By now, I’m sure you’ve heard about Amazon getting sued. The FTC and 17 states have sued Amazon for maintaining an illegal monopoly within the e-commerce market. The outcome of this case could very well be Amazon getting split up into not just 2 companies but several companies.
It's also not just Amazon that would be affected, as this case would very much set a precedent for all big tech in general, potentially leading to even more breakups and landmark cases. The idea of Amazon finally being held accountable has made much of the internet quite happy because let’s be honest, Amazon is definitely a monopoly.
Last year, nearly 60% of all online retail purchases were made on Amazon. If that’s not a monopoly, I don’t know what it is. But this doesn’t have to be bad news for Amazon.
In fact, this lawsuit could turn into the best thing that ever happened to Amazon. Here’s the thing, whether you or me or the entire world believes that Amazon's monopoly is, for the most part, completely irrelevant. All that matters is whether that argument holds up within the court of law. And let me just say that Amazon has a far better chance at court than they do with public opinion.
As Amazon put it, while it’s true that most online retail purchases come through them, they don't exactly end up with them. Amazon claims that they’re supporting 500,000 independent businesses and 1.5 million jobs within the US alone.
With that being said, Amazon would’ve definitely preferred for this case to never come up in the first place but at the same time they likely knew that it was inevitable and they could very much use it in their favor. Here’s the thing: if Amazon is able to come out on top with this case, no prosecutor would likely touch them for the next 20-30 years.
In other words, winning this case would basically give them a free pass to keep doing exactly what they’re doing with little fear of legal repercussions. Don’t believe me? Well join me as we take a look back at a few landmark cases that show that this case could just as easily go Amazon’s way.
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MICROSOFT GOT AWAY
Speaking of monopolies, it's none other than the landmark case of United States vs.. Microsoft. If you’re not familiar with this case, this was probably before your time but essentially, this case was a daring bid to break up Microsoft into 2 companies: one that sold operating systems and one that sold other pieces of software like Internet Explorer, Microsoft Office, MSN Messenger and so on.
The roots of this case date back to mid 1990s when the internet was just starting to become a thing. The go-to browser for 90% of internet users was something called Netscape Navigator. So, they were very much a monopoly which Microsoft wasn’t exactly a fan of. You may not have known this but these companies only like it when they’re the monopoly.
So, on August 16, 1995, Microsoft decided to take things into their own hands by launching Internet Explorer. Given Microsoft’s resources, putting together a functional browser wasn’t particularly hard, but getting people to use it, man, that was difficult. Fortunately, Microsoft had a sneaky plan to get around this little conundrum.
Everyone already had Windows computers, so what if Microsoft just bundled in Internet Explorer with Windows? That should give IE a massive boost in popularity straight out of the gate, right? Well, there was just one fatal flaw with this plan: it was illegal.
You see, the DOJ had already seen this coming. They saw Microsoft do it with Office and they had since put a deal in place that would prevent Microsoft from ever doing it again. There was one caveat to this deal, though. Microsoft wasn’t allowed to bundle in products with Windows but they were allowed to bundle in features. So, they would just call the IE feature and bundle it in with Windows.
Obviously, everyone in the entire world knows that IE is a product and that this is in violation of their previous DOJ settlement. But Microsoft probably just thought we could roll the dice with an anti-trust lawsuit if it ever came to it. And guess what, it would come to it.
On May 18, 1998, the DOJ and 20 states would file an antitrust lawsuit against Microsoft, just like what we’re seeing right now with Amazon. The case would drag on for about 2 years and both Microsoft and the DOJ would have their own share of victories and losses, but at the end of the day, the DOJ would prevail.
On June 7, 2000, Microsoft would officially be ordered to split up into 2 different companies. Most people thought that this was the end of it. Microsoft was a monopoly. They knew it, the DOJ knew, the whole world knew it, and now it was made official and it was time for Microsoft to face the music. Unfortunately, though, it didn’t end up playing out like this.
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Instead, Microsoft would appeal to the Supreme Court and they would end up overturning this decision over a legal technicality. You see, the judge that was overseeing the case had regularly made statements in the media because the public wanted to stay up to date. Microsoft would end up arguing that his statements to the media suggested that he was biased against Microsoft.
The Supreme Court would rule that the judge’s findings and conclusions were all well and good. However, due to apparent bias, his final ruling was not. As such, Microsoft would be allowed to settle. Let me put this another way.
The DOJ literally proved that Microsoft was a monopoly in court and Microsoft still wasn’t broken up because of legal technicality that likely not even Microsoft cared about. As far as they were concerned, this was just a loophole to get out of the situation and it worked.
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Fast forward 23 years and not only is Microsoft 10 times bigger, but they’re still bundling Edge with Windows. So just because a massive case is filed against Amazon doesn’t mean anything. As far as we know, a judge could point blank rule for Amazon to be broken up and it could still go the other way.
Until they’re broken up, they’re not. But even on the off chance that they do get broken, it probably won't matter all that much. Let me explain.
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BREAK UPS DOESN'T MATTER
A lot of people seem to think that breaking up a monopoly such as Amazon is exactly the solution we need. But, in reality, this isn’t all that effective; in fact, I would argue that it’s for the most part ineffective and we’ve seen this repeatedly throughout history, starting with Standard Oil. Standard Oil was the brainchild of oil pioneer John D. Rockefeller, and it was definitely a monopoly.
Going into the 1900s, Standard oil controlled 91% of oil production and 85% of final sales in the United States. So, in 1906, Uncle Sam decided to step in and teach Standard Oil a lesson. The case would drag on for 5 years but eventually prosecutors would get their way.
In 1911, Standard Oil would be split up into not just 1 or 2 or even 5 companies. They would be split up into 34 separate entities. Surely, such drastic action would neutralize the company because they would have to compete against each other right? Well, it did the exact opposite.
You see, the leaders of these companies may have had internal conflicts amongst themselves before the split up but after the split up, they were more united than ever. The situation had changed from you vs me to us vs the world.
This was also around the time that the Ford Model T would go viral, meaning that more people needed oil than ever before. And instead of fighting over these customers, Standard Oil companies would unite and dominate and the market together. Investors would do the exact same thing. Now that the antitrust cloud wasn’t looming over Standard Oil, investors would be far more willing to invest.
And if you don’t believe me, just look at the facts.
In the 10 years that followed the break up, the combined value of the 34 companies didn’t just grow, it quintupled. This took Rockefeller from being a mere mortal worth $300 million to being the world’s first billionaire.
The irony of that is insane. The case that was supposed to put a decisive end to people like Rockefeller literally ended up creating the world’s first billionaire. And it just doesn’t stop right there either.
Eventually, the strongest of these companies would make their partnerships official and merge to create Exxon, Chevron, and BP. Over a 100 years after the break up, these 3 are all still part of the top 10 oil companies with a combined market value of just under a trillion dollars.
You might be inclined to say that this was just a fluke, and that Standard Oil just got lucky, which brings us into our next landmark lawsuit: United States vs AT&T.
Back in the 1970s, AT&T found themselves controlling 90% of the US telephone business. Seeing this, Uncle Sam decided that it was time to put an end to this disgusting monopoly. After an 8 year lawsuit, in 1982, AT&T would agree to split up their business into 7 smaller regional businesses called “Baby Bells”.
Surely, this would pit these companies against each other and lead to a competitive landscape. But, once again, the exact opposite happened. The Baby Bells would end up joining forces in record time.
Here’s a flowchart of exactly what happened. The Baby Bells would basically just unite to create AT&T and Verizon, the two players who still dominate the U.S. telecommunications industry to this day. I do want to note that T Mobile was able to make a name for themselves during this time period but it wasn’t because of the breakup. It was because there was a new market: wireless telecommunications which allowed for new competition to capitlize on.
Not to mention, T Mobile was backed by the German telecommunications monopoly: Deutsche Telekom. So, it wasn’t really a case of an underdog taking on Verizon and AT&T. It was just a case of an international monopoly taking on 2 national monopolies and together, they still control the entire market.
So, who knows? Breaking up Amazon may actually play out better for Amazon over the long term. Instead of being worth a mere $150 billion, Jeff Bezos could become the world’s first trillionaire. Jokes aside, though, just as an antitrust lawsuit isn’t necessarily a nail in the coffin, a break-up isn’t either.
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AMAZON’S ADVANTAGE
At the end of the day, Amazon is a trillion dollar corporation and you can bet that they’re gonna show up to court with the absolute best lawyers in the world. But not only are they skilled, they’ll be far more incentivized to win. Federal prosecutors are at best paid a $183,000 for their efforts. So, winning has more to do with principle and the justice of taking down the bully than monetary gain.
Amazon’s lawyers, on the other hand, are literally paid tens of millions and you can bet that they’re going to get a ridiculous $50 or $100 million bonus if they’re able to come out victorious. Not to mention, history has shown us that it’s extremely difficult to break up one of these companies.
They don’t even need to prove that they’re not a monopoly. Even a legal technicality is enough to throw out the entire case regardless of their guilt. And with this much at stake, who knows what Amazon’s lawyers will uncover. But even if they lose and Amazon somehow gets broken up, it doesn’t really matter all that much anyway.
All of Amazon’s investors, including Jeff Bezos, will just own both companies, which could allow them to grow to even larger heights. None of this is to say that Amazon is destined to be a monopoly forever though. In fact, Jeff Bezos would be the first one to admit that Amazon isn’t going to last forever. But monopolies like Amazon aren’t taken down by litigation or government action.
Monopolies are a monopoly for a reason. It’s not because these companies are so smart or they have so much power or any of that. It’s because their current value in the marketplace is simply indispensable. Splitting up such a company won’t change that. The only way that such monopolies are destroyed is by an extreme market shift: when the next revolutionary shopping platform comes out and Amazon is no longer indispensable.
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Until then, any noise like this lawsuit can’t really hurt them whether it’s successful or not. If anything, it just gives them an opportunity to clear their name and double down. With these types of lawsuits, the public is usually rooting against the big tech companies. But not too long ago, the public was rooting for Google to win a lawsuit.
