HOW Amazon is Bad for Business

When you think about privacy violations, do you think about 1984 style mass surveillance? Many people do. But there are other large and powerful entities that can commit another form of privacy infraction — that against the business owner. A larger company that provides a service to a smaller one can use its access to the smaller company’s business data as a way to compete with the smaller, dependent business.

This is called “opportunistic behavior” aka ‘screwing partners over’, and happens specifically when two businesses enter into a contract with each other but are both serving customers in the same industry, and one decides to take advantage.

Amazon, the focus of this article, does this through the use of private-labels, where they launch their own brand of a popular product or service. The most known version of this is Amazon Basics, which offers many low-priced, off-brand alternatives to electronics products, aiming “to give customers the ultimate in selection and value”. Launched in 2009, Amazon Basics has come to dominate the online market-share for many electronics products, such as batteries, accessory cables, and speakers. A prime (pun intended) example of this is that, as of 2016 Amazon Basics dominated up to 31% of all online battery sales, and Amazon.com up to 94% of online battery sales. For the first quarter of 2018, Amazon also took home 61% of all private-label sales, most being electronic, compared to other retailers such as Walmart and Target.

What’s the issue? Amazon does not have to expose itself to the risk of launching a new product, responding to customer needs or doing research and development. They can simply use sales data on their platform to know which products are selling well, then ‘low-key’ copy the winning products, in concept, design and features, cleverly avoiding patent issues that may arise concerning design, and aided by a near-infinite budget. Amazon can have its market research done for it, with short-term benefit to the consumer, long-term benefit to Amazon, and an all around disadvantage to the original seller. For sellers, the online channel has become a direct competitor.

I started with Amazon but this issue concerning private-labels, and competition against sellers is not just limited to Amazon or tech products. Supermarkets often also have private-labels, or any retail store that has greater selling power than those that rely on their services. They compete for shelf-space with their sellers and already-established brands. Technology goods and services have a greater potential for innovation however, as there is more room for incremental and new advances in technology-oriented products than non-technology products. Amazon gets its own test market, while innovative sellers are disincentivized from creating useful products. They are disincentivized for fear of despotic competitiveness from the best channels to reach consumers.

And what does this have to do with crypto?

Crypto is built on blockchain technology, built for decentralization. Platforms such as marketplaces can be built on blockchains, which are resistant to centralized power imbalances where only central participants receive benefits. In the case of marketplaces, both the sellers and buyers can own the platform so that the sales channel, Amazon in our example, does not make major decisions that only benefit it.

The key detail that gives sales channels this power to undermine its sellers is ownership and control over sales data. An alternative is to provide a medium for sellers and buyers to transact on, where sales data is not automatically shared because there is no central ‘owner’ of the platform, while there is still a way for over-arching decisions to be made.

I am going to be realistic here, Amazon probably will not go away, and Amazon dominates markets because it is doing a good job of satisfying consumers and shareholders. Amazon does not force sellers to use its platform. The use of private-seller data may not seem like a problem to consumers. But it is a problem for both small and large businesses. And it is a problem for consumers in the long run, since innovation is stifled and competition (on the platform) is rigged. There has to be a trade-off between customer satisfaction coming from lower prices, and customer satisfaction from valued innovation. It is a given that consumers respond to price. Privacy-focused marketplaces may at first be a niche interest for privacy-oriented consumers and producers, but there is room to improve customer satisfaction over time. Eventually platforms will have the convenience and reliability of Amazon while allowing sellers to successfully sell the products that they designed. Privacy-enabling blockchains that are the medium for transactions, give sellers and buyers a novel alternative.

This article is part of an ongoing series on privacy that I’m doing as part of my work with Particl, a crypto-based privacy platform that is creating its first dAPP, a marketplace. See the video version here. All opinions are my own.