Amazon Local Register: Friend Or Foe?

Mobile payment service prompts concerns about ulterior motives.

Amazon on Wednesday entered the merchant payment business with a service called Amazon Local Register, which provides a payment card reader and mobile app with the ability to accept credit and debit cards from a smartphone or tablet.

Amazon Local Register competes with Leaf, Intuit GoPayment, PayPal, and Square, among others, perhaps including whatever mobile payment service Apple is said to be preparing for the fall.

Amazon cites remarks from early adopters who praise the service: "Amazon Local Register has simplified, organized and improved efficiency for my business," says hair and makeup artist Erin H., according to the company. "The feature I am most impressed with is the outstanding customer support I receive any time I have a question or for whatever help I need. The reports are easy to understand and help me figure out how my business is performing."

[Do you need Amazon's first smartphone? Read Amazon Fire: 6 Key Points.]

But among those commenting on Hacker News -- a fairly tech-savvy group -- there's less enthusiasm. Amazon, perhaps as a consequence of its controversial confrontation with Hachette and its rapidly expanding ambitions, is setting off alarm bells.

Developer Jacopo Nardiello wrote, "It's a trap. You, owner of a shop, don't do this. Amazon will first analyze all your sales data, they will then attach reviews to your shop and finally they will oblige you to play by their rules or die (banned or killed by bad reviews) and either way they will grow thanks to your hard work."

Software engineer Benjamen Keroack characterizes Amazon's move as an effort to gain data. "Amazon wants brick and mortar sales/pricing information so they can undercut you more effectively," he wrote. "They'll probably bundle in some service where you get an online store for cheap/free, which makes you even more dependent on them for inventory management as well. At that point Amazon controls your cashflow and your products and -- in a sense -- owns your business."

Not everyone sees Amazon's role as a merchant that could compete against Local Register customers as a problem, because Amazon doesn't compete in every market. But as Hacker News user Nicholas Smith wrote, "Amazon might not be competing with them right now, but they could be in five years time…"

Amazon, like the other major platform companies -- Apple, Google, and Microsoft -- is in every business, potentially. Entrepreneur Marc Andreessen's assertion that "software is eating the world" is true because software touches every business, whether it deals in virtual goods or physical merchandise. And platform companies, as software companies, have the ability to compete anywhere. That should keep anyone running a business that depends on a platform company up at night.

Not every platform wants to be in every business. Google sold Motorola's handset business because it didn't want to compete with its Android partners. But the answer to the due-diligence question, "What's to stop Google from doing this?" remains, "Nothing but the company's forbearance and fear of regulators."

Beyond exceptional circumstances where regulators intervene to prevent platform companies from using data from one business to provide competitive advantage in another -- such as the terms under which Google was allowed to acquire ITA Software -- businesses should consider the risk of building on someone else's platform rather than building everything from open-source software.

The problem is most acute in the consumer software market, where platform ownership confers near absolute power. Aside from extraordinarily strong patents or Facebook-scale network effects, a company making an application for Apple, Google, or Microsoft devices will find itself competing at a disadvantage if the platform owner decides it wants to offer a similar service. Dropbox learned that with Apple's announcement of iCloud Drive over the summer.

But in Amazon, platform power extends to the world of physical goods. Amazon wants a part in the sale and distribution of pretty much everything, and the combination of its software, hardware, and logistics competencies gives it the ability to make that happen. What's to prevent it from using the data it acquires from local merchants to help it or other partners compete against those same merchants?

Businesses that lie down with platform companies need to recognize that their service provider could one day be a competitor, if it isn't already. And regulators need to start thinking about whether businesses deserve a greater degree of protection from platform giants. Antitrust law protects consumers, but businesses have nowhere to hide.

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