Amazon Marketplace is a matching platform where buyers and sellers can find each other and engage in a transaction. Platform enable ecosystems of actors that use the platform as infrastructure, and Amazon Marketplace is no exception.
What is exceptional in the Amazon ecosystem is that it added layers in the downward direction (blog 1). It started competing with its vendors by adding private labels. It expanded downwards by opening its infrastructure (Amazon Web Services) and monetizing its logistics, marketing, and payment infrastructure.
This allows Amazon to have a wide range of business models, ranging from traditional retail and marketplaces to content publishing, advertising and streaming (blog 2)
Shareholder value and frictionless buying
Amazon has followed this strategy in the services of five goals (blog 3):
- Focus on customers.
- Dominate the market.
- Maximize revenue.
- Cut cost.
- Maximize shareholder value.
It has pursued these goals relentlessly and with amazing success. It is perhaps the most successful example of shareholder capitalism on the planet. The result is, according to Bezos’ own estimates, a value extractor company (blog 4).
The relentless way in which these goals have been pursued pays off very well for buyers and shareholders but has undesirable effects for almost all other stakeholders.
- The Amazon ecosystem system contains friction in the form of physical and psychological stress for warehouse, delivery and performance workers, dishonest buyers and sellers, air pollution. and unsafe roads. This friction is felt by workers, honest sellers, the public, and governments, without Amazon paying for it (blog 5)
- Amazon competes with its customers by favoring its own products and subsidiaries (blog 6)
Amazon is a data collection and AI company that optimizes its smart ecosystem in the services of shareholder value and frictionless buying (blog 7).
The blogs have revealed a number of failures of a smart ecosystem that is centrally governed solely in the service of shareholder value and a frictionless buying experience. We can repair these failures by a number of government measures that bring Amazon’s governance in line with the governance of the national ecosystems that it has invaded.
- Distributing friction fairly (blog 5)
- The shift of friction to other stakeholders can be remedied by imposing some basic rules for flexworkers and allowing trade unions.
- Tax evasion can be prevented by improving tax laws internationally, as is currently happening.
- Dispute resolution should happen according to a rule of law that should satisfy some minimum standards. The regions where Amazon operates should enforce this.
- Eliminating anti-competitive practices (blog 6)
- To judge fairness, Amazon should be transparent to regulators about the allocation of revenue to ecosystem participants.
- Amazon should be split across layers so that data and price subsidies across layers are not possible. The current antitrust proposals of the House of Representatives do exactly that. The Ending Platform Monopolies Act prohibits a company that operates a marketplace to also trade as shop on this marketplace. The American Choice and Innovation Online Act prohibits platforms to give preferential treatment to their own products. Europe’s Digital markets Act also contains these provisions.
- A smart ecosystem that respects all stakeholders (blog 7)
- Protect the privacy of citizens by giving them the right to delete their own data and/or moving with their data to another ecosystem. The GDPR does not go far enough on this issue.
- Regulate the automation of decisions with moral impact. These are decisions that affect human well-being, safety and dignity. The EU proposal for AI regulation does not go far enough in this respect.
How to respond to digital colonialism
All of us live in several ecosystems. We live in a country, which is part of a region, such as the EU. We participate in the ecosystems of Amazon, Facebook, Twitter, Linkedin, WeChat, Telegram, WhatsApp, Instagram, SnapChat, TikTok, Alibaba, Spotify, Netflix, Uber, and others.
These ecosystems are defined as digital networks but they are additionally physical and a social networks. The country you live in is defined by physical, geographical boundaries. Amazon consists of a physical infrastructure of warehouses, trucks, planes, drones, physical shops and delivery points. Facebook and all the other networks similarly are implemented on physical servers, cables, wireless connections, smartphones and desktops, that must be regularly replaced.
And all of these ecosystems contain people that interact, communicate, transact, transfer money, listen to music, view movies, play games, take a taxi, and do many other things online and offline. These physical resources and social activities are governed by rules defined and enforced by companies that exist in nations that may be liberal, illiberal, authoritarian, democratic, socialist with Chinese characteristics, capitalist, or anything in between.
Countries defined by physical boundaries with a single government have been invaded by these digital/physical/social ecosystems. In the case of Amazon, digital penetration is invisible but widespread. Physical penetration in the form of warehouses and increased traffic is beginning to get noticed. Social penetration in the form of dependence of sellers and workers on a complex and sometimes inscrutable system of governance has now raised the interest of governments.
The penetration of national ecosystem by digital ecosystems of Big Tech has some resemblance to the way in which European colonial powers took possession of regions elsewhere in the world from the 16th to the 19th century and bent the local rules of governance to their own advantage. I do not want to suggest that Amazon signs unequal treaties with national governments under threat of military force, like the European powers did with the Chinese government in the 19th century. And I do not want to suggest that Amazon is causing misery as widespread as that caused by colonial European powers. However, Amazon does spend an increasing amount of lobbying every year, $19M in 2019, to bend national rules in their favor. And it spreads misery in the form of friction among stakeholders other than shareholders and buyers. This is a form of digital colonialism.
What is at issue here, at least in Europe, is how to combine Amazon’s centralized data-based and AI-led governance in the service of shareholder value and a friction-less buying experience, with democratic governance by the rule of law according to European values. This series of blogs has analyzed Amazon’s empire and suggested a number of ways to deal with its digital colonialism.
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