By Kennett Werner,
Amazon’s current market cap is $461 billion; getting to a market cap of $3 trillion, as Palihapitiya suggested it would, will require a nearly seven-fold increase in value. Just as noteworthy was his assertion that Amazon would get there through market control. That gets to why investors are so bullish and what’s at stake for the company as it navigates antitrust concerns in Washington.
Amazon’s strategy is to keep prices low, woo customers, and win market share in retail: grow now and profit later. (Already Amazon accounts for 43 percent of online retail in the U.S.) That explains why Amazon makes very little profit relative to its market cap. Investors pile in, accepting low returns in the short term in anticipation of a future windfall. It’s a phenomenon seen across digital platforms: Network effects, combined with the value of the data platforms collect from customers, easily make for winner-take-all markets.
In calling Amazon a monopoly in plain sight, Palihapitiya was banking on the assumption that antitrust enforcers won’t catch on and disrupt that growth. But some antitrust scholars think it’s time to intervene. “Investors and markets are predicting a reality about Amazon’s dominance that our laws are really not registering right now,” said Lina Khan, author of “Amazon’s Antitrust Paradox” and a fellow at New America. She has suggested that by competing with sellers on its platform, Amazon wields extraordinary power as a gatekeeper and has an incentive to discriminate. She has urged antitrust enforcers to step up enforcement and consider Amazon’s market power.
No one could say regulators across the Atlantic are lagging. Last week, the E.U. hit Google with a record $2.7 billion fine for favoring its own shopping service over those of competitors. The European Commission traced Google’s dominant position to network effects and data. “The more consumers use a search engine,” read the Commission’s announcement of the fine, “the more attractive it becomes to advertisers. The profits generated can then be used to attract even more consumers. Similarly, the data a search engine gathers about consumers can in turn be used to improve results.” Google has 90 days to stop favoring its own shopping service or face further penalties.
It’s unlikely that digital platforms like Google or Amazon will face real scrutiny in the U.S. under the current regulatory framework, where consumer welfare (as measured by price) has been the standard used to assess anticompetitive behavior since the Reagan administration. Tech companies are taking no chances, however. The top three digital platform companies by market cap—Alphabet (Google’s parent company), Facebook and Amazon—spend the most on lobbying among internet firms.
Even before the European Commission announced its fine, Google lobbyists were soliciting signatures from U.S. lawmakers for a letter criticizing E.U. antitrust regulation. The E.U. has a history of unfairly targeting American tech firms and stifling innovation, the letter alleges.
Google has 25 lobbying firms on retainer and spends the most lobbying Congress among internet companies. So far this year it has spent $3.5 million. Last year its lobbying outlays totaled $15.4 million. Google lobbies on a range of issues, including consumer privacy, cybersecurity, taxes, immigration, and transportation. Antitrust concerns are also high on the list. In 2012, it spent $18.2 million—a record for the company. That year, staffers at the Federal Trade Commission recommended filing a lawsuit against the company for anticompetitive behavior. The Obama administration demurred, and Google made tweaks to its search function instead.
Critics accused the Obama administration of getting too cozy with Google. The Campaign for Accountability, a government watchdog group, examined White House visitor logs and found that between January 2009 and October 2015, employees of Google met with White House officials 363 times. It also tallied revolving door activity: By its count, 22 former White House officials moved into jobs at Google, while 31 Google executives took government jobs. Early signs from the Trump administration suggest a similar coziness. Joshua Wright, a law professor at George Mason University, led transition efforts at the FTC, which has three open commissioner slots. Wright received Google funding for at least four academic papers that all supported the company’s contention that its behavior in search was not anticompetitive.
With 12 firms on retainer, Amazon has spent just under $3 million lobbying Congress so far this year. Its lobbying history mirrors its rapid growth: Three years ago it spent $4.9 million, which rose to $11.4 million in 2016. Amazon has two former senators and two former representatives on its lobbying payroll.
Will Amazon face greater scrutiny under the Trump administration? It’s hard to envision regulators blocking Amazon’s purchase of Whole Foods. Amazon currently controls 0.2 percent of the U.S. grocery market, while Whole Foods claims 1.2 percent. But President Trump has publicly sparred with Amazon founder Jeff Bezos, who also owns The Washington Post. In an appearance on Fox News last year, Trump attacked the Post’s coverage of his campaign and suggested that Amazon has a “huge antitrust problem” by “controlling so much of what they are doing.”
Tech firms have long painted antitrust action by European regulators as protectionist and anti-innovation. They would like President Trump to take that attitude, too. They’re hoping that his pro-business and “America First” agenda will ultimately matter most. In the meantime, they’re lobbying.