US Seeks To Break Up Amazon And Other Big Tech Companies
Certain suppliers are asked to give Amazon the right to buy shares at potentially lower-than-market rates as part of their contract. US Seeks To Break Up Amazon And Other Big Tech Companies
Suppliers that want to land Amazon.com Inc. as a client for their goods and services can find that its business comes with a catch: the right for Amazon to buy big stakes in their companies at potentially steep discounts to market value.
The technology-and-retail giant has struck at least a dozen deals with publicly traded companies in which it gets rights, called warrants, to buy the vendors’ stock in the future at what could be below-market prices, according to corporate filings and interviews with people involved with the deals.
Amazon over the past decade also has done more than 75 such deals with privately held companies, according to a person familiar with the matter. In all, the tech titan’s stakes and potential stakes amount to billions of dollars across companies that provide everything from call-center services to natural gas, and in some cases position Amazon among the top shareholders in those businesses.
The unusual arrangements offer another window into how Amazon uses its market heft to increase its wealth and clout. The company has been under growing scrutiny from regulators and lawmakers over its competitive practices, including with companies it partners with.
While the deals can benefit the suppliers by locking in big contracts, which can also boost their share prices, executives at several of the companies said they felt they couldn’t refuse Amazon’s push for the right to buy the stock without risking a major contract.
The deals in some cases also give Amazon rights such as board representation and the ability to top any acquisition offers from other companies.
For Amazon, the arrangements give it a piece of the potential upside the vendors can get from doing business with one of the world’s biggest companies.
Amazon routinely leverages its size and power to force terms that benefit itself, including by getting partners in one business to sign on to its other services; learning about up-and-coming technology companies through its venture-capital fund; or creating top selling Amazon branded goods that compete with small sellers on its site. It has aggressively competed to wrest market share from rivals, which Amazon says results in better deals for shoppers.
In its supplier deals that include warrants, Amazon throws its weight around to exact lucrative terms, knowing many companies won’t refuse, according to former Amazon executives who worked on the deals.
An Amazon spokeswoman said the warrants it obtains in commercial agreements are typically tied to milestones that Amazon has to meet, such as large purchases from the supplier. The company declined to comment on specific deals, or say how many warrants it has exercised or the amount of money it has made from such agreements. The spokeswoman said it has warrant deals in fewer than 1% of the commercial agreements it enters into.
Grocery distributor SpartanNash Co. last year amended a contract with Amazon to deliver groceries to its Amazon Fresh arm.
The Grand Rapids, Mich.-based company had been supplying Amazon with food since 2016, but this time Amazon added a condition: if it bought $8 billion worth of groceries over seven years, it could get warrants to purchase around 15% of SpartanNash’s stock at a price potentially lower than the market.
Amazon also said it wanted to be notified of any takeover offers for SpartanNash and have a 10-day window to offer a counterbid.
SpartanNash executives were taken aback, said people familiar with the matter. No customer had requested such terms before. Executives ultimately decided they didn’t want to haggle with one of SpartanNash’s biggest customers, and that being tied to Amazon could raise their company’s profile, one of the people said.
Amazon received warrants in the company when the deal was announced that would amount to 2.5% of its stock if exercised. If it receives and exercises warrants for the additional 12.5%, according to the contract terms, it would be SpartanNash’s second-largest shareholder after mutual-fund manager BlackRock Inc.
A spokeswoman for SpartanNash declined to comment.
Amazon has been doing such deals with vendors for about a decade but has aggressively increased the practice in the past few years, said former Amazon executives and lawyers who worked on structuring the deals. In its latest quarterly report, the company valued its warrants at $2.8 billion, more than five times the level three years ago. Amazon doesn’t disclose the value of stakes it owns as a result of exercising its warrants.
A broader measure of its warrants and the stakes it holds in companies through warrants, direct investment or other ways increased 10 times to $8.4 billion in that period, according to Amazon’s quarterly filings.
Like stock options, warrants let the holder buy a company’s shares at a set price during a set period. If the stock surpasses that strike price, the warrant holder can buy shares at a below-market price.
Corporate executives in a range of industries and lawyers said Amazon’s push to get warrants as part of vendor deals is highly unusual. Warrant deals have more commonly been used by investors who back companies in financial trouble, in deals deemed high risk.
Former Amazon executives who worked on warrant deals said they found no direct precedent before the company began striking them. For a guide, an Amazon team sleuthed through financial documents from the 2008 financial crisis to find information about bank bailouts that involved warrants, one of the people said.
The Amazon spokeswoman pointed to a few examples of other companies striking warrant arrangements. In 2017, Walmart Inc. obtained warrants in Plug Power Inc. a few months after Amazon struck a commercial deal tied to warrants with the company. A Walmart spokeswoman said the company very infrequently obtains warrants in other companies. Plug Power declined to comment.
Some suppliers see granting Amazon warrants as a worthwhile competitive advantage. Clean Energy Fuels Corp. struck a deal with Amazon earlier this year that could give the larger company a 20% stake over the next decade, making it the No. 2 shareholder.
Management had never done a commercial deal where it gave the customer warrants, according to a person familiar with the matter, but Amazon had put out a large request for proposals from other natural-gas companies, and Clean Energy determined that accepting the terms of warrants would keep Amazon from choosing to do more business with competitors, the person said.
As part of the terms, Clean Energy must notify Amazon if it receives a takeover offer, the person said. Clean Energy declined to comment.
Amazon’s first major warrants deal with a publicly traded vendor came in 2016. Amazon was seeking a partner with cargo planes to help build out its massive logistics network. Executives reasoned that the company’s potential partners were all smaller, lesser-known companies with stagnant growth, and that a major contract from Amazon would invigorate their stocks, according to a person familiar with the matter. Amazon wanted some of that potential upside, the person said.
Amazon proposed a deal, with warrants, to Wilmington, Ohio-based Air Transport Services Group Inc. The aircraft-leasing company initially pushed back on the warrant stipulation, according to people familiar with the matter. Its team flew to Seattle and had “intense, protracted negotiations” where Amazon got ATSG to agree to the structure, one of the people said. “It took a lot of convincing,” the person said. Amazon currently owns around 19.5% of ATSG, making it the biggest shareholder.
An ATSG spokeswoman declined to comment.
Amazon executives knew it would need to lease many more planes to handle explosive growth in its delivery operation, and the initial warrant deal emboldened them to demand similar terms from other companies, said one of the people involved.
In talks with Atlas Air Worldwide Holdings Inc., Amazon broached a 10-year leasing deal, with similar terms. This time Amazon demanded warrants that would amount to up to 20% of Atlas’s equity over five years—with an option for 10% more later—depending on how much business it gave Atlas. Amazon also wanted the right to elect a director to Atlas’s board, after meeting certain milestones.
People involved on both sides said that warrants were a condition of Amazon partnering with Atlas. “There was definitely a sense that if it wasn’t agreed to there wouldn’t be a deal,” said one of the people. Atlas executives didn’t want to pass up the revenue opportunity from Amazon and viewed giving up the warrants as the price of doing business with Amazon, said the person.
When it announced the deal in May 2016, Atlas lauded the deal, including the equity arrangement. Its share price soared 27% that day. Such jumps have been common when Amazon has done warrant deals with publicly traded suppliers—SpartanNash’s stock rose 26% on the day it announced its agreement.
The strike price for the Atlas warrants was $37.50, slightly below where the shares were trading before the deal was announced.
Amazon later exercised warrants for 9% of Atlas’ stock and sold the shares, according to an Atlas spokeswoman. Amazon declined to comment on how much it made on its sale of Atlas stock.
Atlas shares closed on Monday at $67.31 a share.
Atlas has never done a similar deal, according to the Atlas spokeswoman. Amazon never named a director to Atlas’s board, she said.
Amazon also signed a vendor deal with Cargojet Inc. that included warrants. Cargojet didn’t respond to requests for comment.
Amazon often ties its warrants to how much business it gives a supplier. In a deal with Startek Inc., the Colorado-based call-center company agreed to give Amazon the right to acquire 20% of its shares if Amazon does $600 million of business with Startek over eight years. That would make Amazon Startek’s second-largest shareholder, if it were to obtain the warrants and exercise them. Startek didn’t respond to requests for comment.
Former Amazon executives said they avoided doing anything during supplier negotiations, such as putting its ultimatums in writing, that would give fodder to critics who have said Amazon abuses its power. One of the former executives said that most companies complied with its demands over warrants. Several former Amazon executives who worked on such deals said in interviews that they found them to be unfair and one-sided, saying the companies weren’t in a position to refuse and that most of the upside went to Amazon.
Amazon Seeks Recusal Of FTC Chair Lina Khan In Antitrust Probes Of The Company
Amazon is pressing for the recusal of FTC Chairwoman Lina Khan from ongoing antitrust probes of the e-commerce giant, citing her past criticisms of the company’s power.
In a 25-page motion filed Wednesday with the FTC, Amazon argued that Khan has made public comments about Amazon and its conduct, including that the company is “guilty of antitrust violations and should be broken up,” suggesting she lacks impartiality in antitrust investigations into Amazon.
Amazon spokesperson Jack Evans told CNBC in a statement that Khan has made her views clear through previous work with anti-monopoly group Open Markets Institute, law journal articles and her involvement in the House Judiciary subcommittee on antitrust’s sweeping probe into big tech companies.
“Amazon should be scrutinized along with all large organizations. However, even large companies have the right to an impartial investigation,” Evans said. “Chair Khan’s body of work and public statements demonstrate that she has prejudged the outcome of matters the FTC may examine during her term and, under established law, preclude her from participating in such matters.”
An FTC spokesperson declined to comment, saying petitions and letters to the FTC are not public.
The move comes as regulators in the U.S. and abroad are probing multiple areas of Amazon’s business. Europe’s top antitrust watchdog brought charges against Amazon last fall and launched another probe into its core retail business. Congress and the FTC are investigating Amazon’s treatment of third-party sellers.
Additionally, the FTC is reviewing Amazon’s proposed acquisition of movie studio MGM, The Wall Street Journal reported this month. On Wednesday, Democratic Sen. Elizabeth Warren, D-Mass., wrote a letter to the FTC urging it to carry out a “broad and meticulous review” of the MGM deal, arguing it could have anticompetitive effects in the streaming industry and potentially harm small businesses and workers.
Earlier this month, Khan was sworn in as chair of the FTC. The surprise move came just hours after she was confirmed by the Senate to serve as a commissioner.
During her confirmation hearing before the Senate, Khan told Sen. Mike Lee, R-Utah, she has no financial conflicts that would make her subject to recusal under ethics laws. She said she would follow the evidence where it leads.
Khan made her first big splash in antitrust circles with her 2017 Yale Law Journal article, “Amazon’s Antitrust Paradox.” The article, which she wrote while still a law student, argued that the popular antitrust framework focused on consumer welfare, was inadequate to assess digital giants like Amazon.
The consumer welfare standard often looks at whether prices go up or down for consumers, but Khan advocated for a more expansive view of antitrust enforcement that could take into account Amazon’s role as a platform on which its own rivals rely.
She said it was also necessary to understand why a high-growth platform might engage in predatory pricing.
It’s not uncommon for companies or advocate groups to challenge commissioners’ involvement in certain cases based on their perceived biases.
In the late 1970s, then-FTC Chairman Michael Pertschuk was ordered by a federal court to remove himself from a rule-making inquiry into TV advertising aimed at kids because of his past criticism of such ad practices. But an appeals court later overturned that ruling.
Still, Pertschuk ultimately chose to withdraw from the matter because he said it was becoming a distraction from the inquiry itself.
Amazon pointed in the letter to a prior case where an FTC chair made a statement indicating his judgement on an ongoing matter, which was deemed improper. In Cinderella Career & Finishing School v. FTC, the court ruled that the refusal of the chair to recuse himself was a denial of due process.
Amazon also noted that the court condemned the chair for his involvement in an earlier case where he had investigated the same facts while working on Capitol Hill.
Amazon And Other Tech Giants Race To Buy Up Renewable Energy
As technology companies reshape the market, they face pressure to demonstrate that their investments are reducing overall emissions.
The race to secure electricity deals for power-hungry data centers has tech companies reshaping the renewable-energy market and grappling with a new challenge: how to ensure their investments actually reduce emissions.
Amazon.com Inc. said it planned Wednesday to announce commitments to buy 1.5 gigawatts of production capacity from 14 new solar and wind plants around the world as part of its push to purchase enough renewable energy to cover all of the company’s activities by 2025.
Tech companies are wielding their balance sheets to finance solar, wind and other renewable-energy projects on an unprecedented scale. In some countries, developers say tech companies’ willingness to spend upfront—signing commitments to buy energy at a certain price for long periods—has helped make corporations more important than government subsidies as the main drivers of renewable investment.
Amazon, Alphabet Inc.’s Google, Facebook Inc. and Microsoft Corp. are four of the top six corporate buyers of publicly disclosed renewable-energy- purchase agreements, accounting for 30%, or 25.7 gigawatts, of the cumulative total from corporations globally, according to the research firm BloombergNEF. Amazon is the largest corporate purchaser world-wide, with other top purchasers including the French oil company TotalEnergies SE and AT&T Inc.
“It’s almost like a stampede for clean energy,” said Michael Terrell, director of energy at Google.
The scale of these investments is placing the tech companies under pressure to show that the projects actually add new renewable capacity to the energy grid instead of sucking up pre-existing supply.
A thorny issue is whether tech companies’ green-power purchases replace power generated from carbon-emitting plants or simply increase power generation to feed growing global energy consumption. That is important because the companies want to tell consumers and investors that they are helping to reduce absolute carbon output, not just shifting it around.
“Just because you put a clean electron on the grid doesn’t necessarily mean you’re displacing a carbon-based electron,” said Brian Janous, general manager of energy and renewables at Microsoft. Mr. Janous said Microsoft is now analyzing power grids to determine at which locations and times of day additional renewable-energy production would replace the most production from existing fossil-fuel-powered plants to determine where to invest.
Amazon’s latest projects, across seven U.S. states as well as Canada, Finland and Spain, have pushed the firm’s signed commitments to a total of 10 gigawatts of renewable production, the company said. After the new deals, Amazon is the top all-time corporate purchaser of clean energy in the U.S., according to the Renewable Energy Buyers Alliance, a group of companies that promotes renewable-power procurement.
The new plants, which will supply company operations including Amazon’s cloud-services arm, Amazon Web Services, are scheduled to come online in the next one to three years.
Nat Sahlstrom, director of energy at Amazon Web Services, said the company looks for projects where it can be first to set up a commercial template other companies can follow to help jump-start demand. He added that Amazon only selects projects based on whether its purchasing commitments are pivotal to the projects’ viability. “If not for our investments in these projects, they would not have gone forward,” he said.
Google, which said it matched its energy consumption with renewables beginning in 2017, says it now has a tougher goal: aligning its consumption with renewable energy not just annually but hour by hour. That means the company is trying to make sure there is sufficient carbon-free energy on electrical grids where it operates at the times when it is using power, including at night and at times of peak demand.
“I think the evolution is to focus not only on the quantity but also the quality of sourcing,” Mr. Terrell of Google said.
Driving the purchases are skyrocketing data usage and computer processing. In the past decade, growing efficiency has largely offset rising usage, in part as companies shifted from on-premises computer servers to more-efficient cloud providers, according to the International Energy Agency. But while there is more efficiency to tap, according to researchers, it isn’t clear for how much longer, particularly with the rise of 5G networks and as more of the world lives and works online.
“The data-center industry is one of the largest power consumers world-wide,” said Stefan-Jörg Göbel, a senior vice president of wind and solar for the Norwegian energy company Statkraft AS. “They’re reshaping the demand side of the industry just from the pure physics of it.”
Data centers were estimated to account for roughly 1% of global electricity use, according to a 2020 paper in the journal Science.
Big tech companies say they have built up in-house teams staffed with former deal makers at electrical utilities who can source deals directly with providers, often sidestepping an industry of middlemen and brokers that generally handle power deals.
Firms such as Amazon often blanket a country where they have operations with requests for energy projects, according to developers.
“We’ll say, hey, we want to go look at every potential project that could be in development in a country,” Mr. Sahlstrom of Amazon said of his team that seeks out power-purchase agreements, or PPAs.
Developers of wind- and solar-energy projects say demand from big tech has encouraged a rise in demand for PPAs from other corporate buyers. Because the projects require heavy upfront investment that takes years to recoup, banks often won’t finance them—or will give less favorable terms—unless the projects have an anchor purchaser promising to buy most or all of the production, according to developers and energy financiers.
In Spain, where Amazon has committed to buying power from five solar plants, developers say multiple big tech companies are looking for new deals.
“We’re talking to all of them,” Martin Scharrer, who leads such negotiations for the renewable-energy producer Encavis AG, said of the tech companies. Mr. Scharrer previously struck a deal with Amazon to sell energy from a solar plant outside Seville, Spain.
Facebook said that it reached its goal of buying enough renewable energy to cover its global operations, including data centers, last year but that it is continuing to strike new power deals because its energy use is growing. Facebook’s electricity use rose 39% in 2020, according to its annual sustainability report. “It’s showing that voluntary targets are really moving the market,” said Urvi Parekh, director of renewable energy at Facebook.
Microsoft said it has power-purchase deals that it hasn’t yet announced that will catapult it to near the top of the world’s biggest green-energy buyers. Mr. Janous said his company focuses on shared environmental goals rather than rankings, but added: “We know what the rankings are and, trust me, my boss knows what the rankings are, and any time there’s a new one that comes out, I hear about it.”
House Bills Seek To Break Up Amazon And Other Big Tech Companies
Legislation could force e-commerce giant, others to split into two companies or shed some products and services.
House lawmakers proposed a raft of bipartisan legislation aimed at reining in the country’s biggest tech companies, including a bill that seeks to make Amazon.com Inc. and other large corporations effectively split in two or shed their private-label products.
The bills, announced Friday, amount to the biggest congressional broadside yet on a handful of technology companies—including Alphabet Inc.’s Google, Apple Inc. and Facebook Inc. as well as Amazon —whose size and power have drawn growing scrutiny from lawmakers and regulators in the U.S. and Europe.
If the bills become law—a prospect that faces significant hurdles—they could substantially alter the most richly valued companies in America and reshape an industry that has extended its impact into nearly every facet of work and life.
One of the proposed measures, titled the Ending Platform Monopolies Act, seeks to require structural separation of Amazon and other big technology companies to break up their businesses. It would make it unlawful for a covered online platform to own a business that “utilizes the covered platform for the sale or provision of products or services” or that sells services as a condition for access to the platform.
The platform company also couldn’t own businesses that create conflicts of interest, such as by creating the “incentive and ability” for the platform to advantage its own products over competitors.
A separate bill takes a different approach to target platforms’ self-preferencing. It would bar platforms from conduct that “advantages the covered platform operator’s own products, services, or lines of business over those of another business user,” or that excludes or disadvantages other businesses.
The proposed legislation would need to be passed by the Democratic-controlled House as well as the Senate, where it would likely also need substantial Republican support.
Each of the bills has both Republicans and Democrats signed onto it, with more expected to join, congressional aides said. Seven Republicans are backing the bills, with a different group of three signing on to each measure, according to a person familiar with the situation.
“Unregulated tech monopolies have too much power over our economy,” said Rep. David Cicilline (D., R.I.), the top Democrat on the House Antitrust Subcommittee. “They are in a unique position to pick winners and losers, destroy small businesses, raise prices on consumers, and put folks out of work. Our agenda will level the playing field.”
Rep. Ken Buck (R., Col.), the panel’s top Republican, said he supports the bill because it “breaks up Big Tech’s monopoly power to control what Americans see and say online, and fosters an online market that encourages innovation.”
The four companies didn’t comment on the proposed legislation Friday. All have defended their competitive practices and said that they operate their products and services to benefit customers.
Matt Schruers, president of the Computer & Communications Industry Association, whose members include Facebook, Amazon and Google, said the House bills would disrupt Americans’ ability to use products that they like. “Writing regulations for a handful of businesses will skew competition and leave consumers worse off,” he said.
Critics of the tech giants praised the legislation. Roku Inc., which competes with several of the tech giants, applauded the lawmakers for “taking a crucial step toward curbing the predatory and anticompetitive behaviors of some of the country’s most powerful companies.”
Gaining sufficient Republic support for the bills will be an uphill battle: While Republicans are concerned about technology companies’ power, many are skeptical about changing antitrust laws. Even if they pass, the laws could take years to implement as federal agencies try to enforce them over the companies’ likely legal objections.
“The fact that there is day-one support from Republican antitrust leaders suggests these bills are definitely in the doable range,” said Paul Gallant, an analyst with Cowen & Co. “But the gap between sounding tough at a hearing and actually voting for a breakup is significant. I do wonder if these bills can get to 60 [votes] in the Senate.”
Friday’s announcement covered five bills designed to curb Big Tech’s dominance.
Another of the measures would force online platforms to make their services interoperable with those of competitors, which could mean different social networks must allow their users to communicate or allow e-commerce sellers to export their customer reviews from one site to another, according to a summary provided by lawmakers.
A fourth bill targets mergers, making it unlawful for a large platform to acquire rivals or potential rivals. The bill would have prevented only “a small percentage of all technology sector deals” over the past decade, the summary said.
Lawmakers also introduced a bill to raise filing fees for mergers valued more than $1 billion and lower them for transactions under $500,000. It would generate an estimated $135 million for antitrust enforcement in its first year, the summary said. Similar legislation recently passed the Senate.
Four of the five bills narrowly focus on big technology companies. The definitions of companies targeted by the bills say they must have a market capitalization of $600 billion or more, must have more than 50 million active monthly users or 100,000 monthly active business users, and must be a “critical trading partner” that has the ability to restrict or impede another business’ access to customers or services.
While the bills don’t name any companies, only Amazon, Apple, Facebook and Google currently meet the parameters laid out in those bills, according to the person familiar with the matter. They are the same companies that the House panel investigated as part of its probe into Big Tech. Walmart Inc., for instance, operates an online marketplace and has private-label products, but only has a $392 billion market valuation, so wouldn’t be subject to the restrictions.
The bill on self-preferencing bars actions that “restrict or impede business users from communicating…to covered platform users to facilitate business transactions,” invoking a common complaint from Amazon’s third-party sellers about limits on their ability to communicate with customers.
Amazon operates one of the world’s largest platforms for third-party sellers to hawk their goods, but also competes against these vendors with its business selling similar products under an assortment of its own in-house brands—often priced below the items from its third-party sellers.
Some lawmakers have said that the platform favors Amazon’s own goods at the detriment to sellers and have rebuked Amazon’s use of third-party data to inform its own line of private-label goods. Last year, The Wall Street Journal reported about Amazon employees using the third-party data of sellers on its website to launch its own private-label lines, violating an internal policy.
Amazon later opened an investigation into the practice. When testifying to Congress, Amazon Chief Executive Jeff Bezos said: “I can’t guarantee you that that policy has never been violated.”
In the past, the Seattle-based company has said that “large companies are not dominant by definition, and the presumption that success can only be the result of anticompetitive behavior is simply wrong.”
If the Ending Platform Monopolies bill were to be passed, Amazon could have to split its business into two separate websites, one for its third-party marketplace and one for first-party, or divest or shut down the sale of its own products. Amazon’s private-label division has dozens of brands with 158,000 products. It is also a market leader on devices such as Kindle eReaders, Amazon Echos, Fire TV streaming devices and Ring doorbells.
The new bill would effectively mean “a search engine could not own a video service that it has incentives to favor in search results,” the summary from lawmakers said, in a thinly veiled reference to Google’s YouTube.
The bill that aims at self-preferencing could affect how Amazon conducts its retail business and how Apple operates its app store.
Congress has blocked or reversed big companies’ expansion before. The Ending Platform Monopolies Act has been compared with the Glass-Steagall Act, which separated commercial and investment banking. Though that provision has since been repealed, banks are still restricted from nonfinancial businesses under the 1956 Bank Holding Company Act. The 1906 Hepburn Act restrained railroads from ancillary businesses such as coal mining.
Absent congressional action, technology critics are looking to federal agencies. Google and Facebook are already fighting antitrust lawsuits, while Amazon and Apple are under antitrust investigation. Democrats on the Federal Trade Commission also want to explore the agency’s authority to regulate unfair methods of competition, although that authority is relatively untested and could face legal challenges.
What A Tech Breakup Could Mean For You
A push to split up Facebook, Apple, Amazon and Google may mean more competition and innovation. But it may also curb conveniences we’ve come to take for granted.
As momentum builds to curtail the power of Big Tech, lawmakers, Beltway pundits and the companies themselves are all competing to explain to the public what it might mean to us, the everyday consumers of goods and services from those in the crosshairs.
Will my iPhone really become less secure, as Apple has claimed? Would the selection we’ve grown accustomed to on Amazon shrink, as the company has intimated? Would Facebook being forced to sell off Instagram and WhatsApp break those services, as Facebook would have us believe?
And would the quality of Google search be degraded by its inability to feature its own services, such as Google Maps and YouTube videos, in results? Or, as the companies’ critics would have it, will life be better for users, competitors and society if all those things come to pass?
Those questions gained new significance last month when the House Judiciary Committee, with bipartisan support, approved a half dozen bills that signaled fresh willingness to break up the Faaam, as I like to call the tech-titan quintet. (Microsoft, so far, has largely avoided the crosshairs.)
Given the torturous process of federal lawmaking, the chances of these bills becoming law in their present form aren’t high, and any movement could be slow. Congress is preoccupied with other battles at the moment.
The companies, their lobbyists, and allies are already pushing back forcefully against this legislation, and against the new head of the Federal Trade Commission, Lina Khan, who has criticized tech giants. A federal judge’s decision this past week dismissing antitrust lawsuits against Facebook for being “legally insufficient” suggests that implementing stricter rules won’t be easy.
But the chances are clearly rising that something like the provisions in these bills could become the rules by which Big Tech must abide—through an act of Congress, laws at the state level, court battles, a new crop of regulators like Ms. Khan or bipartisan political will to move against tech.
If regulators do gain the upper hand, the effects on you and me could take time, and vary by company. The bills and lawsuits tend to focus on competition, not directly on the consumer—their language and mechanics suggest that more of the former will benefit the latter. And there is little precedent to offer a clear view of what it would be like for users if there is a significant breakup of Amazon, or Apple is forced to divest its own App Store.
Caveats aside, it’s interesting to imagine how things might play out. After talking to experts in the history of antitrust battles, the impacts of market concentration on competition, and the effects of regulation on dominant firms, as well as the companies themselves, here are some possibilities:
Every one of the House’s proposed bills seems applicable to Amazon in one way or another, but foremost among them is the Ending Platform Monopolies Act, which would allow the FTC to break up tech giants if it decides the giants’ products and services could compete with those sold by other companies on the giants’ platforms.
If that seems to encompass many things these platforms do that we take for granted—from offering pre-installed apps on the iPhone to offering house brands like Kindle and Amazon Basics on Amazon.com—that’s because the language of the bill really is broad.
Past ideas from antitrust specialists for breaking up Amazon have included splitting it into at least four different companies by separating the pillars of its dominance: the core retail operation, its marketplace where third parties can sell, its hugely profitable cloud services division, and its fulfillment and logistics operations.
Even if a split were limited to spinning off its marketplace, the change could be noticeable for consumers. Amazon said last month that the bills might lead to it removing outside sellers—which account for a majority of the items sold on its platform. It would be as if Amazon were broken into a retail division that functions like Walmart —with its house brands and the items from other companies that it sells directly—and a separate marketplace like eBay.
Amazon’s statement said all this would “have significant negative effects on the hundreds of thousands of American small- and medium-sized businesses that sell in our store, and tens of millions of consumers who buy products from Amazon.”
It’s difficult to assess the potential impact of such a breakup and foolhardy to profess certainty about it—America has seen little like it since the breakup of Ma Bell. Amazon says it would mean the end of things like free shipping, but the company’s own programs to allow outside vendors to accomplish the exact same Prime free delivery service, without the aid of Amazon’s logistics operations, suggest the company could find a way to maintain its operations regardless.
Another proposed bill, the American Choice and Innovation Online Act, has a similar goal. It is intended to keep companies that own big, market-dominating platforms from giving their own services and wares sold on such platforms an artificial boost against competitors.
That could put a target on Apple’s App Store, through which Apple controls 100% of the market for apps for the iPhone. It’s a lucrative market. One expert witness for Epic Games, Apple’s opponent in a recent court case, estimated the App Store’s operating margins have been as high as 80%.
Apple disputes that its margins on its own app store are that high, but has declined to offer its own figure. Apple said during trial that its overall profit margin in 2020 was 20.9%, and that its App store shouldn’t be considered separately from its total profits and losses.
Apple’s mobile operating system is used on six of every 10 mobile devices in the U.S.
In a letter to Congress and a paper on security, Apple has framed attacks on its monopoly on distribution of apps on these devices as attacks on its ability to keep them secure.
The potential impact could be broader—both for Apple and its customers, by prying apart the hugely profitable “walled garden” of hardware, software and services that make its products relatively seamless for users but also constrains their choices.
New rules and regulators could compel Apple to break up that system, by divesting its own App Store or letting users load apps from anyplace they like. That could mean easier access for iPhone users to other companies’ products—as well as the freedom to expose themselves to threats of ransomware or digital identity theft.
The Platform Competition and Opportunity Act, a third bill, is designed to more or less ban what has been a signature move for Facebook: Acquiring a competitor before it can become a threat.
The FTC lawsuit against Facebook that was among those dismissed this week accused the company of anticompetitive practices in its acquisition of WhatsApp and Instagram. If the new legislation were to pass, it could make it much easier for the FTC to win such a case.
Facebook has said this would make it harder for people to, for example, cross-post between Instagram and Facebook. On the other hand, Facebook’s comprehensive dossier on all of us, which it sells to advertisers—albeit in increasingly anonymized form—would be much harder for the company to build.
A Facebook spokesman called these bills “a poison pill for America’s tech industry at a time our economy can least afford it.”
Yet another bill, the Augmenting Compatibility and Competition by Enabling Service Switching Act, would seem to make it much easier for users to cross post anywhere, or at least to move their social presence to any other platform, by forcing companies like Facebook not merely to give us our data when we ask for it, but to facilitate transmitting it, intact, to other companies.
Privacy benefits may not matter to many consumers, but they could be among the most immediate impacts of this bill for the more than 2.8 billion people who use one of Facebook’s products every month.
Google’s search empire—it controls 92% of the global search market— would also be affected by the American Choice and Innovation Online Act. The company says that not being able to preference its own services would mean they would no longer appear atop its search results.
In the short term, not seeing Google Maps results on your search results could be disruptive for users, but there are plenty of competitors that would be eager to occupy the same slot—notably Yelp, which has been battling Google for prominence on its search engine for years. The same could be said of most every other service Google and its lobbyists have cited as being the sort of convenience that consumers currently take for granted, from song lyrics on search results pages to YouTube videos atop search results.
“We are not opposed to antitrust scrutiny or updated regulations on specific issues,” says Mark Isakowitz, vice president of government affairs at Google. “But American consumers and small businesses would be shocked at how these bills would break many of their favorite services.”
It’s clear that any actions against Big Tech will take a long time yet to impact consumers. The federal government’s case against Microsoft, for example, spanned three presidential administrations, from 1991 to 2001. By the end, the government settled rather than continuing to pursue a breakup of the company.
Even if such changes are far off, users might need to prepare themselves for changes to these services. Those changes could lead to more competition, and ultimately innovation. But while we’re waiting for Amazon’s disrupter to get us toilet paper from, say, a network of drones that deliver in 30 minutes instead of a day, we might also have to accept the way that top-down efforts to encourage competition can impact conveniences we’ve come to take for granted.
Warehouse For Amazon Aims To Go Public As Single-Property Business
ROX Financial wants to list the Bay Area facility and add more Amazon fulfillment centers if the IPO succeeds.
A startup is attempting to create something that U.S. real-estate executives say doesn’t exist in their industry today: a public company that owns only one property.
The prospective property is a 146,000-square-foot Bay Area warehouse leased to Amazon.com LLC. The startup, ROX Financial LP, aims to use an initial public offering to create a real-estate investment trust that will acquire the Amazon facility. It then hopes to grow and own a collection of warehouses to serve the Seattle-based online giant, according to a June securities filing.
ROX Financial has applied to list the shares on the New York Stock Exchange’s Arca platform, an all-electronic exchange for exchange-traded funds and securities, public filings show.
It is offering 8,250,000 shares at $10 a share. That would value the startup at a tiny fraction of the $94 billion market capitalization of Prologis Inc., the largest industrial property REIT with the biggest portfolio of warehouses leased by Amazon.
ROX Financial officials declined to comment. But the proposed ticker symbol of AMZL was a nod to the Amazon strategy, said a person familiar with the company.
The firm would be starting with one warehouse in Oakley, Calif., about an hour east of San Francisco. The facility under its current owner is leased to Amazon for 12 years. Minimum rent payments due in the first year of the lease total $3.2 million, according to the filings.
The warehouse, which prepares orders for the last-mile delivery to Amazon customers, includes automated conveyor systems and electrical infrastructure for future vehicle charging stations. The 25-acre site, built last year, houses a fleet of gray-and-blue Amazon delivery vans, in a business that competes with United Parcel Service Inc. and FedEx Corp.
ROX Financial said it hopes to expand. “We intend to build Series AMZL into a curated portfolio of logistics properties in one or more locations leased by Amazon.com Services LLC, or Amazon, or its affiliates,” according to the filing.
The company also said in its filing that, for up to a year after the completion of a public offering, it has the right to purchase two fulfillment centers in the area that are being built by a developer for Amazon to lease.
Industrial real-estate developers have experienced a boom in growth in recent years, fueled largely by demand from Amazon and other online retailers that need distribution space.
But a publicly traded real-estate company that owns only a single property doesn’t currently exist in the U.S., according to Nareit, or the National Association of Real Estate Investment Trusts, an industry trade association.
Institutional investors have had trouble getting comfortable with the risks of making a concentrated bet on a single building, analysts said. In 2014, ETRE Financial LLC, a now-defunct company, tried to take a 1-million-square-foot office building in Boston public as a single property in an IPO.
“That institutional demand never materialized,” Jesse Stein, a co-founder of ETRE Financial, said in an interview. The company attempted an IPO for another office building in Washington, D.C., but that failed too, added Mr. Stein, who is currently real-estate head at Republic, an investment crowdfunding platform.
The closest may have been a mortgage REIT that owned not a property but a loan backed by Rockefeller Center in Midtown Manhattan. In 1985, the holder of the office, restaurant and shopping complex’s $1.3 billion mortgage, sold shares in an initial offering to investors.
The REIT, which collected interest on the loan and distributed that income as dividends to shareholders, encountered financial trouble in the mid-1990s and was eventually sold to other investors and delisted.
ROX Financial, based in New York City, is classified as an “emerging growth company,” meaning certain reporting requirements, including ones related to accounting, will be relaxed compared with audits that other public companies have to comply with.
Facebook Seeks FTC Chair Lina Khan’s Recusal In Antitrust Case
Social-media giant follows Amazon in citing the Biden appointee’s tech criticisms and congressional work to question her impartiality.
Facebook Inc. FB -1.27% sought the recusal of Federal Trade Commission Chair Lina Khan from the agency’s deliberations on whether to file a new antitrust case against the company, arguing she couldn’t be impartial because of her long history of criticizing it and other big-tech firms.
“For the entirety of her professional career, Chair Khan has consistently and very publicly concluded that Facebook is guilty of violating the antitrust laws,” the company said Wednesday in a formal recusal petition filed with the FTC.
“When a new commissioner has already drawn factual and legal conclusions and deemed the target a lawbreaker, due process requires that individual to recuse herself,” Facebook said in the petition.
An FTC spokeswoman declined to comment. Ms. Khan has said previously that she would consult with FTC ethics officials if recusal questions arose.
Facebook’s request comes two weeks after a similar recusal petition was filed by Amazon.com Inc., which is facing multiple investigations at the FTC. It is the latest sign that giant technology companies are favoring aggression over a conciliatory approach with Ms. Khan, who built her career advocating for bold antitrust action to rein in the dominant players in Silicon Valley.
President Biden installed Ms. Khan as the head of the FTC last month, part of a growing administration effort to restrain corporate power.
The FTC soon must decide whether to file a new antitrust lawsuit against Facebook after a judge threw out the FTC’s previous complaint as legally insufficient. Because of the approaching deadlines in the case—the judge’s June 28 ruling gave the FTC 30 days to file an amended lawsuit—it could force Ms. Khan to confront the recusal issue on an accelerated timeline.
The Amazon request also remains pending, though it doesn’t face the same potential time sensitivities.
Ms. Khan has been a prolific writer about antitrust issues, especially as they related to big tech companies. She previously worked for a progressive antitrust advocacy group that opposed Facebook’s acquisition of nascent competitors and was a key staffer on a congressional antitrust panel that conducted a 16-month investigation of large online platforms and last year recommended that lawmakers take steps to rein them in.
The FTC’s vote on a new Facebook lawsuit is likely to be a divided one. Democrats hold a 3-2 commission majority; if Ms. Khan sat out, there likely wouldn’t be a majority to sue Facebook again. The commission’s two Republican commissioners voted against the first lawsuit the FTC filed against Facebook in December.
The FTC, along with 46 states, had alleged Facebook was engaged in illegal monopolization, including by buying up other companies such as WhatsApp and Instagram to prevent them from challenging Facebook’s market position. The company denied the allegations, saying it competed fairly and achieved success because its services are popular with consumers.
In last month’s ruling, U.S. District Judge James Boasberg in Washington dismissed the FTC’s case at the outset of pretrial proceedings, saying the FTC didn’t plead enough allegations to support monopolization claims against Facebook. He also said the FTC didn’t have a valid challenge to Facebook’s policy of refusing to grant interoperability permissions to competing apps. The judge gave the commission 30 days to file a new lawsuit that attempts to make more detailed allegations.
Under the governing legal standards for recusal, a company seeking a commissioner’s disqualification on the grounds of prejudgment must show that a disinterested observer could conclude that the commissioner had already judged both the facts and the law in advance of a proceeding.
Ms. Khan gets to decide in the first instance how to address Facebook’s request for her disqualification. Past FTC practices show that, at least in some circumstances, the whole commission can weigh in.
The Facebook request comes in a less typical context than some other recusal motions. The FTC will likely be voting on whether to file a new lawsuit in federal court, where a judge would be the ultimate arbiter, as opposed to bringing a case in its in-house legal system, where commissioners effectively serve as judges.
Disqualification requests haven’t seen much success in modern times, but there are older court rulings that vacated FTC enforcement actions on the grounds that a commissioner should have been disqualified.
One 1966 court ruling said an FTC chairman shouldn’t have participated in a pharmaceutical-industry matter because he had investigated it as a congressional staffer. In a 1970 case, another court said the same chairman shouldn’t have participated in a false-advertising case because a speech he had given while chairman created the appearance that he had prejudged the issue.
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