May 20, 2020 - Technology

Big Tech's aid to small business comes with a catch

Ina Fried, author of Login

Illustration: Aïda Amer/Axios

Big tech companies, including Facebook and Google, have made much of their efforts to help small businesses hurting from the pandemic. But the same programs that make life easier for those businesses today could end up separating them from their customers and ultimately hand even more power over to the tech giants.

Why it matters: Lockdowns imposed to prevent the spread of the coronavirus have devastated America's small businesses, and the fate of any economic recovery following the crisis will hang on whether they can be revived.

Driving the news:

  • Facebook's latest marketplace effort announced today, Facebook Shops, aims to create an e-commerce platform for businesses within Facebook's social media environments.
  • DoorDash and other delivery services bill themselves as a way to help struggling restaurants, but critics say they are charging excessive fees, leaving precious little for already cash-strapped restaurants. Some efforts, like Help Main Street, have emerged to help restaurants get more business directly.
  • Google and Yelp have been offering help to small business, but mainly in the form of ad credits. Those sites have seen a strong drop-off in revenue as small businesses shut their doors temporarily (and in some cases permanently). Facebook has distributed ad credits as well, but it has also made $100 million in cash available to 30,000 small businesses.

Between the lines: Tech companies are having tough times of their own, and their actions are guided at least as much by their own business-preservation imperatives as by altruism.

  • Many efforts to bring business into big tech companies' platform ecosystems start out free or inexpensive, but costs often rise as the businesses become dependent on the platforms.

The Amazon effect: Amazon has been a thorn in the side of many small businesses for more than a decade. Some learned how to compete online, others went after the portion of sales that weren't going online.

  • The coronavirus changed the rules again, forcing much of the business that had remained the provenance of local shops to also move online, at least temporarily.
  • Amazon itself offers a way for small businesses to sell through its marketplace.
  • However, that has proven to be a tricky proposition: Regulators are investigating whether Amazon is using sales data from third-party sellers to develop its own brands and products.

What they're saying:

  • Facebook CEO Mark Zuckerberg told CBS Evening News that Facebook was simply trying to lend a helping hand. "What we are seeing are a lot of small businesses are moving more of their business online, and we want to make it easier for them to do that, too," he said. " Facebook Shops allows a small business to easily set up a shop inside our apps. And it will be a very fast experience for people to discover their products and be able to buy things directly."
  • Republican Rep. Ken Buck, a member of the House Judiciary antitrust subcommittee, said he’s concerned about large tech companies squelching small businesses. Buck joined a bipartisan letter from committee members demanding that Amazon CEO Jeff Bezos testify after the Wall Street Journal reported that the company has used third-party sellers data to develop products.
“I feel very strongly that we need to make sure that we are looking at antitrust laws as a tool to increase prosperity across the marketplace to incentivize small businesses, and to make sure that the large businesses don't use their their platforms and their position to disincentivize the kind of innovation that comes from small businesses.”
— Buck, during an event Tuesday with the Internet Accountability Project, which has pushed for antitrust action against tech companies
  • Mike Blumenthal, director of local research for GatherUp, an online customer review engine, said intermediaries such as DoorDash and Grubhub have been particularly hard on local restaurants, but also cautioned about the long-term consequences of relying on Google or Facebook. "Any time there is a monopoly situation, if you are little and they are big, it can get painful," he said.

Our thought bubble: One need only look at the news industry to see the potential downsides of businesses becoming too reliant on on tech companies for the digital side of their business.

Yes, but: Lauren Lang, a volunteer organizer with Help Main Street, says not all tech companies hurt small businesses.

  • "While third-party delivery companies are definitely predatory, there are some other corporations like Instacart that are actually helping to provide supplementary income for restaurant workers that have been laid off," Lang told Axios. "It’s not full-time work and it’s not solving the unemployment crisis by any means, but it’s additive, flexible income that can be a bridge in the interim."

The bottom line: Blumenthal said the solution is for small businesses to make sure they own the digital relationship with their customers as well as the face-to-face relationship. But many small businesses simply aren't in a position to do that, he acknowledged.

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