The howls will begin the minute the FTC’s lawsuit against Amazon hits the clerk’s desk. “The FTC hates business!” “Lina Khan is a communist!” “This government is controlled by the far left!”
Of course that’s what most in the business community will say. It would be novel if they didn’t.
But they’re wrong.
I’m an early stage venture capitalist. My fund, Tusk Venture Partners, invests in seed and Series A startups, typically in highly regulated industries – think companies like FanDuel, Coinbase, and Lemonade, Ro, Bird, Wheel, Alma, Circle, Sunday and so on.
What you don’t see on that list is anything that could attempt to compete with Amazon or Meta or Apple or Microsoft or Google. Why? Because there is no way to compete if the incumbents’ dominance over their respective markets is allowed to grow, completely unchecked.
When we invest, we’re ultimately solving for the company’s exit. Typically, that comes from an IPO or an acquisition. While IPOs generate most of the attention, acquisitions are more common. When we think through our possible exit, the first question is “Would x (the larger competitor) be more likely to buy this company or build their own version?” The second question is, “Can x squash our startup before they even get off the ground?”
Whenever we look at a startup that would directly compete with a company like Amazon, the answer to the second question is always, “yes, definitely.” And we don’t invest.
I don’t have any animus towards Amazon. I order stuff from them all the time. I probably buy 75 books each year on Kindle even though I own an independent bookstore in Manhattan. I think Amazon is a great company. But I also think that allowing them to continue to dominate the entire retail market unimpeded is a death knell for the economy in 10 to 20 years.
Ultimately, every company, now matter how insurgent they once were, grows stagnant. They become a bureaucracy beset by internal politics and a CYA mentality. That’s why the behemoths of my childhood, companies like IBM and GE, are a second thought today. Luckily, as these earlier giants started to falter, companies like Apple and Microsoft took off, and companies like Google, Amazon and Meta came along.
The results have been staggering. Apple has increased its US employees by 1,500% since 1998. Between 2001 and 2018, Alphabet (Google’s parent company) grew its job count 347 times over.
But would Google, for example, have gotten as far had the Department of Justice not pursued antitrust litigation against Microsoft in the late 1990s? Unlikely. Microsoft’s overwhelmingly dominant market power and position would have allowed them to force computer manufacturers to use Internet Explorer instead of Google.
The same problem holds true today. Amazon, great as they are, will ultimately falter. They’re subject to gravity just like everyone else. And then either one of two things will have happened: it will have been feasible to invest in potential competitors to Amazon, dozens will have emerged, a few will succeed and they’re ready to replace Amazon as a major employer. Or, Amazon continued to amass so much power by controlling pricing, controlling the entire marketplace, that investors like me never felt comfortable backing a competitor and when Amazon lags, no one can fill the void.
That’s where the FTC comes in. Their job isn’t to wag their finger at big businesses and tell them that making money is evil (We already have AOC and Bernie Sanders for that). Their job is, yes, to protect current businesses who are forced to both advertise on Amazon and to accept far worse placement in each product search because they can’t afford not to be on the platform. But it’s also to look ten, twenty years into the future and see which industries may not have the openings for incredible new companies to emerge simply because the incumbents are too big to ever challenge.
When the case goes to court, Amazon will argue that none of their practices violate existing regulations. If they manage to make that case successfully, good for them. But as an early stage investor, I need to at least see that the government recognizes that new market entrants can’t compete if the existing giants are allowed to deploy whatever competitive practices they want. If there’s no rule of law, there’s no future market worth betting on.
Whether or not FTC succeeds in court, the lawsuit’s very filing shows that the agency at least recognizes that what’s good for tech giants and their current investors is not necessarily what’s good for tech startups and the economy’s long-term needs. That’s exactly the kind of regulation – and regulators – we both want and need.
Bradley Tusk is an early-stage venture capitalist.
