Elizabeth Warren Doesn’t Understand Marketplaces
As everyone with access to the internet knows, Elizabeth Warren recently shared her hopes for breaking up some of the monopolistic power of so-called “platform utilities” or, as we call them, marketplaces.
On one hand, I respect that Washington now realizes what Silicon Valley has known for decades: marketplaces and platforms have powerful and influential network effects. But I think Warren misunderstands these marketplaces. They can only thrive and grow and be unassailable IF they continue to serve the customer.
Marketplaces and platforms exist to increase efficiency in the world. They are successful only if they improve productivity—saving people time and precious resources. As they get bigger, they can start to have true positive impact on global GDP as they allocate resources more effectively than the status quo. So let’s be clear: crippling their ability to execute would only be negative for the global economy.
Warren’s proposal would negatively impact consumers. Here’s why:
Negative Impact to Consumers
Warren proposes restrictions on platforms participating as a vendor on their own platform. Basically, she wants to outlaw Amazon Basics. While people are coming up with arguments to support this, is is a terrible idea. Amazon’s goal is to lower prices, decrease shipping time, and increase selection—value propositions that consumers benefit from tremendously. Amazon Basics primarily looks to lower prices for common consumer goods, something I admire and enjoy as a consumer. But Amazon—and any other marketplace—will only launch their own product when they identify a gap in the market (not enough selection) or an opportunity to lower prices for consumers or to improve quality. Every one of these initiatives benefits consumers.
While I don’t believe any legislation is necessary, if you insist, any theoretical legislation should be focused only on allowing for fair competition of Amazon-built products vs other vendors on the marketplace. Amazon does have a bit of an advantage vs others just because of the buyer data that they have and vendors do not. And they may give themselves “unfair” placement in their own search results. Some say you could enforce more transparency in the algorithm. But, this is another bad idea. It would be counterproductive and again, ultimately hurt consumers. There is a good reason Google keeps the details of their search algorithm a very closely guarded secret. They do not want to open themselves up to fraudulent attempts to game the system. Those attempts will always end up hurting consumers. Are you noticing a trend yet?
Also, smartly run marketplaces already enforce fair competition for their own products vs the various vendors. That is the smartest way to run the business. If your own products can not compete on their own, you shouldn’t be building them in the first place. It’s more efficient to just let the vendors handle it if they can handle it better.
Monopolies and Competition
As for monopolies creating an unfair playing field and discouraging competition, I for one am not concerned about this issue. I’ve been in the venture capital business for about 8 years now and have only seen an increasing number of startups going after every imaginable industry. Venture capital dollars have never been higher. VCs invest in promising startups that have a chance to disrupt incumbents on new platforms or utilizing new technology or simply improved customer experiences. Disruptors will be successful if they can dramatically improve the customer experience. If they can’t do that, they will fail.
The ecosystem thrives on constant disruption and government does not need to intervene. If the tech giants lose focus and have their customer experience deteriorate, I can guarantee that competitors will emerge and venture capital will be there to back them.
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Disclaimer: While I am a managing director at Jackson Square Ventures, these opinions are my own and do not necessarily represent the views or opinions of JSV or its related entities.