Setting The Record Straight: Amazon’s Consumer-Centric Approach Drives Deal-Making
Last week’s Wall Street Journal article regarding Amazon overlooked that Amazon’s consumer-centric approach to negotiation and deal-making reflects common business practices. Two important points:
— Exchanging different services in negotiations is a widely accepted, value-enhancing business practice across industries.
— Criticizing consumer-centric tying deals ignores the need for a rigorous antitrust analysis.
Exchanging different services in negotiations is a widely accepted, value-enhancing business practice across industries.
Business negotiation 101: expand the scope and structure of deals to create value, says Harvard Law School:
— “Use the multiple issues to make valuable tradeoffs and facilitate a good-faith negotiation.”
— “Consider unconventional deal-structuring arrangements to bridge the gap between what the seller wants and what the buyer can afford.”
— “Create even more value in business negotiations by adding conditions to your deal such as ‘I’ll do X if you do Y.'”
For negotiating parties across diverse marketplaces and industries, exchanging different services is widely recognized as value-enhancing in deal making.
— The Roku-Nielsen strategic alliance is a “win-win for both companies,” in which Roku traded their connected TV viewing data for Nielsen’s expansive advertising inventory, says nScreenMedia.
— The Roku-Peacock deal created “an expanded, mutually beneficial relationship between our companies [Roku and Peacock]” that exchanged Peacock’s content for access to millions of Roku viewers in a meaningful advertising partnership.
— Boeing regularly offers steep discounts on Max 7 planes for large orders from both full-service and budget airlines.
Amazon’s focus on consumers drives negotiations and informs partnerships, explains Jeff Bezos in QFRs following a 2020 House Judiciary Antitrust Subcommittee Hearing. “As a general matter, Amazon takes a customer-centric approach with respect to negotiations, and recognizes that customers come to Amazon for a vast selection of products, including content. Given significant competition in the content distribution space, Amazon believes customers disappointed in the offerings on Prime Video or Fire TV will turn to other options. With this in mind, Amazon is committed to providing a great selection to our Prime Video customers, and licensing content for distribution via Prime Video can be a good way to add value for customers”
Business deal-making takes many forms to maximize value in the competitive retail landscape. Walmart now uses AI to automate supplier negotiations, writes Jeff Wells of Grocery Dive. “Retailers like Walmart, which quietly launched a pilot program with Pactum earlier this year, have thousands of small-scale contracts that buyers don’t have time to revisit. Left untended, these agreements can fail to reflect the latest business conditions, causing ‘value leakage’ that can result in companies losing up to 40% of a contract’s value, according to a 2017 report from KPMG. Pactum’s AI-based platform initiates contact and carries out negotiations via chatbot with suppliers, armed with reams of sales data and other information from client companies.”
Criticizing consumer-centric tying deals ignores the need for a rigorous antitrust analysis.
Tying claims are heavily fact dependent and only create competition concerns when they “[restrict] competition without providing benefits to consumers.” “Cases turn on particular factual settings, but the general rule is that tying products raises antitrust questions when it restricts competition without providing benefits to consumers.”
For tying to be anticompetitive, courts need to closely examine and analyze many factors, reminds the DisCo Project, such as:
— Sufficient Economic Power: “In a 2006 case, the Supreme Court clarified that ‘in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.'”
— Proof of Conditioning: “The tying must be forced on the buyer. If the buyer is free to take either product by itself, there is no tying problem. However, there may still be a violation if the seller’s pricing policy makes the purchase of the products together the only viable economic option.”
Online and physical retailers represent the same segment of today’s expansive retail sector results, and you can’t think about one without the other, highlights University of Pennsylvania law professor Jonathan Klick. “[R]elegating Amazon’s market to e-commerce rather than retail more generally might be a little like treating Sonic as controlling the market for hamburgers delivered to your car while you sit in a parking lot stall because McDonald’s won’t do that. That is, there is little a priori reason to carve out something known as e-commerce from retail more generally. In fact, data from a 2018 survey suggest that most consumers still prefer shopping offline.”
A survey of 350 small businesses found small businesses see revenue growth from selling on the Amazon platform but don’t rely on Amazon alone for their online sales, as reported by Axios. “In fact, 81% of the firms selling on Amazon use more than one digital sales channel, and sellers make more than half (54%) of their revenue from offline sales.”
— Small businesses today can choose from over 100 online retail channels to sell their products, according to a recent Channeladvisor report: “A few years ago, sellers had a handful of onlines sales channels to choose from. Then came the explosion of e-commerce marketplaces, and the options available to consumers suddenly expanded far beyond the likes of Amazon.”
Amazon’s business practices are “in service to enormous consumer benefit,” writes Competitive Enterprise Institute’s Jessica Melugin. “Amazon has brought lower prices, increased convenience, broader selection of items, and ever-faster service to millions of customers. It’s naïve to expect that none of that involved hardball negotiations, disappointed competitors, or any other bumps along the way. But all of that seems to have been not only perfectly legal, but also in service to enormous consumer benefit.”
Consumers are familiar and largely benefit from bundled digital services and products, which are made possible by deals that promote exchanging services. “An attractive component to bundling is you can save more money than you would if you purchased each service separately. Moreover, some companies offer promotional deals, where you can save even more for the first year or two for service, and receive free premium channels like HBO.”