The impact of Covid-19 on the development of e-commerce cannot be overstated. In a context of social distancing and confinement, most brick-and-mortar stores were forced to remain closed for months and reopen only under strict sanitary guidelines. During this time, e-commerce emerged as a safe way to shop, accelerating a growth in popularity that was already underway. The significant increase in revenue and stock market prices for e-commerce companies will undoubtedly attract the attention of governments and regulators worldwide. Looking towards 2021, an inevitable question emerges: will governments begin to target e-commerce giants with the same severity that social media platforms have experienced?
Beyond Amazon
Amazon has been the subject of the most striking headlines, backed up by impressive numbers. In the second quarter of 2020, the company reported a yearly increase in operating cash flow of more than 40%. However, Amazon’s dominance of media coverage must not obscure the staggering figures emerging from firms like Alibaba or Mercado Libre this year. The latter, for instance, is now worth USD 63 billion in Nasdaq, having more than doubled in value in the past year and overtaking Latin American powerhouses like Vale and Petrobras to become the region’s most valuable company.
The case of Mercado Libre illustrates that attention focused exclusively on Amazon risks losing perspective of the broader e-commerce industry and its other players. Regional giants that have consolidated their positions in recent years have also benefitted from the unprecedented commercial conditions of 2020. In China, both Alibaba and Jingdong have grown substantially. In Japan, according to Statista, Rakuten has a market share equal to that of Amazon. Zalando, offering fashion and lifestyle items, commands around 5% of e-commerce in Germany and the Netherlands, with a well-established European presence. Indian national leader Flipkart competes on equal terms with Amazon India for one of the biggest markets in the world, with a more significant domestic presence than companies like Alibaba.
Economic Shift
On Cyber Monday 2020, shoppers in the United States spent USD 10.8 billion over e-commerce platforms, according to a preview of Adobe Analytics Data. This represents a 15.1% yearly increase and a new record for the largest US Internet shopping day in history. In 2021, the OECD expects the e-commerce industry to grow by approximately 20%.
The pandemic appears to have accelerated an economic shift that was already rapidly occurring. In the US, the share of e-commerce in total retail had increased from 9.6% in the first quarter of 2018 to 11.8% in the first quarter of 2020. In the second quarter of 2020, this figure rose to 16.1%, and the UK and China show similar trends. While there are no reliable statistics for many other countries, indirect research methods, like monitoring Google search interest for the term “delivery”, demonstrate that the pandemic has nudged consumers further towards e-commerce.
According to IBM’s annual US retail index, Covid-19 has accelerated retail trends by nearly five years in relation to previous forecasts.
Gaining Regulatory Attention
The shift towards e-commerce has consequences for market concentration. The number of companies and platforms competing in e-commerce is significantly lower than the number of companies competing in physical retail. This “concentration phenomenon” means that, in parallel with the transition towards buying and selling online, we are also seeing a shift towards an economy where each commercial platform has more power, something that always attracts the attention of governments and regulators.
On top of this, many e-commerce firms have begun to make decisive advances towards different markets, especially electronic payments and Fintech. Ant Group, formerly known as Alipay and an affiliate company of Alibaba, has become a major stakeholder in the Chinese payment economy. Its world-record USD 37 billion IPO was suspended by regulators in November, and its future is uncertain. However, one thing is clear: a significant part of Ant’s success comes from the big data collected through Alibaba.
In Latin America, Mercado Libre has followed a similar path, with Mercado Pago, its financial services and payments solution, now embedded in the marketplace and also used independently in day-to-day transactions. This type of advancement and diversification is also likely to turn government heads.
Competition policy is not the only relevant regulatory area. New e-commerce business models challenge traditional policy frameworks. One simple example is the operating of brick-and-mortar stores as points of product collection or returns or temporary storage facilities, something which is prevented in many cases by local licensing and zoning rules. A similar analysis applies to road and sidewalk regulations which conflict with innovation around “last mile” delivery solutions such as autonomous or unmanned vehicles. Trade policy is another noteworthy area: as more trade occurs in bundles of goods and services, legal uncertainty arises under existing trade agreements which rely on a traditional distinction between these categories.
Lack of Scrutiny
Retail companies, including e-commerce platforms, are, in some ways, less of a target for restrictive legislation than other members of the big tech family. They don’t disseminate fake news or political campaigns and do not help protesters coordinate anti-government demonstrations or influence election results, and they are consequently subject to less scrutiny.
While the ongoing US antitrust investigation addresses the Big Four, which includes Amazon, e-commerce is not the main issue preoccupying politicians in this case. When anticipating the regulatory environment for e-commerce, it would be misguided to expect the same kind of scrutiny from governments and regulators that other digital sectors, such as social networks and platforms, receive.
It does seem likely, however, that e-commerce will gain attention as established companies begin to use their foothold in one market to advance to others. This is exemplified by the recent case where the European Commission charged Amazon with abusing EU competition rules. The issue is tied to the dual role of the platform as both a marketplace hosting independent sellers and a retailer selling products. The violation occurs when data from the former function is used to gain competitive advantage in the latter.
Uncharted Territory
E-commerce was already advancing at a steady pace prior to 2020, and this year has acted as a launchpad. We are now five years in the future, in uncharted territory where multiple regional giants have solidified their positions and are beginning to extend their reach into related markets. Governments and regulators across the world will undoubtedly attempt to have their say about this economic phenomenon, the extent of its impact yet to be determined, although the conversation can be expected to remain within more reasonable terms than those we have seen around other digital sectors.
Recommendations
- As the impact of the Covid-19 pandemic accelerates trends in the e-commerce industry, industry stakeholders should take a broad perspective on developments, considering regional giants across the world which have seen substantial growth.
- It is likely that e-commerce will continue to gain regulatory attention. E-commerce platforms should closely monitor the regulatory environment for potential new areas of scrutiny from governments.
- Platforms should also take opportunities to engage more actively with the authorities to shape this environment as it develops.
