What is Amazon’s [redacted] ‘Project Nessie’ algorithm?

From TechCrunch:

The FTC’s lawsuit against Amazon alleging anti-competitive practices is largely full of things we already knew in a general sense: price hikes, pressure to use Amazon fulfillment and so on. But then we get to a sea of redactions and the mysterious “Project Nessie.” What is it, and could it possibly be as alarming as the unredacted sections make it sound?

The project, product or process is referred to more than a dozen times in the complaint filed by the FTC. And it’s one of those situations where the redactions probably make it sound scarier than it actually is.

Probably.

The first reference comes on page 6:

Amazon has also [redacted] through a [redacted] operation called “Project Nessie.” [redacted] Amazon’s Project Nessie has already extracted over [redacted] from American households.

What is it extracting? Money? Data? Something quantifiable, or else the document would not say “over.” Though I wouldn’t put it past Amazon, the context does not suggest anything physical or private, like video or biometrics.

An Amazon blog post from 2018 spotted by GeekWire describes Nessie as “a system used to monitor spikes or trends on Amazon.com.” Much of the timeline in the lawsuit takes place since then, however, so this definition (such as it is) may no longer be accurate, if it ever was.

Then, on page 11, among discussions of “anti-discounting” tactics, we have:

Amazon has deemed Project Nessie [redacted]: it has generated more than [redacted] in excess profit for Amazon.

In addition to overcharging its customers…

So Nessie does result in profit, but not necessarily directly, even though the last sentence implies it.

A bit of redaction sleuthing: An earlier sentence describes Nessie as a “[redacted] algorithm,” with the blackout text composed of no more than five or six characters (and note, “a” not “an”). Price? Profit? Sales? “Search” would just about fit too.

Last in Nessie references in the lawsuit is the whole section 7, which is four pages dedicated purely to Project Nessie.

Project Nessie is an algorithm [redacted]. Aware that this scheme belies its public claim that it “seek[s] to be Earth’s most customer-centric company,” [redacted].

How distressing. It later refers to “Part VI.A.3, above” in the middle of a redacted paragraph; the section is about how “Amazon maintains its monopolies by suppressing price competition with its first-party anti-discounting algorithm.”

Amazon recognizes the importance of maintaining the perception that it has lower prices than competitors. Behind closed doors, however, Amazon executives actively [redacted].

Instead, [redacted] “prices will go up.”

So what are we to make of this mysterious Project Nessie? It’s a highly secret internal algorithm and associated operation that makes them a lot of money, likely by manipulating price or search.

Are those small, seemingly arbitrary changes to price we see on items — up by a few cents today, down by a few tomorrow — Project Nessie in action, increasing or decreasing the price as needed based on the immense amount of sales data they have access to? This seems the most likely explanation, and the ability to dictate price based on what a customer is likely to pay would be both highly profitable and fit the description of “belying” the customer-first narrative.

Or could it be that search — which we know Amazon heavily manipulates in favor of certain sellers — is also being juiced in some unknown way? It could also be something else entirely, more arcane or technical.

One thing is sure: Amazon doesn’t like talking about it. (I contacted the company for comment and have not heard back yet.)

Will we ever find out what it is? It seems very unlikely that this entire lawsuit and trial will not shed at least a little light on it.

Link to the rest at TechCrunch

The FTC’s lawsuit against Amazon would lead to higher prices and slower deliveries for consumers—and hurt businesses

From Amazon:

Over the last several years, we’ve engaged cooperatively with the U.S. Federal Trade Commission (FTC) during a broad-ranging investigation of our business. It was our hope the agency would recognize that Amazon’s innovations and customer-centric focus have benefited American consumers through low prices and increased competition in the already competitive retail industry.

We respect the role the FTC has historically played in protecting consumers and promoting competition. Unfortunately, it appears the current FTC is radically departing from that approach, filing a misguided lawsuit against Amazon that would, if successful, force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store—such as having to feature higher prices, offer slower or less reliable Prime shipping, and make Prime more expensive and less convenient.

The FTC’s complaint alleges that our pricing practices, our Fulfillment by Amazon offering, and Amazon Prime are anticompetitive. In so doing, the lawsuit reveals the Commission’s fundamental misunderstanding of retail.

In order to demonstrate how the Commission’s case could negatively impact consumers and the businesses that sell in our store, we think it’s important to address some key areas of the FTC’s complaint and explain how Amazon’s procompetitive model actually works.

Bringing low prices to customers

We’re proud of the low prices customers find when shopping in our store—we know customers have many options, and that competitive prices are essential if we want customers to choose us. We’ve also enabled third-party businesses to sell their products right alongside the products we sell ourselves, which provides opportunities for those businesses and an even better experience for customers. When setting prices for the products we sell ourselves, we try to match other retailers’ low prices—online and offline. All of the other businesses that sell in our store set their prices independently, but to help them increase sales and make our store more attractive to customers, we also invest in tools and education to help them offer competitive prices. Other retailers also use similar tools and practices to highlight competitive offers and provide customers value in their stores.

Even with those tools, some of the businesses selling on Amazon might still choose to set prices that aren’t competitive. Just like any store owner who wouldn’t want to promote a bad deal to their customers, we don’t highlight or promote offers that are not competitively priced. It’s part of our commitment to featuring low prices to earn and maintain customer trust, which we believe is the right decision for both consumers and sellers in the long run.

The FTC’s case alleges that our practice of only highlighting competitively priced offers and our practice of matching low prices offered by other retailers somehow lead to higher prices. But that’s not how competition works. The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices—a perverse result that would be directly opposed to the goals of antitrust law.

The many ways we work to help independent sellers succeed, including Fulfillment by Amazon

We’re fortunate to have incredible businesses selling in our store. There are about 500,000 independent businesses of all sizes in the United States who choose to sell on Amazon, and these businesses have created 1.5 million U.S. jobs. We want them to succeed, we work hard to help them do so, and we’re very proud of their success.

Amazon’s store didn’t initially include third-party sellers. Early on, Amazon followed a well-worn retail path: we purchased products in bulk from brands and distributors, then we sold them directly to customers. In 1999, we began to build on that foundation. To provide customers with an even better experience and greater selection, we invited independent, third-party sellers into our store. Our initial attempts, including having different sections on our website for independent sellers, failed to resonate with customers—they were too confusing or required customers to do too much work to find the best offer. Believing that customers wanted a simple experience, we invited independent sellers to sell right alongside products sold by Amazon. And we even took it a step further—if more than one seller offered the same product (whether or not one of those sellers was Amazon), we listed those offers on the same product page. This single product page included key information about the product and the available offers to choose from, such as the names of the sellers, offer prices, and delivery options. By listing all offers together, customers could easily compare all of the available options for a single product and select the one that was most appealing to them.

In the two decades since we took the procompetitive step of opening our store to other businesses and inviting them to sell alongside us, sellers have gone from 0% to over 60% of sales on Amazon.

This result is not by accident. Amazon is a trusted partner for millions of sellers worldwide because we provide the most effective set of services for creating thriving, successful businesses. We have invested billions of dollars in people, resources, and services to support sellers at every stage of their journey. We regularly provide them with new data and insights about selling on Amazon, the capability to tailor products and listings to customer needs, and recommendations and advice to help grow their businesses. We also offer features that help sellers create and manage product listings, track sales, fulfill orders, respond to customers, and more.

One of the most helpful services we provide to sellers is Fulfillment by Amazon (FBA). This is an optional service for sellers where we’ll handle product storage, packaging, shipping, returns, and customer service—letting them focus on growing their businesses. FBA was made possible by years of investment to build a logistics network that could reliably get packages to customers quickly and handle customer service issues when they arose. As we built this network for ourselves, we decided to offer it to independent sellers to provide them a fast, reliable, and cost-effective option for serving customers. This is a big benefit for independent businesses and, in building it, we’ve created over a million jobs and made significant investments in the American economy.

FBA is a best-in-class, very competitively-priced service that’s offered to businesses selling in our store at very competitive prices. Sellers can choose to use their own fulfillment options as they see fit, and many do, or they can use the option we’ve developed. Many of them choose FBA because Amazon takes care of so much of the heavy lifting of logistics (e.g., storage, picking, packing, shipping, etc.) while also offering fulfillment fees that are an average of 30% less expensive than standard-shipping methods offered by other major third-party logistics providers, and an average of 70% less expensive than comparable two-day shipping alternatives.

Another optional service we provide to sellers is advertising. Like with logistics services, sellers have many choices for how to advertise their products. But sellers often choose our services because they provide better value than the alternatives—helping them grow their businesses and serve more customers.

The FTC’s allegation that we somehow force sellers to use our optional services is simply not true. Sellers have choices, and many succeed in our store using other logistics services or choosing not to advertise with us. We also enable sellers to use the trusted Prime badge when other logistics services are able to meet our Prime customers’ high expectations for fast, reliable delivery. When sellers have multiple options and can choose the right fit for them, the result is increased competition for those services, better prices, and a better experience for both sellers and the customers we all serve.

Innovating to make Amazon Prime a great deal for customers

Invention is core to Amazon’s DNA. Our innovations are often driven by our obsession with delighting customers, and we invent things customers may not even be asking for yet. For example, Amazon Prime started as a free shipping program, but has since become a lot more—even though customers already loved it. That’s because, as Amazon founder Jeff Bezos noted in his 2017 Letter to Shareholders, customers are “divinely discontent.” With customers, “yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’,” so we know we have to keep innovating to keep customers happy.

Prime has been successful because we continue to invest in making it better and better for customers. For example, we hit our fastest Prime speeds ever last quarter. Across the top 60 largest U.S. metro areas, more than half of Prime member orders arrived the same or next day.

 We also recently launched the ability for sellers to offer Prime shipping on their own direct-to-consumer sites via Buy with Prime, and many sellers have already signed up. Early results show sellers who add Prime on their own site as an additional option for customers increase their sales—a clear demonstration of the value to consumers and sellers, even outside of the Amazon store.

Our customers love Prime because it’s such a great experience—which makes it hard to understand why the FTC attempts to paint the value of Prime as somehow anticompetitive. Antitrust laws encourage companies to compete vigorously by offering the best deals they can for consumers. We’ve done that with Prime. This has been good for competition, consumers, and sellers in our store, and we’ll vigorously oppose any attempt to degrade or destroy Prime.

Amazon operates in a thriving retail industry that is dynamic, vibrant, and varied

The FTC’s complaint grossly mischaracterizes the retail industry and the dynamic competition that consumers benefit from every day. Consumers today still buy over 80% of all retail products in physical stores. And as any shopper knows, you can buy the same products at any number of different retailers that compete vigorously with each other, including brick-and-mortar stores, online stores, and quickly growing hybrid models like buy-online-pick-up-in-store. This multitude of options gives customers the ready ability to shop around for the best deal. All of that competition leads to low margins for retailers, but lots of options for sellers to sell their products and better prices for customers wherever they choose to buy.

The FTC pretends that this everyday retail competition doesn’t exist. But its attempt to gerrymander alleged markets into narrow subsets of retailers (who in reality compete with other retailers on the same products) can’t make Amazon into something it is not. Amazon may not be the small business it once was, but we’re still just a piece of a massive and robust retail market with numerous options for consumers and sellers.

Maintaining the benefits of Amazon’s store for consumers and sellers

We’re proud of the ways we’ve helped to spur low prices, innovation, and competition across retail, and we intend to keep doing that for years to come. We fundamentally disagree with the FTC’s allegations—which are in many cases wrong or misleading—and with their overreaching and misguided approach to antitrust, which would harm consumers, hurt independent businesses, and upend long-standing and well-considered doctrines. We will contest this lawsuit, and we will also continue inventing to put our customers—both consumers and the businesses that sell in our store—first.

Link to the rest at Amazon

FTC Sues Amazon for Illegally Maintaining Monopoly Power

Today’s Press Release from The Federal Trade Commission:

The Federal Trade Commission and 17 state attorneys general today sued Amazon.com, Inc. alleging that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power. The FTC and its state partners say Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.  

The complaint alleges that Amazon violates the law not because it is big, but because it engages in a course of exclusionary conduct that prevents current competitors from growing and new competitors from emerging. By stifling competition on price, product selection, quality, and by preventing its current or future rivals from attracting a critical mass of shoppers and sellers, Amazon ensures that no current or future rival can threaten its dominance. Amazon’s far-reaching schemes impact hundreds of billions of dollars in retail sales every year, touch hundreds of thousands of products sold by businesses big and small and affect over a hundred million shoppers. 

“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” said FTC Chair Lina M. Khan. “The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”

“We’re bringing this case because Amazon’s illegal conduct has stifled competition across a huge swath of the online economy. Amazon is a monopolist that uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers,” said John Newman, Deputy Director of the FTC’s Bureau of Competition. “Seldom in the history of U.S. antitrust law has one case had the potential to do so much good for so many people.”

The FTC and states allege Amazon’s anticompetitive conduct occurs in two markets—the online superstore market that serves shoppers and the market for online marketplace services purchased by sellers. These tactics include:

  • Anti-discounting measures that punish sellers and deter other online retailers from offering prices lower than Amazon, keeping prices higher for products across the internet. For example, if Amazon discovers that a seller is offering lower-priced goods elsewhere, Amazon can bury discounting sellers so far down in Amazon’s search results that they become effectively invisible.
  • Conditioning sellers’ ability to obtain “Prime” eligibility for their products—a virtual necessity for doing business on Amazon—on sellers using Amazon’s costly fulfillment service, which has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms. This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon.

Amazon’s illegal, exclusionary conduct makes it impossible for competitors to gain a foothold. With its amassed power across both the online superstore market and online marketplace services market, Amazon extracts enormous monopoly rents from everyone within its reach. This includes:

  • Degrading the customer experience by replacing relevant, organic search results with paid advertisements—and deliberately increasing junk ads that worsen search quality and frustrate both shoppers seeking products and sellers who are promised a return on their advertising purchase.
  • Biasing Amazon’s search results to preference Amazon’s own products over ones that Amazon knows are of better quality. 
  • Charging costly fees on the hundreds of thousands of sellers that currently have no choice but to rely on Amazon to stay in business. These fees range from a monthly fee sellers must pay for each item sold, to advertising fees that have become virtually necessary for sellers to do business. Combined, all of these fees force many sellers to pay close to 50% of their total revenues to Amazon. These fees harm not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.  

The FTC, along with its state partners, are seeking a permanent injunction in federal court that would prohibit Amazon from engaging in its unlawful conduct and pry loose Amazon’s monopolistic control to restore competition.

Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin joined the Commission’s lawsuit. The Commission vote to authorize staff to file for a permanent injunction and other equitable relief in the U.S. District Court for the Western District of Washington was 3-0.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.

Link to the rest at The Federal Trade Commission

PG will spare visitors to TPV by not embedding the entire 172-page complaint.

If you need a bigger US v. Zon fix, the complaint is available for download at the FTC link above.

FTC Sues Amazon, Alleging Illegal Online-Marketplace Monopoly

From The Wall Street Journal:

The Federal Trade Commission and 17 states on Tuesday sued Amazon AMZN -4.35%decrease; red down pointing triangle, alleging the online retailer illegally wields monopoly power that keeps prices artificially high, locks sellers into its platform and harms its rivals.

The FTC’s lawsuit, filed in Seattle federal court, marks a milestone in the Biden administration’s aggressive approach to enforcing antitrust laws and has been anticipated for months.

The agency’s chair, Lina Khan, is a longtime critic of Amazon who wrote in the Yale Law Journal in 2017 that earlier generations of competition cops and courts abandoned the law’s concerns over conglomerates such as Amazon. She has had trouble convincing courts of her antitrust views, however, having earlier lost cases against both Microsoft and Meta Platforms.

The federal agency and the states alleged that Amazon violated antitrust laws by using anti-discounting measures that punished merchants for offering lower prices elsewhere. The government also said sellers on Amazon were compelled to use its logistics service if they want their goods to appear in Amazon Prime, the subscription program whose perks include faster shipping times.

The FTC said sellers feel they must use Amazon’s services such as advertising to be successful on the platform. Between being paid for its logistics program, advertising and other services, “Amazon now takes one of every $2 that a seller makes,” Khan said at a briefing with the media Tuesday.

“The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court,” said David Zapolsky, Amazon’s general counsel and head of public policy. “The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store.”

The federal agency’s claim that Amazon prevents vendors from offering lower prices on competing websites echoes a claim made in a suit brought last year by the state of California.

“Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” Khan said in a statement.

The FTC said it is seeking a court order “that would prohibit Amazon from engaging in its unlawful conduct and pry loose Amazon’s monopolistic control to restore competition.” The lawsuit doesn’t say whether the FTC will ask the court to break up the company, and Khan declined in a briefing with reporters to say whether it would.

“The FTC doesn’t have a particularly good history of bringing monopolization cases,” said Rick Rule, who headed the Justice Department’s antitrust division during the Reagan administration. “Most of the last ones that they brought were in the ’60s and ‘70s and lasted into the ‘80s, and there were various theories but they never went anywhere.”

. . . .

Until recently, it has been rare for federal agencies to file monopoly lawsuits seeking to break up companies accused of anticompetitive behavior. While the FTC and Justice Department regularly seek to block what they see as illegal acquisitions, the government doesn’t often move against companies for anticompetitive behavior unrelated to acquisitions.

. . . .

The FTC’s lawsuit alleges that Amazon, despite its reputation for low prices and convenient delivery among many consumers, steadily grew from an online bookseller into a gatekeeper of online commerce that used its size to squash any budding rivals.

The Justice Department, in its lawsuit over Google search, similarly alleged that Alphabet used its scale to thwart competition. In that case, the government said Google used restrictive agreements with Apple and others to be the default search provider. That enhanced Google’s reach while starving other search engines of the data they needed to improve, the DOJ alleges.

Link to the rest at The Wall Street Journal

On a list of the many things PG is not, an antitrust expert or a political analyst would be among the most prominent.

That said, he wonders what the PR issues will be in the Justice Department suit. Amazon has about 230 million customers in the U.S. (out of a total adult population of about 260 million.)

Amazon is unlikely to do anything as a company to stir up the populace, but PG would be surprised if various groups of Amazon customers don’t arise to encourage their elected representatives to criticize the Amazon lawsuit.

Amazon also has 1.1 million sellers in the U.S. Per PG’s quick and dirty online research, KDP has over 1 million authors that publish through the platform. Informed estimates of total royalties paid by KDP to authors in 2022 place the amount as over $500 million.

In a popularity contest, Amazon would crush the Federal Trade Commission and, likely, the entire government of the United States.

Antitrust counsel representing Amazon will take a firm grip on official comments about the lawsuit coming from Amazon and its executives.

However, PG expects the formal and informal web of Amazon sellers will get vocal about this once the word gets around. Ditto for authors who earn most of their royalties from Amazon sales.

Antitrust lawsuits against large, well-known companies in the United States are relatively rare. In 2022, the Justice Department filed only 242 antitrust lawsuits, mostly involving companies/parties even the well-read group of people who visit TPV are unlikely to recognize.

PG is going to follow the progress of this lawsuit from afar and will provide whatever reports he believes would interest visitors to TPV.