A Closer Look: How Senator Klobuchar’s Bill Would Ban Amazon Prime
Why do Senators want to threaten a service used by nearly half of all Americans?
Amazon Prime is a pretty incredible thing. For $13 a month, you get free, fast shipping (typically one or two day, but sometimes even same-day) on many Amazon products. At our busy 2-adult, 3-kid house, we probably order at least five items per week through Prime — and we ordered even more at the beginning of the pandemic.
We’re clearly not alone. Analysts estimate that nearly half of Americans — 148 million people to be exact — are Amazon Prime members.
You’ll notice when you search for a product on Amazon that not all products carry the Prime logo. For example, my search for “leaf blower” returned a mix of Prime and non-Prime results:
Amazon Prime is an enhanced service offered by Amazon, separate from its main shopping search. If you purchase a non-Prime item, you’ll have to pay separately for shipping, Amazon can’t guarantee arrival within a day or two, and you won’t be able to easily download a return label through Amazon.
Amazon Prime is so quick and easy that most people don’t think much about how it all works. But what makes Prime’s free shipping possible is a program called Fulfillment By Amazon (FBA), through which small sellers pay Amazon a per-product fee (shown here) in exchange for Amazon storing, picking, packing, and shipping small merchants’ products — so that it can get to shoppers fast. Here’s a good explainer on how FBA works:
While I can understand that some merchants choose to maintain control over their distribution, or partner with a sales and logistics service like Shopify, many small merchants who want to focus on marketing, sales, and product development may prefer to hand their logistics over to Amazon.
In fact, about half of Amazon’s merchants choose to use Fulfillment by Amazon, and those that do typically see 30% lower shipping costs and a 20–25% sales increase over non-participants. That said, merchants can still sell their products through Amazon even if they don’t participate in FBA.
Senator Klobuchar’s American Innovation and Choice Online Act
With that as background, I wrote recently that Senator Amy Klobuchar’s newly introduced big tech regulation bill, like its House companion legislation by Rep. David Cicilline, would effectively ban Amazon Prime.
Senator Klobuchar disagrees with this analysis, as her staff prepared a “myths vs. facts” document, with the very first “fact” saying that her bill “does not” kill Amazon Prime:
Her argument is that Amazon could still offer free shipping through Prime, but that under her bill “dominant platforms” couldn’t demand “that sellers on its platform use its other services, like logistics or fulfillment services.”
Of course, Amazon doesn’t demand that any seller use Fulfillment by Amazon. It’s only an option, as you can tell by the ample number of non-Prime-labeled products. For my recent search for “christmas tree topper holder,” none of the top four results were FBA-participating merchants (and thus not eligible for Prime):
But what Amazon says is that in order to guarantee to the customer that a Prime product arrives within two days, Amazon needs to handle the fulfillment of that product itself. Otherwise there are too many shipping and logistics uncertainties left to chance. In other words, Amazon Prime’s free two-day shipping and Fulfillment by Amazon aren’t separate services; Fulfillment by Amazon makes free fast shipping possible.
But set aside Klobuchar’s “myths vs. facts” document, and let’s look at the language of her bill itself.
Four Ways that Amazon Prime is Impacted by Klobuchar’s Bill
There are several ways in which the language of her bill would impact Amazon Prime.
1. Section 2(a)1 would prevent Amazon from labeling certain products as Prime-eligible.
First, Section 2(a)1 of Klobuchar’s bill, arguably its most important section, states that “covered platforms” such as Amazon cannot:
Because Amazon Prime is Amazon’s “own service,” the bill would prevent Amazon from continuing to display the Prime badge on certain products, because doing so “unfairly preferences” Prime products over non-Prime products.
A merchant who chooses not to participate in FBA could argue, if this bill were law, that the Prime label for competing goods “materially harmed” its ability to compete. And that could negate the entire value of the Prime program for consumers: being able to choose products that will arrive within two days.
2. Section 2(b)2 would prevent Amazon from financing expedited Prime shipping through Fulfillment By Amazon merchant fees.
As I’ve explained, Fulfillment By Amazon is what makes Amazon Prime’s free two-day shipping possible. But Section 2(b)2 of the bill expressly prohibits “preferred status or placement on the covered platform” from being conditioned “on the purchase or use of other products or services”:
In other words, Klobuchar’s bill would break the essential link between Fulfillment by Amazon — where merchants pay a fee to participate — and Amazon Prime, where Amazon’s ability to fulfill orders in-house is key to them arriving within two days.
Technically Amazon could “offer” Prime free two-day shipping, but this section of the bill would A) prevent Amazon from funding those shipping costs through merchant fees, and B) make it difficult to deliver the product within two days by dropping the requirement for in-house fulfillment. So in reality, the bill would eliminate both the funding model and logistics model that make Prime possible.
3. Section 2(b)6 would prevent Amazon from highlighting Prime-eligible products to Prime members in search results.
If Amazon knows I’m a Prime member, my personalized search results on Amazon today prioritize Prime-eligible products over non-Prime products.
But Section 2(b)6 of the bill would prevent Amazon from ranking these Prime-eligible products higher in search results than non-Prime products — even if I have exhibited a strong historical preference for Prime products:
4. Section 2(a)1 could prevent Amazon from offering Fulfillment by Amazon.
The FBA program provides a logistics benefit to any small merchant who chooses to participate and pay program fees; by definition its products will ship faster than non-FBA, non-Prime products. However, Section 2(a)1 of Klobuchar’s bill could potentially be applied to deem the logistical benefits of the FBA program itself to be “favoring Amazon’s service” over that of non-Prime “business users”:
One potential result could be an enforcement action that deems the FBA program itself illegal because it gives advantages to some sellers over others, and a mandate that Amazon offer FBA’s fulfillment benefits to all merchants but without charging any fees for it. While some Amazon critics might view this a desirable mandate, it’s also possible that Amazon could choose to shut down the FBA program altogether if faced with an economically unsustainable mandate.
Does Senator Klobuchar’s bill say the words “Amazon Prime is banned”? Of course not. But the provisions above directly undercut important components of how Prime and Fulfillment By Amazon combine to give consumers free two-day shipping.
“Affirmative Defenses”: Cold Comfort For Consumers Who Rely On Prime
Some proponents of Klobuchar’s legislation point out that the bill contains several “affirmative defenses”, which are a kind of legal excuse for why a company might still be allowed to engage in behaviors that the bill otherwise bans. You can see some of those possible excuses here:
Is it good that the bill has these? For sure. But let’s play this out.
Were Klobuchar’s bill to become law, non-FBA merchants would immediately complain to the FTC or state Attorneys General that Prime and FBA were “materially harmful” to their ability to compete, based on the arguments above.
You’d then see multiple legal cases play out for years, where Amazon would argue that Prime and FBA were a “core functionality of the covered platform” and merchants would argue the programs “harmed the competitive process.” Under the bill’s new murky legal standards, it could be a legal jump ball. And the bill would levy a penalty of 15% of Amazon’s US revenue for each infraction.
During that time, Amazon Prime — which again, nearly half of Americans have chosen to use — would face an uncertain future. Given all the more important challenges facing the country, I just don’t understand why U.S. Senators would want to effectively break such a popular service.
If This Isn’t Intentional, It Should Be Fixed
Strangely, Senator Klobuchar is doing the same thing that Rep. Cicilline did in the House: embracing the “nondiscrimination” rallying cry, writing legislation to prevent it…but then, when faced with the real-world negative impacts (like banning Amazon Prime), Sen. Klobuchar is insisting that the bill doesn’t do the very thing it’s intended to do.
But banning Amazon from favoring Amazon Prime or Fullfilled By Amazon products has been a goal of the bills’ proponents — not an unintended consequence.
If Senator Klobuchar has had a change of heart, and truly doesn’t intend to ban Amazon Prime — a service used regularly by millions — there’s only one solution. Rewrite the bill.
The Chamber of Progress (progresschamber.org) is a new center-left tech industry policy coalition promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
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