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Credit to Author: Gilad Edelman| Date: Thu, 07 Apr 2022 11:00:00 +0000<\/strong><\/p>\n Gilad Edelman<\/a><\/span><\/span><\/p>\n To revist this article, visit My Profile, then View saved stories<\/a>.<\/p>\n To revist this article, visit My Profile, then View saved stories<\/a>.<\/p>\n If you want<\/span> to know how worried an industry is about a piece of pending legislation, a decent metric is how apocalyptic its predictions are about what the bill would do. By that standard, Big Tech is deeply troubled by the American Innovation and Choice Online Act.<\/p>\n The infelicitously named bill is designed to prevent dominant online platforms\u2014like Apple and Facebook and, especially, Google and Amazon\u2014from giving themselves an advantage over other businesses that must go through them to reach customers. As one of two antitrust bills voted out of committee by a strong bipartisan vote<\/a> (the other<\/a> would regulate app stores), it may be this Congress\u2019 best, even only, shot to stop the biggest tech companies from abusing their gatekeeper status.<\/p>\n \u201cIt is the ball game,\u201d says Luther Lowe, senior vice president of policy at Yelp and a longtime Google antagonist<\/a>. \u201cThat\u2019s how these guys stay big and relevant. If they can\u2019t put their hand on the scale, then it makes them vulnerable to small and medium-size companies eating their market share.\u201d<\/p>\n But according to the tech giants and their lobbyists and front groups, the bill, which was introduced by Amy Klobuchar and Chuck Grassley, respectively the top Democrat and Republican on the Senate Judiciary Committee, would be a disaster for the American consumer. In an ongoing publicity push against it, they have claimed that it would ruin Google search results, bar Apple from offering useful features on iPhones, force Facebook to stop moderating content, and even outlaw Amazon Prime. It\u2019s all pretty alarming. Is any of it true?<\/p>\n The legislation\u2019s central idea is that a company that controls a marketplace shouldn\u2019t be able to set special rules for itself within that marketplace, because competitors who object don\u2019t have any realistic place to go. No business can afford to be left out of Google\u2019s search index, and few online retailers can make a living if they\u2019re not listed on Amazon. So the Klobuchar-Grassley bill, broadly speaking, prohibits self-preferencing by platforms that hit certain size thresholds, like monthly active users or annual revenue. To take a simple example, it would mean Amazon can\u2019t give its in-house branded products a leg up<\/a> over other brands when someone is shopping on its site, and Google can\u2019t choose to give YouTube links when someone does a video search unless those links are objectively the most relevant.<\/p>\n Beyond that, it\u2019s difficult to say precisely what the law would do, because it leaves quite a bit unspecified. Like many federal statutes, it directs an administrative agency\u2014in this case, the Federal Trade Commission\u2014to turn broad provisions into concrete rules. And it gives the FTC, the Department of Justice, and state attorneys general the power to sue companies for violating those rules. (Last week, the DOJ endorsed<\/a> the bill, an important signal of support from the Biden administration.) Inevitably, both the rules and any enforcement actions would end up being litigated in court, giving federal judges ultimate say over what exactly the law means.<\/p>\n This leaves plenty of uncertainty around how exactly the law would play out. Into that zone of uncertainty, the tech companies have poured dire warnings.<\/p>\n Perhaps the scariest talking point is that the law, if enacted, would kill Amazon Prime. According to eMarketer, more than 150 million Americans<\/a>, more than half the adult population, are Prime members. That\u2019s a lot of people who might hate to lose their \u201cfree\u201d two-day shipping. (It\u2019s not really free, of course, if you have to pay a subscription fee.)<\/p>\n The bill doesn\u2019t mention Prime anywhere in the text. But according to the Chamber of Progress, an industry lobbying group whose funders include Apple, Amazon, Meta, and Google, the prohibition is implied. Adam Kovacevich, the group\u2019s CEO and a former Google public policy executive, says that the issue revolves around something called Fulfillment by Amazon, or FBA. Amazon isn\u2019t just a retailer, it\u2019s a marketplace. A majority of products for sale on Amazon.com come from third party sellers who rely on Amazon\u2019s marketplace to reach customers. For those sellers to qualify for Prime shipping, they have to use FBA, meaning they have to store their inventory in Amazon\u2019s warehouse and have Amazon handle two-day delivery.<\/p>\n More to the point, these sellers have to pay<\/em> for FBA. The Senate bill prohibits a company making \u201cpreferred status or placement on the covered platform\u201d dependent \u201con the purchase or use of other products or services.\u201d Kovacevich argues that this would kill Prime, because you can\u2019t have Prime without FBA. \u201cThe guarantee of one- or two-day shipping is sort of inextricably linked with having as much control over the shipping and fulfillment process as possible,\u201d he says.<\/p>\n But the bill doesn\u2019t quite ban FBA. It just says Amazon can\u2019t force sellers to pay for its fulfillment program to get the Prime label. If the bill became law, the company would have to let third-party sellers choose other logistics providers.<\/p>\n \u201cWhat the bill would do in that case would be to force Amazon to develop a system on its marketplace so that sellers can choose alternative fulfillment partners, like DHL or FedEx or USPS or whatever,\u201d says Sumit Sharma, a senior researcher at Consumer Reports. \u201cAnd then they\u2019ll have to ensure that what they show in the search results is not influenced by who\u2019s fulfilling the order, as long as I\u2019m getting it within a day or two or whatever. They can still have Prime membership.\u201d<\/p>\n Amazon might say this is impossible, but it already allows some sellers to manage fulfillment themselves, through a program called Seller Fulfilled Prime. (Currently, the Amazon website says<\/a>, \u201cSeller Fulfilled Prime is not accepting new registrations at this time.\u201d It gives no indication of when the program will reopen.)<\/p>\n Opening up Prime fulfillment would create at least the possibility of competition, as logistics companies would have a chance to win sellers\u2019 business. Which helps explain why Amazon would oppose the bill. Amazon doesn\u2019t publicly break out the share of its revenue that comes from FBA fees, but according to a report<\/a> by the Institute for Local Self-Reliance, an anti-monopoly group, it amounted to roughly $57 billion in 2021\u2014up from just $3 billion in 2014.<\/p>\n \u201cIt actually is very good for Prime members because if this legislation passes, it means there will be competition for who can provide the best package delivery,\u201d says Stacy Mitchell, the codirector of the ILSR.<\/p>\n The bill would impose other constraints on Amazon, like preventing it from using data gleaned from third-party sellers to improve the sales of its own brands. (Last month, the House Judiciary Committee asked the DOJ<\/a> to investigate Amazon executives for allegedly lying to Congress about whether the company does this.) But Mitchell, who supports the bill, says it doesn\u2019t go far enough. She thinks a breakup is needed, so that Amazon the retailer is separate from Amazon the third-party marketplace is separate from Amazon the logistics company. \u201cYou cannot have the entity that sets the rules for how the marketplace works, and has a god-like view of everything that's going on, to also be participating in that marketplace,\u201d she says.<\/p>\n Speaking of entities with a god-like view of everything\u2014once upon a time, when you searched for something on Google, the results would be nothing but links. What made Google so good was that its algorithm was way better at providing results you actually wanted than the competition. Using a variety of objective signals, like how often a given page is linked to by other pages, Google would rank websites according to relevance and quality. To get what you wanted, you would click one of the links and leave for the open web.<\/p>\n As you\u2019ve no doubt noticed, that has changed. Now, when you search, the top of the results are often curated\u2014maps, answer boxes, shopping tools, and so on. It can be very convenient. But it\u2019s also a way for Google to keep users within its kingdom rather than sending them out to the web. If you search for a restaurant, you get Google Maps reviews. If you search for flights, you get Google\u2019s flight-comparison tool. If you search for videos, almost all the top results will be for YouTube. An investigation by The Markup in 2020 found<\/a> that \u201cGoogle devoted 41 percent of the first page of search results on mobile devices to its own properties and what it calls \u2018direct answers<\/a>,\u2019 which are populated with information copied from other sources, sometimes without their knowledge or consent.\u201d When The Markup looked at just the portion of results that would appear on an iPhone without having to scroll, that number rose to 63 percent. (Google claims The Markup's methodology is \u201cflawed and misleading\u201d at least in part because it \u201cincluded a non-representative sample of searches.\u201d Google has not made a representative sample of search data publicly available.)<\/p>\n Keeping users on Google properties means more opportunities to show ads and more ways to take a cut of a transaction, whether it\u2019s a hotel booking or dinner reservation. Meanwhile, this tactic puts other businesses in a tight spot. Some 90 percent of searches take place on Google. If you\u2019re competing against the platform that runs the search, that\u2019s a hard battle to win. Users who don\u2019t find you by Googling may not find you at all. One of the antitrust cases<\/a> filed against Google takes aim at precisely this problem, arguing that Google has discriminated unfairly against specialized search engines like Kayak (flights) and Yelp (restaurants and other local businesses). Google has denied<\/a> these claims. The American Innovation and Choice Online Act would give the government a much better shot at winning that kind of case by explicitly saying self-preferencing is against the law.<\/p>\n