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Businesses The Almighty Buck

Amazon Demands One More Thing From Some Vendors: A Piece of Their Company (wsj.com) 47

Suppliers that want to land Amazon as a client for their goods and services can find that its business comes with a catch: the right for Amazon to buy big stakes in their companies at potentially steep discounts to market value. The Wall Street Journal: The technology-and-retail giant has struck at least a dozen deals with publicly traded companies in which it gets rights, called warrants, to buy the vendors' stock in the future at what could be below-market prices, according to corporate filings and interviews with people involved with the deals. Amazon over the past decade also has done more than 75 such deals with privately held companies, according to a person familiar with the matter. In all, the tech titan's stakes and potential stakes amount to billions of dollars across companies that provide everything from call-center services to natural gas, and in some cases position Amazon among the top shareholders in those businesses.

The unusual arrangements offer another window into how Amazon uses its market heft to increase its wealth and clout. The company has been under growing scrutiny from regulators and lawmakers over its competitive practices, including with companies it partners with. While the deals can benefit the suppliers by locking in big contracts, which can also boost their share prices, executives at several of the companies said they felt they couldn't refuse Amazon's push for the right to buy the stock without risking a major contract. The deals in some cases also give Amazon rights such as board representation and the ability to top any acquisition offers from other companies. For Amazon, the arrangements give it a piece of the potential upside the vendors can get from doing business with one of the world's biggest companies.

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Amazon Demands One More Thing From Some Vendors: A Piece of Their Company

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  • This is the exact same thing Warren Buffett has done. When companies are in distress he is willing to bail them out in exchange for warrants or preferred stock (or both). He then reaps the reward later on when the company turns around and exercises his warrants.

    • Re:Warren Buffett (Score:5, Insightful)

      by Anonymous Coward on Wednesday June 30, 2021 @04:01PM (#61538446)
      It isn't very uncommon for large companies to integrate vertically with suppliers. This is for vendors that sell services to Amazon, not vendors who sell stuff to others via Amazon. Something the headline writers could do a better job of clarifying.
    • Re:Warren Buffett (Score:5, Insightful)

      by teg ( 97890 ) on Wednesday June 30, 2021 @04:09PM (#61538488)

      This is the exact same thing Warren Buffett has done. When companies are in distress he is willing to bail them out in exchange for warrants or preferred stock (or both). He then reaps the reward later on when the company turns around and exercises his warrants.

      I'd say that - having a potential profit if you're taking a risk in aiding a company in distress with loans or capital - is very different than saying "if you want to sell your stuff on the largest online platform, you'll have to give us a part of your company".

      • Re:Warren Buffett (Score:4, Informative)

        by pavon ( 30274 ) on Wednesday June 30, 2021 @05:10PM (#61538670)

        I completely agree that the situation with Amazon and Buffet are completely different. But to clarify, Amazon was doing this to companies it contracts with (like shipping/delivery companies, custodial services, hardware vendors, etc), not sellers on Amazon.com. That's still problematic but not as blatantly antitrust.

    • Re:Warren Buffett (Score:4, Insightful)

      by Anonymous Coward on Wednesday June 30, 2021 @04:12PM (#61538500)

      This is nothing like what Warren Buffet does. Amazon is using their monopolistic position in the market place to potentially force vendors to sell shares of their company to Amazon. This needs to be fucking regulated.

      • Re:Warren Buffett (Score:4, Informative)

        by nightflameauto ( 6607976 ) on Wednesday June 30, 2021 @04:14PM (#61538506)

        Don't worry. I'm sure plenty of government officials will be paid handsomely to look the other way while this continues to happen.

        • Don't worry. I'm sure plenty of government officials will be paid handsomely to look the other way while this continues to happen.

          I don't see why they would need to be paid.
          What Amazon are doing is standard capitalism. Growing big enough to dominate the industry a corporation trades in is literally the goal, and Amazon are big enough to dominate lots of industries.
          They have found a clever way to do it without having to actually spend any money.
          Please don't make the mistake of thinking that I'm arguing this is a good thing, because I'm not.

    • by tlhIngan ( 30335 )

      This is the exact same thing Warren Buffett has done. When companies are in distress he is willing to bail them out in exchange for warrants or preferred stock (or both). He then reaps the reward later on when the company turns around and exercises his warrants.

      No, Buffett is risking his own money to save a company. If he's successful, he would want to reap the rewards of doing so. The company is in trouble already. If Buffett fails, he loses his entire investment.

      And it may be a required thing as well - Bu

    • This is the exact same thing Warren Buffett has done. When companies are in distress he is willing to bail them out in exchange for warrants or preferred stock (or both). He then reaps the reward later on when the company turns around and exercises his warrants.

      And to that I say good for Warren Buffet.

      Why?

      Because he's not a soul-crushing industry warping force of sheer monopolization that uses a Basics bulldozer to crush brands into bankruptcy.

      That's why.

    • "This is the exact same thing Warren Buffett has done."

      Except for being completely different. Amazon is demanding *below market* prices. Why do you hate capitalism?

  • If they can't undercut you for some odd reason, they pump-and-dump you out of the market.

  • by RightSaidFred99 ( 874576 ) on Wednesday June 30, 2021 @04:02PM (#61538454)

    I've been critical of the modern concept of "anti-trust" law application, which seems to mainly punish demand-based monopolies which is silly. If consumers overwhelmingly choose a product despite the existence of multiple viable alternatives (see e.g. Microsoft, Facebook, etc..) then that's not a monopoly which needs to be overly regulated.

    That said - this is finally some regulation, of Amazon, I can get behind. This is literally the abuse of overwhelming market leverage power to force "customers"/"competitors" (people who sell shit via Amazon) to give them a piece of the company.

    • And it only took what could be the most monopolistic idea in human history!

    • The normal invasion of monopoly is driven by and the result of free choice by consumers. Once you have enough money from one business, you use it to subsidize your entry into another business, undercutting the market price (for a while). Woohoo! Bargains! Who doesn't like bargains!

      If and when it gets to the extreme point of only one supplier on the market, it's kinda too late, at least in that a lot of damage has already been done and it will be hard to work back to real competition.

    • by fermion ( 181285 )
      Big customers always get a break. In one internet firm, a major media company always paid bills late. In a supply house I worked at, the customer wanted us to pack and ship to each location, but get the bulk discount. In a manufacturing firm, the big customers always got to return product, even if it met all specs.

      A customer like Amazon is invaluable as it can cover your costs. It is something that incompetent business men who were in control of the US government never understood with respect to the USPS.

    • by dryeo ( 100693 ) on Wednesday June 30, 2021 @08:52PM (#61539188)

      People bought Microsoft products whether they wanted to or not. Buy a new computer, buy another Windows license, that's when I got pissed back in the day, when I realized I had paid for 3 or 4 Win 3.1 licenses which I barely used.
      Now that everyone was using Windows as they bought a copy with new hardware, they could engineer Windows to run their competitors product like crap and their own product better then the competition ever could due to using secret API's.
      So, yes, people chose some Microsoft products because they were better then the alternatives, due to MS abusing it's market position to make sure there is not a viable alternative.
      People did start using Facebook on their own, then Facebook started to buy the competition, so those who didn't like Facebook and used Instragram etc were suddenly Facebook customers. Once they got to a certain size, others who were avoiding them had little choice if they wanted to interact with all the people on Facebook.
      I've been avoiding Facebook all this time but it is harder and harder as so many things now go through it. If I do start using it, it is not because I consider it a good product, it is the lack of an alternative.
      Currently, I know of no decent alternative to Facebook and its properties that didn't get absorbed and the only alternatives to Microsoft are products that aren't companies such as Linux.

      • by AmiMoJo ( 196126 )

        Not sure what the alternative is though. Take Microsoft and software compatibility as an example, there are lots of times when pretty decent compatibility was possible:

        - Linux can run many Windows apps, including the majority of games on Steam.
        - Android apps run on lots of non-Android devices.
        - Web apps run in most browsers.

        Yet we still end up with one OS/browser being dominant. I think the issue is the amount of effort (money) required to keep up, it's just not worth it for most smaller players and the mar

        • by dryeo ( 100693 )

          I remember running non-MS Windows (Winos2) and DrDos, MS put a hell of a lot of effort into breaking things. Eventually with close to 100% market coverage, they did relax. Likewise back in the Explorer days, browser crap to break the competition as well as giving it away so now everyone expects things for free so no market.
          I'm posting this on, Mozilla/5.0 (OS/2; Warp 4.5; rv:45.0) Gecko/20100101 Firefox/45.0 SeaMonkey/2.42.9esr Lightning/4.7.9

  • If Amazon owns controlling interest in the entire supply chain....
  • Is that like a Picard in his ready room, "And, oh, one more thing"?
  • Poison Pill (Score:5, Interesting)

    by PPH ( 736903 ) on Wednesday June 30, 2021 @04:35PM (#61538580)

    Small company has an internal division with ironclad contract to provide certain services to parent, parent of parent, etc. Services are priced in internal funds, which is just a way of moving numbers from column A to column B. Actual dollars don't move in or out of the company so the actual expenses are zero. Nobody cares what the internal price is (I've seen $50K per month 'lease' for a Sun workstation). But now shares of small company get bought, triggering contract terms. Except now, the parent has to pay in cash. Or even worse, stock. Small company ends up walking away with bundles of cash. Or eventually a big chunk of the acquiring company.

    Lots of different variants.

    • Services are priced in internal funds, which is just a way of moving numbers from column A to column B. Actual dollars don't move in or out of the company so the actual expenses are zero. Nobody cares what the internal price is (I've seen $50K per month 'lease' for a Sun workstation).

      The bean counters very much care about those prices. This is how they ensure that profits wind up where they want them, namely, in the organization headquartered in the tax haven. They charged $50k/month for that workstation as a way of sucking $600,000 in profits from one entity to another. Multiply by - how many workstations did you have? - and the numbers add up fast.

      • by PPH ( 736903 )

        This is how they ensure that profits wind up where they want them

        If that's why they were set up. The organization that billed $50K/month per workstation is located in the same city as the internal customer. So the profits were not moved very far.

  • So, if I understand this correctly, Amazon's new business strategy is:

    1. ????
    2. ????
    3. Profit!

    I mean, good for them—I guess?—for eliminating those unnecessary steps if they can make this work for them, but this seems like a step too far. Usually you get a cut of the business when you, say, invest in them before the idea is fully proven or invest in them at a time when they're at great risk, but Amazon wants to take out that messy investment step and still get a cut, just because.

  • China does they must be catching bad habits from the China slave labor operations and their partner the CCP.

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