Amazon’s booming counterfeit business raises the risk that regulators will crack down. Good.

Anyone charged with protecting Amazon’s image is having a tough month.

On Nov. 11, The Wall Street Journal wrote that the company’s website “increasingly resembles an unruly online flea market,” which probably isn’t the look that a company valued at more than $860 billion is trying to achieve. The Journal linked a surge in fakes and dangerous goods being sold via Amazon to its recruitment of Chinese sellers who were encouraged to post their goods directly rather than going through North American middlemen who generally vet the products.

Its actions suggest it understands that low prices will attract more traffic than it might lose by becoming a destination for fakes.

The next day, Nike announced that it would no longer sell its products on Amazon because of counterfeiting. And before the week was over, The Washington Post, which is owned by Amazon’s founder and chief executive, Jeff Bezos, published a follow-up on the Journal article headlined, “How Amazon’s quest for more, cheaper products has resulted in a flea market of fakes.”

A bad reputation would worry most retailers. But Amazon isn’t most retailers. If it were worried that counterfeits were hurting business, then it wouldn’t make it easier for sellers to join its platform, as it’s still doing.

Instead, its drive to populate its marketplace with more and cheaper stuff seems to result in more traffic, and that’s more important than gathering commissions on high-end items.

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Flea markets have mixed reputations, but they attract bigger crowds than fancy jewelry stores. If Amazon wants to keep pace with Google, Facebook and Microsoft, it needs those crowds more than it needs Nike’s stamp of approval. What the shopping public needs, however, is to harness this bad publicity to demand that regulators do more to protect them since Amazon itself won’t.

Retailing isn’t where Amazon generates most of its profits. To be sure, the company creates a lot of revenue from commissions on the trading that takes place on its marketplaces, but it spends most of that money on the services that keep people coming back, such as one-day delivery options.

Intead, the biggest source of profits for Amazon is renting out space in its cloud to companies that would otherwise have to buy expensive servers to support the digital sides of their operations. And the fastest growing segment of Bezos’ empire is Amazon’s digital advertising business. That means Amazon’s true rivals are Google and Facebook, not Walmart and the local mall.

And that game follows different rules than the free-market contests to which we are accustomed. Before, keeping customers happy was crucial to success because profits relied on their business. But for Big Tech companies, the customer is the resource, not the target.

Harvard’s Shoshana Zuboff calls this form of business “surveillance capitalism”: Google and Facebook became ridiculously rich while giving away services such as GPS-guided maps and subscription-free access to a popular social network because they realized they could monetize the behavioral data that we leave in our wake while searching for Keto diets and posting selfies from our vacations.

Amazon, Microsoft, Twitter and the other big technology companies with access to personal data are all now trying to make money this way. They gather the information we leave them like a farmer harvests wheat; they process the raw material with machine intelligence; and then they sell advertising methods that virtually guarantee that the stuff their clients are selling will be seen by the people most likely to purchase them.

So the risk for Amazon in all the negative press isn’t that it discourages consumers from buying stuff; it’s that it attracts the attention of legislators and regulators, until now focused on Google and Facebook, who want to rein in the consumer information and other personal data culled from the site. Amazon’s pursuit of low-cost sellers at the expense of famous U.S. brands and importers with access to lobbyists increases the odds that Washington finally will crack down. Bezos is already a target of President Donald Trump, and Bloomberg News reported in September that the Federal Trade Commission is considering an antitrust investigation.

Amazon is conflicted. No one involved in retail wants to be called a “flea market for fakes,” and certainly not by the boss’s newspaper. But “surveillance capitalism” is about the advertisers, not the users of the various platforms. The competition is over who can make the best predictions of consumer behavior, and that requires feeding the machines with as much information as possible.

Companies such as Amazon grew into behemoths in part because existing legal constraints didn’t apply to what they were doing; it had been technologically impossible to gather and analyze so much personal information, so there were no laws in place to slow them down. New legal constraints that made it more difficult for the members of Big Tech to exploit the personal information of their customers would seriously gum up their money-making machines.

The new evidence of Amazon’s apparent disregard for fair dealing suggests such controls would benefit the public interest, if not simply by allowing individuals to control their own information, then at least by making it harder for “flea markets of fakes” to proliferate.

In its expose this month, the Journal said it uncovered more than 10,000 items for sale on Amazon’s U.S. marketplace that had been “deemed unsafe by federal agencies, are deceptively labeled, lacked federally required warnings or are banned by federal regulators.” For example, the paper purchased a “goose-down” duvet that tests revealed was filled with duck feathers.

“Surveillance capitalism” is about the advertisers, not the users of the various platforms. The competition is over who can make the best predictions of consumer behavior.

Amazon has said that it sees counterfeits as an “existential threat” because they could scare away customers. But its actions suggest it understands that low prices will attract more traffic than it might lose by becoming a destination for fakes. According to the Post, Amazon took steps to curb the counterfeiting a couple of years ago, but observed a decline in growth in merchandising and so reversed course.

In reality, a bigger threat to Amazon would be laws that make it harder to profit off the personal information we leave behind on its website. By allowing counterfeits to get out of hand, Amazon has given the Trump administration and Congress another reason to crack down on Big Tech. Writing a new set of rules for the age of surveillance capitalism would be the best way to do it.

Kevin Carmichael

Kevin Carmichael is the national business columnist at the Financial Post and a senior fellow at the Centre for International Governance Innovation. He previously covered the Treasury Department for Bloomberg News and was the U.S. business correspondent for The Globe and Mail. 

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