Government & Policy

Should VCs back the FTC suit against Amazon?


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The FTC is not incredibly popular in the tech world today, taking aim at several high-dollar deals and executing vigorous antitrust efforts that could make it harder for the richest companies in tech to snap up smaller rivals.

The FTC has continued its hearts-and-minds campaign by filing suit against Amazon this week, alleging a “pattern of illegal conduct” that “blocks competition” and allows the company to “wield monopoly power to inflate prices, degrade quality, and stifle innovation for consumers and businesses.”

When reached for comment, David Zapolsky, senior VP of global public policy and general council at Amazon, said that if the FTC “gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers and reduced options for small businesses — the opposite of what antitrust law is designed to do.”

The suit will likely take time to run its course, but it does set up an interesting intellectual prompt for both startup founders and venture capitalists: Are they in favor of regulators working to contain market power by the largest tech companies, which may potentially come at the expense of the ability of startups to compete? Or are they more concerned about a potential ceiling being set on exit values for the companies that they back?

Put more simply: Are VCs and founders in favor of more antitrust work by the government to preserve an open field of competition, or more concerned that the government could cook the golden goose? TechCrunch+ polled a few investors and founders and discovered that many are in favor of the FTC cracking down on Amazon. J.D. Baker, a platform manager at Cortado Ventures, said that “monopolies stifle innovation and opportunities for founders to bring new ideas, products and services into the market.”

“Amazon was once the little guy, competing against the large booksellers. Without competition, its own existence would’ve never achieved where it is today,” he continued. “The FTC, my home state of Oklahoma, and other states are right to question Amazon’s practices that quell entrepreneurs’ participation to compete and bring better products to the market.”

Amazon indeed has a lot of market power, and given that Amazon could be an exit path for portfolio companies — though the FTC might have something to say about that, too — calling it a potential monopoly is not the easiest thing to say out loud. Still, the Amazon suit is of particular interest to our question regarding more antitrust because it involves not just one of tech’s biggest players — AWS is part of Amazon’s corporate empire — but also a company that has its hands in an array of digital niches. Amazon competes, variously, in consumer hardware, video streaming, digital books, digital music and music streaming, not to mention its work in e-commerce, logistics, advertising and other areas.

The precise merits of the FTC suit will be tested in court, but something that lurks in the back of our heads is simply how big is too big, and whether we will reach a point in which some tech companies are effectively too complex to regulate, akin to how banks get over their skis at times due to their own internal intricacy. Certainly that parallel is imperfect, but you can understand what we’re trying to examine.

Masha Bucher, the founder of Day One Ventures, said simply that big platforms have too much power, “and it’s reducing options and increasing prices for consumers at the end, and Amazon will have to change it, with or without regulator involvement.”

There is another side to this, however, as pointed out by Hussein Yahfoufi, a founder and startup executive. He believes this suit, in addition to taking years to settle, could be a double-edged sword. It could “have unintended consequences and increase legislation for startups, which could add more barriers for new startups and new companies looking to innovate and grow,” he said.

This is a good cause for concern. Venture capitalists and founders are investing and building, respectively, toward outsized outcomes. Venture is a big swings game, where big exits pay for missed wagers on startups that fizzled or failed to take off at all. Anything to limit those exits is anathema for VCs, who are competing with peers for deals and LP capital. They need wins to keep going. But even Yahfoufi has to admit that the FTC might have a point in going after Amazon.

“Amazon should be able to set the rules for its own platform, but dictating what sellers can or cannot do on other platforms is overextending its power and authority,” he said. “This restricts sellers’ growth outside Amazon and makes it hard for other platforms and startups to compete.”

If anything, the case feels like another turning point as the “little guys” from decades ago grow up. Amazon is now a prime example of how once nascent tech companies are the behemoths within the industries they once challenged. These giants did what, as startups, they were supposed to do: They innovated, scaled fast and disrupted.

“Companies go from being startups and disruptors and grow to become industry leaders setting the rules and standards,” Yahfoufi said. “It’s even more important that they balance profits with ethics, fair competition and giving back. It’s a delicate balance, but essential.”

This story was updated to reflect comments from Amazon.

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