The FTC Sues to Break Up Amazon Over an Economy-Wide "Hidden Tax"

Ever since President Biden appointed Lina Kahn to run the Federal Trade Commission, we knew this was coming. The US Government is coming for Amazon. Prior to being sworn in as the Chair of the FTC in 2021, Kahn was a noted critic of Amazon while Associate Professor of Law at Columbia Law School. Before that, as a student at Yale Law School, Kahn wrote an essay that has become famous in competition law circles, ‘Amazon’s Antitrust Paradox’.

Biden’s appointment of Khan to head up the FTC was a clear sign: antitrust enforcement of big tech generally, and Amazon specifically, was coming. And on the 26th of September, Khan’s FTC alongside 17 American states filed suit against Amazon, claiming the online retail giant has illegally maintained monopoly power. If this suit is successful, Khan may get her wish and force Amazon to break up.

There have been plenty of explainers written on the legal case and what may happen next (here’s a good one from Vox). However, the article we are featuring in today’s email looks at the business side of the Amazon lawsuit. The author makes the case that to truly understand Amazon, we need to think of it in the same way we think of a social media company.

The classic explanation given about any free tech product is ‘if you’re not paying for it, you’re the customer’. A platform like Facebook amassed 1 billion users and then sells our attention to advertisers. We are the product. Amazon has done something similar. It has amassed hundreds of millions of customers, but we as customers are not profitable for Amazon (take for example, Amazon Prime costs $139 per year in the US, but according to one JP Morgan analysis costs the company over $1,000 in free shipping). Amazon has used their low margin business model to aggregate customers and become the dominant eCommerce platform.

Amazon then sells access to us, their hundreds of millions of customers, to third-party sellers. Costs charged to third-party sellers now make up almost 50% of Amazon’s revenue. As a third-party seller you are charged listing fees, warehouse fees and often need to pay for advertising to appear high in the search results.

According to the FTC, this is where Amazon’s anticompetitive actions begin. It alleges that to protect it’s dominance and to ensure third-party sellers continue to rely on it, Amazon engaged in all manner of anticompetitive acts. For example, barring all third-party sellers from offering their goods for lower prices anywhere else online.

We’re in antitrust season in the US. Between the Google antitrust case, Apple’s fight with Epic Games potentially going to the Supreme Court and now Amazon’s antitrust case, we’re going to see a lot of developments over the coming months. The outcomes of these cases will play a large part in determining the future of Big Tech and perhaps, whether they will remain Big at all.

Christopher Tsai: Investing in an age of disruption

This is the transcript of a speech Christopher Tsai, New York-based founder of Tsai Capital, gave earlier this year on investing in an era of rapidly changing technology. In it, he outlines three key points:

1. Investors continuously underestimate the speed at which disruption transforms society and business

2. In an age of rapid technological change, we need to approach valuation, not with heuristics, but with new eyes

3. We should use diversification, not only to play defence, but also to play offence. We don’t need a bad-ass, 3 stock portfolio to outperform the market.

Christopher makes the point that disruption is more than cutting edge technological disruption, despite the fact we are seeing plenty of that today (Novo Nordisk in healthcare, Nvidia in technology are two obvious examples that come to mind). He points to business model disruptions that have challenged traditional ways of doing things (an example he mentions in his speech is Dollar Shave Club’s challenge to Gillette).

The most profound moments of disruption are when these two forms of disruption arrive together. Where new forms of technology drive disruption in traditional business models. A clear example we’ve all lived through is the arrival of the iPhone, which ushered in both a new era of mobile technology but also completely new ways for the mobile ecosystem to do business.

Tsai makes the case that understanding disruption is important, because the pace of disruption is accelerating.

McKinsey have found that the average life span of a company in the S&P 500 index is 18 years. Back in 1958, that average life span was 61 years. Moreover, since 2000, half of the companies listed on the Fortune 500 have either gone bankrupt or been acquired. Disruption has always been a fact of life. But these are signs that we’re living through an age of accelerating disruption.

This pace of change and disruption should make us reconsider what we consider long-term investments. When we’re talking about individual companies (as opposed to indexes) our grandparents lived in an era where they could hold great companies for most of their investing lives. If the trend McKinsey identified continues, we may only have great companies in our portfolios for a couples of decades before the search begins again.

It's not just you. LinkedIn has gotten really weird.

LinkedIn might seem old in the timeline of social media platforms, founded back in 2003, but it is still growing quickly. With 950 million members it will soon be joining Instagram, Facebook and TikTok in the rarefied air of the billion user club. And it is growing engagement, with the number of LinkedIn posts growing 41% between 2021 and 2023.

Amongst all of this growth, this Business Insider article asks: why did LinkedIn get so weird? From oversharing personal information to clearly fake bragging, their answer is simple: no one know what it means to be “professional” anymore.

If you’re a LinkedIn user, you’ve noticed it. The rise of the LinkedIn influencer - putting up daily polls and personal stories - doing anything to juice engagement. LinkedIn has always been a weird place, a highly sanitised, corporate social media platform. The friends who post pictures with a beer on Instagram, show up on LinkedIn with a suit and tie celebrating their employer’s recent quarter. But it has morphed in the past few years. It is as if the rise of Instagram and YouTube influencers has sparked a rush for a group of LinkedIn users to become corporate influencers.

The unfortunate thing for a lot of people is that LinkedIn is an important tool for their jobs. As LinkedIn has changed over the past few years, users now have to navigate stories of people sharing stories of messy divorces and their struggles to pee in public (yes, these are two real posts mentioned in this article). So rest assured, it’s not just you, LinkedIn has gotten weird.