EU's Amazon probe to hinge on market definition, use of data

10 November 2020 17:24 by Nicholas Hirst, Lewis Crofts

Amazon’s data-driven business model and its dizzy expansion have prompted a pioneering European Commission probe into Big Data online. That, at least, is how the EU’s antitrust regulator sees things.

For supporters of the e-commerce giant, which was today served with formal EU antitrust charges, its business model is not fundamentally different to that of rivals such as Lidl and Carrefour, which have a larger presence in respective national markets.

Today’s announcement sets up the commission and Amazon for a clash over how Europeans shop in the 21st century.

First, there is a debate about which companies are in the market for the same consumer euros: Is e-commerce a distinct sector, or simply another avenue to sell the same goods found on the high street?

Defending itself today, Amazon sought to emphasize the latter definition. “Amazon represents less than 1 percent of the global retail market, and there are larger retailers in every country in which we operate,” it said in a statement.

Online and offline retailers compete on an equal footing for consumers’ custom, it said, with established players — think MediaMarkt or Decathlon — enjoying a starting lead.

The commission, by contrast, is trying to define e-commerce as a distinct market. “Everyone will distinguish between buying something on Amazon and going to Delhaize,” EU antitrust chief Margrethe Vestager noted, referring to a Belgian supermarket chain.

If one accepts that definition, Amazon’s unrivalled online footprint and its power over sellers on its platform can serve as the foundation of an antitrust case.

In some countries, Amazon faces competition from other platforms: think Allegro in Poland or in the Netherlands. These countries are, for the moment, outside the scope of the data inquiry.

Instead, regulators have homed in on France and Germany — the EU’s two largest e-commerce markets — where alternatives are weaker. More than 70 percent of consumers in France and more than 80 percent in Germany who shop online bought something from Amazon in the last 12 months, noted Vestager.

This means online merchants operating in Lyon or Munich almost inevitably have to deal with Amazon. Establishing that dominance is key to the commission’s case.

Use of data

A second argument is taking shape, over whether Amazon’s use of data is fundamentally different to that of its bricks-and-mortar counterparts.

Amazon’s supporters say that supermarkets are not so different: They also offer a vast range of products, where their own brands compete with other labels. And they can glean extensive sales data from their thousands of meters of shelf space.

For the commission, though, the comparison of old-world supermarkets with new-world global retail platforms doesn’t hold water.

Given the data focus of the probe, the EU will likely argue that the breadth and depth of information gathered by Amazon easily exceeds that available to a bricks-and-mortar outlet. The data collected in real-time, aggregated and processed by algorithms within Amazon, goes far beyond anything a high-street retailer could manage.

Amazon aggregates sales and revenue data, and it tracks users as they cycle through different products — as they hesitate, say, between two models or color options. It registers information about the shipping of goods to consumers and knows which items are prone to claims.

All that data, according to the regulator, is not public, but available to employees of the retail division and flows into its systems.

Moreover, Amazon’s platform hosts at least 800,000 retailers in Europe alone, putting it in a different league to a supermarket.

Much of the supermarket comparison also rests on retailers placing their own-brand products on shelves if they see strong demand in a particular sector. Such “white-label” products feature in the commission’s Statement of Objections, MLex understands, though they are likely to constitute a smaller part of the case.

The commission’s concept of Amazon’s data advantage rests on two separate steps, MLex understands: first, the transfer of the data from Amazon’s platform arm to the retail business; and, second, the subsequent crunching of that data to get ahead of competitors in product sales.

The EU regulator’s focus is Amazon’s standard Business Service Agreement, which sets out the obligations for sellers to share their data with Amazon when they sell over the platform. This could be the focus of any regulatory intervention.

If Amazon wants to negotiate its way out of the probe and avoid a fine, it could offer to change the terms of that agreement. This could restrict the transfer of data or make such information available to other sellers, to compensate for the advantage its own retail business gets.

Prime time

Meanwhile, the commission is also investigating Amazon’s Buy Box, though has not yet issued formal charges on this less mature part of its probe. The Buy Box is a key piece of real estate at the top of its website that is responsible for the “vast majority” of sales, in the commission’s words.

For long-term EU-watchers, the focus here has echoes of a past probe into Google, which was accused of pushing its own services to the top of search results, to the detriment of rivals.

For Amazon, the accusation is similar. It places products in the Buy Box which are particularly profitable for the platform, according to the commission. That’s to say, it displays either its own offers or products offered by companies that use Amazon's own logistics and delivery services.

The commission has moved away from its standard mantra of “self-preferencing” — a term that has become an all-encompassing theory of harm, manifesting itself across tech industries. In its press release, the regulator said Amazon “favors” some results, acknowledging that some of those are not from Amazon itself.

While the Statement of Objections narrows its focus to France and Germany, the two largest markets in Europe, the new probe retains a broad sweep covering all countries in the bloc — with one exception.

The commission has carved out Italy, acknowledging that the national authority in Rome has its own separate probe into Amazon’s logistics business that overlaps in part. The watchdog there will be able to continue its investigation on its own.

Investigation and regulation

The escalation of the Amazon probe will open a new front for critics of the commission and its new wave of tech scrutiny.

Partly because of the slow and burdensome passage of full-blown antitrust probes, Vestager is poised to unveil new legislation that will make it easier to crimp the behavior of large platforms without investigation.

Critics will see a mismatch in today’s news. Perhaps the Amazon case shows that investigations can be carried out under the current rules, begging the question of why new legislation is needed. Or, if the new legislation is needed to solve problems such as hogging big data, then why open a probe now? How can businesses plan against this backdrop?

Vestager’s argument is that the two prongs — investigation and regulation — go hand in hand, and existing competition laws need to be applied even when new legislation is under consideration.

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