EU regulators request information on Amazon’s algorithms

Online sales in the U.S. surpassed $14 billion during Amazon Prime Day last week, according to Adobe Analytics. Amazon’s heft and promotional power continue to drive sales, even for rivals, during the shopping jamboree.

But in Europe, an important market for the e-commerce giant, lawmakers have become increasingly sensitive to Amazon’s relations with its rivals, as well as its partners and customers. They’ve requested that Amazon hand over information about its product recommendation algorithms, along with data on ads, by Friday.

It’s part of compliance with the European Union’s Digital Services Act, a sweeping set of tech regulations that took effect in recent years.

Marketplace’s Meghan McCarty Carino spoke with Theo Wayt, who covers Amazon for The Information and has been following this story. The following is an edited transcript of their conversation:

Theo Wayt: I think that for Amazon, in particular, it can be quite complicated to comply with these kinds of rules because they have streaming, they have Alexa, they have tons of different parts of their businesses, and a lot of those businesses run by sharing data between them. So for example, in the U.S., if you have Prime Video on your TV and you get a commercial on there, Amazon can decide what commercial you see based on partially what you’ve purchased on Amazon.com or what you’ve searched for. But in the EU, Amazon has to ask your permission before they can share that kind of data. And if you say no, that makes it difficult for Amazon to show you a relevant ad, and therefore probably makes it harder for them to charge advertisers as much money. So there are all these different tentacles between different parts of every big tech company that the EU kind of is trying to put rules around that can be very complicated in reality for these companies to comply and to put the right guardrails in place internally as well.

Meghan McCarty Carino: Yeah, let’s dig a little bit more into the Digital Markets Act, this EU regulation aimed at preventing anti-competitive behavior. You noted the video ads. What are some other potential changes that Amazon might have to sort of make to its business model to comply with the Digital Markets Act?

Wayt: So one major concern was because Amazon is a marketplace, there are lots of outside companies that sell products on there, of course, but Amazon also sells products itself, like Amazon Basics or other private-label brands. And the EU was very concerned that Amazon would use the control of this marketplace to boost its private-label brands by, for example, you search for “T-shirt,” there’s an Amazon Basics T-shirt at the top of their search results, not necessarily because it’s the best deal, but because it’s an Amazon brand and that’s what they want you to see. Amazon says that they don’t do that. And it’s something that regulators are concerned about them doing. They deny it, but self-preferencing in search results was a top concern of regulators. And that’s also very relevant for Google, for example. Like if you search for flights in the EU, they can’t show you Google Flights in the same way that they can in the U.S. Another area the EU has looked at for Amazon is this thing called the buy box, which on the Amazon site is the big “Buy now” and “Add to cart” buttons that you see on most listings that are very prominent in the interface, and it’s how the vast majority of users actually buy things on the Amazon site. And the DMA and some other EU regulation affect how Amazon runs the buy box and means that Amazon cannot set unfair standards for sellers to have access to that, which is a bit convoluted. But basically, it means that in the past Amazon had the ability to force sellers to use their fulfillment services or could, basically, give preferential treatment to sellers that they wanted to. And the EU said, “No, this buy box has to be more of a legal standard because it’s how the vast majority of people shop, and there needs to be a somewhat level playing field for businesses that sell things on Amazon.”

McCarty Carino: This issue of the buy box came up last week in relation to Amazon Prime Day. What happened with vendors in the U.S.?

Wayt: Right. Amazon, when they decide who gets the buy box, they do monitor competing websites. So they’ll look at Walmart, look at Target, probably Best Buy, a handful of other sites, and they make sure that if an identical product is being sold for less on a competing site, Amazon will take away the buy box from that listing on Amazon. And it doesn’t make it impossible to purchase an item, but it makes the button that people use to purchase an item so buried that it effectively destroys sellers’ sales. And sellers will tell you that “you have the buy box, or you don’t have a business.” And Target changed something about how they display prices on their website in a way that basically triggered the Amazon algorithm to remove the buy box for a bunch of sellers who said that they shouldn’t have had it removed. And on a day like Prime Day, that can mean losing out on hundreds of thousands, or millions, of dollars in sales for some of these people. And it just shows the importance of the buy box and why in the U.S. the Federal Trade Commission is looking quite closely at Amazon’s buy box policy as part of their antitrust suit.

McCarty Carino: These issues have sort of come up in a Federal Trade Commission antitrust suit that was filed in late 2023. Remind us what that’s about, and what some of the documents that have been unsealed in that suit have sort of revealed about Amazon’s business.

Wayt: The FTC suit is a combination of a lot of different criticisms of Amazon’s business model that have all kind of been thrown into this one lawsuit. And the buy box is a key part of that. The FTC says they have internal Amazon documents showing that 98% of sales go through the buy box. Anecdotally, that seems accurate based on talking to sellers — “you have the buy box, or you don’t have a business.” And the FTC claims that Amazon has used unfair criteria to determine who gets the buy box. And I’ve spoken with some sellers who say that Walmart or Target, for example, will take a smaller commission on sales through those websites. And so sellers say, I could afford to offer lower prices on Walmart because Walmart takes a lower commission, but I’m not allowed to because if I lower my prices there, then I lose the buy box on Amazon, therefore I have to charge shoppers across the internet higher prices. The FTC argues that that effectively means Amazon’s pricing policies lead to higher prices for everyone, no matter where they shop. Amazon disputes that and says that giving someone the buy box is not the same as removing their item. And they say that they just want to show shoppers the best item and that they don’t want to give the buy box to something that’s not priced competitively. But the FTC clearly sees things differently.

McCarty Carino: Broadly looking at the regulatory environments in the U.S. vs. Europe, I mean, how has it kind of affected Amazon’s growth outside the U.S.?

Wayt: I think Amazon would say that it hasn’t affected their growth at all. I think that Europe is still a significant market for them. But I also do think that the perception of Europe as being less friendly to U.S. tech companies is going to affect companies’ plans for spending there in the long run. We haven’t really seen Amazon pull out of anything or publicly say they’re not going to launch something there, as far as I know. But other U.S. big tech companies have said things like that. But the EU says, “If you can’t abide by our rules and create a safe environment for users, then we don’t want you here.” Part of it is bluster on behalf of U.S. tech companies, but we could also see a situation in five years where the internet for Europeans does look significantly different than the internet for Americans.