that the bills should apply “to all retailers, not just one.”

While Amazon waits to see what the FTC and Congress do, its antitrust battles, real and potential, haven’t seemed to harm its bottom line. Business is good, growing, and disruptive. Amazon is even reportedly preparing to take on Shopify, a platform that helps businesses create their own online shops and has grown exponentially during the pandemic, with a similar offering that could come out as early as this year. If true (Amazon wouldn’t comment), it shows that Amazon isn’t afraid of going after potential threats even while under more scrutiny than it’s ever experienced.

That’s exactly the attitude Racine, the DC attorney general, takes issue with. “Amazon claims to be all about consumers,” he said. “What our evidence shows is that Amazon is all about more profit for Amazon, at the cost of competition and at the expense of consumers. And we’re looking forward to proving that in court.

Sara Morrison

Sara Morrison covers Big Tech and antitrust regulation, in addition to personal data and privacy. She previously covered technology’s impact on the world for Vocativ. Her work has also appeared in the Atlantic, Jezebel, Boston.com, Nieman Reports, and Columbia Journalism Review, among others.

Source: What’s the true cost of Amazon’s low prices? The FTC and Congress have antitrust concerns. – Vox

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Amazon Funds Its Empire By Squeezing Its Marketplace Sellers

Amazon has always presented its Marketplace, where outside businesses sell products through Amazon’s platform, as one of its biggest success stories: mutually beneficial to Amazon, sellers, and customers alike. But a new report says those benefits are increasingly lopsided — in Amazon’s favor.

The report, which comes from the nonprofit Institute for Local Self-Reliance (ILSR), asserts that Amazon takes a larger and larger cut of sellers’ earnings through the various fees it levies on them. These fees have become so lucrative for Amazon that they now represent the company’s most profitable segment as well as its fastest-growing revenue stream, according to ILSR. And because sellers are paying Amazon high fees, customers may face inflated prices, even when they shop beyond Amazon’s borders.

“Amazon is the only winner here,” Stacy Mitchell, ILSR co-director and author of the report, told Recode. “It’s exploiting its monopoly power over these small businesses to pocket a huge and growing cut of their revenue.”

You might consider this to be a good business strategy on Amazon’s part, as it’s certainly paid off for the company. And some sellers on Amazon’s platform say they’re happy with the arrangement — at least, for now. But a growing number of others argue that Amazon’s dominance over the e-commerce market and its power over its sellers has given rise to anti-competitive practices that hurt Amazon’s competitors, competition in general, and consumers.

“Amazon’s dominance is bad for businesses, jobs, and America’s competitiveness,” Rep. David Cicilline, chair of the House Judiciary Antitrust Subcommittee, told Recode. “This important study makes clear that Amazon is crushing sellers through abusive policies that make it nearly impossible for everyday businesses to get ahead.”

These are some of the same issues identified by regulators and lawmakers who have accused Amazon of abusing its market dominance. They say it’s further evidence that action must be taken to curb Amazon’s power — and some of them are already working on legislation.

“It is important to understand how tech platforms can exploit their power to hurt small businesses and raise prices for consumers,” Sen. Amy Klobuchar, chair of the Senate Judiciary Antitrust Subcommittee, told Recode. “This report highlights how Amazon’s tactics can lead to that result and why Congress must act to set clear rules of the road for the digital giants that dominate our online economy.”

Amazon disputes the report’s findings, calling it “intentionally misleading” for lumping its mandatory fees and optional services together as “seller fees.” Amazon maintains that all of its fees — mandatory and optional — are competitive with what similar services charge, and that many sellers are successful without taking advantage of those optional services. But Mitchell says many sellers feel compelled to pay those ostensibly optional fees if they want their businesses to stay afloat.

Marketplace: The gift that keeps on giving (to Amazon)

Marketplace is a huge part of Amazon’s business. In his 2020 letter to shareholders, Jeff Bezos said it accounted for nearly 60 percent of Amazon’s retail sales, which come from nearly 2 million sellers. So when you buy a product on Amazon, chances are it was sold by an independent business using Amazon’s platform. Amazon isn’t providing that platform for free.

“The trade-off that any seller is dealing with is you get access to a huge audience, you get access to scale, the ability to scale your sales, but it comes at a cost to margin,” Andrew Lipsman, principal analyst at eMarketer, told Recode.

The cost to sellers is increasing every year, according to ILSR’s analysis, making business unsustainable for some sellers while Amazon’s profits grow.

The new ILSR report found that Amazon’s seller fees accounted for an average of 19 percent of sellers’ earnings in 2014. That’s almost doubled to 34 percent in 2021. And while seller fees accounted for 14 percent of Amazon’s entire revenue in 2014, that figure is up to 25 percent in 2021. Amazon will pull in $121 billion from seller fees alone, ILSR estimates.

That revenue translates to a lot of profit — more than even Amazon Web Services (AWS), Amazon’s cloud computing platform typically believed to be the company’s most profitable arm. AWS netted $13.5 billion in 2020, according to Amazon’s financial data. ILSR estimates seller fees netted $24 billion. (Amazon says these figures are inaccurate but did not provide its own; the company’s public earnings statements also don’t combine seller fees in this way.)

“Everyone thinks AWS generates all of Amazon’s profits,” Mitchell said. “But in fact, Marketplace is this massive tollbooth that gushes profits.”

Seller fees primarily come from three things: sales, fulfillment, and ads. Every item sold is subject to a referral fee, which is Amazon’s commission. Over the years, that’s stayed pretty consistent at 15 percent (it may be lower or higher, depending on the product category). According to ILSR, those referral fees made up the majority of seller fees as recently as 2017.

Since then, however, the majority of fees come from Fulfillment by Amazon (FBA), Amazon’s service that stores, packs, and ships sellers’ items to customers. Ad revenue is steadily gaining ground as more sellers pay for more ads to get prominent placement on Amazon’s site, including on product pages and search results.

Sellers who use FBA pay Amazon a fee based on the size and type of item they sell. Sellers also have to pay to ship items to and from Amazon’s fulfillment centers and to store them there. For some sellers, this might be a cheaper or easier option than doing it all themselves. Amazon says FBA’s pricing is competitive with similar fulfillment services if not cheaper, and sellers aren’t required to use it.

But help with logistics isn’t the only appeal of FBA for many sellers. Enrolling in the FBA program is the only way that most sellers can qualify for Prime. (Some sellers may qualify for Seller Fulfilled Prime, but it’s not accepting new enrollees at this time.) Getting that Prime badge is huge for a seller. Amazon shoppers — especially those 200 million Prime members — are far more likely to buy products that qualify for Amazon Prime. But that’s not only because they want to take advantage of the free shipping. It’s also because customers may not even see non-Prime offerings in the first place, thanks to the mechanics of the so-called Buy Box.

When multiple sellers offer the same item, Amazon’s algorithm picks one of them to be the default purchase on the product’s page. This is called “winning the Buy Box,” and when the customer clicks to add an item to their cart or to buy now, the seller who won the Buy Box is the one who gets the sale.

Prime items are far more likely to win the Buy Box than non-Prime items, and customers rarely click on that small “other sellers” link or the small “new and used” box where all the other listings are housed. This gives sellers a major incentive to pay for FBA, even if it costs more than taking care of the shipping themselves.

These FBA fees have been great for Amazon, which has dramatically expanded the logistics network that powers FBA as well as the number of sellers participating in the program. Five years ago, about half of Amazon’s top 10,000 sellers worldwide used FBA. By 2019, it was 85 percent. Amazon even offers a version of FBA for products ordered from other e-commerce services, including Shopify. Dave Clark, the CEO of Amazon’s consumer business, believes his company will be the largest delivery service in the United States by early 2022.

FBA aside, there are other ways sellers are paying Amazon more and more in the hope of generating sales. Amazon has been making a big push into digital advertising recently, and seller ads are part of its strategy. Critics have accused Amazon of increasing the number of sponsored slots in search results to increase ad inventory, and of charging more for the ads in them. (Amazon says the number of ads varies, and pricing is determined by an auction.)

Because of this, some sellers feel like they’re paying more and getting less. Amazon itself says these ads increase product visibility, which can translate into more sales. But that also means less visibility for the products in organic search results that earned their placement through strong sales and positive reviews. Sellers are already competing for this space with Amazon’s own products, and that competition might not be fair, as Amazon reportedly ranks its own products above others that had higher ratings. (Amazon has disputed these reports and says its ranking models don’t take into account whether the product is made by Amazon or offered by a third-party seller.)

Either way, many sellers increasingly feel pressure to buy ads just to get the same search placement (and sales) they once got for free. In a statement to Recode, Amazon maintained that FBA and ads are not mandatory and that sellers may find them beneficial.

“Sellers are not required to use our logistics or advertising services, and only use them if they provide incremental value to their businesses,” an Amazon spokesperson said.

How sellers’ problems affect your wallet

If you’re not a seller that relies on Amazon to survive, you might not see how any of this affects you. If you’re an Amazon customer, you might even think that this system is ensuring that you can buy products at the best price. But you might be wrong.

“Whether you shop on Amazon or not, you are paying higher prices because of its monopoly power,” Mitchell said.

When sellers have to raise their prices to account for Amazon’s increased fees, they often pass those costs along to the customer. And, thanks to Amazon’s fair pricing policy, sellers have to offer the same price on other platforms that they do on Amazon — even if their costs to sell on those platforms are less. If they don’t, Amazon may suspend or demote their listings. Sellers don’t want to take that risk, which could be potentially devastating to their business.

This policy could mean that, as sellers adjust their prices to account for Amazon’s fees, prices end up being higher elsewhere, too. It also makes it harder for other e-commerce platforms to compete with Amazon and challenge its market dominance, since they aren’t able to offer lower prices that would attract more customers. The lack of options means sellers are basically stuck with Amazon if they want to reach its exponentially larger and loyal consumer base.

Sellers have helped Amazon grow to own 40 percent and 50 percent (depending which report you cite) of the e-commerce market in the United States, and in some product categories, its share is far higher. Its closest platform competitor, Walmart, has just 7 percent. Amazon is often the first place online shoppers look for products — even before search engines — especially if those shoppers are Prime members. A large, established company can pull itself out of Amazon, as Nike did in 2019, and still do fine. Most businesses don’t have that luxury.

“Small businesses don’t have other options when it comes to the digital economy,” Rep. Ken Buck, the ranking member of the House Judiciary Antitrust Subcommittee, told Recode. “Amazon continues to use their monopoly power to crush competition.”

One solution is for lawmakers and regulators to step in. Some are trying: The European Commission announced last year that it is investigating whether Amazon gave preferential treatment to itself and sellers that used FBA when determining who gets the Buy Box. The fair pricing policy and its potential to inflate prices across the internet is the basis of the District of Columbia’s lawsuit against Amazon, as well as a class action lawsuit filed by Amazon customers last year.

Several members of Congress — Buck, Cicilline, and Klobuchar among them — have introduced bills that would forbid some of Amazon’s practices they believe to be anti-competitive. These bills came out of a 16-month-long House antitrust subcommittee investigation into Big Tech companies, including Amazon. The committee accused Amazon of luring in customers and sellers with artificially low prices and Prime memberships that the company loses money on, only to raise rates as soon as Amazon’s market dominance was assured.

The proposed legislation would forbid Amazon from giving its own products prominent placement, unless it earned that place organically, and from requiring sellers to pay for ads or services like FBA in order to get preferred placement. One bill would forbid Amazon from competing in a marketplace it also owns, and could force Amazon to split off into a first-party sales company and a company that operates a platform for third-party sellers.

Amazon has responded to all of this by denying that such measures are necessary or that it’s doing anything wrong. The company has become one of the biggest lobbying spenders in the country, and it’s been emailing select sellers to warn them that pending antitrust legislation could make it difficult or impossible for them to sell their products on Amazon.

After years of studying Amazon’s business practices, Mitchell, of ILSR, thinks the best solution is arguably the most drastic.

“Policymakers could regulate Amazon’s fees — basically accept it as a regulated shopping monopoly, like a utility,” she said. “But I think a much better, more market-oriented approach is to break it up by splitting Amazon’s major divisions into stand-alone companies.”

Source: Amazon funds its empire by squeezing its marketplace sellers

 

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“Ranking The Big Four Tech Stocks: Google Is No. 1, Apple Comes In Last”. http://www.barrons.com. Retrieved May 16, 2019.

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“Accelerated Growth Sees Amazon Crowned 2019’s BrandZ™ Top 100 Most Valuable Global Brand”. http://www.prnewswire.com. Retrieved May 25, 2020.

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Amazon Gives Millions Of Users A Reason To Quit Google Photos

Amazon has released a significant update to the Amazon Photos app that will tempt some Google Photos users to switch.

Currently available only for iOS users, the new app represents a “comprehensive redesign”, as revealed in a recent Amazon Photos Blog post. The new app includes more personalized content and automatically-curated slideshows reminiscent of Google Photos. It also makes it easier to find content, allowing the user to quickly filter results by categories such as people, places and dates.

Also new is an updated home screen designed to put your entire gallery “within thumb’s reach.” Search filters are now presented conveniently at the bottom of the screen, making it much easier to find the content you’re looking for. 

I’m sure some users will take a while to get used to the changes, which are quite significant, but overall I find the whole experience much improved.

Powerful search and automatically surfacing memorable moments are two of the most important features of Google’s rival Google Photos service, and now that Google has stopped offering lifetime free storage, it’s the perfect time for Amazon Photos to swoop in with a credible alternative.

While not free, Amazon Prime customers currently get unlimited storage for photos bundled with their subscription, allowing them to fill Amazon Photos with as many images as they like at no extra cost. If Amazon can offer an experience comparable to Google Photos, there’s a good chance many will be tempted to switch over to Amazon Photos instead.

Sadly, Android users won’t be getting this update until 2022, but the new features are already available to all via the Web.

Follow @paul_monckton on Instagram

I’ve been working as a technology journalist since the early nineties. My passion is photography and the ever-changing hardware and software that we use

Source: Amazon Gives Millions Of Users A Reason To Quit Google Photos

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Must Read:

Unlimited image storage for absolutely nothing: Google’s photo backup deal was quite the steal. It’s little wonder that the promise of limitless free capacity quickly caught the attention of serial snappers. Provided you were happy to accept a cap on quality – which, at 16MP, was hardly extreme – the search giant would safely stash copies of all your precious snaps online. 

Alas, all good things must come to an end – including generous complimentary cloud storage allowances. Unless you’re the proud owner of a Pixel handset, unlimited space for ‘high quality’ images will end on 1 June 2021. Any ‘high quality’ shots uploaded to Google Photos after that date will count towards your free 15GB account limit. 

Already uploaded your entire library? Don’t panic: any snaps backed up before 1 June 2021 will not count towards the total. But you’ll still face a problem if you’re close to the limit. Hit 15GB with future uploads of any quality and you’ll have to make a choice: create space by deleting superfluous shots or pay to upgrade your account capacity

More Contents:

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