Pluralistic: How Amazon makes everything you buy more expensive, no matter where you buy it (25 Apr 2023)


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Jean-Leon Gerome's painting Pollice Verso, 1872, depicting gladiators in an arena with noble onlookers giving a thumbs-down gesture. The tapestry before the nobles has been replaced with a US $100 bill in which Ben Franklin's mouth has been replaced by an Amazon smile logo.

How Amazon makes everything you buy more expensive, no matter where you buy it (permalink)

Amazon is very proud of its "flywheel": at first, the company offered subsidies to customers, which lured in sellers. Then, it demanded that those sellers lower their prices, which lured in more customers. With more customers, more sellers piled in. Faster and faster, the flywheel spins, creating the "everything store":

https://fourweekmba.com/amazon-flywheel/

The flywheel is everywhere – they even teach it in business-schools. But Amazon is not a reliable narrator. It doesn't tell the truth about the flywheel. To understand what's really going on with the flywheel, you have apply enshittification to it.

First, Amazon is good to its end users. Then it claws back the benefit to those users and delivers them to sellers. Then it claws back from sellers and takes everything for its shareholders. Then, it turns to shit. Enshittification.

https://pluralistic.net/2023/01/21/potemkin-ai/#hey-guys

Amazon – like other platform businesses – externalizes its costs onto its suppliers, then harvests the majority of the reward. Uber drivers take the risks – car and fuel payments, unpaid time waiting for a ride – and then it creams off most of the money that riders pay to get from A to B:

https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men

You can think of this as the eucalyptus tree strategy: eucalypts drop oily leaves around their base. The leaves pile up, trapping heat among all that oil until, eventually, they burst into flame, burning down all the vegetation for miles around. The only things that survive the conflagration are the eucalypt seed-pods, which need fire to open and begin germinating. Meanwhile, all the potential competitors for water, sunshine and soil nutrients have been incinerated, forming a rich, ashy mulch for the eucalypts to grow in.

(Like many Australian plants, insects and animals, eucalypts are horrifyingly bad ass.)

Uber is a pure enshittification play. For more than a decade, the company lost more than 40 cents on every dollar, using predatory pricing to destroy the yellow cab business and public transit. Now it employs ex-cab drivers at half their old wages to drive passengers at twice the old fares. It incinerated the forest and took root in the ashes.

Amazon's version of this arson relies on the same scorched-earth lock-in that Uber and other enshittifying eucalypts deploy. Amazon used investor subsidies to switch customers onto its platform, then locked them in by subsidizing the pre-purchase of a year's worth of shipping (AKA Prime). Once you've pre-paid for a year's worth of shipping, you don't shop anywhere else.

Prepayment is a huge part of Amazon's lock-in: that's the real strategy behind its subscriptions services for ebooks and audiobooks. If you've already paid for a book this month – a payment you owe whether or not you actually choose a book – then any time you come across an interesting book, you get it on Kindle or Audible, because you've already paid for it.

With digital items, Amazon has a double lock-in, thanks to Digital Rights Management (DRM). Under Section 1201 of 1998's Digital Millennium Copyright Act (DMCA), it's a felony to provide someone with a tool to remove DRM, even if no one ever uses that tool to infringe copyright. That means that if Amazon sells you one of my books wrapped in its DRM, you can't play it unless you use an Amazon-authorized player. It also means that if I – the copyright proprietor! – give you a tool to remove the DRM and move your book to a rival platform, I commit a felony that is punishable by five years in prison. Small wonder that Amazon insists that every audiobook on Audible – its monopoly audiobook platform – be wrapped in DRM.

So first, Amazon locks in its users, with presales, subsidies, and DRM. This lures in sellers, to be sure. As brick-and-mortar retail fails, sellers pile into Amazon's Marketplace. All the trickery with the users is the stick: "keep trying to sell off-Amazon and you'll go bust." The carrot is the Marketplace: "Sell through the Marketplace and you'll reach those customers, and we'll subsidize shipping, we'll subsidize returns, and we'll add your products to a thoroughly indexed, highly searchable catalog so that every person looking for a specific part or product will go straight to your sell-page."

Sellers can't easily use Amazon as one distribution conduit among many. This week on the Tech Won't Save Us podcast, Moira Weigel discusses her research on the way that firms have to retool to optimize for Amazon, in an episode aptly entitled "How Amazon Reshapes Small Business to Serve Itself":

https://techwontsave.us/episode/162_how_amazon_reshapes_small_business_to_serve_itself_w_moira_weigel

The episode elucidates her study of Amazon sellers for Data and Society, "Amazon’s Trickle-Down Monopoly: Third Party Sellers and the Transformation of Small Businesses":

https://datasociety.net/library/amazons-trickle-down-monopoly/

As the sale of all kinds of merchandise is retooled for Amazon delivery, every other retailer finds it harder to stay in business. The choice of goods available in physical stores dwindles, so more shoppers pile into Amazon. As Amazon's pool of shoppers grows, more merchants are driven to Amazon. This is Amazon's flywheel – not so much a virtuous cycle as a vicious one.

Having locked in buyers and sellers, Amazon is now in the "burn down the forest" phase of Eucalyptus Capitalism. The company now extracts the majority of its third-party sellers' income in junk fees – fulfillment, service charges, payment fees, and more. One especially juicy source of revenue is Amazon's "advertising" business:

https://www.bloomberg.com/news/articles/2023-02-13/amazon-amzn-takes-half-of-each-sale-from-2-million-small-businesses

Whenever discussions of adtech monopolization comes up, someone will inevitably point out that the market isn't as stagnant as it seems – after all, Amazon was able to enter the market despite the dominance of the Googbook duopoly, and build a $31b/year advertising product. But Amazon's advertising isn't like Google or Meta's advertising (not that those are good – just different).

Googbook serves as a broker between advertisers and publishers, targeting ads based on the surveillance data they amass or purchase on billions of internet users. Amazon does a little of that, but it's main "advertising" business isn't advertising at all – it's payola. Where Amazon once guaranteed sellers that if they sold the best match for a customer's search, they would top the search results, Amazon now makes its sellers bid against each other to be at the top of your results, whether or not they're the best match for your search.

That's why the first five screens of results to a search for "cat beds" are 50% ads (the first screen is 100% ads). Much of what remains is Amazon's clones of its sellers' products (Amazon uses its surveillance of its sellers shipments to fully book out the factories that make their goods, so the next time the seller goes back to re-order another batch, the factory is unable to fill the order for years; Amazon sellers call this "dragonboating"):

https://pluralistic.net/2022/11/28/enshittification/#relentless-payola

In other words, Amazon isn't making $31b/year selling ads – it's extracting $31b/year from its merchants to make its shoppers' experience worse. The results at the top of your search aren't the best products – they're often the worst products, because sellers who waste money making good products don't have anything left over to pay danegeld to Amazon:

https://pluralistic.net/2023/04/08/late-stage-sea-monkeys/#jeremys-razors

But maybe this doesn't matter to you. Maybe you're "good at Amazon" and can skip over the paid product placement (here's a tip, search for Amazon products on Google, which will often take you to a better match than Amazon's own search, skipping over the pay-to-play). Does any of this matter to you? You're still getting low prices and easy shipping, right?

Remember: enshittification is an equal-opportunity pathology. It's not just about squeezing sellers – it's about squeezing buyers, as anyone who's paid $55 for an Uber ride that used to cost $18 on Uber or $22 in a Yellow Cab knows.

There's just not a lot of vendors who have 51% margins on their goods. If merchants must sell on Amazon, and if selling on Amazon means you must give up 51% of your take, then you're going to go out of business. Unless…you raise prices.

But wait! Amazon prices aren't higher than they are anywhere else! You can check it yourself – Amazon prices are the same as the price at Walmart and Target, they're the same as the price at your local mom-and-pop shop, and they're the same as the price if you buy direct from the manufacture. Amazon sellers aren't raising prices to cover Amazon's junk fees, are they?

Oh hell yes they are.

Amazon binds its sellers over to something called Most Favored Nation status. That means that sellers can't offer their goods more cheaply than they do on Amazon – even if it costs them (lots) less to sell in Target or direct from their websites. This means that every time a seller adds a dollar to their Amazon sale price, they have to add a dollar to the price of their goods everywhere else, too.

If this sounds illegal, it's because it is. A per se violation of antitrust law, even the weak and watery version instituted during the Reagan revolution, where "consumer welfare" (AKA "low prices") is the only thing antitrust seeks to preserve.

After a bunch of state AGs filed lawsuits against Amazon over this, the company promised to cut it out.

They lied.

A new filing in California's suit against Amazon reveals that sellers live "in constant fear" of retaliation from Amazon if they allow their goods to be sold more cheaply elsewhere:

https://finance.yahoo.com/news/amazon-vow-stop-squeezing-sellers-231635204.html

Indeed, the company expanded the penalties it slapped on sellers, though their execs fretted that this "may generate pushback given recent positive press about our change to remove the previous price parity clause." The exec added that when these penalties came to light, it might cause people to assume that the promise to end Most Favored Nation "was not only trivial but a trick and an attempt to garner goodwill with policy makers amid increasing competition concerns."

Ya think?

The new documents reveal Amazon execs committing the cardinal sin of monopoly: documenting their nefarious plans in memos – memos in which they talk like mafia bosses: "You might want to ask [a seller] to check if his sales on other sites directly or through distributors is putting him and us at a relative competitive disadvantage. He might get the hint :)"

Amazon's chief economist told his colleagues that the ad business would "reduce selection, are not relevant to the customer’s search, and/or lead to increases in prices."

In her excellent interview with Tech Won't Save Us's Paris Marx, Weigel was critical of the way that the antitrust movement thinks about Amazon, accusing modern trustbusters of being concerned with competition for its own sake. There are undoubtably some "neo-Brandeisian" antitrust activists who feel that way, but it's a mistake to paint the whole movement with that brush.

For many trustbusters, the point of antitrust isn't increasing competition – it's reducing corporate power. Amazon has built the "planned economy" that capitalists claim to deplore, but this planned economy isn't run by democratically accountable government technocrats – it's run by Party Secretary Bezos and his Commissars, who decide which goods can be profitably made and sold.

Companies are disciplined by two forces: competition and regulation. But a company that doesn't face competition swiftly becomes ungovernable, because its centrality makes it too big to fail, while its monopoly profits make it too big to jail. Amazon's ability to corrupt the political process and win deep subsidies from towns and states is purchased with monopoly money. Amazon's ability to spend millions on union busters and millions more on labor lawyers to sabotage union votes in court are bought with the same cash.

Competition is a means of cutting Amazon down to size, so that it can be regulated. Sure, we can try to do direct regulation, like breaking up Amazon. That plan has a lot going for it – but it won't be fast. It took 69 years to break up AT&T. IBM outspent the entire DoJ Antitrust Divisison, every single year, for twelve consecutive years, in a war of attrition they call "Antitrust's Vietnam." In the end, IBM wriggled off the hook:

https://pluralistic.net/2021/11/14/jam-to-day/

We should do everything to blunt the power of monopolists, including Amazon: breakups, competition rules, unionization, organized boycotts, lawsuits…everything. They have the money, but we have the people, because now that Amazon has entered end-stage enshittification, it's running out of friends. When the platform withdraws its favor from buyers, sellers and workers, who's left to stick up for it? Separately, no group of Amazon stakeholders can hold it to account, but when we all join together, we can smash the company's power – forever.

Hey look at this (permalink)


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This day in history (permalink)

#20yrsago Notes from “Google, Innovation, and the Web,” at ETCON https://craphound.com/googleetcon2003.txt

#20yrsago Grokster court rules distributing Gnutella clients is legal! https://craphound.com/GROKSTER ORDER.PDF

#20yrsago Nanotechnology: Bringing Digital Control to Matter” Eric Drexler’s talk at ETCON https://craphound.com/drexleretcon2003.txt

#20yrsago Notes from “Roboflies, Flexonics, and the Social Life of Smart Dust” https://craphound.com/pescoetcon2003.txt

#20yrsago “Internet 0 — Bringing IP to the Leaf Node” https://craphound.com/raffietcon2003.txt

#20yrsago “Physical Computing,” Tom Igoe’s talk at ETCON https://craphound.com/tigoeetcon2003.txt

#15yrsago UK photographer chased down and detained for taking pix at fun fair https://curly15.wordpress.com/2008/03/24/sex-pictures-shock/

#10yrsago EFF, FSF, Creative Commons and many others ask W3C to reject DRM conspiracy https://www.defectivebydesign.org/sign-on-against-drm-in-html

#10yrsago Canada Post claims exclusive use of the words “postal code” https://web.archive.org/web/20130427041523/http://o.canada.com/2013/04/24/canada-post-says-they-hold-trademark-on-the-words-postal-code/

#10yrsago Nevada bans counties from gouging Burning Man https://burners.me/2013/04/23/victory-but-for-whom/

#10yrsago Lauren Beukes’s Shining Girls: a serial killer thriller with a time-travel twist https://memex.craphound.com/2013/04/25/lauren-beukess-shining-girls-a-serial-killer-thriller-with-a-time-travel-twist/

#5yrsago Incentives matter: the Mr Market LOOOOOVES death squads https://www.sciencedirect.com/science/article/abs/pii/S0304387818304139

#5yrsago In 60 seconds, security researchers can clone the master hotel-room keys for 140,000 hotels in 160 countries https://www.wired.com/story/one-minute-attack-let-hackers-spoof-hotel-master-keys/

#5yrsago Bernie Sanders’ New Deal: ending involuntary unemployment with guaranteed $15/hour infrastructure jobs https://www.washingtonpost.com/news/wonk/wp/2018/04/23/bernie-sanders-to-unveil-plan-to-guarantee-every-american-a-job/

#1yrago Up Against It, an "essential," action-adventure sf tale of bureaucrats and colonizers https://pluralistic.net/2022/04/25/mj-locke-rides-again/#two-fisted-astro-bureaucrats


Colophon (permalink)

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