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Amazon Faces Trouble at Home and Trouble Abroad

Amazon’s ambitions to crack the Indian market have appeared to be no secret on the surface—the e-commerce giant has invested more than $6.5 billion in growing its operations in the country, including a $1 billion commitment to bring small businesses online. But beneath the billions spent, Amazon’s strategy appears to have been a much more dubious one defined by pushing and skirting India’s e-commerce regulations.

In a special report, Reuters detailed information from several internal documents from 2012 to 2019, leading to three major allegations: that Amazon has been giving preferential treatment to a small group of sellers on its India platform; that it publicly misrepresented its ties with major sellers; and that it used these ties to circumvent increasingly tough regulatory restrictions in India.

The report surmises that Amazon’s actions were also not as “small business-friendly” as the company would have everyone believe, with the centerpiece being the tech titan’s establishment of two “special merchants,” Cloudtail and Appario, that ended up accounting for approximately 35 percent of online sales made on as of 2019.

Prior to an April 2019 meeting between senior Amazon exec Jay Carney and India’s ambassador to the U.S., Carney was prepped not to divulge specific information, according to documents viewed by Reuters.

For example, one detail that was omitted from the conversation was that 33 Amazon sellers (out of the then-400,000 on the site) accounted for about one-third of the value of all goods sold on That number doubled to two-thirds of goods sold when accounting for Cloudtail and Appario, and appears to heavily counter the narrative of prioritizing small businesses.

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“Test the boundaries of what is allowed by law,” said one slide in a 2014 presentation obtained by Reuters titled “Risk Analysis.” The slide reportedly advised that employees “Establish a strong dawn raid process” in the event of a visit by a law enforcement body.

India has always posed unique challenges to foreign entities seeking to enter the market, particularly through e-commerce, which still only accounts for 4 percent of the country’s roughly $900 billion retail market, according to Forrester Research. Last year, the Indian government proposed a policy that mandated government access to online companies’ source codes and algorithms, in a move that takes away advantages of companies like Amazon that leverage algorithms to deliver product recommendations and optimize delivery routes. The proposal has not yet been ratified.

Because foreign investment regulations in India bar online retailers from holding inventories of goods and selling them directly to customers, online retailers only collect fees from vendors selling products on their marketplace.

And while in 2018, India changed its foreign direct investment (FDI) rules to deter foreign firms offering products from sellers in which they have an equity stake, the government is now considering tightening those rules again to include sellers in which a foreign e-commerce firm holds an indirect stake through its parent, Reuters reported.

These considerations come as Indian sellers have already accused Amazon’s Indian division and Walmart’s Flipkart of creating complex structures to bypass investment regulations, as well as favoritism and preferential treatment to specific sellers.

How Cloudtail and Appario dominated Amazon India

Any rule changes would impact Cloudtail and Appario, both of which were scrutinized heavily in the Reuters report. While Amazon has said that Cloudtail is an independent seller on its marketplace, it does in fact have a stake in the third-party merchant as part of a joint venture with an entity formed by Infosys founder N.R. Narayana Murthy.

Amazon even labeled this company “The Special Merchant (SM)” in a 2015 report, with target goals to ensure Cloudtail accounted for 40 percent of sales and build it into a $1 billion business in 2015, Reuters reported.

As Amazon helped Cloudtail partner with major tech companies, including Apple, Microsoft and OnePlus, the seller was able to offer exclusive deals with these companies to sell their products, such as smartphones. Naturally, the deep discounts that were tied in with the partnerships drew the ire of India’s brick-and-mortar mobile sellers.

In one example from Reuters, a mobile phone seller in the city of Ahmedabad said that while he was selling an iPhone 11 for 56,000 rupees ($769), a customer told him it was going for around 47,000 rupees ($645) on Amazon.

While the percentage of smartphones sold online jumped from 10 percent in 2013 to 44 percent in 2019, Amazon and Flipkart now account for roughly 90 percent of all online smartphone sales.

In March 2016, Cloudtail’s share of sales on was around 47 percent, according to an internal document. That month, India’s government announced new foreign investment rules that capped online marketplace sales from a single seller at 25 percent of total sales, which was seen as an attempt to level the playing field.

To comply with the cap, Amazon moved the procurement of some mobile phone brands Cloudtail was offering to Amazon Wholesale, a wholesale business-to-business operation in India which did not fall under the foreign investment restrictions. Amazon Wholesale then supplied these products to “certain” sellers, who in turn sold them on, according to a 2016 internal global regulatory update.

In addressing the 25 percent-of-sales cap on a single seller, Amazon also proposed having a second “special merchant” that could, combined with Cloudtail, account for about half of the sales on its platform. This is where the formation of Appario, or “SM2,” came in. To launch Appario, Amazon entered another joint venture in 2017, with an entity backed by the family of Ashok Patni, a pioneer in the Indian IT outsourcing sector.

When the deadline for the 2018 e-commerce restrictions kicked in on Feb. 1, 2019, thousands of products being sold by Cloudtail and Appario vanished from Amazon’s website in compliance. But days later, the products were back as Amazon reduced its equity stake in the parent companies of the two sellers.

The e-commerce giant’s relationship with the Indian government, once on solid ground, started to crack after this point. In January 2020, the Competition Commission of India (CCI) ordered an antitrust investigation of Amazon and Flipkart over alleged violations of competition law and certain discounting practices.

Then in August, more than 2,000 online sellers filed an antitrust case against Amazon and Cloudtail, alleging that the former favors some retailers whose online discounts drive other vendors out of business. Amazon and Cloudtail have both said they comply with all laws, but the CCI has yet to decide whether to order an investigation into the matter.

In response to Reuters’s reporting, The Confederation of All India Traders (CAIT) “demanded” serious action from the Indian government against Amazon. “For years, CAIT has been maintaining that Amazon has been circumventing FDI laws of India to conduct unfair and unethical trade,” it said.

Praveen Khandelwal, secretary general of CAIT, which claims to represent 80 million retailers and 40,000 trade associations in India, said, “It’s an open and shut case that Amazon is willfully playing with rules. What more we are waiting for. It should be banned in India with immediate effect.”

Amazon refutes allegations

Amazon did give a brief rebuttal to the allegations in the Reuters report, telling the outlet that it “does not give preferential treatment to any seller on its marketplace” and “has always complied with the law.”

“The reporting appears based on unsubstantiated, incomplete, and/or factually incorrect information, likely supplied (maliciously) with the intention of creating sensation and discrediting Amazon,” it told Reuters. The company added that it “treats all sellers in a fair, transparent, and non-discriminatory manner, with each seller responsible for independently determining prices and managing their inventory.”

Recently, Amazon actually got one of its biggest wins in the region when it won a petition to block a $3.4 billion deal that would have seen Reliance Retail, the largest retail operator in India with 12,200 stores, acquire the retail, logistics and warehouse operations from Future Group, which operates 1,800 brick-and-mortar stores under the Big Bazaar, Central and Foodhall banners.

Amazon is a minority owner in Future Group’s Future Retail Limited (FRL), with its $200 million investment including clauses that the group couldn’t sell its retail assets to anyone on a “restricted persons” list including Reliance Industries CEO Mukesh Ambani, India’s richest person.

While the Delhi high court blocked the deal, the back-and-forth hasn’t reached its conclusion. Future Group will likely appeal against the court’s decision.

Troubles abroad, troubles at home

Amazon has been a target from government, retailers and employees alike worldwide for years, with U.S. and E.U. lawmakers in the past year both filing antitrust suits against the e-commerce giant.

This past month, Amazon sued New York’s attorney general Letitia James to stop the state from taking legal action over its early Covid-19 response, including its firing of outspoken distribution center manager Christian Smalls. This didn’t stop James from filing a suit against Amazon, claiming the massive e-commerce company’s “flagrant disregard for health and safety requirements” during the coronavirus pandemic put the lives of workers and the general public at risk.

James accused the company of substandard contact tracing and poor cleaning—both designed to prevent the spread of the virus — at two New York facilities: a Staten Island fulfillment center (where Smalls worked) and a Queens distribution center. A worker at the State Island plant warehouse died of COVID-19 in May.

Amazon, which filed its suit in a Brooklyn federal court, argues that federal labor and safety laws take precedence over New York’s laws, meaning James would not have the legal authority to sue Amazon for workplace safety violations.

This lawsuit comes as nearly 6,000 Amazon employees at a Bessemer, Ala., warehouse are voting on whether to unionize—an effort spawned in part over workplace safety concerns during the pandemic. If the workers are successful, it would be the first unionized Amazon warehouse in the U.S.

Amazon encourages shoppers to ‘Build It’

Amazon’s larger battles drowned out one of the company’s newest unveilings, a new program called “Build It” that lets consumers have a say in some of the products Amazon will produce.

The program, which inevitably draw comparisons to Kickstarter, enables Amazon customers to back a new product, and if it gets enough support within 30 days, Amazon will put it into production. Customers will be charged for an item only if the product is developed and shipped.

“The idea is simple: We’ll periodically present you with some of our favorite concepts, and you tell us which ones you want to see built by pre-ordering them,” Amazon said in a blog post. “If a concept reaches its pre-order goal in 30 days, we’ll begin to build it—and supporters like you will be among the first to get their hands on it. When you pre-order, you will lock in a special price, and you’ll only be charged if and when the product ships. If the pre-order goal is not met, the product will not be built, and you won’t be charged. It’s low risk, high reward, and a whole lot of fun.”

The Build It concepts that have gone live include a smart sticky note printer, a smart nutrition scale, and a smart cuckoo clock, all of which are compatible with Alexa. For this first wave of concepts, Amazon is building at least one based on the amount of pre-orders made. If the products each hit their pre-order goals, then Amazon will build them all.

Amazon's Smart Sticky Note Printer, with a pre-order price of $89.99.
Amazon’s Smart Sticky Note Printer, with a pre-order price of $89.99. Amazon

Each product will display a progress bar that shows how far along it is to its goal, and a percentage of the backing it needs to complete. It will not disclose the dollar amount needed to launch.

The program aims to help Amazon decide what products will be popular before it even builds them. Amazon has used a similar program in the past, called Day 1 Editions, to build experimental products like its Echo Frames smart glasses.

Many products such as Alexa-infused microwaves and wall clocks have been released in the past by Amazon, but to little fanfare. To prevent this failure to launch, the program gives Amazon on better opportunity to gauge customer interest in its ideas.

Amazon wouldn’t say whether it plans to use this program for all of its products or if it may open it up to third-parties.

The current concepts will be available at promotional prices through March 19.