Fintechs Should Tread Carefully Around Big Tech
Hi all, Julie here.
This week, I want to talk about Amazon. It’s a company we all use and are probably extremely grateful for most weeks, especially when trying to quarantine and 1-2 day shipping is a God-send. However, over the years, Amazon has made it pretty clear that if you’re a startup or merchant, you better tread carefully around them, or Goliath will take you out.
Last week, European Union regulators brought antitrust charges against the tech giant, basically saying that the company found out which products were selling well from the smaller merchants on the platform and then making and selling similar products which destroyed the small merchants’ business.
This is one of a few lawsuits against Amazon and other tech companies that have been brought by governments across the globe. It won’t be the last either. Earlier this year, the Wall Street Journal had an interesting story showing numerous examples of Amazon allegedly meeting with startups to discuss a possible investment, and then copying the startup’s idea after gaining access to valuable internal information.
Based on conversations I had with executives and investors in the fintech space over the course of the past few days, it would almost certainly be a bad idea for any startup to meet or partner with the company until things change.
“Historically, Amazon’s corporate culture is winner take all, zero sum game, your profit is my opportunity. That works in retail, where collaboration isn’t that important. It even works in cloud compute, more or less. It works less well in ecosystem businesses like payments.”-Matt Harris, Bain Capital Ventures.
Others, who wanted to remain anonymous due to things like NDAs and other legal restrictions, said Amazon is “legit scary” and that some had “seen a few non-portfolio companies go through it, and it felt more painful vs. fruitful.”
“I think what sets Amazon apart is not only do they copy ideas, they copy the execution, and they’ve made it their business to copy as many ideas as possible.”
Another interesting point someone brought up was around investments and acquisitions. Given the current state of regulatory scrutiny around big tech, a lot of fintech companies would and should think twice about talking to them for fear of deals getting blocked (this applies to all big tech at this point).
Naturally, I asked if incumbent financial players presented similar risks. The answer was largely no, but that this didn’t mean partnering with them was always a good idea. While they probably won’t steal your ideas, they might still kill you “by over promising, taking huge amounts of time and then producing nothing.”
While I think it’s important we have partnerships in our space, I do think that founders would be wise to keep the risks in mind and carefully evaluate opportunities they might come across here. Obviously, Neobanks have huge advantages to partnering with banks, and it goes without saying that using Amazon Web Services as a provider doesn’t seem to introduce any risks. But keeping these risks in the back of your mind while taking meetings and/or sharing information with companies in these two sectors will prove wise.