Regulation

EU Reaches Deal On Marketplace Regs

As far as eCommerce drama goes, the running tension that defines the relationships among the European Union and U.S.-based companies such as Amazon, Facebook and Google has little competition. Now comes the next chapter in the story: An effort by the EU to crack down on what it views as harmful, monopolistic online marketplace practices.

As part of the EU’s Digital Single Market push, regulators and politicians that are part of that body have, in the words of the EU, “reached a political deal on the first-ever rules aimed at creating a fair, transparent and predictable business environment for businesses and traders when using online platforms.”

What that means for the big online marketplace operators are more restrictions on such tasks as account suspensions and terminations, more disclosures about search engine rankings and business practices, and more power for marketplace sellers when it comes to complaints and other problems. The changes comes as those big firms face increasing pressure from European regulators and lawmakers — along with big fines — on such issues as antitrust and online privacy and security.

Marketplace Changes

According to an EU fact sheet about the new changes announced this week, the new rules “will apply 12 months after its adoption and publication, and will be subject to review within 18 months thereafter, in order to ensure that they keep pace with the rapidly developing market. The EU has also set up a dedicated Online Platform Observatory to monitor the evolution of the market and the effective implementation of the rules.” The new rules are a product of deliberation among the European Parliament, the Council of the European Union and the European Commission.

The meat of these new rules — and they are meant to apply to even the tiniest online marketplaces, along with operators of hotel booking platforms and app developers, according to the EU — concern those marketplaces. According to the EU, the main idea is to protect small businesses — an oft-expressed concern from that body as U.S.-based payments, commerce and tech companies keep making more inroads in Europe.

The new rules prohibit “digital platforms” from suspending or terminating “a seller’s account without clear reasons, and possibilities to appeal.” As well, “marketplaces and search engines need to disclose the main parameters they use to rank goods and services on their site, to help sellers understand how to optimize their presence. The rules aim to help sellers without allowing gaming of the ranking system.”

Seller Concerns

Another EU rule takes aim at one of the most common complaints of marketplace sellers — even common among sellers located in the U.S. and selling mainly to consumers there.

That complaint, pretty much focused on the Amazon marketplace, is that the marketplace operator competes with third-party sellers, and therefore has an inherent advantage. Research about third-party marketplace sales offer a more complicated view, as some reports and surveys have pointed out that some third-party sellers, for various reasons, actually gain a sales boost when the operators up the competition in a particular product category.

In any case, the new EU marketplace rule holds that “platforms must exhaustively disclose any advantage they may give to their own products over others. They must also disclose what data they collect, and how they use it — and in particular how such data is shared with other business partners they have. Where personal data is concerned, the rules of the GDPR apply.” (GDPR, of course, is the EU’s General Data Protection Regulation, an online privacy law that serves as another source of tension in that relationship between U.S. firms and European regulators.)

The EU also wants marketplace sellers to have more power when it comes to complaints and problems they have, and the resolution process that follows. “All platforms must set up an internal complaint-handling system to assist business users,” the rules state. “Only the smallest platforms in terms of head count or turnover will be exempt from this obligation. Platforms will have to provide businesses with more options to resolve a potential problem through mediators. This will help resolve more issues out of court, saving businesses time and money.”

The fact sheet provided by the EU provided no details about fines or other punishments that companies will face for violating these rules. Nor was it immediately clear how these rules might impact the European operations of the big U.S. companies these rules clearly target. Comment from them was not immediately available as of late Friday (Feb. 15) afternoon.

Amazon Focus

But these EU rules come as other significant marketplace changes loom, at least at Amazon.

The company recently teased its intention to change its marketplace fee structure, though the eCommerce operator provided no further details. More than half the units sold on the Amazon marketplace come from third-party sellers, the company said in January, and those sellers include a good number of smaller merchants. For the holiday quarter, for instance, more than 50 percent of sales on the platform came from small and medium-size businesses, Amazon said.

Amazon does not breakdown how much marketplace sales it has by region or country. Overall, revenue from third-party seller services — such as commissions on sales and fulfillment and shipping fees — jumped 27 percent year over year in the fourth quarter of 2018, reaching nearly $13.4 billion, or about 19 percent of Amazon’s total Q4 sales of $72.4 billion.

Still, a rough picture of Amazon’s European marketplace operations and its growth is possible to put together.

A recent analysis of the top 1,000 sellers on the Amazon marketplace — the metric used here is customer feedback, not sales, though the report states that feedback is an “indicator of sales volume” — found that U.S.-based sellers dominate that list, with 484 sellers (down from 584 in 2016), followed by sellers located in the U.K., which has 260 (up from 205 in 2016). Germany took the third spot (101 sellers, up from 86), and was followed by Japan, France and Italy. France, in fact, gained 18 sellers on the most recent rankings, a 90 percent increase from 2016 (though from a small initial base, of course).

These new EU rules might take a while to play out, but the real-world implications — and possible backlash — will likely emerge before too long. Stayed tuned for the next chapter in this ongoing drama, one of the most important stories in the world of eCommerce in 2019.

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