Bad news landed on the doorstep at Amazon’s headquarters early Tuesday. The European Commission has informed the online retailer that it feels the company has breached European Union (EU) antitrust rules by “distorting competition in online retail markets.”
The Commission’s biggest problem with Amazon is that it supposedly gleans non-public business data about independent sellers on its marketplace and uses that information to the benefit of its own retail business, which directly competes with those third-party sellers.
The value of that information could easily catapult Amazon’s own version of a product to the front of the line. The Commission said that Amazon’s insider information on third-party sellers included the number of ordered and shipped units of products, the sellers' revenues on the marketplace, the number of visits to sellers' offers, shipping data, data related to sellers' past performance, and other consumer claims on products.
“We must ensure that dual role platforms with market power, such as Amazon, do not distort competition. Data on the activity of third-party sellers should not be used to the benefit of Amazon when it acts as a competitor to these sellers,” said Margrethe Vestager, the executive vice president in charge of competition policy.
The almighty “Buy Box”
The Commission didn’t let Amazon off the hook with just one indiscretion. It also opened a second antitrust investigation into the possible partisan treatment of Amazon's own retail offers and those of marketplace sellers that use Amazon's logistics and delivery services.
In particular, the Commission will take a deep look into the criteria that Amazon sets to select who’s included in its “Buy Box.” The Buy Box is the white box on the right side of an Amazon product’s detail page where customers can click and add items to their cart.
The rub for the Commission is that only businesses with exceptional seller metrics get a chance to be included in the Buy Box -- and guess what decides who qualifies as “exceptional?” Amazon’s own algorithms.
Eyal Lanxner at BigBusiness said that 82 percent of Amazon sales go through the Buy Box, and the percentage is even higher for mobile purchases. Lanxner says that in mobile, the Buy Box takes on heightened importance because, unlike on a desktop or laptop, the mobile site features the Buy Box directly under the product image.
“If you’re that one lucky seller who gets the ‘Buy Box,’ you make all the sales,” says Christo Wilson, lead researcher of a Northeastern University study of Amazon's algorithmic pricing practices.
“This is very much a winner-take-all system. If you’re that one lucky seller who gets the ‘buy box,’ you make all the sales. So if you want to be competitive for the top-selling products, you pretty much have no choice: You have to be an algorithmic seller.”
The Commission and Amazon’s end game
The two sides now enter the fray hoping for a judgment in their favor. The Commission is going to be leaning heavily on an EU law that prohibits the abuse of a dominant market position. And in the other corner, Amazon will be battling to prove that it plays fair and square with third-party vendors.
“The conditions of competition on the Amazon platform must also be fair. Its rules should not artificially favour Amazon's own retail offers or advantage the offers of retailers using Amazon's logistics and delivery services,” Vestager said.
“With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers.”