The Flaws in FTC’s Amazon Case

Talk about anticlimactic. We’ve been expecting today’s Federal Trade Commission antitrust lawsuit against Amazon since the day commission chair Lina Khan was sworn into office in June 2021. After all, she rose to antitrust fame with her 2017 Yale Law Journal paper arguing that modern competition policy wasn’t equipped to deal with the threat Amazon posed. Yet despite the plentiful time for preparation, what we got today was a 172-page complaint that contained little that was surprising. It drew heavily on news accounts about Amazon’s allegedly unfair business practices. To be fair, there seems to be some juicy stuff in the complaint—for example, references to an apparently nefarious pricing system called Project Nessie—but that material was almost entirely blacked out. In fact, so much of the complaint is redacted that it’s like a novel that has every third page torn out.

Still, there’s enough unredacted material to see that the FTC makes a reasonable argument that certain Amazon practices are problematic, particularly the agency’s allegation that the e-commerce giant punishes merchants who sell on its platform for discounting on other websites. That’s something we and other media outlets have written about, particularly as it relates to competitors like Singapore’s Shein. It’s ironic that Khan makes this particular allegation, though, given that in her Yale paper she complained about Amazon’s willingness to cut prices as a way of gaining market share. Still, the lawsuit echoes much of that paper, particularly about the power Amazon gains by serving as a platform other businesses depend on. (Amazon, for its part, said the lawsuit could lead to higher prices for consumers.)

Otherwise, the FTC lawsuit has some holes in its logic. One of its more puzzling arguments is that Amazon impedes competition by offering a bunch of different services—ranging from free shipping to video streaming—through its Prime subscription service. The complaint argues that any firm that wanted to compete with Prime would have to match all those services, something that would be too costly for most businesses. The FTC seems to believe it’s impossible for single-service firms to compete with a bundle of services. If that was true, then Spotify would never have survived Apple Music and Netflix would never have grown into a video-streaming behemoth. Consumers are smart enough to discriminate between crappy bundles and valuable services offered individually by narrowly focused companies.

Indeed, a broader flaw of the complaint is that it paints an oversimplified picture of Amazon as an evil empire trying to screw over consumers and merchants. While consumers surely don’t like the ads that overwhelm Amazon currently, most of them appreciate the fact that it has built a shopping service that makes buying things online so easy it’s easy to overspend. Khan acknowledged in her 2017 paper that consumers loved Amazon, but she preferred to focus on the potential hazards its dominance posed. The question now is whether the FTC’s lawsuit will succeed in proving those hazards. It’s notable that the complaint doesn’t ask the court to impose any specific penalties against Amazon, although—as noted in our detailed analysis—it leaves the impression that a breakup of the company is necessary. It’s possible, though, that Khan didn’t ask more explicitly for major penalties because she is more interested in getting the court to rule on her broad legal theory as a way of cementing it in antitrust law. That would at least be an achievement that could have lasting impact, something Khan has so far not produced.

OpenAI’s Pricey Share Sale

Investors sure are eager to get a piece of OpenAI, the burgeoning artificial intelligence startup. How eager? The Wall Street Journal reported this evening that OpenAI is considering selling shares at a valuation of up to $90 billion. The Information previously reported the company is on track to generate $1 billion in revenue in the coming 12 months, which suggests investors are willing to value OpenAI at 90 times forward sales.

That’s an enormous number compared with the average multiple for leading enterprise software companies, which is around 6.3 times their next 12 months’ sales, according to Meritech Capital. Of course, investors are clearly fixating on OpenAI’s extraordinary growth—last year, the company posted just $28 million in sales, according to The Information's previous reporting.

If we assume for the sake of argument that OpenAI will double its revenue in each of the next two years to roughly $4 billion annually, investors would be valuing the business at around 23 times expected sales. That multiple is at least somewhat closer to Planet Earth. Granted, it’s based on revenue that is still two years out.—Akash Pasricha

In Other News

Alibaba’s logistic division, Cainiao Smart Logistics Network, filed paperwork to become a public company in Hong Kong (more here).
Tom Cortese, Peloton’s co-founder and chief product officer, will leave the business on Nov. 1. Nick Caldwell, who has worked at Twitter, Reddit and Microsoft, will replace Cortese.

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What We’re Reading

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Martin Peers is a columnist and co-executive editor of The Information, where he has worked since 2014. He was managing editor from 2015 through 2021. He previously worked for The Wall Street Journal and Daily Variety, among other publications. He is based in New York and is on Twitter @mvpeers.