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Amazon is reported to compete with startups after investment process

07:27 | 28/07/2020

The Journal spoke with dozens of startup founders, investors, and advisers, who said Amazon met with or invested in their companies, only to later build its own products that directly competed with the smaller company. The Amazon-made products often went on to crush the competition, the Journal found.

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amazon is reported to compete with startups after investment process
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The startup suddenly became a competitor of its prime investor

The story of June, a Silicon Valley tech startup launched in 2013, was one of the first pioneers to develop a smart oven, might be ironic at best, but it is not an isolated incident. Amazon unveils hundreds of products every year, and they have developed an intricate playbook to put any competitors out of business.

In 2018, June secured an investment from Amazon Alexa Fund, Amazon's venture capital division.

Just a year later, Amazon launched their own smart oven, which had all the features of June – including Wi-Fi connectivity and Alexa integration.

But the kicker is, Amazon Smart Ovens retailed for half the price of June Ovens.

June was selling their ovens for $499-699, while Amazon's ovens cost only $249.99.

The startup suddenly became a competitor of its prime investor, who also happens to be the world's largest retailer that owns the Alexa platform.

On top of this, June has to regularly report its confidential financial information to Amazon.

Some companies regret sharing information with tech giant and its Alexa Fund; ‘we may have been naive’

The Journal discovered several examples of Amazon's investments leading to in-house product development. LivingSocial, a deals website, told the Journal that after Amazon took a 30% stake in the company, it began requesting troves of data from the company, hiring away employees, and contacting LivingSocial's clients to offer better deals.

In another example, investors from the Alexa Fund purchased a stake in the startup Nucleus, which made a video communication device for the home. Eight months later, after gaining access to Nucleus' plans and financials, Amazon announced the Echo Show, an Alexa-enabled device with a large video screen. Sales of Nucleus' consumer device quickly declined and the company has since pivoted to selling to the healthcare market, the Journal reports.

Amazon later settled with Nucleus for $5 million but did not admit any wrongdoing, according to the report.

Other companies, like DefinedCrowd, Vocalife, and Ubi — which made a voice-operated speaker similar to the Echo — also told the Journal Amazon had met with them or invested in them, then later seemed to use their technology.

In many instances, the smaller companies said they could no longer compete in the space, and downsized or closed.

"We ended up burning through our cash and ended up having to downsize most of the company," Leor Grebler, who created the voice-operated speaker Ubi, an Echo predecessor, told The Wall Street Journal.

Amazon told Business Insider that it does not use confidential information that companies share when Amazon invests to create competing products.

"For 26 years, we've pioneered many features, products, and even whole new categories. From amazon.com itself to Kindle to Echo to AWS, few companies can claim a track record for innovation that rivals Amazon's," an Amazon spokesperson told Business Insider. "Unfortunately, there will always be self-interested parties who complain rather than build. Any legitimate disputes about intellectual property ownership are rightly resolved in the courts."

The Journal's report comes as Amazon is facing scrutiny about potentially anticompetitive behavior. The House Judiciary Committee is holding an antitrust hearing on Monday at which Amazon CEO Jeff Bezos and other prominent tech executives will testify.

The Federal Trade Commission is also looking into "hundreds" of acquisitions by Amazon and other tech firms to determine whether they gained any unfair advantages by purchasing "nascent competitors." The FTC has also spoken with sellers on Amazon's platform after a Journal investigation from April found that Amazon used data from third-party vendors to launch competing products.

Amazon's playbook for crushing startups

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Le Dang