The clash between the European Union and etail giant Amazon is a case of ethics versus big data.

This week, the European Commission informed Amazon of its preliminary view that the etailer breached EU antitrust rules by leveraging data from its third-party Marketplace sellers to gain dominance in the market.

Initial findings from a review that began in July last year suggest that ”very large quantities of non-public seller data” feed into Amazon’s retail business and that is ”used to calibrate Amazon’s own offers and strategic business decisions to the detriment of other sellers”.

A second investigation is now under way by the commission to uncover whether Amazon gives preferential treatment to sellers that use its Fulfilment by Amazon logistics services and to understand the criteria that Amazon sets to select the winner of the ’Buy Box’ on its site.

How significant is the investigation?

This investigation is significant for Amazon because, if found to be in breach of EU competition law, it could be fined up to 10% of its global turnover.

However, let’s not be too hasty in assuming that this outcome will be reached. Amazon will first have an opportunity to respond to the charges. It has already said in a recent blog post that no one ”cares more” for small businesses. And if it is fined, it will almost definitely launch an appeal.

“With ecommerce booming, and Amazon being the leading ecommerce platform, a fair and undistorted access to consumers online is important for all sellers” 

Margrethe Vestager, executive vice-president, EU Commission

Since the investigation began last year, there has also been a visible increase in focus by Amazon on its third-party Marketplace sellers, which account for approximately 60% of gross merchandise volume on its site.

Support for sellers was at the heart of its strategy for last month’s Prime Day, for instance – customers that spent £10 with a UK small business selling on Amazon before October 12 received a £10 credit to use during the promotion.

It is also the case that Amazon has a history of extricating itself from anti-competition investigations and adapting its policies and business practices.

In 2012 the Office of Fair Trading investigated Amazon for anti-competitive price-matching and that led to changes to the Marketplace price parity policy.

Ethics versus big data

While there is no doubt that Amazon is set for another record-breaking Golden Quarter, benefiting hugely from the current retail environment, home-based consumers and the accelerated shift online, that is not the focus of the investigation.

The focus of this competition enquiry is new because it essentially hinges on Amazon’s site algorithms and its use of big data.

Amazon has always used AI to personalise the shopping experience for customers and to optimise opportunities from the huge swathes of data that it collects.

However, big data is now big business and the focus has shifted to investigating what is and is not ethical, particularly in light of Amazon’s dual role as retailer and platform.

Is it ethical, for instance, to use Marketplace data to identify gaps in the market where Amazon can develop private-label products?

Is it OK for Amazon to promote products that it can ship faster to Prime customers because they are already in its warehouse?

Who has the right to determine which products appear at the top of search? And is selling on Amazon an equal partnership when the global giant owns all the data?

It is certainly a dilemma that throws up more questions than answers. There is no doubt that proprietary data and deep relationships with customers are key to unlocking growth, and in the case of its Marketplace platform Amazon owns the data and the relationship.

For that reason, it does seem like a one-sided relationship for the companies that outsource all of that to Amazon.

Now may be the time to introduce more regulation of the use of the algorithms, which are ultimately devised by Amazon itself. But should policymakers be intervening in business in this way?

“Misguided interventions in the free market would kill off independent retailers and punish consumers by forcing small businesses out of popular online stores, raising prices, and reducing consumer choice and convenience”

Amazon blog, October 2020

Growing global scrutiny

The role of huge ecosystems and their use of big data is a subject that is growing in significance globally in light of their increased market dominance.

Amazon has faced recent political scrutiny in the US and the Chinese government is also now also cracking down on ecommerce giants there.

As Singles’ Day takes place in China, the country’s State Administration for Market Regulation has just published a 22-page draft to define anti-competitive behaviour for the tech sector and giants such as Alibaba and JD.com.

Proposed new rules would attempt to stop companies from sharing sensitive consumer data, selling at a loss or partnering to eliminate smaller rivals. 

It is the first time that these topics are being talked about within the context of retail and it is a concern that needs to be addressed through competition guidelines and regulations.

Just as there are data privacy guidelines such as GDPR for customer data, now may be the time to weigh up whether there should be legislation to protect small businesses.

To partner or go it alone?

For now there are many advantages to brands and small businesses on partnering with global platforms – in terms of reach, volume and gaining access to growth.

However, those that sell on the platforms must also weigh up the pros and cons and take time to understand the implications.

The sticking point is that the customer relationship and all data on the platform remains the property of Amazon or similar businesses and can be used to the global giants’ competitive advantage.

Many brands have chosen a D2C route to online selling for precisely that reason.

It is an increasingly attractive proposition for leading brands such as Nike, which took the decision last year to remove itself from Amazon’s platform and focus on growing its own site. By the end of 2020, Nike estimates that its direct-to-consumer revenue will reach $16bn. 

Prime Day small businesses

Some brands may choose to partner with third-party platforms to expand reach, while maintaining a website in parallel to create loyalty, gain shopper insight and test innovation. 

In the meantime, we can anticipate another record-breaking quarter for Amazon, which will continue to highlight in its corporate communications the difference it is also making for its Marketplace sellers.

It will be an interesting investigation, for sure, because for every disgruntled Marketplace seller there is another one that would not be in business if it weren’t for Amazon.

The most likely outcome is that Amazon and others will need to rethink their AI algorithms, because eventually legislation will catch up with the digital world.