Should Digital Marketplaces be Managed Differently than Brick-and-Mortar?
How Warren’s Plan to Breakup Amazon and Other Digital Marketplaces Might Be Economically Unfounded
One contention by Elizabeth Warren, a senator from Massachusetts and presidential candidate, is that a company shouldn’t be able to host a digital market platform, and also distribute or participate on that platform if they become too large.
These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users.-Elizabeth Warren
What would a consistent standard look like?
A company that has 25 billion or more revenue from a digital market place would be considered a “platform utility.” And a platform utility wouldn’t be able to sell their own products on that platform or participate in any way without being liable to a lawsuit. One example would be Amazon; they have a digital marketplace, but wouldn’t be allowed to sell Amazon Basic products, like dishes, or charging cables, on their marketplace with other 3rd party vendors.
The senator writes that she would push to pass legislation to designate certain companies “platform utilities.” She defines those as “companies with an annual global revenue of $25 billion or more” that “offer to the public an online marketplace, an exchange, or a platform for connecting third parties.”-CNBC
Facebook Marketplace and Google Search would also be affected under Warren’s plans. The takeaway is that digital marketplaces would drastically change. But what about physical brick-and-mortar stores? Technology and E-commerce has grown tremendously, so maybe it’d make sense to put the spotlight on them specifically. People see dying malls as a sign that consumers do most of their shopping online. However, despite the rise of E-commerce, people spend most of their money shopping in person.
E-commerce sales rose from $390 billion in 2016 to $453 billion in 2017, a 16 percent increase…Brick-and-mortar sales rose from $2985 billion in 2016 to $3043 billion in 2017, a two percent increase -Thebalancesmb
Brick-and-mortar sales still eclipse E-commerce in terms of the total market value. E commerce is definitely growing, but it still has a long way to go before even being comparable to the brick-and-mortar industry. There were 3 trillion dollars of brick-and-mortar sales compared to just 453 billion from E-commerce. Wouldn't it also make sense for Warren’s plan to go after the large brick-and-mortar stores, who might also engage in unfair market dominating practices? There currently are large brick-and-mortar stores that make 25 billion dollars in revenue, and act as both a participant and owner of a marketplace. It presents some interesting questions for Senator Warren’s plan.
What makes being a participant in your own physical marketplace different than being a participant in your own digital one?
Even if you consider the scale and reach that one website has compared to multiple stores, brick-and-mortar stores still have pretty questionable effects on the economy. A large brick-and-mortar store can destroy competition by undercutting small businesses in the local selling area. A physical store can manipulate shelves so that it places its store brand product front-and-center compared to other brands. Spaces for brick-and-mortar stores do make the logistics and planning different than digital stores. However, E-commerce websites still need to be scaled to handle massive amounts of internet traffic. Furthermore, distribution of the physical product is still a necessary cost; just because there’s a website doesn’t mean there’s not a warehouse. There’s also still shipping costs. Amazon has been branching out from the digital retail space because it doesn’t have high margins in online retail. Right now Amazon makes more money from pure software endeavors like Amazon Web Services (AWS) than retail, so targeting e-commerce marketplaces might not be that meaningful
A Company That Would Benefit Under Warren’s Plan
One popular store that makes over 25 billion dollars in revenue and participates in the marketplace, as well as owns it, is Target. Target has 39 “owned brands.” They sell their own brands and products on their shelves while competing with companies like Hanes, who compete in the same store. Target owns the marketplace and also participates by selling their own brands. Despite having close to 70 billion dollars in revenue, Target wouldn’t qualify for Senator Warren’s plan because it is brick-and-mortar. Target also has a E-commerce platform which presents a grey area for Warren’s plan.
Shoprite, although only bringing in 16.5 billion dollars, sell their own cereals and products to customers in addition to more expensive 3rd party brands. But if brick-and-mortar stores account for more of total sales than E-commerce, and they engage in what seemingly be called questionable practices, why is the focus on big technology and Amazon? Furthermore, how would Warren’s plan handle Amazon Go, which is a physical store?
Since Amazon Go isn’t a digital marketplace, would they still be able to sell their Amazon Basic products, like dishes, cables etc? If Amazon transitioned their model to be more of a physical marketplace, could customers buy a Amazon Basic lightening cable charger in the Go stores? How would that affect how they divert resources towards their online marketplace versus other endeavors?
Under this standard, Amazon Marketplace — where third-party vendors sell products — would split from Amazon Basics, the company’s in-house brand, Warren wrote. Google would have to spin off its search business, among other services. — Source
Breaking up companies like Amazon, but not Target, would put the already 3 trillion brick-and-mortar industry at an advantage over the 300 billion dollar E-commerce one. Are consumers being hurt by digital marketplaces? And if so, how aren’t they also being hurt by large brick-and-mortar stores who engage in big business tactics that Warren doesn’t approve of either? Should large retailers who own brands also be broken up? How would the compliance costs affect current technology companies? When it comes to Warren’s plan, you could say she might have missed the Target.