Amazon’s Own Track Record Undercuts the FTC’s Case
Summary
Thin profit margins and growing competition don’t support monopolist charge.The biggest of the big techs is finally in the government’s crosshairs. But while Amazon may be a huge target, it won’t be an easy one.
The Federal Trade Commission, along with 17 states, sued Amazon on Tuesday, calling the e-commerce giant a monopolist that “has seized control over much of the online retail economy." It has done this, the government alleges, by locking in sellers who rely on their ability to reach Amazon’s massive customer base but face an ever-rising raft of fees and rule changes by Amazon to remain on the platform.
Amazon customers, meanwhile, have to deal with a “degraded" experience consisting of inflated prices and lower-quality search results, the latter because of Amazon’s ever-growing business of selling advertising on its own site, the suit alleges.
Amazon denied the charges, and investors weren’t terribly alarmed. Its share price already was down 3% Tuesday morning on the market’s big selloff. The stock slipped an additional 1% by the closing bell. The suit itself was hardly a surprise—The Wall Street Journal reported in February that the FTC was preparing a case. Indeed, it had been widely expected ever since longtime Amazon critic Lina Khan was named chair of the commission in 2021. Amazon has spent much of the time since arguing that Khan should be recused from any investigation of the company given her stated animosity to it.
That clearly didn’t work, but the government still faces an uphill battle. Its track record hasn’t been great, either: The FTC failed to stop Facebook-parent Meta Platforms from acquiring a virtual-reality company called Within earlier this year after arguing that deal would hurt competition in the still nascent VR space. A far more ambitious attempt to block Microsoft’s pending acquisition of Activision Blizzard also flopped after a federal judge ruled that the FTC failed to make a persuasive case that the deal would substantially lessen competition.
Amazon certainly makes a tempting target, especially for those who claim big tech has gotten too big. The company that started as an online bookseller in the mid-90s now generates more than $538 billion in annual revenue. That is more than any other public company in the world except Walmart, according to data from S&P Global Market Intelligence. It has gotten here by amassing a huge base of buyers and sellers and an equally massive delivery network consisting of its own planes, trucks and nearly 1,300 distribution facilities in the U.S. alone, according to the latest data from logistics consultant MWPVL.
That scale has naturally earned Amazon more than its share of irate customers, sellers and rivals, and some of the company’s actions certainly have been questionable. But Amazon as a monopolist doesn’t square with the fact that the company still accounts for less than a third of total e-commerce sales in the U.S. over the last four quarters, according to the government’s latest retail sales data.
And even that huge distribution footprint doesn’t exactly allow Amazon to just set prices; Amazon commands the lowest operating margins among its big tech peers, and the company’s retail operations have lost money in seven of the last eight quarters. Overbuilding of its fulfillment network actually caused Amazon to burn cash over the last two years.
Competition is also growing of late instead of diminishing. Walmart’s U.S. e-commerce revenue has averaged 39% annual growth over the last four years and is expected to hit nearly $62 billion in the fiscal year ending January, according to consensus estimates from Visible Alpha. Meanwhile, Shopify has more than tripled its revenue over just the past three years precisely by powering e-commerce sales for a variety of large and small merchants looking for an alternative to selling on Amazon.
“Interestingly, we believe the eCommerce market is becoming more competitive," Citigroup analyst Ronald Josey wrote in a report Tuesday, also noting the sharp rise of e-commerce bargain sellers such as Temu and Shein.
Colin Sebastian of Robert W. Baird noted that the scope of the FTC’s case is narrower than anticipated in that it doesn’t seem to be seeking a breakup. “At best, the FTC could hope for some modest changes to Amazon’s pricing policies, fewer requirements around Prime shipping, and presumably improved search results," he wrote.
Amazon likely will have to tread more carefully in the future, but it will still be Amazon.
Write to Dan Gallagher at dan.gallagher@wsj.com
