Elizabeth Warren is coming after AmazonBasics. Why Amazon shouldn’t fight it.

Wouldn’t it be nice if Amazon did the right thing?

On Friday, senator and presidential hopeful Elizabeth Warren unveiled her plans to break up Big Tech, including Amazon. Much of her to-do list includes disallowing tech giants that own a marketplace from also participating in that marketplace. That means Amazon wouldn’t be able to sell its own products on Amazon. 

There are a few ways Warren’s policies could affect the e-commerce behemoth, especially concerning Amazon’s Alexa hardware, its grocery businesses, and Amazon Web Services. 

But the most obvious effect — no more selling AmazonBasics and other Amazon private label merchandise on Amazon Marketplace — is one that the company shouldn’t fight. Amazon should stop selling Amazon private label products on Amazon Marketplace because its proportionally small loss would be a disproportionately huge gain for small businesses.

On Amazon Marketplace, users can discover and purchase items from third-party sellers. This works out great for pretty much everyone: sellers can easily reach customers, Amazon gets a cut of the sale, and a healthy marketplace keeps prices low for consumers. Capitalism at its finest.

But the problem that Warren and others have is that Amazon has introduced its own products — including its AmazonBasics line — into that marketplace.

Amazon launched AmazonBasics, a line of everyday products like batteries and cookware, in 2009. It has been growing its private labels ever since, constructing more than 100 fashion, home, and electronics brands in the last 10 years. In 2017, private label brands accounted for $450 million in sales. And in July 2018, analysts estimated that private labels would account for $7.5 billion in sales in 2018. (Amazon has not yet released its 2018 annual report.) Amazon sells its private label products in its Marketplace, right alongside nearly identical products from independent sellers.

Critics, including anti-trust rockstar Lina Khan, have a problem with this.

“If you’re going to be a dominant marketplace, then you perhaps shouldn’t be able to also sell on that market place, putting yourself in direct competition with all the merchants that are dependent,” Khan recently said on the NPR podcast Planet Money. 

Khan, and now Warren, take the position that both selling in and owning the marketplace gives Amazon an unfair competitive advantage. They think Amazon’s unique business model lets it trounce the competition in a few ways that go beyond a store like CVS selling CVS products. The New York Times outlined most of these advantages in an investigation entitled “How Amazon steers shoppers to its own products,” where it found: 

• Amazon uses the data it gets from third-party sellers to help determine what it actually sells.

• It provides advantageous product placement for its own products over its competitors.

• Its status as a mega-corporation enables it to sell products at cheaper prices than its competitors.

• Sellers are dependent on the marketplace, so they cannot effectively take their services elsewhere.

Amazon told Planet Money that its private label brands ultimately create value for the consumer by making prices even lower. But those low prices for consumers come at the expense of third-party sellers. 

Amazon likes to tout its ability to help small businesses find customers. However, propping up its private labels fundamentally undercuts this value proposition. If Amazon wants to defend the value that it provides to both consumers and small businesses, it should let its private labels go without a fight.

In Amazon’s statement to Planet Money, the spokesperson also states that private labels account for a “tiny” proportion of Amazon’s business. That’s true: In 2018, Amazon reported doing $232.9 billion in net sales. And whaddya know, $7.5 billion in private label sales is just 3.2 percent of that. That’s Bezos chump change.

Spinning off AmazonBasics wouldn’t kill Amazon. But the growth of AmazonBasics could kill small businesses.

Besides, $7.5 billion fewer dollars going to Amazon wouldn’t mean much financially to the company, by their own admission — but it would potentially mean billions going to the independent hat makers, novelty sweater sellers, and gadget companies peddling their wares on Amazon. 

Amazon has so, so few opportunities to be the good guy: Jeff Bezos is literally the richest man there has ever been, and is considered a ruthless capitalist making his billions on the backs of underpaid and abused workers. If regulation in tech is coming, and it most certainly is, this is one area in which it might actually be best for Amazon — in terms of goodwill, and the health of its Marketplace business as a whole — to concede. 

Spinning off AmazonBasics wouldn’t kill Amazon. But the growth of AmazonBasics could kill small businesses. Political pressure on tech giants is growing. To engender support from politicians, small businesses, and customers, Amazon should back off its private labels, and put those billions in product sales back on the table for its Marketplace sellers.

Is it so hard to imagine Amazon bowing out of the product business with grace? Unfortunately, yes. Amazon launched an under-the-radar private label accelerator program in 2018, which was partially responsible for the explosion in its brands and private label sales, so this is a big area of growth for the company. Analysts also say that brands like AmazonBasics could bring in $25 billion by 2022. That’s close to what Amazon’s most profitable arm, Amazon Web Services, brings in today ($25.6 billion).

Then again, if Warren gets her way, Amazon might not have a choice.