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Hoping to rein in Big Tech, Congress may kill small business instead

Consultant Lesley Hensel sounds alarm on impact of Ending Platform Monopolies Act to 3rd-party e-commerce sellers

While efforts to rein in Amazon, Google and other Big Tech companies continue, some believe the effort could result in these companies pulling the plug on small business e-commerce sellers. (Photo: Amazon)

Ahead of the 2020 presidential election, and continuing in the ensuing months, complaints about censorship from both major political parties increased. Big Tech, they said, was controlling the narrative and picking sides.

As a result, pressure mounted from the general public to see political leaders pass legislation to rein in the tech giants. But those efforts could have an unintended consequence, and that may mean millions of small businesses and independent sellers that rely on online marketplaces such as Amazon, Shopify and others could see their businesses disappear overnight.

The Ending Platform Monopolies Act (H.R. 3825), introduced in the U.S. House in June by Rep. Pramila Jayapal, D-Wash., has 16 co-sponsors — 11 Democrats and five Republicans. The bill would “promote competition and economic opportunity in digital markets by eliminating the conflicts of interest that arise from dominant online platforms’ concurrent ownership or control of an online platform and certain other businesses.”

The bill was introduced June 11 and the Judiciary Committee voted to issue a report to the full chamber “recommending that the bill be considered further,” according to GovTrack. The site said that only 25% of bills are reported out of committee; however, Skopos Labs, which analyzes the chances any individual bill will pass during the current legislative session, said the bill only has a 3% chance of being enacted.

End of marketplaces?

“The bipartisan Ending Platform Monopolies Act (H.R. 3825) protects small businesses across America by leveling the playing field, restoring fairness and competition, and allowing innovation to thrive. The proposal will now move forward to the full House of Representatives,” said a statement from Jayapal’s office when the bill was introduced.

A similar bill was introduced in the Senate on Oct. 14. In both cases, the bills’ goals are to ensure fairness in online communications and trade. They would bar Amazon, Google (NASDAQ: GOOG) and others from favoring their own products and services.

Lesley Hensell, co-founder of Riverbend Consulting and an Amazon (NASDAQ: AMZN) seller herself for more than a decade, told Modern Shipper she is concerned that the unintended consequence of the bill is that Amazon and others will simply drop independent sellers from their platforms in response.

Hensell said the concern is that the act is written “overbroad” and as a result, Amazon will have to act in its best interest, which is to end the marketplace. Third-party sellers make up about 55% of sales on the marketplace, she said.

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“They have indicated they would probably have to end the third-party marketplace or they would have to split it off. Either way it is really bad for sellers,” she noted, saying that even though Amazon has been accused of creating competitive products, the low barrier to entry for sellers is appealing.

“On Amazon, you just create a listing page and there you go, you are selling your new product,” she said. “All of these small businesses would no longer be able to launch products on the world’s biggest platform.”

Riverbend Consulting works with sellers to help them manage their Amazon businesses and help them solve issues that arise during the course of their relationship with Amazon.

“My company has worked with thousands of these small businesses that work with Amazon. They are fully aware of the … challenges of working with Amazon,” Hensell said. “My company would not even exist if it was easy to sell on Amazon. … But even with these challenges, they choose to sell on Amazon because it is a great way [to sell]. I think most people, including the legislators that crafted the legislation, do not comprehend there are millions of jobs that depend on the Amazon marketplace.”

Separation is needed

Hensell is not the only one concerned with the impact, although the views vary. The Institute for Local Self-Reliance (ILSR), which promotes independent businesses over corporate control, called for passage of the bill in a “fact sheet.”

“Without passage of the structural separation bill, Amazon will continue to leverage the market power and data gleaned from its dominant platforms to take over other industries. Amazon has already used its platform power to make major inroads into pivotal sectors such as consumer products, logistics, health care and finance,” the group noted.

ILSR also said that “Amazon’s business model creates a fundamental conflict of interest.

“For small businesses, Amazon is both a gatekeeper that they must rely on to reach online shoppers and an aggressive competitor selling its own goods and services to those same shoppers,” it said. “Unless lawmakers eliminate this conflict of interest through structural separation, Amazon will continue to have an overwhelming incentive and ample opportunity to use its gatekeeper power to preference its own interests while exploiting and undermining smaller competitors.”

They have indicated they would probably have to end the third-party marketplace or they would have to split it off. Either way it is really bad for sellers.

Lesley Hensell, co-founder of Riverbend Consulting

Amazon has set up a website, Support Small Sellers, on which it clearly states that if the bills should pass, they “would jeopardize Amazon’s ability to operate a marketplace for sellers, potentially resulting in hundreds of thousands of American small and medium-sized businesses losing access to Amazon’s customers and services.”

An Amazon spokesperson confirmed to CNBC that Amazon was behind the website.

“Sellers are asking for information about these bills,” the spokesperson told CNBC. “We want to help the hundreds of thousands of third-party sellers on Amazon stay informed about the legislation and how it could impact their ability to sell their products.”

In a commentary for the Disruptive Competition Project, author Matt Schruers noted a similar outcome to what Hensell described.

“What the authors of these bills, which even House Majority Leader Rep. Steny Hoyer has indicated were hastily drafted, seem not to appreciate is that the net effect will harm small businesses by damaging the business model that has enabled independent app developers and small retail sellers to thrive,” Schruers wrote.

Competition from itself

Schruers added that policymakers are not understanding the business proposition of forcing a company to spin off a marketplace into a separate entity and continue to operate that marketplace in competition with its own services.

“The common assumption of policymakers championing this 20th-century industrial policy appears to be that regulated companies would spin off operations involved in selling into their own marketplaces and simply ‘be a marketplace,’” Schruers surmised. “Indeed, this is the goal, according to some policymakers: smashing one-stop-shop hybrid services, which unite first-party and third-party business in one location.

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“However, policymakers misapprehend the likely consequences of forcibly separating selling functions from marketplace functions, first party from third party. The assumption that companies will cease offering products in their own marketplace and yet continue to operate that marketplace 一 subject to onerous regulation 一 needs reexamination.”

The U.S. Chamber of Commerce also came out in opposition to the bills, saying they would “overturn a century of U.S. antitrust law with dangerous consequences for America. Antitrust laws should not be rigged against a small number of companies. Such an approach punishes success and has the government picking winners and losers in our free market economy,” the Chamber said in a June statement. 

“Antitrust should remain a law of general application and focused on the economic interest of consumers. The misguided approach taken in these bills will stymie innovation, harm consumers and weaken America’s technology leadership. While ostensibly targeting ‘Big Tech,’ this approach to antitrust would broadly impact American business and our economy. They should be voted down.”

Enforcing the law

For sellers, Hensell said there are concerns about Amazon, particularly its reported collection of seller data to determine which products it would create itself, but there are existing laws that can help the situation.

“When sellers are concerned about using their third-party data, there is existing law that can deal with that,” she said, noting that it is not “sexy” to announce a crackdown through existing laws when new legislation can generate more public interest.

Hensell pointed to the Environmental Protection Agency as an example. The EPA cracked down on Amazon allowing third-party sellers to claim environmental standards that were not true. “There are existing [solutions] for every single problem sellers face that if it was applied [could solve them],” she added.

The common assumption of policymakers championing this 20th-century industrial policy appears to be that regulated companies would spin off operations involved in selling into their own marketplaces and simply ‘be a marketplace.’ Indeed, this is the goal, according to some policymakers: smashing one-stop-shop hybrid services, which unite first-party and third-party business in one location.

Matt Schruers, Disruptive Competition Project

Hensell is also concerned the way the law is written could extend to other online marketplaces. 

“If you eliminate the marketplaces, online shopping is going to turn into the same [experience] as in stores,” she said, pointing out that a Walmart may carry three types of pens but online a consumer can find hundreds of different options. “If it passes, Amazon actually has more consolidated power in the marketplace than they do now because Amazon will still sell its products.”

Hensell advised sellers to educate themselves on the bills and contact their legislators, noting that the bill has already passed out of committee in the U.S. House.

“It is time to be concerned and if you are a third-party seller, you need to contact your senator and representatives and make your voice heard and be very clear about the impact on jobs in your district,” she said, “because if you are a seller, that is a job. If you use UPS down the street to ship your orders, those are jobs.

“There are some people saying Amazon is just being cynical, they would never take people off the marketplace, but they have very smart people working there,” and they are going to choose what’s best for them, Hensell concluded.

Click for more articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected]