Jan 17, 2020

Small tech firms with Big Tech gripes

Illustration: Sarah Grillo/Axios

The tech industry's stories about itself always start with nimble startups with great ideas — typically founded, from Hewlett-Packard to Apple to Google, by two people in a garage. But today, many small tech companies feel like they're fighting for survival in an industry where giants have grown entrenched and domineering.

Driving the news: That latter perspective will be on display for lawmakers Friday at a House antitrust subcommittee hearing in Boulder, Colo., where four smaller companies will detail how Google, Amazon, and Apple have smothered their growth.

The big picture: Silicon Valley once maintained that its small-and-scrappy ethos was the key to innovation, as Alexis Madrigal has described in The Atlantic. But today's giant companies argue that important change happens only "at scale," and only operations their size can compete with China.

What they're saying: The executives speaking at Friday's hearing will air their complaints about how the practices of tech's biggest companies are stifling smaller firms.

"Amazon has gotten used to dictating the terms of its partnerships because it can and most of its young partners are unable to survive if they say, 'I’m not happy with these terms so I’m going to go elsewhere.' There’s nowhere for them to go."
— David Barnett, founder of PopSockets, to Axios

PopSockets versus Amazon: Barnett, whose company makes eponymous circular grips that stick to the back of phones, grew so frustrated with Amazon's treatment of his company that he eventually stopped selling on the platform.

  • Amazon failed to take real action against counterfeit PopSockets grips until the company agreed to a nearly $2 million marketing deal, he said. Only then did Amazon start requiring vendors listing PopSockets products to provide evidence that they were authentic.
  • Eventually PopSockets decided to stop selling directly to Amazon and instead sell its products through a reseller on the platform. But Amazon shut that down, citing policy violations. PopSockets subsequently returned to selling on Amazon.
  • "To me it was a bit ironic that one of the main reasons I had given for wanting to try a different model was we were being strong-armed, and the response was, 'No, you’re not going to leave this relationship,'" Barnett said in an interview.

Amazon says marketing fees or payments do not play a role in its efforts to police counterfeits, and that it requires some popular, widely available brands to sell directly to the company to ensure customers receive lower prices.

  • “PopSockets has been a valued retail vendor at Amazon and also supplies its products directly to other major retailers,” an Amazon spokesperson said in a statement. “We sought to continue working with Popsockets as a vendor to ensure that we could provide competitive prices, availability, broad selection and fast delivery for those products to our customers. Like any brand, however, PopSockets is free to choose which retailers it supplies and chose to stop selling directly through Amazon. Even so, we’ve continued to work with PopSockets to address our shared concerns about counterfeits, and continue to have a relationship with PopSockets.”
  • The company also unveiled a survey earlier this week that found that small businesses don't rely on Amazon alone for their online sales.

Lawmakers will also hear from:

  • Patrick Spence, CEO of Sonos: The speaker maker said it worked with Google to include Google's voice assistant with its speaker only to have Google steal Sonos technology for its own speakers. Google spokesperson Jose Castaneda accused Sonos of making "misleading statements," and said, "Our technology and devices were designed independently."
  • Kirsten Daru, vice president and general counsel of Tile: Tile makes small devices to help track lost items like keys or a wallet. The company was part of a group of companies that complained when Apple changed its settings to prevent apps including Tile's from obtaining "always-allow" location tracking during the set-up process, according to a Washington Post report. Apple said the change was to protect users' privacy, but the company is working with developers interested in setting location tracking to "always allow" at set-up to include that option in a future software update.
  • David Heinemeier Hansson, CTO and co-founder of Basecamp: Hansson called for Google to be broken up after complaining that paid ads for competitors appeared before Basecamp's website does in Google search results. To spotlight the issue, Basecamp bought Google ads that accused the search company of demanding ransom. Castaneda said competitors can bid on trademarked terms because "it offers users more choice when they are searching," but if a trademark owner files a complaint Google will block competitors from using its business name in the actual text of their ads.

What to expect: Subcommittee Chairman David Cicilline will focus on the power dominant platforms have to dictate terms or tweak algorithms at the expense of competitors or smaller players in his opening statement at the hearing at the University of Colorado Law School.

  • Lawmakers are also expected to meet with Colorado Attorney General Phil Weiser during the trip. Weiser is involved in multi-state antitrust investigations of Facebook and Google.

Between the lines: Companies that rely on online platforms to reach consumers could stand to lose a lot by publicly complaining about them. Despite PopSockets' recent return to Amazon, Barnett acknowledged he's worried about possible retaliation.

  • "I’m concerned but I hope there’s no retaliation," Barnett said. "I hope Amazon and especially Jeff Bezos listens to what’s going on and tries in good faith to solve these problems before legislators or the Justice Department step in and try to solve them for Amazon."

The bottom line: Americans often root for the little guy, but antitrust enforcement in the U.S. has mostly focused on harm to consumers rather than protecting the rights of smaller companies.

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