US Online Innovation and Choice Act Scares Big Tech
This leaves a lot of uncertainty as to exactly how the law would play out. In this zone of uncertainty, technology companies have issued dire warnings.
Perhaps the scariest talking point is that the law, if enacted, would kill Amazon Prime. According to eMarketer, more than 150 million Americans, more than half of the adult population, are Prime members. That’s a lot of people who might hate losing their “free” two-day shipping. (It’s not really free, of course, if you have to pay a subscription fee.)
The bill does not mention Prime anywhere in the text. But according to the Chamber of Progress, an industry lobby group whose backers include Apple, Amazon, Meta and Google, the ban is implied. Adam Kovacevich, group CEO and former head of public policy at Google, says the problem revolves around something called Fulfillment by Amazon, or FBA. Amazon isn’t just a retailer, it’s a marketplace. The majority of products for sale on Amazon.com come from third-party sellers who rely on Amazon’s marketplace to reach customers. For these sellers to qualify for Prime shipping, they must use FBA, which means they must store their inventory in Amazon’s warehouse and Amazon handles two-day delivery.
Specifically, these sellers must Pay for FBA. The Senate bill prohibits a company from making “preferred status or placement on the Covered Platform” dependent on the purchase or use of other products or services. Kovacevich argues that would kill Prime, because you can’t have Prime without FBA. “Guaranteeing a one- or two-day shipment is kind of inextricably tied to having as much control over the shipping and fulfillment process as possible,” he says.
But the bill doesn’t outright ban FBA. It simply says that Amazon cannot force sellers to pay for its fulfillment program to obtain the Prime label. If the bill becomes law, the company would have to let third-party sellers choose other logistics providers.
“What the bill would do in this case would be to force Amazon to develop a system in its marketplace so that sellers can choose alternative fulfillment partners, like DHL or FedEx or USPS or whatever,” says researcher Sumit Sharma. Principal at Consumer Reports. . “And then they’ll have to make sure that what they show in search results isn’t influenced by who is fulfilling the order, as long as I get it within a day or two or whatever. They can still have a Prime membership.
Amazon might say it’s impossible, but it already allows some sellers to handle fulfillment themselves, through a program called Seller Fulfilled Prime. (Currently, Amazon’s website states, “Seller Fulfilled Prime is not currently accepting new registrations.” It gives no indication of when the program will reopen.)
The opening of Prime Fulfillment would at least create the possibility of competition, as logistics companies would have a chance to win contracts with sellers. Which helps explain why Amazon would oppose the bill. Amazon does not publicly detail how much of its revenue comes from FBA fees, but according to a report by the Institute for Local Self-Reliance, an anti-monopoly group, it was about $57 billion in 2021, up from just $3 billion in 2014.