business news in context, analysis with attitude

The Wall Street Journal is reporting that Amazon employees have been using sales data for products marketed by independent sellers on its site as a way of deciding what private label items it should make and market, and how much it should charge for them.

From the Journal story:

"The online retailing giant has long asserted, including to Congress, that when it makes and sells its own products, it doesn’t use information it collects from the site’s individual third-party sellers—data those sellers view as proprietary.

"Yet interviews with more than 20 former employees of Amazon’s private-label business and documents reviewed by The Wall Street Journal reveal that employees did just that. Such information can help Amazon decide how to price an item, which features to copy or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees who participated in it."

Amazon responded to the allegations this way:  “Like other retailers, we look at sales and store data to provide our customers with the best possible experience.  However, we strictly prohibit our employees from using nonpublic, seller-specific data to determine which private label products to launch.”

The Journal writes that Amazon concedes that "employees using such data to inform private-label decisions in the way the Journal described would violate its policies, and that the company has launched an internal investigation."

The story goes on:

"It is a common business strategy for grocery chains, drugstores and other retailers to make and sell their own products to compete with brand names. Such private-label items typically offer retailers higher profit margins than either well-known brands or wholesale items. While all retailers with their own brands use data to some extent to inform their product decisions, they have far less at their disposal than Amazon, according to executives of private-label businesses, given Amazon’s enormous third-party marketplace."

KC's View:

I'm shocked, shocked to find out that gambling is going on here…

Let's get real for a moment.

If Amazon is assuring third party vendors that it won't use their sales data to make decisions about competitive private label items, and it is doing so, that would be wrong.

If Amazon assured Congress under oath that it doesn't do this, and it does, that could be more than problematic.  (The Journal writes that "Nate Sutton, an Amazon associate general counsel, told Congress in July:  'We don’t use individual seller data directly to compete” with businesses on the company’s platform'."  I suspect the defense would be that associate general counsels know very little about how e-commerce is transacted, and Sutton was stating the truth as he knows it.  Which seems like a reasonable defense to me.)

But … if I am a vendor selling via Amazon and I think that it isn't using my sales data when deciding whether to compete with me, then I'm delusional.

Because that's what virtually every retailer does.

If retailer A notices that an SKU on its shelf is generating $10,000 worth of sales a week, and it is generating $2,000 worth of profit on that item, that retailer will look into the potential of selling an own-label version that will cost less money and generate more profit.  That's what retailers do.  Every day.

And it will do its best to replicate the brand experience in terms of look and taste and performance, using available and public information.

Now, does Amazon have access to both more and more granular data?  Sure.  Is Amazon better at using it effectively?  Almost certainly.

It isn't like Amazon is stealing formulas and ingredient information that the general public does not have access to.  There's no reason to think it has access to any of that stuff.  It is just doing what every retailer does … though more effectively and on a larger scale.

By the way … there is some evidence that while Amazon may have been using seller data to make decisions about what it will sell itself, that may be happening less than one thinks - Amazon actually has shifted from a model in which its site is dominated by its own sales to one in which third-part sales on its Marketplace actually are greater.

I'm not being an Amazon apologist here.  If it lies to his vendor customers, and lied to Congress, that's a problem.  It is going to have some credibility issues at one end of the scale, and perhaps legal problems at the other.

Plus, it exacerbates Amazon's regulatory issues.  After all, Amazon already is facing antitrust investigations into its behavior from the US Department of Justice, the Federal Trade Commission, various committees of the US Congress, and the European Union.

But should anyone be shocked by this story?  Only people who really would go to Casablanca for the waters…