Why Amazon's next big target is government money

Amazon isn't stopping its march in the corporate world. Photo/Getty Images.

Should Amazon be the US government's Everything Store? It's a question being raised as a small but seismic tweak has made its way into the legislation governing how the federal government buys its annual $50bn-worth of commercial goods — from machinery, to potato chips, to toilet paper.

Thanks to what has become informally known as the "Amazon Amendment" to the 2018 National Defense Authorization Act, government officials must come up with an ecommerce solution for all purchasing — and wholesalers are complaining it will allow Amazon to eat their lunch, just as it has in retail.

Amazon started courting government business a few years ago, and in 2017 signed a lucrative deal with 1,500 local public agencies, which was criticised by non-profit advocacy groups like the Institute for Local Self-Reliance, alleging that the deal would leave the public sector paying more, rather than less, for goods. Last year, Amazon almost nabbed a $10bn Pentagon cloud computing contract before the deal was squashed, in part due to complaints from competitors that Amazon had hijacked the bidding process. It is now a run-off between Microsoft and Amazon.

The National Association of Wholesaler-Distributors, a group that represents the biggest companies in a sector worth $5.6tn in sales a year, is waging a public relations war to try and ensure that its members don't lose government contracts to Amazon. In particular, the trade group is upset that the General Services Administration, the part of the government tasked with figuring out which ecommerce model to use, is piloting only an "e-marketplace" version that they, and a number of others, including ILSR, believe will favour a single player. Other ecommerce options, such as a government-managed portal for multiple suppliers, were discarded.

"By designating one, and only one, channel to reach the government customer, core antitrust and broad competitive precepts are assailed," wrote NAW president Dirk Van Dongen in a February letter to lawmakers. His members' businesses could be under threat, too. The GSA has said nothing about capping the fees Amazon could charge sellers. Wholesalers and the ILSR worry that sellers could be hit with as much as a 15 per cent fee on the value of goods sold. Amazon would not confirm or deny that number, saying that "fees vary".

As importantly, these companies could be vulnerable to having their data mined. That would put them at risk of being undercut by Amazon's own private label lines. The ecommerce group has in the past been accused, by some retailers, of monitoring third party sales on its platform, and then using that information to dominate competitors. Amazon, for its part, says that it invests heavily to help third-party sellers, and that they, as a whole, outperform the company's own retail division.

So if the wholesalers don't like the Amazon model, why don't they simply get together and create their own platform? After all, there's nothing in the legislation that precludes another e-marketplace from capturing government business. This has not happened, says Stacy Mitchell, the co-director of ILSR, because "many of the specific requirements that the GSA outlines strongly favour Amazon and make it highly unlikely that another platform provider could compete."

Amazon is also branching out through the launch of a number of initiatives. Photo/Getty Images.

Even if they could, it may be too late. "Amazon is incredibly good at what it does," admits Van Dongen. What's more, traditional companies would have to embrace the competition and collaboration mix inherent in the e-marketplace as practised by Amazon. Coming together to share technology and data would be a major culture shift as has been the case in other industries.

Van Dongen says his members don't mind competition, and are all for more government efficiency via ecommerce. But they believe this is a fight, as he puts it, about "how the game is played". Amazon, say rivals, has used its outsize Washington influence — it lobbies on more issues than any other company — to stack the deck. Amazon hired Barack Obama's chief procurement officer, Anne Rung, who has since had email exchanges with an official in the Trump administration about how the GSA process should roll out. Amazon says Ms Rung has been compliant with White House ethics rules.
"Amazon is trying to make fundamental changes to federal procurement standards," says ILSR researcher Zack Freed. "Right now, there are standards around transparency and pricing in government procurement." An Amazon model, he believes, "would preclude that".

But would it save taxpayers money? Maybe not. One 2017 study done by the Naval Postgraduate School, comparing existing GSA purchasing systems to Amazon, found that the GSA programme offered the lowest prices 80 per cent of the time. Still, purchasers preferred the ease of using Amazon.

But that may be part of the problem. The idea that buying stuff for the government should be as easy as buying it for yourself — no matter what the costs in transparency — is Amazon's framing. But the public sector is not a household. If businesses and citizens feel that the purchasing process has become captured, it will be a net loss to the government — and society as a whole.

Written by: Rana Foroohar

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