[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
A FAIR PLAYING FIELD? INVESTIGATING BIG
TECH'S IMPACT ON SMALL BUSINESS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 14, 2019
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-059
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
38-314 WASHINGTON : 2020
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
Adam Minehardt, Majority Staff Director
Melissa Jung, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Steve Chabot................................................ 3
WITNESSES
Mr. Dharmesh M. Mehta, Vice President, Customer Trust and Partner
Support, Amazon, Seattle, WA, testifying on behalf of Amazon... 4
Ms. Erica Swanson, Head of Community Engagement, Grow with
Google, Google, Mountain View, CA, testifying on behalf of
Google......................................................... 6
Dr. Joe Kennedy, Senior Fellow, Information Technology &
Innovation Foundation, Washington, DC, testifying on behalf of
the Information Technology & Innovation Foundation............. 8
Ms. Allyson Cavaretta, Principal and Owner, Meadowmere Resort,
Ogunquit, ME................................................... 25
Mr. Molson Hart, CEO, Viahart Toy Co., Houston, TX............... 27
Mr. Harold Feld, Senior Vice President, Public Knowledge,
Washington, DC................................................. 28
Ms. Theo Prodromitis, Co-Founder and CEO, Spa Destinations,
Tampa, FL...................................................... 29
Mr. Jake Ward, President, Connected Commerce Council, Washington,
DC............................................................. 31
Mr. Graham Dufault, Senior Director for Public Policy, ACT/The
App Association, Washington, DC................................ 33
APPENDIX
Prepared Statements:
Mr. Dharmesh M. Mehta, Vice President, Customer Trust and
Partner Support, Amazon, Seattle, WA, testifying on behalf
of Amazon.................................................. 45
Ms. Erica Swanson, Head of Community Engagement, Grow with
Google, Google, Mountain View, CA, testifying on behalf of
Google..................................................... 52
Dr. Joe Kennedy, Senior Fellow, Information Technology &
Innovation Foundation, Washington, DC, testifying on behalf
of the Information Technology & Innovation Foundation...... 61
Ms. Allyson Cavaretta, Principal and Owner, Meadowmere
Resort, Ogunquit, ME....................................... 71
Mr. Molson Hart, CEO, Viahart Toy Co., Houston, TX........... 105
Mr. Harold Feld, Senior Vice President, Public Knowledge,
Washington, DC............................................. 107
Ms. Theo Prodromitis, Co-Founder and CEO, Spa Destinations,
Tampa, FL.................................................. 125
Mr. Jake Ward, President, Connected Commerce Council,
Washington, DC............................................. 131
Mr. Graham Dufault, Senior Director for Public Policy, ACT/
The App Association, Washington, DC........................ 136
Questions and Answers for the Record:
Questions from the Small Business Committee to Mr. Dharmesh
M. Mehta and Answers from Mr. Dharmesh M. Mehta............ 150
Questions from the Small Business Committee to Ms. Erica
Swanson and Answers from Ms. Erica Swanson................. 155
Questions from the Small Business Committee to Mr. Graham
Dufault and Answers from Mr. Graham Dufault................ 161
Additional Material for the Record:
Allyson Cavaretta, Principal/Owner, Meadowmere Resort,
Ogunquit, Maine............................................ 164
CreativeFuture............................................... 200
John William Templeton, Executive Editor, blackmoney.com..... 246
Molson Hart.................................................. 255
Theo Prodromitis............................................. 265
Travel Technology Association................................ 266
A FAIR PLAYING FIELD? INVESTIGATING BIG TECH'S IMPACT ON SMALL BUSINESS
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THURSDAY, NOVEMBER 14, 2019
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 2:08 p.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Golden, Kim, Davids,
Evans, Schneider, Espaillat, Delgado, Craig, Chabot, Balderson,
Hern, Hagedorn, Stauber, Joyce, and Bishop.
Chairwoman VELAZQUEZ. The Committee will come to order.
I want to take this opportunity to thank everyone for
joining us today.
I would like to start by thanking all of our witnesses for
coming to the table today to participate in this hearing,
including those that traveled. In particular, I want to thank
Amazon and Google for deciding to appear today. I know that
this was not an easy decision for your company, but I believe
it was the right one.
As everyone can see, we also have two empty chairs to
demonstrate the failure of Facebook and Apple--companies that
somehow find the means to spend millions on lobbying and hire
dozens of executives--to find the time to be here today. Their
failure not only impedes Congress's mission, but also speaks
volumes about the companies' commitment to transparency and
their very own customers.
Thank you, Amazon and Google for being here today--and to
Facebook and Apple--you reap what you sow.
It is important that everyone in the room understands that
this Committee has a tradition of being fair, and that will
continue during this hearing.
Earlier this year we held a hearing on how the digital
ecosystem promotes entrepreneurship, and last year, we held an
Amazon roundtable on Prime Day. Both events showcased the
benefits that tech platforms provide small businesses. Today,
we will now look at this through another lens.
It is true that innovation and ingenuity built this
country. In fact, one could argue that these qualities are
uniquely American and have propelled our nation to produce the
most successful companies and the foremost technologies. I know
that the companies we have on this panel--and the ones we do
not--started as an idea, in a basement or a college dorm room,
and that entrepreneurship--the spirit that built your
companies, is to be commended. That being said, the grip that
big tech now holds over our daily lives and our competitive
landscape at the same time is astounding but also concerning.
Big tech platforms dominate search functions, the devices
used by nearly every American, online advertising, and online
messaging platforms. They are market leaders in cloud computing
services to businesses and consumers, while also providing
entertainment and other digital streaming services. Microsoft,
Apple, Amazon, Alphabet, and Facebook are collectively worth
over $4.3 trillion dollars. Those 5 companies comprise over 15
percent of the total value of the S&P 500, which tracks the
market value of the 500 largest companies listed on U.S. Stock
Exchanges.
To provide a little more context on the scope and reach of
these companies, Amazon currently has approximately 50 percent
of the U.S. ecommerce retail market. Nearly 90 percent of
Internet searches go through Google and its subsidiary,
YouTube, while Facebook pulled in 55 billion dollars in ad
revenue last year. Additionally, Apple sold over 217 million
iPhones in 2018 alone.
The sheer size of these companies, along with pervasive
integration of these platforms and concentration of power
influencing online traffic, raises questions that should
concern anyone who cares about market access, data privacy,
small business development, entrepreneurship, and innovation.
One only has to look to the decline in American startups to
connect the dots. In 2006, 558,000 businesses were formed but
the Census reported that only 414,000 businesses were started
in 2015. There is growing anxiety--not only in the U.S. but
around the world--that the large tech companies pose a threat
to innovation and competition.
When consolidation takes place in any industry and market
power is increased, as it has in the tech industry, it is
simply too hard for new businesses to get off the ground. Many
of the popular products and features of these companies have
not been developed internally. They have occurred through
merger and acquisition, with the largest being Microsoft paying
over $26 billion for LinkedIn. Do we want a country of
entrepreneurs and inventors that dream of building something or
dream of being bought by larger competitors? In my view, we
need to reboot the startup economy.
When small businesses do get off the ground and are able to
succeed, we need to ensure that they are treated fairly on
online marketplaces and that consumers can find them on search
engines. Small businesses need certainty and transparency when
they are operating their businesses on digital platforms so
that they can set competitive prices and still make enough
money to continue to grow their businesses, create jobs, and
invest in their communities. When small firms do get into
disputes with the powerful gatekeepers, they need a fair shot
at resolving the problem so that they can continue to run their
businesses.
Finally, I think we need to be clear that in a digital
marketplace, that every firm, and especially the Big Tech firms
here today are desperate for our data. Our data is an economic
asset which garners more value as one collects more of it. The
concentration of that data in fewer and fewer firms has
implications for small businesses.
The Internet and digital platforms are so deeply woven into
American lives that small firms cannot afford to be excluded
and/or treated unfairly. Small businesses need to be protected
by policies that offer them the certainty and transparency they
need to make meaningful business decisions. As consumers
continue to increase their engagement with businesses through
digital platforms, small firms need to be sure that they can be
found when new and existing customers are looking for their
business. We cannot allow our economy to become one that
stifles innovation or makes it impossible for small firms to
compete.
I look forward to working with my colleagues on both sides
of the aisle to create meaningful policies that foster
collaboration between small firms and digital platforms and
ensure that small businesses have a fair opportunity to
succeed.
I now would like to yield to the Ranking Member, Mr.
Chabot, for his opening statement.
Mr. CHABOT. Thank you, Madam Chairwoman. And thank you for
the witnesses that are here today. We understand that it is not
always easy to answer when Congress calls but are glad that you
have taken the time out of your busy schedules to speak with us
today.
The digital age has caused a revolution for small
businesses. No more are small firms caught behind their larger
counterparts when it comes to the availability of game-changing
technologies to help grow and expand their businesses. Small
firms can now utilize cutting-edge products and services to
respond to market changes very swiftly. And with increasing
adoption of mobile computing devices, cloud systems and on-line
conference call technology, like Facebook, employees can
collaborate effectively even across great distances and work
almost anywhere.
But perhaps the greatest benefit is the financial savings
it affords small businesses. Increases in productivity allow
companies to do more faster and less overhead. Not
surprisingly, many of these digital platforms have been
developed and marketed by large businesses such as our
witnesses today from Amazon and Google.
Have there been some concerns regarding privacy and
intellectual property concerns? Of course there have. But by
and large the development of these digital platform products
and services from these tech giants has been a boon for the
millions of individual small businesses that would probably
never have existed without them.
We are the Small Business Committee here after all, but we
like all businesses as competition drives progress, growth, and
economic expansion. Today's hearing is an opportunity for us to
examine the symbiotic relationship between small firms and big
businesses. Both need each other to continue our unprecedented
economic expansion of the past 3 years. I think we are all
looking forward to our discussion here this afternoon.
Thank you, Madam Chair, for holding this hearing, and I
yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Chabot. The gentleman
yields back.
If Committee Members have an opening statement, we would
ask that they be submitted for the record.
I would like to take a minute to explain the timing rules.
Each witness gets 5 minutes to testify and Members get 5
minutes for questioning. There is a lighting system to assist
you. The green light comes on when you begin, and the yellow
light means there is 1 minute remaining. The red light comes on
when you are out of time, and we ask that you stay within that
timeframe to the best of your ability.
I would now like to introduce our witnesses on today's
first panel. I will take a minute to introduce each of you
before turning it over for testimony.
Our first witness today is Mr. Dharmesh Mehta. Mr. Mehta is
the Vice President for Amazon's Customer Trust and Partner
Support team. The team is focused on creating a trustworthy
shopping experience across Amazon stores worldwide by
protecting customers, brands, selling partners, and Amazon from
fraud and abuse, and they are also focused on providing world-
class support for Amazon's-selling partners. He joined Amazon
in 2013, and prior to joining Amazon, Mr. Mehta spent most of
his career in the technology industry in a variety of product,
engineering, and marketing leadership roles. Welcome, sir.
Our second witness is Ms. Erica Swanson. Ms. Swanson
currently serves as the Head of Community Engagement for Growth
with Google, which is a new U.S. initiative to help people grow
their skills, careers, and businesses through free training,
tools, and events. Previously, she served as Head of Community
Impact Investments and Programs at Google Fiber. She led the
team responsible for developing and delivering a range of
social impact investments and community engagement strategies
in Google Fiber cities. A key area of focus was partnering with
local leaders to advance digital equity.
Our third witness is Dr. Joe Kennedy, a senior fellow at
the Information Technology and Innovation Foundation, where he
focuses on economic policy. For almost 3 decades, he has
provided legal and economic advice to senior officials in the
public and private sector. Much of this advice has been
directed at public policies involving technology,
competitiveness, and the social contract. Dr. Kennedy
previously served as the Chief Economist for the U.S.
Department of Commerce where he oversaw a staff of 15
economists and regularly briefed the Secretary of Commerce on
economic issues including the financial crisis and immigration
reform.
Welcome, all.
Mr. Mehta, you are now recognized for 5 minutes.
STATEMENTS OF DHARMESH M. MEHTA, VICE PRESIDENT, CUSTOMER TRUST
AND PARTNER SUPPORT, AMAZON; ERICA SWANSON, HEAD OF COMMUNITY
ENGAGEMENT, GROW WITH GOOGLE, GOOGLE; JOE KENNEDY, SENIOR
FELLOW, INFORMATION TECHNOLOGY & INNOVATION FOUNDATION
STATEMENT OF DHARMESH M. MEHTA
Mr. MEHTA. Thank you, Chairwoman Velazquez, Ranking Member
Chabot, and members of the Committee. My name is Dharmesh
Mehta, and I am the vice president of Worldwide Customer Trust
and Partner Support at Amazon.
Amazon's mission is to be earth's most customer-centric
customer. Our philosophy is simple: work backwards from what
customers want--convenience, selection, and low prices--and to
constantly innovate to make our store better, for both our
buying customers and our selling partners.
Amazon lowers barriers to entry for entrepreneurs. We help
make retail more vibrantly competitive, and we delight
customers with new innovations.
In 1999, we decided to open our stores to small and medium
businesses, or SMBs, to sell alongside us because we wanted to
give customers greater selection that only third-party sellers
could provide. In 2006, we did the same with our logistics
network, and we invited SMBs to use a new program called
Fulfillment by Amazon to give customers even faster delivery.
With the partnership of small and medium businesses, we now
provide our customers with even more selection with faster
delivery speeds.
Our store model has worked well because empowering third-
party selling has created a better customer experience than
Amazon could otherwise provide on its own. Today, in the United
States alone, there are more than 1.9 million businesses,
content creators, and developers that are using Amazon's
products and services to realize their dreams. And they are
thriving. On average, they sell more than 4,000 items every
minute. In 2018, there were over 25,000 entrepreneurs that
surpassed more than $1 million in sales on Amazon.
In addition, these entrepreneurs have used these sales and
their businesses to create more than 830,000 jobs for
Americans.
When third parties first started selling on Amazon, they
generated about $100 million in sales and were about 3 percent
of our total sales. Since then, we have made substantial
investments to help our selling partners succeed, and now, SMBs
generate about $160 billion in sales, and they represent 58
percent of the total value of physical products sold in our
stores. That is because third party sellers are thriving and
growing almost twice as fast as Amazon's own retail business.
We celebrate that growth and we expect that trend to continue.
But numbers paint only part of the picture. Every American
small business has a story that tells much, much more. And so I
would like to share one with the Committee.
Let me tell you about Tara Darnley from Greensboro, North
Carolina. She owns Darlyng and Company. Tara and her husband,
Carl, had an idea for a new product to help their baby get
through teething. At the time, Tara did not have a business
background, she did not have a college degree, and her husband
was working as a pastry chef. So they started to prototype
devices, and a few prototypes later, Darlyng and Company was in
business with the Yummy Mitt. Their innovative teether became a
big hit at trade shows, and a few months later the Yummy Mitt
was on retail shelves. However, Tara says that listing the
product on Amazon was the real game changer. Tara not only sold
on Amazon but she relied on Amazon customer reviews and sales
data to grow her business. She said that she had initially
focused on marketing to moms, but as she looked at the Amazon
data, she realized that grandparents were an untapped target.
Tara said that when their sales really jumped was when they
started marketing to grandparents.
Darlyng and Company is now a global company. They sell 20
different baby products. Carl has quit his day job and he now
works with Tara every day and they have 10 employees running
the business.
There are thousands of stories just like this that I would
love to tell you if we had the time.
We know that our selling partners have many ways to reach
our customers, and so our value proposition has to be strong.
That is the reason that this year we will invest over $15
billion in infrastructure and tools and programs and employees
that create programs to help our selling partners' success. We
have 7,000 employees building tools and features that help our
selling partners run their business, to set up their accounts,
to list products, to manage their inventory and to grow their
business. We have another 10,000 full-time employees that are
dedicated to understanding, responding to, and providing
support to our selling partners, and our goal is to respond to
and resolve every one of those contacts expeditiously.
Last year, more than 80 percent of those selling partner
issues were fully resolved in less than 24 hours. We also have
5,000 employees working to prevent fraud and abuse in our
stores. Our efforts to proactively stop fraud and abuse are
critical to creating a trusted shopping experience, not only
for our customers but also for our honest selling partners.
We are also proud of the work we have done to help our
selling partners build thriving businesses beyond selling on
Amazon. That includes hundreds of thousands of authors who have
published millions of books through Kindle Direct Publishing,
hundreds of thousands of SMBs and startups using Amazon Web
Services, and hundreds of thousands of third-party developers
who built more than 100,000 skills for Alexa. These
opportunities enable a wide variety of entrepreneurs to sell
their products, fuel their creative passion, grow their
business, and create jobs.
I look forward to answering any questions the Committee may
have.
Chairwoman VELAZQUEZ. Thank you.
Ms. Swanson, you are now recognized.
STATEMENT OF ERICA SWANSON
Ms. SWANSON. Chairwoman Velazquez, Ranking Member Chabot,
and distinguished members of the Committee, thank you for the
opportunity to appear before you today. I appreciate your
leadership in making sure small businesses have every
opportunity to grow and thrive, and I look forward to sharing
with you the many ways that Google is committed to supporting
that goal.
My name is Erica Swanson, and I am the head of community
engagement for Grow with Google, which is Google's initiative
to create economic opportunity for all Americans. At google, we
are deeply proud of the ways in which we support the success of
the small business community in the United States and globally,
and we believe large companies like google should play a role
in helping them succeed.
Today, I will discuss Google's positive economic impact on
American businesses, the products and tools we provide small
businesses to help them succeed, and Grow with Google's free
trainings and programs for American small business owners and
employees.
Google tools help American businesses find and connect with
customers. In 2018, Google's search and advertising tools
helped provide $335 billion of economic activity nationwide.
Over 1.3 million U.S. businesses, website publishers, and
nonprofits use our tools annually to grow their customer base
and drive revenue.
Two examples of small businesses that use our products and
services to grow their business and reach new customers are
Propel Electric Bikes in Brooklyn, New York, and Nehemiah
Manufacturing Company in Cincinnati, Ohio. I go into more
detail in my written testimony about how these inspiring
businesses are using our products to succeed.
There are a number of ways our products and tools help
small businesses meet their online goals. Businesses are
discoverable not only in organic search--that is the standard
nonadvertising search results--but also through free business
profiles on Google where businesses can list their websites,
add photos, update their hours, and more.
In addition to free services, we have a robust suite of
advertising products that help small businesses reach the right
customer at the right time. For every $1 invested in Google
ads, our estimate suggests that businesses make an average of
$2 back in revenue.
With Google analytics on a business website, the owner can
better understand their customers to make online marketing
efforts even more effective. And, Google Suite of workplace
productivity tools called G Suite helps small businesses work
more efficiently.
Google also plays a part in helping small businesses reach
new customers who are outside the U.S. Small business exports
contribute significantly to the U.S. economy.
Market Finder is Google's free tool that enables any small
business to identify the best expansion markets for their
business, find shipping and logistics partners, adapt to local
markets, and start exporting to customers around the world.
We understand that the magnitude of tools and resources
available can be daunting. That is why we launched Google for
Small Business, a dedicated online tool that curates our
resources into a personalized digital marketing plan.
We also help small businesses learn how to use our products
and tools. Through our Grow with Google program, we are seeking
to ensure that more Americans size the opportunity that is
created by technology. Since 2017, Grow with Google has trained
more than 3 million Americans in all 50 states. We do this
through our free online tools, partnerships with local
organizations, delivering in-person trainings, and providing
philanthropy to organizations that are helping small businesses
learn skills.
We also know how important it is to support small
businesses that are just getting started. So last month, as
part of our $1 billion global commitment to create more
economic opportunity for everyone, Google.org announced a $10
million U.S. commitment to help low income, underrepresented
entrepreneurs start their businesses by providing access to
training, mentoring, and much-needed capital.
Our Grow with Google programs continue to meet the needs of
our users. For example, just last week we partnered with the
Small Business Administration to support National Veterans
Small Business Week. We also launched a series of new resources
that support the 2.5 million veteran-led businesses in the
United States.
In conclusion, the future of small businesses online is
bright, and we are proud of the role we play. We appreciate the
opportunity to highlight Google's contributions to helping the
small business community, and we thank you. We look forward to
your questions.
Chairwoman VELAZQUEZ. Thank you.
Dr. Kennedy?
STATEMENT OF DR. JOE KENNEDY
Mr. KENNEDY. Thank you very much Chairwoman Velazquez,
Ranking Member Chabot, and members of the Committee. I am
pleased to be here to talk about the impact that large Internet
companies are having on small business. I would like to make
five basic points in my opening statement.
The first is that large Internet platforms deliver
tremendous benefits to small business. Any business now can set
up a free website, but it can also set up social networking
accounts for free using Facebook, Instagram, YouTube, and
Amazon.
Not only that, it can also use market platforms like eBay
and Amazon to sell worldwide to potential customers. These
platforms often offer a variety of other services such as
handling the payments, shipping, and handling returns, thus
saving the small business from having to do that itself.
Gig platforms match small business men and women with
potential customers that are interested in their services
allowing them to build a clientele without spending more money
on print advertising, radio, or mail inserts.
And finally, a separate set of platforms, including
Microsoft and Google offer cloud services on demand for small
businesses.
My second point is that these platforms share a common
interest with the small businesses that use them, and that is
to offer a larger variety of good products and services which
will attract more consumers, which will result in more sales.
Platforms that do not do this successfully will lose market
share.
My third point is that this fundamental model is not new.
We also have large retail chains, including Costco, Safeway,
CVS, and Walmart, which offer shelf space to thousands of
suppliers. These retail shops collect a lot of data on what is
selling, and occasionally they make the decision to offer a
competing product. That product then sits on the same shelf
often with those of its other suppliers, and it is sometimes
offered at a discount. Wherever this happens, consumers
benefit. They get a broader choice and they get lower prices,
and this is exactly the type of competition that we should be
encouraging.
My fourth point is that globalization and technology have
changed the optimum size of firms in many industries. Small
firms feel pressure to grow in order to take advantage of a
global market. But platforms relieve some of this pressure
because they stand ready to take some of their fixed costs and
turn them into variable costs that can scale up or down with
business conditions. And so these include some of the ones I
have mentioned--shipping, returns, and setting up cloud
services.
My final point is that anti-trust policy should encourage
competition. But it should not protect companies, whether they
are large or small, from the effects of that competition. The
fundamental guidepost for anti-trust should remain the consumer
welfare standard, which looks at whether a particular merger or
a business activity will harm consumers by raising price,
lowering quality, or delaying innovation. Where these occur,
existing policy and law allows regulators and potential
plaintiffs to take action to rectify the situation.
But we should not use anti-trust policy to try and
accomplish other goals, such as instilling privacy requirements
or trying to rebalance the political power between large or
small companies.
With that, I will conclude my statement. And I want to
thank you again for this opportunity to talk to you. And I look
forward to your questions. Thank you.
Chairwoman VELAZQUEZ. Thank you, Dr. Kennedy.
Thank you all for your testimonies.
I will begin by recognizing myself for 5 minutes.
I would like to address my first question to you, Mr.
Mehta. Some argue that Amazon does not just dominate the online
market; it controls its access by creating a platform for
sellers while also competing against those same businesses.
Doesn't a company that sells things and owns the platform where
things are sold have an inherent advantage over other small
businesses that it is competing against?
Mr. MEHTA. Thank you, Chairwoman, first, for holding this
hearing and allowing Amazon to participate in this
conversation. You know, I am honored to be here.
Let me address your question by comparing ourselves to what
happens traditionally in the retail market. And when we talk
about retail, we talk about the overall retail market.
Amazon represents about 1 percent of the worldwide retail
market and about 4 percent of the U.S. retail market. Whether
you look at Walmart or Target or Trader Joe's or Costco, all of
these major retailers have a private label business that
competes with others in their store.
For Amazon, our private label business represents about 1
percent of our total sales. If you look at most of these
retailers, their private label businesses represent anywhere
from 18 to 85 percent of their total sales.
Chairwoman VELAZQUEZ. I hear you, however, there is some
research that show that Amazon's own product consistently wins
the buy box. We know what went in the buy box, the area on the
right hand side of the page that says ``add to cart.'' To me
this suggests that the buy box is designed to favor Amazon and
potentially gives you an unfair advantage.
I have a lot of questions, so let me proceed.
Ms. Swanson, like Amazon, Google has market dominance in
that 95 percent of all Internet searches go through Google.
Small businesses cannot survive on the Internet if they cannot
be found. However, when Amazon, Walmart, Verizon, Expedia, and
many more large companies spend millions advertising on Google
and their ads appear on the first page, does this not crowd out
the ability for small firms to advertise online?
Ms. SWANSON. Thank you, Madam Chairwoman, for having us
here and for the opportunity to have this conversation.
There are a number of ways that small businesses can be
discovered online. And at Google, we are proud to provide a
range of options, both paid and unpaid. We have a suite of
tools that are free at no cost to small businesses.
Chairwoman VELAZQUEZ. So if you Google a restaurant that
does not pay but is using your free space, that restaurant will
probably show up on page five or seven. That clearly gives an
advantage for those who pay and will show up on the first page.
Ms. SWANSON. There are a number of ways that small
businesses like this small restaurant could appear depending on
the particular search query, whether that search query included
the restaurant's name. But typically, if it includes the
restaurant's name or a qualifier, like near me, it will appear
in the first set of organic search listings.
Chairwoman VELAZQUEZ. How can entrepreneurs optimize their
search results? Does Google Maps only identify restaurants and
hotels on its mapping platform that are willing to pay to be
found?
Ms. SWANSON. No, Madam Chairwoman. We have a number of ways
that small businesses can appear on Google Search and Maps.
Many of those are free.
So, for example, Grow with Google helps small businesses
claim their free Google My Business Listing which allows a
small business to share their website, or if they do not have
one, create a website so that they show up in that local search
on that map. They can share their hours. They can share
customer reviews, encourage that conversation with customers
that is so important to building customer loyalty over time.
Chairwoman VELAZQUEZ. Mr. Mehta, small businesses just want
to be treated fairly and understand Amazon's terms of use
regarding pricing, fees, and other arrangements.
Is it true that for some businesses, 30 to 40 percent of
their sales price goes back to Amazon?
Mr. MEHTA. Chairwoman, the way our fees work, for
professional sellers on Amazon, they pay $40 a month here in
the U.S., and then on top of that they will pay a fee that
depends on the product they sell, typically 8 to 15 percent.
Any additional fees are up to the seller based on additional
services they choose to use, such as our fulfillment services
or advertising.
Chairwoman VELAZQUEZ. Do you have a number as to the
percentage that they pay back to Amazon compared to the profits
that they are making on average?
Mr. MEHTA. Madam Chairwoman, I do not have that data point
in front of me. I would be happy to have the team follow up.
Chairwoman VELAZQUEZ. Does Amazon give sellers adequate
notice and transparency of changes to fees or other terms of
their seller agreement?
Mr. MEHTA. Our fees are publicly posted. They are both
available to all sellers before they start selling, as well as
anyone in the public can see those fees. We try to provide
transparent advanced notice before changing those fees.
Chairwoman VELAZQUEZ. You try to provide changes, but do
you notify sellers in advance?
Mr. MEHTA. Madam Chairwoman, I do not own our fees. I am
happy to have someone follow up with the specifics of what has
been done in every instance.
Chairwoman VELAZQUEZ. Okay.
Mr. MEHTA. But we want our sellers to be able to plan for
our fees. We try to make those fees very attractive. You know,
for instance, if I look at our Fulfillment by Amazon fees that
provide fulfillment services for sellers, we benchmark those
versus the alternatives that the sellers have. Our fees on
average are 50 to 80 percent lower than sellers' alternatives.
Chairwoman VELAZQUEZ. What I am asking is if you provide
notices in advance giving them enough time. What about sellers
that use Amazon warehouses? Do they have opportunities to
reconcile if there is a dispute with Amazon and prevent their
inventory from being seized?
Mr. MEHTA. Absolutely. So when sellers send their inventory
into our fulfillment centers if they choose to use Fulfilled by
Amazon, they have visibility into their inventory, that
inventory that is available for sale when it is purchased, and
if for any reason there is a dispute, we have 10,000 associates
that support sellers every day and respond to them quickly.
Chairwoman VELAZQUEZ. Does Amazon consider how long a
seller has been using the platform before closing or suspending
an account?
Mr. MEHTA. When we close or suspend accounts, they can be
done for a variety of reasons. If an account is suspended for
potential fraud or abuse, or other policy violations, we make
decisions around closing accounts based on the activities that
have happened and the potential policy violations.
Chairwoman VELAZQUEZ. Thank you.
Now I recognize the Ranking Member.
Mr. CHABOT. Thank you, Madam Chair.
Mr. Mehta, in March, the U.S. Chamber of Commerce in
partnership with Amazon published a report detailing the impact
of technology on rural communities. The report acknowledges
that rural business owners who have already embraced digital
technology are seeing tremendous results. What has been your
experience in seeing the potential of ecommerce for growth by
small businesses in rural America?
Mr. MEHTA. Thank you, Ranking Member Chabot, for the
question.
It is a great question. One of the powerful things that
enabling sellers to sell in Amazon's stores has achieved is for
these businesses that are often in rural America that have
historically set up physical shops have only been able to reach
customers within a small distance of their physical store. By
selling on Amazon, we enable them to not only sell in their
local district but to sell across their state, to sell across
the country, and increasingly, to sell across the world.
As one example, a feature we launched recently called FBA
Export is a program for sellers that use our fulfillment
services to export products to other parts of the world. It
helps sellers find customers in other parts of the world. It
helps navigate export requirements. That one program generated
$1.8 billion in sales for American businesses.
Mr. CHABOT. Thank you very much.
Ms. Swanson, I will go to you next.
It is my understanding that about 96 percent of the people
that occupy this globe are outside the borders of the United
States, so there is a huge market out there for large and small
businesses. And I have got a book here, Growing Small Business
Exports by Google. And could you tell us, obviously, we do not
have time to go through all this, but what is Google able to do
to allow America's small businesses to more successfully market
their products across the globe?
Ms. SWANSON. Thank you, Ranking Member Chabot.
Being able to increase broader markets is increasingly
important to small businesses. My family had a small business,
a bakery in a small town, and their market was their town. And
today, a small business like that can reach and sell across the
Nation and across the globe. This is important to our economy.
And to job creation in the United States.
One recent study shows that 6 million jobs in the United
States are supported by small businesses who are exporting.
Google is proud to make it easier for small businesses to
export their goods and to find new markets. Examples are
Strider Sports in South Dakota. They had this great little idea
to build bikes that little kids could push without needing
pedals so they could move without falling over. They had this
great idea, and now thanks to digital tools and the expanded
market that the web enables, they have sold 2.5 million bikes
in 78 countries, and the majority of their sales are coming
from international exports. This has really enabled because the
web has enabled small businesses to reach into these global
markets to find new places to reach new customers.
Mr. CHABOT. Thank you.
Mr. Kennedy, or Dr. Kennedy, I am sorry, some have
suggested recently that we need a new regulatory regime to
clamp down on tech companies and that the government ought to
be determining what you do and how you do it, et cetera, to a
much greater degree than exists today. Obviously, these are
private companies, but we also want them to be fair with the
public and that sort of thing.
What is your view relative to additional regulations coming
out of Washington?
Mr. KENNEDY. I tend to be very skeptical of that. I think
that the government's primary purpose should be to try and
ensure a competitive market and to try and make sure that there
is active competition that results in good products at low
prices going to consumers. It should be reluctant to take a
side in the various battles that occur between businesses over
different practices, you know, getting market share.
The one exception is where there is either a merger that
could result in monopoly power or where there are clear,
uncompetitive practices, and there I think the existing anti-
trust laws already give regulators and potential plaintiffs the
powers that they need to restore competition.
I do think it is worth having a dialogue about fair
business practices in general regarding transparency and
consistency, but I am very reluctant to have the government
mandate those. I think it is likely to be more productive if
decisions are arrived at in an open conversation.
Mr. CHABOT. Thank you very much.
Mr. KENNEDY. Thank you.
Mr. CHABOT. My time is expired, Madam Chair.
Chairwoman VELAZQUEZ. Do you have any other questions?
The Chair recognizes Ms. Davids from Kansas.
Ms. DAVIDS. Thank you, Chairwoman. And Ranking Member
Chabot for holding this hearing today. And I think this is a
really important conversation as it relates to our country's
small businesses.
Finding a fair marketplace and competing with big
businesses has always been a challenge for small businesses.
And using and competing with large tech companies, however, is
a new iteration on that issue. So it is vital that we ensure
that online marketplaces provide a fair online space for
businesses to compete.
And I actually am going to follow up on the Ranking
Member's line of questioning because that is where I was headed
anyway.
So Dr. Kennedy, I noticed in your testimony, and you
actually started getting into it based on Ranking Member
Chabot's questioning, can you talk to us a little bit about
enhancing the rules governing fairness and transparency as it
relates to how small businesses can interact with these large
platforms, that in some instances they are both a customer and
a competitor of the large platforms?
Mr. KENNEDY. Yeah. I do not feel I can get into a lot of
detail but I used to be general counsel of the Senate
Subcommittee on Investigations, and there we found that when we
saw a problem in a particular market, often if we called people
in and we had a quiet discussion with them about why they did a
certain thing, we could get a sensible resolution. And they
would go off and amend their practice. And I think that kind of
informal dialogue can accomplish a lot.
I think as far as specific things, in general I think it is
reasonable for a businessman to know what the rules are for a
platform and to have them applied with some consistency. And as
a general manner, I would look at Costco or Walmart and I would
look and see how are they treating their suppliers? And we do
not seem to have a lot of problems with them. So, you know, if
they have a particular practice, if Amazon and Google has a
similar practice, I do not think necessarily we should have a
problem with them either.
I do note, I forget the gentleman's name, but one of the
people on the next panel has in his file testimony a pretty
good discussion of some of the issues and possible resolutions.
So I think they are out there.
Ms. DAVIDS. In your testimony you talk about an example of
the United Kingdom's open banking initiative and the E.U.'s
payment services directive. Can you talk a little bit about
that?
Mr. KENNEDY. Well, I do not know----
Ms. DAVIDS. And why you used them as an example?
Mr. KENNEDY. I do not know the great details in them, but
in general, they allow, my understanding is that they allow a
banking customer to mandate that his or her information be
available to various outside apps so that if you want to
download an app that will download information from your say
banking account and compare your fees to the fees of other
banks and tell you how you could save on fees by moving to a
different bank----
Ms. DAVIDS. So you think those kinds of policies might be
helpful when we are talking about large Internet platforms----
Mr. KENNEDY. Yeah.
Ms. DAVIDS.--that are selling goods and services and having
a very transparent process of understanding what your fees are?
If you were paying for Google to put you in a search versus
another searching platform. I am actually not sure what other
platforms folks use besides Google, which kind of brings us to
the point of how dependent small businesses might be on one or
two specific platforms. Do you think that that is something
that we need to see more of in these instances?
Mr. KENNEDY. I think in general it is good to have a
conversation between Congress and the industries. It often is
better to have it in private where people do not feel under the
gun that they have to get every word exactly right. And I think
that often that results in reasonable changes to business
practices. You know, platforms already have a strong interest.
Ms. DAVIDS. My time is running out.
I think the folks in my district might be a little
surprised to hear you say that we should have meetings behind
closed doors with large businesses, but I thank you for your
time, and thank you for your testimony today.
I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
The gentleman from Oklahoma, Mr. Hern, Ranking Member of
the Subcommittee on Growth, Tax, and Capital Access is
recognized.
Mr. HERN. Thank you, Madam Chairwoman.
As you all know, every big business begins as a small
business, and as an entrepreneur, a business owner, a job
creator of thousands of jobs over 34 years, I appreciate the
support that you have given the small business job creators of
the world.
I was just looking, I have five businesses that I created
that my family members now run today thanks to being in
Congress that use both of your services, either Google Suites
or the AWSS3 server system and cloud-based other tools that you
have. So I really appreciate it.
And for Amazon, this support is represented by 5 million of
AWS credits that you gave out in 2018. This has led to hundreds
of thousands of small businesses, startups using your web
services to launch and scale their businesses, including over a
million current small businesses utilizing their web services,
6,500 of which are in my home state of Oklahoma.
As for Google, the support for small business is
represented by the fact that in 2018, your search and
advertising tools helped to provide $335 billion of economic
activity nationwide, $712 million of economic activity in
Oklahoma, and $1.69 million of free advertising in the Oklahoma
nonprofits. Benefits for over 7,800 Oklahoma businesses,
website publishers, and nonprofits, and we thank you for that.
Both of you all are very well represented in our northeast
Oklahoma area. The Google data center complex is just outside
of my district, which I have had the opportunity to tour, which
I will go on the record to say it is very large. The Amazon
fulfillment center coming to Tulsa in 2020 is the largest ever
job employer ever in the history of northeast Oklahoma where we
are at. So I really appreciate that.
So with all of this, I would say that what you do also for
helping small businesses start up and help with the protecting
of small business from cyber threats, I would like for you just
to take in my remaining amount of time here, so hopefully a
minute and a half each, that each of you could talk about how
beneficial these startup services are and the ability to
continue on with your marketplace.
We will start with Amazon, your marketplace, and cyber
threats as we are seeing them today, how you can help secure
those fronts for small business and entrepreneurs.
Mr. MEHTA. Thank you, Congressman.
You know, absolutely, one of the things that we find to be
very powerful for these small businesses is the way that we can
level the playing field, that we can provide access to not only
the reach of hundreds of millions of customers, not only the
large fulfillment centers and the fulfillment capability we
have built, but also the advanced fraud and abuse detection
capabilities that protect these small and medium businesses
that end up lowering costs for them and are going to continue
to allow them to thrive. We think some of the key ingredients
that have continued to allow small businesses to grow so fast
and become now 58 percent of our total sales.
Mr. HERN. Thank you.
Ms. Swanson? Dr. Swanson? Ms. Swanson? I am sorry.
Ms. SWANSON. Still Ms. Thank you, Congressman Hern.
Google is really proud to call Oklahoma home, and I am
pleased to hear that we have customers in your family.
Cloud computing is one of the ways that we help small
businesses take their security very seriously. Cloud computing
can give small businesses an advantage that was not available
many years ago. It can help them access their data from
anywhere, anytime, at a reasonable price. And security and that
safety is really built in.
What we hear as we travel the country working with small
businesses is that they are really good at what they do. They
know their business. What they might not know as much about is
the digital tools, things like how to keep their data safe. And
so they turn to affordable products, like cloud computing, to
keep their data safe.
Mr. HERN. I appreciate both of your comments. The only
thing I would like to say in my remaining moments is I think
sometimes people forget that every large business did start as
a small business, and I think we oftentimes forget, in the case
of both your companies for sure, and obviously, Mr. Zuckerberg,
who is not here, your companies were started by the people who
are currently involved in your companies. And we just ask I
think collectively as a bipartisan Committee that they not
forget where they came from. Whether it be Mr. Brin and Mr.
Page in their dorm room at Stanford or whether it be Mr. Bezos,
who I would like to go on the record to say his first job was
at McDonald's at 16 years old, someone near and dear to my
heart, and learned a lot from that lesson. That they would not
forget and continue to help entrepreneurs create this
competitive environment and the free market ideas that got them
the ability to start and allow them to get them to where they
are at today, that they would not forget that. And if that is a
message that we could get collectively bipartisan out of this
Committee and back to them, and many of the other companies
that have come from absolutely nothing, we would like to make
that message heard loud and clear. Thank you.
I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize Mr. Evans from Pennsylvania, Vice Chair of
the Committee.
Mr. EVANS. Thank you, Madam Chair. And I thank you for the
leadership on this discussion.
I would like to start out with just the title. Basically
the title is, ``A Fair Playing Field? Investigating Big Tech's
Impact on Small Business.
So I would like to start out with, I think is his name Mr.
Kennedy? Is that you?
Mr. KENNEDY. Yes.
Mr. EVANS. You were kind of giving a general sense of what
certain things you did not think should happen in terms of what
government should do. So you see that question, and it is a
very simple question. So kind of give me your reaction to the
question that we are just attempting to do our oversight
responsibility. You know, we know the importance of small
business in this Nation and the role that it plays. I come from
the City of Philadelphia. We have 25 percent poverty. I would
like to see more growth and more opportunity. So can you talk a
little bit about relating to what you see as the fair playing
field? Because what I heard you mention as a solution was kind
of using a soft stick of conversation. So talk a little bit to
me about how you view the fair playing field.
Mr. KENNEDY. So I think the government should work hard to
make sure that it is as easy to start a business as is
possible. That it is as easy to get credit, consulting help as
is possible. That when a business does get created that the
markets it is in are competitive and give it a fair shot. That
the rules of the market, the laws are, you know, fairly
applied. But it should not try and favor one set of businesses
over the other, whether they are small businesses versus big
businesses, or platforms versus sellers. It should allow that
competition to go on and that competition inevitably results in
losers who complain. But unless there is a demonstrated
unfairness in the rules of the market, in which case anti-trust
already has the powers to deal with it, the government should
leave well enough alone.
Mr. EVANS. Well, if you were whipping out your report card
at this point and you look at where we are, and obviously, this
is new to all of us. I mean, we are just fully trying to
understand it, but we hear a lot of complaints about
individuals not being able to get into the marketplace. As you
say, government should just leave it like it is, then how are
you rating it at this point?
Mr. KENNEDY. Well, I think the companies testifying today
and the other ones we have mentioned, they already have a
significant interest in expanding the number of small
businesses and big businesses that use their platform and
working with those businesses to grow their volume. So that
incentive already exists.
Now, about the margin about this rule or that rule or how
it is applied, and I think, you know, government usually is
better off not getting too involved in setting those rules, but
should concentrate on is the competition on the whole fair?
Mr. EVANS. But would you agree, you may or may not, would
you agree that it is critical that small businesses are given
an equal opportunity to enter the marketplace and flourish?
Mr. KENNEDY. Yes.
Mr. EVANS. Okay. Well, I guess that is why I was kind of
trying to drill down on the question and what your view of it
because obviously, you know, maybe some cases it may not be
working.
Mr. KENNEDY. Yeah. And I think the central question we ask
is what is going on hurting the customer? So if competition is
putting some companies out of business but prices are going
down, efficiency is going up, consumers are benefitting, then
that is okay. If consumers are getting hurt because companies
are getting monopoly power and they are raising prices, then
that is not okay and we have anti-trust policies. But we ought
to look at how is the consumer being helped or hurt.
Mr. EVANS. Thank you.
And I yield back the balance of my time, Madam Chairperson.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Minnesota, Mr. Hagedorn, is recognized
for 5 minutes.
Mr. HAGEDORN. Thank you, Madam Chair, and Ranking Member
Chabot. I appreciate the witnesses.
I represent a rural part of southern Minnesota there, and
so obviously, for small businesses and entrepreneurs wanting to
get their start, the platforms that you provide can make a huge
difference. They have in many instances. So especially from a
rural standpoint, I get it, and I think as my colleague,
Congressman Hern said, in many ways this is a really good
thing.
But I did talk with someone in my office recently, Mr.
Mehta, about a product that a woman named Sophia had on your
platform. She is selling espresso machines. Had about $100,000
put into the business. Very happy because doing it through you
she can work from home and all sorts of kind of you would say
luxuries for a business owner to be able to do those types of
things. But she said there were certain costs. You know, 15
percent on average goes to your company to sell their machines.
There could be storage costs if you have machines at the
warehouses and things like that. And also, some advertising. So
in general, do you think the way that you are charging these
small businesses is fair? Are there ways to look at that to
make sure that they are not being gauged? How would you respond
to that?
Mr. MEHTA. Congressman, thank you for the question.
You know, fundamentally, the way we view this is that we
succeed when sellers succeed. Our growth over the years, a
large part of it is because of the success of these small and
medium businesses. We want to make sure we offer a set of
services at a set of fees and prices that are super attractive
and reasonable. Now, advertising is one of those services that
can be very powerful for that rural business that has an
unknown brand that no one may know about that maybe has
invented an amazing espresso maker. We want them to be able to
advertise their products, but advertising is a choice. For the
brand that is known and is generating the sales or the
awareness that they want, they do not have to buy advertising.
We try and make as many of these a choice, a simple choice with
easy to use tools so that different small and medium businesses
can pick the set of services that work best for them.
Mr. HAGEDORN. I think that is a very good answer. It makes
sense. You want your clients to be successful, and then from a
customer standpoint it is awesome for us to be able to go
there, wherever it is, and find all these different choices and
shop and things of that nature.
So then I would move on to the other aspect of this which
is kind of the infrastructure of how we search for companies
that can provide services and products, so I would go to Ms.
Swanson. How do we know for sure that your company is not
picking winners and losers in the marketplace? That you are not
really fronting for companies that may advertise more, or just
in general, how can we be assured that that is not happening?
Because you are the infrastructure. You are like the road, and
if you just decide that only certain cars and trucks get to go
out first or get to drive faster and everybody else is left
behind, that would not be fair. So in this case with the
Internet, how would you respond to that?
Ms. SWANSON. Thank you, Congressman, for the question.
At Google Search, we build, we design for everyone. The
business model of search is dependent upon being useful and
being trustworthy for our users. So we have natural long-term
incentive to prevent that type of activity on our platforms.
We build those platforms and those products in a really
neutral way, and we work hard to make sure that we are
continuing to improve search to surface the most reliable, most
relevant answers for our search users in real time.
Mr. HERN. Well, who audits you to determine whether or not
that is happening? Because you do not know what you do not see;
right? So if I put in a search for widgets but some company
does not come up, how would I ever know that? So who would kind
of look over your shoulder to make sure that that is being done
properly?
Ms. SWANSON. Yeah. We have a series of processes and
safeguards in place that allow us to continue to test. And then
evolve and improve the way that search functions. Some of the
ways we do that, for example, are running hundreds of thousands
of experiences every year and asking independent search users
to review the quality of those search improvements, always
looking to understand are we providing the most relevant,
reliable answers to our search users. We take that feedback
into account. We take it very seriously.
Mr. HERN. Yeah. I am not always for too much regulation in
the marketplace and things like that but I think we should make
sure that in the future there is at least somebody who is
overseeing this or looking at the results to make sure that if
it is not happening, then we need to make some changes because
I think you would want to be the first ones to make changes so
the government would not move in and regulate in these areas.
But it is pretty important, I think, for businesses and the
consumers that that be done on a fair basis. So thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Maine, Mr. Golden, Chairman of the
Subcommittee on Contracting and Infrastructure is recognized.
Mr. GOLDEN. Thank you, Madam Chair.
Mr. Mehta, I wanted to ask, does Amazon use algorithms that
favor sellers who use Fulfillment by Amazon over those who
chose to do Fulfillment by Merchant?
Mr. MEHTA. Thank you, Congressman, for the question.
The short answer is no. We design our algorithms for search
and the products we feature based on what we think customers
want regardless of whether those products are sold by Amazon.
Mr. GOLDEN. Just to be clear, not products but sellers.
Mr. MEHTA. We do not design them to favor sellers or
products based on who is selling them or the fulfillment
channel. We design them to prioritize what we think customers
want most.
Mr. GOLDEN. All right. I guess we have heard from some
people back home in Maine who are concerned that that may not
be the case, and perhaps you have a better explanation. But has
Amazon ever been willing to maybe do some third-party testing
on its algorithms which, of course, would be done to avoid
revealing how the precise mechanisms work but could confirm for
sellers that there is, in fact, no bias towards people who use
one or the other?
Mr. MEHTA. I would have to have someone from our search
team follow up, but I do know we run constant experiments
looking at our search results to make sure we are prioritizing
what customers want most and that we are avoiding any kind of
unintentional bias in that system. I would be happy to have the
team follow up with you.
Mr. GOLDEN. All right. I would appreciate that very much.
And obviously, that would be important to avoid that kind of
unfair bias.
We have a company in Maine that sells products to help keep
houses from losing heat in the wintertime. They choose to ship
their own orders and believe that they have noticed that their
product has started missing out on search placement and sales
to competitors who use FBA. They believe their experience is
backed up by testimony from the Institute for Local Self-
Reliance at a July House Anti-Trust Subcommittee hearing and a
letter to Congress from another seller described in a November
8th Bloomberg article.
Another concern that we have that impacts sellers' ability
to choose whether or not they want to use FBA instead of going
with their own option is that sometimes Amazon may suspend
sellers' accounts if they deliver items late. I understand you
are trying to look out for consumers, but I also understand
that you may exempt sellers who use FBA from similar penalties.
I am just curious, is there a penalty to Amazon itself under
FBA for late delivery that would either recompensate the seller
or the consumer similar to way of people who do fulfillment by
merchant?
Mr. MEHTA. Thank you, Congressman.
If an order is delivered late by our fulfillment services,
Amazon takes responsibility for that order, makes sure the
customer is made whole, and we do not hold sellers liable for
that. So we do take accountability for this.
Mr. GOLDEN. All right. Good. Good. That just seems like a
common, that you can hold yourself to the standard you would
hold other, some of your clients to would be important. I
appreciate that.
If I could shift over to Ms. Swanson. I think we are going
to hear some testimony from the second panel. I do have some
concerns. I am just curious in learning more about it having to
do with some of Google's blue book a room button changes and
also some potential changes recently this year having to do
with how people are able to find businesses' phone numbers. And
I think you probably heard many questions about the blue
button, you know, in a system where essentially people are
booking, whether they know it or not, through OTAs. You know,
you may have a consumer seeking to purchase a room directly
from a hotel or a bed and breakfast or something and largely
unaware that they are booking through an OTA when they use the
blue book button. I am curious if you have any feedback about
that change. Have you considered whether or not you can build
in the ability for consumers to choose to go directly to a
business? And secondly, I have heard that there have been
changes this year where a lot of searches no longer have phone
numbers for businesses directly listed unless they opt to pay
for that listing, essentially paying to have their own phone
number advertised. And of course, as a consumer, very
frustrating to think you have booked directly with someone,
then try and pick up the phone and call them and realize you
cannot.
Ms. SWANSON. Thank you, Congressman, for your question.
There are a number of ways that a user might go about
finding a service provider, for example, a hotel, could be to
direct navigate to that website, could be to search for it,
could discover it in an organic search, or could choose to book
through an OTA.
You asked about some of those panels that we have on the
right side of search. We do work to make it very transparent to
the user when they have the option of booking through the
official site. There is a little button there that says the
official site, for example, of that hotel. Although some users
may choose to book through an OTA for their own personal kind
of shopping preferences, and that is a choice that we want to
provide.
You also ask a little bit about how small businesses can
make their phone number available. We know that is really
important to be able to provide that direct connection from
search to a small business can be a critical way of initiating
contact with that potential customer. And through our local
services, features, and products, we can help small businesses
list their phone numbers for free in their Google My Business
listing, direct that call directly to that small business.
Mr. GOLDEN. Thank you. I appreciate that.
I am overdue on time, but I would just ask that you commit
yourself to that transparency for consumers, particularly as
you need to change your interface for things like the smaller
screens. Suddenly, that transparency becomes much more
difficult for consumers.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Ohio, Mr. Balderson, Ranking Member of
the Subcommittee on Innovation and Workforce Development is
recognized for 5 minutes.
Mr. BALDERSON. Thank you, Madam Chair. Thank you all for
being here.
I want to do a couple questions and kind of follow some of
Mr. Hern's lead, and I will probably try to work with you all
some more.
It is good for us to find out the technology side of the
companies in American small businesses, and I am going to share
more the success side of it. But Mr. Mehta and Ms. Swanson--
sorry, bad angle here--I first want to thank you both and your
companies to date in the district and in the State of Ohio.
Amazon has invested $5 billion, and Google, you have invested
closer to $7 billion. So thank you both very much. And I want
to share a story.
I did the groundbreaking ceremony for Google a couple weeks
ago, and I was pulling in the facility and I was driving and I
look off to the side and I see one of my buddies. He has got
waste dumpsters there. There were nine of them I counted, so I
got out excited for him. I thought, wow, Google is actually
working with small businesses here in the district and the
community. And I thought how important that was. So I call Seth
up and I say, ``Hey, Seth, congratulations, man. I am looking
at your dumpsters here. I see nine of them out here.'' And he
said, ``Nine?'' He said, ``There better be 14.'' I said,
``Well, we will cross that bridge when we come to it.'' But
anyway, just thank you, because that is meaningful to small
business owners in those districts when you build these huge
data centers. So thank you very much.
Would each of you, please, explain to this Committee what
the growth of the Internet and the information age has meant
for small businesses?
Ms. Swanson, ladies first.
Ms. SWANSON. Thank you, Congressman, for the question. And
thank you for the kind words about our data centers. What you
saw was part of a $13 billion investment that Google is making
across American to create new data centers and expand our
offices. And we are committed to working with small businesses
in these communities as part of that work.
We really see the Internet and Google products and tools as
being great equalizers, as being tools that help small
businesses do things, reach customers, and become discoverable
in ways that used to be only available to the very biggest of
businesses. It used to be that if you were a small business and
you wanted to market to customers you had few options. They
were TV. They were radio. Maybe outdoor, out of home in some
way. And now if you are a small business, you can set your
budget, and with a very limited budget even, make really
effective focus online media advertising campaigns.
And we hear that is a game changer. As we travel the
country, we hear from small businesses again and again that
this is helping them find the right customer at the right time
in ways that they could not have imagined before.
Mr. BALDERSON. Okay. Thank you.
I want to jump to another question because of the time
limit that we are on here, because I do want to talk about the
positive things that are created from big techs and from small
businesses.
I would like to highlight a recent meeting that I had with
a constituent in my district who actually, I would not say went
out of business but pretty much just shut down his business
that he had prior to that. In doing so, then he changed and
started up another business, a vintage bookseller business, and
he used Amazon's tools, including the Fulfillment by Amazon,
and his business just in the last year has grown 500 percent.
He has had to expand his work force, and he now ships to
customers across the U.S. and Canada.
Would you, both of you, Mr. Mehta, you can go first on this
one, would each of you please tell this Committee how many
businesses, publishers, or nonprofits benefit from your
services that you are aware of?
Mr. MEHTA. Thank you, Congressman, for the question. That
story of Vintage Book Art Company is another awesome story of
many entrepreneurs and small businesses across America.
You know, currently, there are more than 1.9 million small
businesses, content creators, authors, et cetera, that are
small and medium businesses across the U.S. that are partnering
with Amazon and growing as a result. Interestingly, these small
businesses have generated more than 830,000 new jobs for
Americans. So we are very excited both about that specific
business, but in general, about what we have been able to do
together with partnerships with small businesses.
Mr. BALDERSON. Thank you both very much for your investment
in Ohio. And Madam Chair, I yield back my remaining time.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now the gentleman from New York, Mr. Espaillat, is
recognized for 5 minutes.
Mr. ESPAILLAT. Thank you, Madam Chair.
My question goes to Mr. Mehta. I want to touch base on the
Amazon Storefronts small businesses, approximately 30,000 small
and medium-size businesses you mentioned in your prepared
statement, participate in Amazon Storefronts.
My question is, what is Amazon's practice for outreach, and
do know the demographic or geographic breakdown of
participating small and medium-size businesses?
Mr. MEHTA. Thank you, Congressman, for the question.
Amazon Storefronts is very exciting. We have 30,000 small
businesses that are already participating. They have reached 70
million customers and sold over 250 million items. We have a
number of different ways we try to reach out to these small and
medium businesses. It starts with a great deal of online
content and help. Programs like our Seller University that
provide courses and training and videos and webinars to help
these small and medium businesses. Just recently, we announced
a new Amazon Small Business Academy where we send Amazon
employees into local communities to sit side by side with small
businesses as they get started on Amazon and help them as they
start selling. So we are very excited about Storefronts and
very excited about Small Business Academy.
Mr. ESPAILLAT. And when an Amazon searched for product
yields a result, are these products shown contemporaneously
with relevant products? Or how does that work?
Mr. MEHTA. So when a customer places a search result on
Amazon?
Mr. ESPAILLAT. Yes.
Mr. MEHTA. We use the query that they typed in to try to
find what we think will be the best products regardless of who
is selling it or how they are selling it, but what we think the
customer is most likely to want, and we put those in front of
the customer.
Mr. ESPAILLAT. And do the results delineate Amazon
Storefront and those that are not? Is this the same for English
language searches versus Spanish searches or other non-English
languages? How is that handled? If I were to search in Spanish,
for example?
Mr. MEHTA. Yes. Customers speak many different languages,
and we try to support them in their native language. And so
when we design our search results we do think about who the
customer is and where they are searching and customize the
search results accordingly.
Mr. ESPAILLAT. Okay. My next question is what is your
reimbursement schedule or model for products sold through on
Amazon for small businesses? Is it uniform or can the vendor
work to adjust or meet the needs of the industry? Let's say,
for example, seasonal or employee design? Small businesses
obviously have very strong constraints very often. How do you
handle your reimbursement schedule?
Mr. MEHTA. Thank you, Congressman, for that question.
On average, our selling partners are paid 7 days after a
customer receives the product. So, we like to make that very
quick, as soon as possible after the customer receives the
product.
Mr. ESPAILLAT. Thank you so much.
I yield back my time.
Chairwoman VELAZQUEZ. The gentleman yields back.
Let me take this opportunity to thank all of the witnesses
for taking time to be here and answer our questions. You are
now excused and we will take a moment while we get our next
panel set up. Thank you.
[Recess]
Chairwoman VELAZQUEZ. I will ask everyone to please take
your seat. Thank you.
Welcome to our witnesses on today's second panel. I will
take a moment to introduce each of you before turning it over
for your testimony.
Our first witness today is Ms. Allyson Cavaretta. Ms.
Cavaretta is an executive leader and part owner of the family
run Meadowmere Resort on Maine's southern coast. She is a
third-generation small business owner and graduate of the
University of Notre Dame, Mendoza College of Business, cum
laude. Ms. Cavaretta has received the Governor's Award for
Environmental Excellence, the Innovation Award from the
Institute for Family Owned Business, and formal bipartisan
recognition from the Maine State Legislature. Welcome.
Our second witness is Mr. Molson Hart, the CEO and founder
of Viahart Toy Company, a retail toy company based in Houston,
Texas. Viahart has four full-time employees and sold about $4
million of product on Amazon last year. Mr. Hart speaks Chinese
and specializes in manufacturing, logistics, and ecommerce. He
graduated from Dartmouth College with a Bachelor of Arts in
mathematics and economics. Welcome.
Our third witness is Mr. Harold Feld, the Senior Vice
President of Public Knowledge. Before this, he worked as senior
Vice President of Media Access Project, advocating for the
public interest in media, telecommunications, and technology
policy for almost 10 years. Prior to joining MAP, Mr. Feld was
an associate Covington and Burling where he worked on the
Freedom Information Act, accountability issues at the
Department of Energy. He received his B.A. from Princeton
University and his J.D. from Boston University Law School.
Welcome.
Our next witness is Theo Prodromitis. Ms. Prodromitis is
the Cofounder and CEO of Spa Destinations in Tampa, Florida.
Spa Destination sells an environmentally conscious luxury brand
of natural beauty products and was nominated by Amazon to
receive the 2018 National Retail Federation's ``Champion of
Retail'' Award. As a business leader, she also consults with
companies ranging from startup ventures all the way to Fortune
500 companies. She specializes in the areas of sustainability,
white space analysis, public purpose partnerships, and fast-
growth businesses.
I would now like to yield to our Ranking Member, Mr.
Chabot, to introduce our final two witnesses.
Mr. CHABOT. Thank you, Madam Chair.
Our next witness is Mr. Jake Ward, president of the
Connected Commerce Council, or CCC, a membership organization
for small businesses powered by digital. CCC works to provide
small businesses with access to the market's most effective
digital tools available, provides coaching to optimize growth
and efficiency and works to cultivate a policy environment that
considers and respects the interests of small businesses. Mr.
Ward is the cofounder and former CEO of the Application
Developers Alliance and Forward Strategies. We thank you for
being here this afternoon.
And our final witness will be Graham--could you pronounce
that last name for me?
Mr. DUFAULT. Dufault.
Mr. CHABOT. Dufault?
Mr. DUFAULT. Yes.
Mr. CHABOT. Okay. It looks like that, so that makes sense.
Dufault. Senior director for public policy at ACT, the App
Association, representing more than 5,000 app makers and
connected device companies in the mobile economy. Mr. Dufault
leads public policy initiatives and education in front of the
Congress on behalf of 5,000 small and medium-size member
companies. Prior to joining the App Association, Mr. Dufault
was counsel to the Subcommittee on Consumer Protection and
Commerce at the U.S. House of Representatives Committee on
Energy and Commerce. Prior to joining the Committee, he was
counsel to Congressman Lee Terry, focusing primarily on
telecommunications and technology issues. He earned his J.D.
from George Mason University School of Law in 2012, with a
concentration in communications law. And we thank you also for
being here.
I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Ms. Cavaretta, now you are recognized for 5 minutes.
STATEMENTS OF ALLYSON CAVARETTA, PRINCIPAL AND OWNER,
MEADOWMERE RESORT; MOLSON HART, CEO, VIAHART TOY CO.; HAROLD
FELD, SENIOR VICE PRESIDENT, PUBLIC KNOWLEDGE; THEO
PRODROMITIS, CO-FOUNDER AND CEO, SPA DESTINATIONS; JAKE WARD,
PRESIDENT, CONNECTED COMMERCE COUNCIL; GRAHAM DUFAULT, SENIOR
DIRECTOR FOR PUBLIC POLICY, ACT/THE APP ASSOCIATION
STATEMENT OF ALLYSON CAVARETTA
Ms. CAVARETTA. Thank you, Chairwoman Velazquez, Ranking
Member Chabot, and the members of the Committee. I am Allyson
Cavaretta, a multi-generation small business owner at the
Meadowmere Resort in Ogunquit Maine. Thank you for the
opportunity to speak with you today.
I am here to explain why Google's most recent actions in
travel present a concern to small business, how those behaviors
harm the consumer, and to urge relief from Google's near
monopoly access to market.
While Google's testimony from July 2019 states that they
are proud to work with small businesses, that claim is not
uniform. While Google's examples of an unequal playing field
for hoteliers range from a 2015 ``pay to play'' book here
button to currently prohibiting access to the posts and view
room products. Most recently, March 2019's algorithm change
prioritizes paid products, reportedly wiped $13 billion in
market value off the largest players in travel and is harming
direct bookings with small hotels like mine. The results often
mislead the consumer to the highest bidder and not to our
website.
Google is an unavoidable gatekeeper. Over 93 percent of
searches begin on Google. Since June, a majority of these
searches result in zero clicks because Google sends these
clicks to their own products--YouTube, maps, subdomains of
Google.com and over a dozen others.
Our July correspondence to Congress on the March update is
dated just one day after Google claimed to not engage in such
practices at a House Judiciary Committee hearing.
I will focus on the Google My Business Listing product
commonly referred to as the GMB, and as I will refer to it such
hereafter, an increasing middle man. Since the March update
took effect, when comparing May through September this year
against last year, the following concerns are observed for our
hotel. A 36 percent increase in visits to that GMB product from
Google's own search or maps products, but only a 5 percent
increase in visits to our website from the GMB. A 22 percent
increase in phone calls to our GMB, but a concerning 33 percent
decrease in direct phone reservations.
The click-through rate of 3.8 percent for our listing is an
outstanding search result, since across all industries an
average click-through rate for search ads is only 1.91 percent.
And I cannot help but wonder if Google is able to push the GMB
performance to outstanding levels by funneling searches to its
own product complete with ``pay to play'' bookings.
The transparency into such behavior is a challenge. Our
hotel deploys urchin-tracking module parameters, commonly
called UTM codes and that evaluates online marketing. A
snapshot of UTM tracking for our listing demonstrates a shift
of over 37 percent in website traffic in just 7 days.
When Google arbitrarily removes this tracking, a small
business has limited data. This is in stark contrast to the
extensive metrics that Google analytics offers, and I cannot
help but wonder why Google does not subject the GMB product to
the same metrics that other ads and travel sources are
scrutinized by.
This is concerning. We estimate a year-over-year shift of
over $140,000 in revenue now dependent on this listing in just
6 months. The speed at which Google is impacting the market
access for small business and for the consumer is quite
alarming. From 2016 to 2019, the cost to protect direct
bookings to our hotel has meant an increase spend of over 500
percent with Google, and a 20 percent increase in our overall
marketing budget to keep up.
And we are not an isolated incident. As my testimony notes,
over 900 innkeepers representing 47 states and the District of
Columbia support the points I am making today. There are strong
incentives to ``pay to play.'' Travel is a lucrative ecosystem
where consumers rely on digital information. Digital travel
sales worldwide increased over 10 percent to $694 billion in
2018. However, the consumer cannot discern that paid products
like Google's book a room button do not lead to the hotel
directly. Over 70 percent of consumers believe that they are
booking directly when, in fact, they are redirected by the bid
system that is frequently won by online travel agents.
There are similar concerns with consumers accessing our
phone number. Nowhere does Google educate the public that
Google is diverting the consumer away from a small business.
And while I do not fault them for making decisions on their
bottom line, the net impact to small business and consumers is
concerning.
They loom over innkeepers. The community of small hoteliers
now has very high cost to market, and a century ago we saw such
similar things for perishable goods because of the railroads.
We are now at the end of the line for today's modern
equivalent, the Internet. I would ask that the Committee look
to hardwire a fair playing field for hotels and for all small
businesses.
And I thank you for listening and for the opportunity to
present today. I look forward to answering any questions that
you may have.
Chairwoman VELAZQUEZ. Thank you.
Mr. Hart?
STATEMENT OF MOLSON HART
Mr. HART. My name is Molson Hart. Almost 10 years ago I
founded a guy company named Viahart. We have four full-time
employees, and we sold about $4 million of product on Amazon
last year and should sell about $5 million on Amazon this year.
I speak Chinese. I know manufacturing logistics, and ecommerce.
And with regard to big tech, Amazon is my area of expertise.
With my testimony, I am going to give you a bird's eye view of
what it is like to operate a small business in Amazon's orbit,
as well as answer the questions posed by the hearing summary. I
will also submit detailed documents for the record that
describe issues small businesses and consumers face on Amazon,
what government can do about it, and whether they should.
To the question, ``Has Amazon created business solutions
that have enabled small businesses to reach and serve new
customers?'' The answer to that question is ``Yes,
absolutely.'' Their Fulfillment by Amazon program solved
logistical issues for small businesses that previously would
have required big investments or big headaches. This has
enabled small businesses to offer less expensive and innovative
products more easily to American consumers. Everyone, perhaps
with the exception of brick1and-mortar retailers, has won--
Amazon, small businesses, and consumers. As a result, Amazon
owns ecommerce. We can talk statistics, but just trust me; for
most categories, such as books, toys, electronics, home goods,
and gifts. Basically, everything but cars, food, gasoline,
luxury, and convenience, Amazon is dominant. In 2018, despite
selling on eBay, Walmart.com, our own website, and brick and
mortar stores, Amazon accounted for 98 percent of our revenue.
So, do small businesses like ours rely on Amazon? Yes,
completely. When they say jump, we say how high? If Amazon
suspends us from the platform, we go bust and we go bust fast.
In 2018, we paid $2 million to Amazon and Amazon's expenses as
a share of our revenue on Amazon have gone from 33 percent in
2013 to 50 percent in 2018. That said, we have been profitable
and our sales have grown 37 percent every year over that
period.
So, do small businesses have an opportunity to compete in
the information age? It is not easy, and we work hard, but we,
as a small business, have done all right. So yes, we do have an
opportunity to compete amongst big tech. But is the playing
field fair? The answer to that is like a Facebook relationship
status, it is complicated.
If we compete against Amazon, we operate at a massive
disadvantage, but provided they do not engage in underhanded
tactics, that is okay. It is capitalist competition. If Amazon
Basics knocks off one of our products, provided they did not
commit IP infringement, it is unfortunate, but it is okay. On
balance, while they certainly make their fair of mistakes,
which I describe in my additional submission for the record,
and while they sometimes focus on what is legal rather than
what is ethical, they are a good company.
They are also an engine for innovation. As such, we as a
Nation should take great care in legislating or regulating this
giant, but also fast-moving and innovative company.
Like in the Hippocratic Oath, we should first do no harm.
IN keeping the metaphor, it is said that sunshine is the best
disinfectant. By shining light on the issues, we can compel
Amazon to do a better job in addressing them. Since selling on
the platform, I have seen them make great strides towards
improving their marketplace for honest sellers and consumers.
While I do think there are some areas where legislation and
regulation is appropriate, in general, here, the threat of it
is stronger than its execution.
We can do better for American consumers, American small
businesses, and the entire United States by preceding with
caution and introducing narrow legislation that addresses the
nagging problems on the platform.
My additional submission for the record not only describes
these problems in detail, but also suggests legislative
solutions that can win bipartisan support and better American
for all stakeholders.
So let's do it. And let's do it now.
We have a unique opportunity in time to improve our country
by doing so, and I look forward to working with you to make it
happen.
Thank you for this opportunity, and I welcome your
questions.
Chairwoman VELAZQUEZ. Thank you, Mr. Hart.
Mr. Feld, you are recognized for 5 minutes.
STATEMENT OF HAROLD FELD
Mr. FELD. Thank you, Chairwoman Velazquez, Ranking Member
Chabot, thank you for having me here today.
In a world where people find restaurants by asking their
phones to show them the best reviewed places on their map apps,
where people research their purchases and comparison shop
online, and where viral video or tweet can make you famous in a
good way or a bad way, we must acknowledge the impact of big
tech goes well beyond startup garages in Silicon Valley.
Big tech impacts every Main Street in America. Digital
platforms are only the latest technology to transform how we do
business. Just as it is impossible to imagine our economy
without the ability to ship goods anywhere or to operate
without electric power or to manage without credit cards, money
transfers and global communication systems, it is impossible
now to imagine a small business without somehow interacting
with big tech.
As with these previous technologies, Congress must set
rules of the road that protect small businesses from anti-
competitive abuse and provide the stability necessary for
investment and for commerce to thrive. We have seen in the last
few years a growing stream of credible allegations that the
largest online platforms have used their dominant position to
favor their own products, unfairly undermine competitors or
extract concessions from small businesses with no real
alternatives.
For example, Amazon has been accused of altering its
recommendation algorithm to suggest purchases based on what
maximizes profit to Amazon rather than what consumers would
most like to purchase. Google was found guilty in the E.U. of
favoring its affiliated products in its shopping act. Facebook
has been accused of denying access to potential competitors,
such as Vine, and extracting concessions from applications
developers once they were locked into the platforms. The
companies deny some of these accusations but the list continues
to grow.
But even more troubling are the growing number of cases
where giant digital platforms hurt small businesses entirely by
accident or when trying to do the right thing. If this were
simply about finding and punishing a few bad apples, we could
leave this to existing law. But what could a small business do
when a fake complaint by a rival can get them kicked off Amazon
with no notice, effectively shutting down their business? Or
when a decision by YouTube to change its monetization policy
can bankrupts thousands of small creators at once?
Congress must step up as it has done in the past, as it did
when access to railroads or to reliable banking services or to
electric power became essential inputs for small businesses.
Congress must set some basic rules of the road that ensure that
everyone gets treated fairly. Ideally, Congress would create a
comprehensive statute addressing digital platforms and a new
expert agency to enforce it.
Digital platforms are a unique sector of the economy
subject to powerful network effects that make them prone to
concentration. At the same time, many of the things that create
the capacity for competitive harms also create the capacity for
significant consumers and business benefits. A sector-specific
regulator is best equipped to investigate concerns and strike
the proper balance.
Public knowledge recognizes that this is an ongoing
process. We therefore urge Congress to focus in the short-term
on the following four things as most important to protecting
small businesses and promoting competition.
One, nondiscrimination. Search and recommendation
algorithms should great everyone fairly, not based on how much
profit goes to the platform or app store.
Two, interoperability. Small businesses and potential
competitors with the platform should have the ability to plug
and play without interference from the platform.
Three, protection of proprietary information. Small
businesses expose sensitive information as part of their
dealings with digital platforms. Platforms should not be able
to exploit that access.
Four, due process. Businesses need sufficient notice to
plan and the right to correct mistakes that can cost them their
business.
Thank you, and I am happy to answer any questions.
Chairwoman VELAZQUEZ. Thank you, Mr. Feld.
Ms. Prodromitis, you are recognized.
STATEMENT OF THEO PRODROMITIS
Ms. PRODROMITIS. Thank you. Thank you, Chairwoman
Velazquez, Ranking Member Chabot, and all the esteemed
Committee members.
My name is Theo Prodromitis. And I am a family member of
Greek immigrants, U.S. veterans--very proud veterans--and
entrepreneurs. You could say entrepreneurship is in my DNA. And
I grew up working in our family businesses. So all of this talk
in the Committee about small businesses, I am one of them. I
have also had the great pleasure on being the National Retail
Federation's Small Business Advisory counsel, and in that
capacity have gotten to work with thousands of different small
businesses, understanding their pain points.
But for the topic today, I will talk about the product line
that I launched called Spa Destinations. In 2003, we launched
our line of personal care products, but in 2008, something
happened and we had to downsize and pivot. One of our big
issues at that point, in addition to the economy, was the
impact of the market flooded with subpar Chinese imports. And
our $20 premium natural sponge that was hand selected and
harvested from the Gulf of Mexico as a natural renewable
resource, now suddenly could not compete with a $2 synthetic
sponge imported from China. And that was the impact it had on
us because we needed somewhere to tell our story.
So in 2014, we heard about selling on Amazon. And all of
our colleagues thought we were crazy. They thought Amazon was
the competition or the enemy and they told us not to do it.
Luckily, we did not listen. So we started small, and it was
$39.99 to get a seller account, and we started listing some of
our products on Amazon. And eureka. Our business started to
grow over and over again because we featured in on the Amazon
democratizing opportunity, which is the best brand wins. It is
not just price; it was the fact that we could actually tell our
brand story on a platform and they gave us access to their
millions and millions of customers.
So Amazon provides conferences and Seller University.
Everything we need, it is a really robust platform that gives
us access, and there are people there 24/7 to answer our
questions. Yes, we have the same business challenges everybody
does, but now we have a logistics expert that allows us to
actually focus on product innovation and investing in our own
businesses, growing our own staff, and doing the things that we
need to do in our small business on this platform. They make a
lot of the services very affordable and give small businesses
and premium brands, like myself, a voice.
Noteworthy is that Amazon, of course, does disrupt
industries and categories, and we all know that. So, for
example, when they disrupted the delivery with Prime, it got
everybody to innovate. And everybody sort of stepped it up. And
they started delivering faster because Amazon focuses and holds
us accountable to a customer-centric model where we have to put
the customers first. And Dr. Kennedy's testimony said that in
the most competitive environment and my 30 years' experience in
retail, the most important thing is that the customer is
treated fairly. And they also created a professional beauty
category to actually decrease the number of counterfeits and to
address some of the issues with the market being flooded with
used products or substandard products.
So in conclusion, there are a few important statistics I
just wanted to reiterate. One is that as part of the National
Retail Federation, one of their published statistics is that 10
percent of retail sales, only 10 percent, are done online. So
there is still a huge additional market. It seems like it
eclipses everything else but it only accounts online sales for
10 percent of all retail. And, of course, the one that matters
to me the most is that the Amazon platform and building our
business after the downsizing in 2008 has given me the
opportunity to grow a multi-million dollar business, take care
of my kids, and to grow and innovate and focus on what my
expertise is in partnership with Amazon. Thank you.
Chairwoman VELAZQUEZ. Thank you.
Mr. Ward?
STATEMENT OF JAKE WARD
Mr. WARD. Madam Chair, Ranking Member Chabot, members of
the Committee, on behalf of the Connected Commerce Council and
our members, it is good to be with you again today.
The Connected Commerce Council is a nonprofit membership
organization for digitally empowered small businesses. We
believe that access to digital tools gives small businesses the
best opportunity to succeed. This belief is informed and
affirmed by each of our more than 2,500 member companies and
supported by the numbers. In fact, a recent Deloitte study
illustrates what our members would tell you, that small
businesses that leverage digital tools have higher revenue,
twice the profitability, and create three times as many jobs.
It is a privilege to be with you today and to share their
perspective and the stories of some of these businesses.
Stories like that of a Utah-based startup that invented an all-
in-one bedding set that makes it easy for kids, and adults, to
make their bed every morning. And for those of us who have
attempted to make a bunkbed, this is an innovation on the level
of the wheel and sliced bread.
Even then, breaking into the traditional retail market and
competing against global giants is nearly impossible. With a
quality product, a simple website, well-placed ads and access
to online marketplaces, Beddy's is now a thriving company
employing dozens of people and serving a global customer base.
While Beddy's is an exceptional company, their success is
not an exception. Digital services, platforms, marketplaces,
help tens of millions of small businesses start, grow, and
succeed in previously unimaginable ways. These tools provide
lower cost options specifically designed to provide small
businesses with more accurate, measurable, and efficient ways
to enter into a market. And most importantly, those tools give
small businesses a fighting chance, not only because of the
scale of the platforms but also against some of those large
companies.
For our part, it is hard to imagine a more competitive
marketplace. The largest, most innovative companies in the
world compete fiercely to reach tens of millions of American
small businesses. As a result, their prices are low, their
products are innovative, and the business is good. In turn,
small businesses use these tools and marketplaces and platforms
to compete with one another, with larger companies, and with
businesses in countries around the world. The result is more,
better, cheaper products for consumers everywhere and a more
vibrant economy here at home. This is what a healthy market
looks like. It is working.
I am not here to defend big tech today or to speak to the
interest of those companies. They are more than capable of
defending themselves. I am here today to defend small
businesses from the unintended consequences of overreacting, to
defend an ecosystem in an economy that is working, and to speak
up for tens of millions of American businesses whose
livelihood, whose peace of mind, and whose bottom lines have
been well served by digital tools and the companies that
produce them.
CCC's concern is that we too often only focus on the
largest companies, missing the forest through the trees. The
idea that regulators and policymakers are investigating free
and low cal services that power small businesses confuses and
frustrates many of our members. Access to digital tools is
essential for American small businesses, not in concept or in a
legal sense, but in reality. As you know, the answer to many of
these challenges is for policymakers to speak with small
businesses rather than simply talking about them.
I would like to thank you, Madam Chairwoman, Representative
Chabot, and this Committee for your leadership in welcoming
small businesses to the table today, because if asked, small
business owners will tell you the challenge of every small
business is unique, but their stories are universal, and that
those challenges force small businesses to be early adopters
and to adapt quickly where others are too large or too
complacent to take advantage. They would tell you that access
to affordable, secure, and scalable tools unleashes the
potential of American small business and that the value of that
access is measured in new employees and increased financial
security. Every small business owner knows that starting a
business is an act of faith, that running one is a matter of
perseverance, but success requires luck and a lot of help.
Today that help comes in the form of global platforms and
services providers.
Digitally empowered small businesses stand on the shoulders
of large companies to reach otherwise unattainable heights.
Platforms invest in scalable, secure, affordable tools.
Marketplaces connect buyers with sellers and the guiding
principles of the digital economy, speed and scale,
consistently drive shared value and mutual benefit for small
businesses. Innovative technologies and approaches are widely
available, easily adopted, and quickly improved upon.
Now is not the time for political opportunism or
gamesmanship. The stakes are too high and the issue too
important. The partnership between big tech and small
businesses are built on mutual benefit. Discussions about
balancing that benefit are warranted and welcomed, but we
should also consider the harm changes to the current ecosystem
could have on an American small business economy that is
thriving.
On behalf of tens of millions of digitally empowered small
businesses, thank you for welcoming us today. I look forward to
answering your questions.
Chairwoman VELAZQUEZ. Thank you.
Mr. Dufault, you are recognized.
STATEMENT OF GRAHAM DUFAULT
Mr. DUFAULT. Good afternoon. My name is Graham Dufault, and
I represent over 5,000 small businesses that build the software
programs that bring your smart devices to life. Thank you for
hosting this important hearing and for listening to the voices
of small businesses in this debate.
The App Association's primary focus here is on the mobile
software market, and that includes the relationships between my
member companies and big software platforms.
You heard on the first panel about some really big numbers,
billions of people, trillions of dollars that are impacted in
all of this but I want to focus on the smaller numbers, the
father-son team of two at Micro Integration Services in
Medford, New Jersey; the team of 17 at Hashrocket in Ohio,
Florida, and Illinois; and the team of five in Duluth,
Minnesota, at Creative Arcade. These are small numbers but they
add up in your districts to a really powerful engine of growth.
And we want to preserve that.
Chairwoman Velazquez, in your district there is a teacher
who created an app called Chaperone. It helps organize school
field trips in real time. She is a problem solver and the App
Store platform helped her create a solution there.
Ranking Member Chabot, the team at Canned Spinach in your
district created the augmented reality solution for Toyota so
that shoppers can virtually experience cars from their smart
devices.
And so how did big tech help small companies, these small
companies that I just mentioned? Let's go back in time.
Back in 1998, it could cost up to about $10 million to get
a software company off the ground. Now, 21 years later, it
costs about $100,000. From an investor's perspective, a $100
million investment fund can go toward a lot more companies now
and it can go toward market disrupters as opposed to sort of
the sure bet, the pre-IPO incumbent.
So how has a platform made these radical changes possible?
I point to three things. One, reduced overhead. Two, a trusted
space. And three, immediate access to billions of consumers
around the world. And so in this case, the fact that platforms,
software platforms especially, are household names, has
actually helped lead to the democratization of entrepreneurship
here.
Of course, for software companies, coming by trust is a
pretty expensive proposition. Even now when you download a
software program it can be glitchy, it can give your computer a
virus, and so a trusted source is extremely valuable.
Back in the `90s, it used to be necessary for some
developers to sign over their rights to publishers just to deal
with that trust issue. And so platforms have changed all of
this by creating a trusted space where users know that their
devices will remain secure. Not only that, they have done it in
a way so that consumers and developers can transact directly.
Each of you probably has a smartphone in your pockets, and
if you are like the average American you have somewhere between
60 and 90 apps. The vast majority of those are made by small
businesses that you have never heard of, so why is it that you
trust the software that they have created enough to download
it? The answer is because the platform has created a dependable
environment for you to do that.
Of course, it is not all sunshine and roses. Platforms need
to improve in important ways and we are very glad that the
Committee is conducting this inquiry so that we can understand
the competitive forces at work.
Our developers need a few things from platforms. Number
one, they need developer guidelines and any changes made to
them explained clearly so that developers know what the changes
are going to mean for them. And number two, we need safety and
security. Some have control over device security and other
platforms do not. But measures should be in place to ensure
that consumers and developers alike are protected. And number
three, platforms should diligently respond to even the smallest
developer when they see that their content has been stolen by
another developer on the platform.
Right now, platforms are fighting for our business. This is
an ideal state of affairs and it is a sign that competition is
alive and well, at least in the app economy here.
So from Congress our asks are simple. Number one, even by
the most conservative estimates, 20 million Americans still
lack access to broadband. I have a colleague from Orrington,
Maine, who is just 6 miles out of Bangor, actually, and her
parents still use dialup. Dialup is still being used
everywhere. All over the place here in the United States it is
still an issue. We thank the Committee for the efforts that you
guys have embarked on to ensure that broadband is deployed to
the hardest to reach parts of America.
Number two, we appreciate the Committee's efforts to ensure
that Small Business Administration programs do what they are
supposed to do, and we want to urge you to continue that work
to ensure that tech-driven businesses like my members have
access to those support mechanisms as well.
And then finally, we urge you to provide adequate resources
for workforce training programs so that we can fill the 500,000
computing jobs that are open right now in this country.
And so thank you again for the opportunity to appear here
before the Committee, and I look forward to your questions.
Chairwoman VELAZQUEZ. Thank you. Thank you all for your
testimonies.
Let me just share with you that in this Committee we work
in a bipartisan way. There is no republican or democratic
approach when it comes to issues that are impacting small
businesses. We are committed to accountability. When we have
Amazon and Google come before us and we pose questions
regarding the treatment or the unlevel playing field for small
businesses to be able to compete and not be put at a
disadvantage and they tell me that they know because they do
internal testing, well, it is not only about internal testing;
it is about accountability.
I believe it was Congressman Hern who raised the issue, who
is watching over you? Who is holding you accountable? That is
what goes to the heart of the issue here.
Ms. Cavaretta, it is my understanding that over 96 percent
of all hotel room bookings that take place through online
travel agencies go through two companies, Expedia and
bookings.com. They then pay millions of dollars to Google which
controls 90 percent of all Internet searches. It seems to me
that if you are a travel company looking to reach consumers,
all roads lead to Google.
Can you expand on how this happened and discuss how it
impacts small businesses and ultimately consumers?
Ms. CAVARETTA. Certainly, Chairwoman. I would be happy to
address that today. First off, thank you very much for the
hearing and the opportunity.
Two things come to mind with your question. First, when
over 70 percent of consumers believe that they are booking
directly with a hotel, when, in fact, they are redirected by
Google's book a room button to the highest bidder, the
traveling public is being misled. It's misdirection to that
highest bidder, and often it is to the highest bidders of those
two companies that you mentioned. Or it is one of their mass
subsidiaries. I think Google can get to over 18,000 of
Expedia's sites, and they have that many. Or even worse; it
could be a fraudulent fly-by-night site and you have an online
booking scam.
Second, our small business has to pay now to try to have
our phone number found in searches. And those searches spiked
over the last 6 months since its recent update. And it is still
not being found as the data shows. So that secretive algorithm,
the transparency that you are so concerned about, it determines
whether or not we have our call extension shown, even if we are
paying for it or not.
So if the consumer is directly searching for our phone
number, the net effect is that Google has moved the ability for
it to be found by the consumer into a play to play space.
Chairwoman VELAZQUEZ. Thank you.
Ms. CAVARETTA. You are welcome.
Chairwoman VELAZQUEZ. Thank you.
Mr. Hart, you rightly recognize that Amazon has created
business solutions that have enabled small businesses to reach
new customers, solving logistical and transportation issues for
millions of small firms. You also acknowledge Amazon could do
better. What are your targeted ideas to ensure that companies
like Amazon, and other large tech companies like them, are not
using their market power to put small businesses at a
disadvantage?
Mr. HART. So at this point, I think the best course of
action would be narrow legislation coming from Congress to
address some of the nagging problems on Amazon. And I laid some
of them out in my additional submitted testimony.
For example, there is a law called the DMCA, where if
someone files an allegation of copyright infringement, the
defendant as it were has the right to submit a DMCA counter
notice for that copyright infringement and kind of say to the
person who is saying that you are infringing on the copyright
say, look, if I am infringing on your copyright, you have got
to sue me. I think that that legislation should be extended
toward trademarks and patents, and I think that that would
clean up the marketplace enormously.
The reason why is that there are a lot of brands in the
United States that make allegations of trademark incentives
toward companies that are selling on Amazon that are selling
authentic goods. They want to keep their prices high. They do
not want the competition on Amazon so they say that that guy,
you know, who is maybe in Ohio, maybe who is in rural Ohio who
is selling products, that person is selling inauthentic goods
when, in reality, they are not. Amazon in some cases, they may
make the wrong decision, they may make the right decision. We
will suspended that seller from the platform. I think that is a
pretty good example of how we could fix that problem. That
problem has existed for 3 to 5 years, maybe even longer on the
Amazon platform, and they have not really done anything about
it. So I think at this point we could use some legislation, and
in my initial submission, there are a whole host of other ideas
like this that improve the platform.
Chairwoman VELAZQUEZ. Thank you.
Mr. Feld, how should Congress approach ensuring small
businesses are treated fairly on this large platform?
Mr. FELD. I have a number of specific suggestions. I think
it is exactly that there needs to be somebody who can check.
There needs to be somebody who has the authority to go in and
ask questions. At the same time, the companies' proprietary
information needs to be respected. You do not want to expose
the search algorithm itself because you do not want people to
be able to hack it for illegitimate purposes. There are other
suggestions in my written testimony, and I am happy to
supplement because I see I am running out of time.
Chairwoman VELAZQUEZ. Thank you.
You listened to the companies that were here today. Do any
of you have any reaction to any point that was raised or any of
the answers that were provided by either Amazon or Google?
Mr. Feld?
Mr. FELD. I do want to address this point that Amazon makes
about comparison of their own label with traditional
supermarket labels because it is not really a fair analogy. The
problem here is that Amazon works much more as a distributor
than as a retail market. If I go to a supermarket, yes, there
is generic brand label on the shelf but I also see all of the
other products. If I am in the pet food section, for example, I
see all of the other cat foods. And if I am on Amazon, however,
I only see the products that are displayed in the very small
space which there is for a display. Furthermore, the
supermarket only knows the sales that it makes. It orders an
inventory. It brings that in. It knows the specific sales it
makes. It may have information about the customers that it
sells to. Whereas, Amazon takes in a great deal more of
proprietary information in the same way that a distribution, a
national or global distributor does. Again, it is not quite
like a distributor either but I recommend in the testimony and
I have recommended in my book, The Case for the Digital
Platform Act, which is available on Amazon, which as I point
out is not hypocrisy. It just proves my point. But that there
are many situations that we have like this, such as shippers
and telephone companies that we have rules that govern this.
Chairwoman VELAZQUEZ. My time has expired. I am sorry. If
not, Mr. Chabot is going to be--then he is going to say that I
am too partisan here, and I am not. Mr. Chabot?
Mr. CHABOT. I would never say such a thing.
Just to be clear though, we did agree, that was about 7
minutes.
Chairwoman VELAZQUEZ. Correct.
Mr. CHABOT. So we get it.
Chairwoman VELAZQUEZ. Yes. That is what I got.
Mr. CHABOT. Okay, thank you. Thank you.
I am going to ask Mr. Ward and Mr. Feld, obviously, one of
the things that Congress is considering is should we get
involved relative to regulations of the tech platforms and that
sort of thing. And if we were on a scale say of zero to 10,
zero being leave it as it is, do not do anything, to 10, being
a heck of a lot of regulations, as much as necessary, Mr. Ward,
Mr. Feld, I do not care who goes first, but make your best
argument as to where that number ought to be and where. So 10
is a lot of regulations, zero is no more than we have now.
Mr. FELD. Well, I think you have to have as much as
necessary. I mean, that is kind of like how high is up? I think
that the current situation is an atmosphere that creates
distrust by small businesses that create situations where they
cannot resolve their problems, where very real problems are
being created, where businesses are being hurt by accident,
where the platforms are trying to do the right thing and cannot
because they involve complicated tradeoffs. So I think Congress
needs to make a number of important decisions. I do not think
that necessary equals lots and lots of regulation but I do
think that it means that Congress needs to create an authority
that is empowered to, you know, an umpire to call balls and
strikes. That is not a lot of work. That is calling balls and
strikes but it is pretty important to do.
Mr. CHABOT. Okay. Can you put a number on it?
Mr. FELD. No.
Mr. CHABOT. Okay.
All right. Mr. Ward?
Mr. WARD. Two.
Mr. CHABOT. Okay.
Mr. WARD. I think in the lifecycle of platforms and big
tech companies we are in the Model T stage. You know, this is
just the beginning. We are seeing the market do what the market
is supposed to do. We frankly are so far afield from what real
capitalism is supposed to look like it scares us a little bit.
I, on behalf of my members, reject out of hand the idea that
small businesses distrust the platforms. I think that the vast
majority of growth in the small business community is because
they do trust the platforms. There is certainly a backlash
against large tech companies over the last 3 or 4 years for
reasons outside the perspective of competition, and there is
sort of a triangulation around the idea of data and privacy and
competition that is all coming together at once. And that is
understandable and reasonable, and we should all dig into that.
But I think historically we know that one of the primary
drivers of innovation in this country is not government
intervention. Right? What Google and Amazon need to figure out
better ways to service small businesses is not government
bureaucracy. I also think the FTC would be a little insulted
that we need somebody else to call balls and strikes.
And lastly, regulatory capture is very real threat if we go
down this road. There is a continuing evolution in big tech,
faster cycles than we have ever seen. That is just the nature
of the universe that we live in now. Let's give the market a
chance to catch up and surpass and reorder some of these
companies before we have Congress do it.
Mr. CHABOT. Thank you.
Mr. Dufault, let me go to you next. I think you said you
have about 5,000 apps in your organization. How many apps are
there? I know that is a hard number to know, but do you have
any idea how many there are out there?
Mr. DUFAULT. The major platforms, you have more than 2
million that are broadly available to the public. So there is
going to be more than that. I think that is the latest count
for the Apple App store and the Google Play store. So there are
more than that. There are more than just those two platforms is
the thing that we have to recognize. And even our member
companies are on Microsoft's platform. They are on App 47,
which is an enterprise platform that most people do not think
about because it is really just enterprise-facing work. And so
I will point to that and say, you know, definitely over 2
million but it is hard to count at this point.
Mr. CHABOT. Thank you.
If an ad or something pops up on your iPad or your iPhone
or whatever, is there an accepted size that the X is supposed
to be on there? Is there best practices or is there anything
like that?
Mr. DUFAULT. You are talking about the ads?
Mr. CHABOT. It is really hard to find sometimes.
Mr. DUFAULT. The ads or the----
Mr. CHABOT. Yeah. Say an ad pops up and you want to get rid
of the ad.
Mr. DUFAULT. Right.
Mr. CHABOT. And, you know, there is an X where you can X
out and get rid of that ad and look at what you went on there
to begin with. Is there an accepted size or is there a
standard?
Mr. DUFAULT. There are some standards. I know that the
Digital Advertising Alliance which is sort of a partnership of
advertisers tries to standardize the size and make sure that
there is an opt in for advertisers so that you can provide the
X. I think I know what you are talking about. It is a little
blue X in the top right corner; right?
Mr. CHABOT. Yeah, usually up there. And just to get rid of
it if you want to.
Mr. DUFAULT. Right.
Mr. CHABOT. Along those lines, oftentimes you are given two
choices on this particular thing that you did not go to, that
popped up. You know, it is either like do it, whatever it
wants, or do it later. Well, I do not want to do it at all, so
they do not give you an option. Or there is no X. You know, I
do not know that there is any regulations on that but that is
one I might just support to do something about that.
Let me go to you, Ms. Cavaretta. You, excuse me, I know you
had your battles with Google. What, if anything, did they do?
Did they offer to do anything? Did you confront them? And if
so, did you get any answer at all?
Ms. CAVARETTA. In short? No. They have not approached me,
and they are not approachable.
Mr. CHABOT. And you could not get them, I mean, basically?
Okay.
Mr. Hart, let me go to you next. You mentioned that--I
think you said 50 percent of sales basically goes to Amazon; is
that correct?
Mr. HART. Yeah, that is correct. If we sell a dollar on
Amazon, as of 2018, we pay 50 cents of that dollar to Amazon.
Mr. CHABOT. Okay.
Mr. HART. In 2013, it was 33 cents.
Mr. CHABOT. Okay. And what services do you get in return
for that? Do they break it down for you or what?
Mr. HART. Yeah, they absolutely do break it down for us. So
the first thing is we pay a 15 percent commission on every
product that is sold on Amazon. For some of the products we
sell, we pay Fulfillment by Amazon fulfillment fees. They range
from $5 to $10 depending on how heavy the item is. We pay a ton
of money. As I recall, in 2018, we spent about $180,000 on
sponsored advertising on Amazon. That kind of works the way
Google Ad Words advertising does. When you search, you will see
a sponsored product. We pay money in the form of storage fees.
A whole host of things. When you add them all up, in 2018, it
added to about 50 percent.
Mr. CHABOT. Thank you.
Chairwoman VELAZQUEZ. Would the gentleman yield for a
second?
Mr. CHABOT. I would be happy to yield to the Chair.
Chairwoman VELAZQUEZ. Mr. Hart, was I correct or incorrect
when I made the comment to Amazon that in order for a search to
show a small business product that if you pay ads then you will
show up on the first page or second but not----
Mr. HART. Yeah. In 2019, at this point, it is enormously
difficult to have your products appear on Amazon without paying
Amazon for advertising. It depends. It varies by category, but
if you do a random search on Amazon, your top eight results in
many cases will be advertisements. They will be advertised
products. If you go back to 2013, Amazon did not even have
advertising. So that is one of the ways that Amazon's expense
share of our sales has gone from 33 percent to 50 percent.
And I know you guys have limited time, but if I could, I
would love to respond to some of the questions and things that
were said earlier.
Mr. CHABOT. My time is expired. I will yield back at this
point.
Chairwoman VELAZQUEZ. Okay. The gentleman yields back.
Mr. Evans from Pennsylvania is recognized for 5 minutes.
You will have 2 extra minutes if you want to listen or allow
the gentleman to be able to react.
Mr. EVANS. Thank you, Madam Chair.
I want to piggyback a little bit on the Ranking Member and
what he said between zero to 10 and go by the previous person,
I think it was Mr. Kennedy. And he raised the issue that it
should be about the consumer. And I have not heard that. That
is what I am most concerned about is the concern. So I heard
one gentleman say two and I heard the other one did not want to
give a number. But how does all this relate to the consumer? I
mean, it is about credibility and integrity. So I am hearing
about the search engine, but the consumer, I mean, the consumer
does not have the ability to have access to this information.
So Mr. Feld, I am interested, and the other gentleman, Mr.
Ward, I think it is.
Mr. FELD. This is one of the big issues that makes the
digital platform sector unique. It has what I call perfect
asymmetry of information. Meaning if I am the user, I have no
clue what is going on there.
Mr. EVANS. Right.
Mr. FELD. I have to trust. Now, one of the ways is if I
start getting good search results, you know, that they are
relevant, then that is all fine. But the problem is when you
are talking about a business perspective, there are a lot of
hotels that are relevant to me if I am looking for a vacation
in Maine. I do not happen to know what is the ideal one, and if
somebody is paying, it is kind of like if you are listening on
the radio, I do not know if it is a payola thing where somebody
is paying for play or if it is really that the DJ thought that
that was a cool song.
Mr. EVANS. Right.
Mr. FELD. And that is why Congress passed the law that
says, you know, no payola. You have to pay if it is being
sponsored. So there is a similar problem here; there is just no
way for the consumer to know, and I agree with Ms. Cavaretta
that it is a real problem, that it is deceiving the consumer to
some degree if it is not factors that the consumer thinks the
search ought to be based on.
Mr. EVANS. Mr. Ward, your response?
Mr. WARD. Yeah, sorry. The idea of consumer harm, and
again, I am not a lawyer but I will play one on TV for a
minute, is an FTC term. I think it is Article 5. It is the idea
of price discrimination or deception, neither of which are
particularly applicable when the product is free. Now, it is
true that free is a price, that you have to build into the idea
that your search result has a value to somebody the same way
that it would if you were shopping for something else. But
again, the market is going to do what the market is going to
do. And we are taking for granted that this did not even exist
23 years ago. When we wanted to go on vacation in Ogunquit, we
would ask somebody that we knew that had been there. And that
was the quality of the search that we could do. In this case,
it does not take too many clicks to look at ratings, Yelp
reviews, particular feedback from people that have actually
been there. You can make a call or two. All of that is
accessible because of the investment that was made from these
companies to give that power to us. If we are not willing to
use it, that is on us, not them.
Mr. EVANS. Are you still holding to your position based on
the Ranking Member of being a two when I add the aspect of the
consumer? Because remember, the consumer is trusting this
information, and the consumer does not really know. Because
through marketing of this----
Mr. WARD. Sure.
Mr. EVANS.--advertising, the consumer makes the assumption
that I am getting the best--you wanted to say something, too.
So I have got about a minute, and so you have got to make it
quick. I want to get over to the----
Mr. WARD. I believe Ranking Member Chabot's question was on
a scale of 1 to 10, how urgent is it that government get
involved and my answer was 2.
Mr. EVANS. You said 2; correct.
Mr. WARD. That is still the case.
Mr. EVANS. Okay, even about the consumer.
Do you want to comment on that?
Ms. CAVARETTA. Thank you, Congressman Evans.
I would say that if you looked at your search results as a
consumer, you had about 900 pixels that was going to be
relevant to your organic search result and you are down to
about 360, 390 that is organic and the rest of it in Google is
now all pay to play product. That is a lot of real estate that
is gone that they are making money off of.
But you know, just this past weekend I can tell you that I
had customers who thought they booked on booking.com, and they
did, but really it came through another third party because
they did site scraping. And the customer had no idea that they
had two middle men in between their reservation or not. And
what happens is they do not know who they have actually booked
with. And that is a problem when they want to change their
reservation. If it is a fly-by-night site. And that is
happening often. I send about two cease and desist letters
every summer to fly-by-night companies that are scraping off of
sites and causing fake bookings. And that is a real problem,
and it is enabled by this environment where there is lack of
clarity around those reservation buttons.
Mr. EVANS. I will yield back the balance of my time.
I want to say to you, Madam Chair, it does seem like the
Wild West for the consumer. Now, we are talking about the
consumer who does not have the knowledge that we are seeing
here and do not have a chance. And here the consumer looks like
they are in trouble.
Chairwoman VELAZQUEZ. Since I allotted 7 minutes for the
gentleman, I will allow Mr. Hart and Ms. Cavaretta to react to
any of the answers that were provided previously by the
companies that were here.
Mr. HART. Just briefly. I think there are some narrow areas
where Amazon does have policies that do lead to consumer harm.
This is not an example of it but just to kind of frame the
conversation.
So we were talking about how I was paying 33 cents for
every dollar in 2013; now it is 50 cents for every dollar in
2018. We raised prices. So that is a little bit of consumer
harm right there. But that is not an Amazon policy necessarily.
Returning to the comments earlier, Ranking Member Chabot,
you said that exports are important to you, and I obviously
agree. Everyone does. One really great way to solve that
problem would be to bring equity to the Chinese e-packet
situation. And I can explain what that is if you like.
Basically, it is just considerably more expensive for us to
ship our products to the United Kingdom versus a seller in
China. Considerably. Like 10 times the cost. And that inhibits
our exports.
Congressman Golden, you asked a question to Mr. Mehta about
whether or not you need to store your goods in Fulfillment by
Amazon. This is not necessarily something that is unfair or
bad, but in order to get sales, you absolutely do need to store
your products in Amazon's warehouses in order to get that Prime
check.
The punishment for late delivery, Amazon makes late
deliveries all the time. A lot of us are Prime members. This
probably happened to you. You can fight for like maybe a $5
promotional credit or something like that. We ship out of our
own warehouse. If we are late, we can get suspended, which is a
rather more onerous punishment. Now, if Amazon is late, in some
cases you can like kind of edge your way into a refund of some
sort. This is another example of consumer harm. And Amazon is
very generous with how it refunds the consumer in that case.
But it turns out in a lot of cases, my company will be footing
that bill. So they will deliver our product late but we pay for
the refund even though it was not our fault.
Respectfully, Ms. Prodromitis, I know hundreds of Amazon
sellers, and I would say that her view of the platform is more
the exception than the rule. And I would love to hear about how
she sells her sponges on Amazon today in view of how much
Chinese competition there is on the marketplace now.
Chairwoman VELAZQUEZ. Okay. I will recognize the gentleman
from Maine, Mr. Golden. We are running late here. Thank you.
Mr. GOLDEN. Thank you, Madam Chair. And thank you, Mr.
Hart, for weighing in on that. That is basically what I
suspected, and I might be able to do it. Sometimes just because
you can do something does not mean you should. And I think when
consumers learn more and more about these things some of them
may make different choices and it is okay. But even having the
ability to have that information and make those choices I think
is part of what we are talking about.
I would just make a comment that as we have had
conversations about government getting involved and whether or
not people trust government to get involved and get it right,
and absolutely I think sometimes it is totally fair to say
government does not get it right. Sometimes they do get it
right.
One thing that I always hear from my constituents is a
concern in particular about individual information. You know,
we can talk about health care and other things. People's
concerns about the government having control over
individualized information. And when I think about some of the
tech companies and some of these services, I think that the
growing distrust out there in the general public is about this
concern about information and who has control over it. Whether
it is directly attached to them in their name or not, people
are becoming aware that there is a lot of information flying
around about them, and there is I think a growing distrust and
a lot of concern. And people will I think over time look to
government for reassurances that they have protections. And I
think companies are going to have to come to grips with this
and acknowledge that as they have growing power.
As I listen to Ms. Cavaretta talk about some of the issues
with her business, I hear her talking about the fact that there
is, in addition to the relationship between her and the
consumer, a growing kind of side market that consumers are not
even aware of in terms of another level of revenue being
introduced into the relationship. But even beyond that there is
another almost side market which is the trafficking of people's
data and information which also a lot of these companies are
harvesting and using to go out and make money. And I think that
consumers are aware of that and concerned about it as well. So
I think there is a responsibility to do oversight. And at the
end of the day, thinking about consumers, what we need to be
able to talk about is transparency which is what Ms. Cavaretta
and a lot of other people are talking about. These are really
amazing things that you said they help a lot of small
businesses. None of these small business owners would be using
these platforms if that was not the case, but they also have
the right to express their concerns and seek for options and to
have a voice which is what the point of Congress is at the end
of the day.
I love this phone right here. A good partner of mine back
home, Chamber of Commerce, Maine State Chamber of Commerce, I
love to work with them. I love to work with their members.
Lewiston Auburn Chamber of Commerce where I come from, I can go
onto their website, do a quick scroll search, see who all of
their members are, have a really helpful platform there where I
can reach out and say, all right, I want to find a local
brewery or something along those lines, get connected with that
business. It is a great service and a great nonprofit. So just
a little bit of helpful feedback.
Mr. Ward, I would love to have more information. I would
love to know who I am talking to. Who is sitting before me. I
have checked out your website, clicked on your membership page.
It just gave me the opportunity to sign up as a member. Perhaps
I will consider that or have my family small business think
about that. But I would just say we would love to know more
about the tens of millions of small business owners that you do
represent, and I think that is helpful information for members
of Congress to know.
And just with the remaining time I have, Ms. Cavaretta, I
know that you were indicating you had more to say.
Ms. CAVARETTA. Thank you very much, Representative Golden.
You know, earlier we talked about misdirection and a little
bit of the confusion that the consumer may have. And there are
two sides to that. If you use that Google My Business Listing
as a hotel and you can now go down to the view room's feature
which a hotel like mine does not have access to, it drops you
right to an OTA. So they are going to have access to that for 6
months, and the consumer will be booking with them for 6 months
before I will get that as the producer of the product at my
family's business. And that is unusual to me to think that I
cannot sell my own product on my own listing that is given to
me by free by Google. And the consumer cannot tell the
difference except for a little tiny word. And so both they are
misled and I am misled withheld from being able to access a way
to sell on that product and platform that way.
Chairwoman VELAZQUEZ. The gentleman yields back.
We want to thank all of the witnesses for taking time to be
here. I know that you all have a busy schedule. I really
appreciate it.
We have now heard from both large tech companies and small
main street businesses about opportunities and challenges for
entrepreneurs in the digital economy. As we continue to race
toward innovation, we cannot forget the important role small
firms play in our communities and our economy. Toy companies,
beauty brands, and family-owned, small businesses across all
sectors rely on the Internet and digital platforms to reach
consumers and grow their businesses. However, when
entrepreneurship continues to lag in the U.S., that means fewer
jobs and less innovation. While we must ensure that there is
protection for small businesses and consumers who enjoy the
benefits of digital platforms, we must work diligently to
develop policies that will also continue to foster innovative
technology that has the power to continue to change our lives.
I look forward to working with my colleagues on both sides of
the aisle to come up with bipartisan solutions to these issues.
I will ask unanimous consent that Members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
If there is no further business to come before the
Committee, we are adjourned. Thank you.
[Whereupon, at 4:34 p.m., the committee was adjourned.]
A P P E N D I X
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