By Ryan Tracy
WASHINGTON -- The Trump administration is testing a new method
for federal agencies to buy office supplies and other goods online,
a move that could give Amazon.com Inc. and its competitors a
foothold in a market worth as much as $50 billion a year.
Next year, the General Services Administration is set to
contract with privately run "e-marketplace platforms," as it calls
them, making them available to other federal agencies as an
alternative to existing government-run purchasing websites.
Walmart Inc. and eBay Inc. have joined Amazon in showing
interest. Confidential bids laying out how bidders' websites would
fulfill the government's requirements were due earlier this
month.
Government contractors are up in arms. "We're going to lose our
shirts," said Steve Armstrong, general counsel at MSC Industrial
Supply Co., a Melville, N.Y.-based distributor of safety goggles,
ladders, and other items.
Mr. Armstrong said his biggest customer is the GSA, the federal
organization that facilitates purchasing by other agencies. He
worries he now will have to list his wares on Amazon to reach the
same buyers -- and pay a fee to Amazon on sales that already have
thin profit margins.
The federal government already does some purchasing online, but
it's somewhat haphazard.
Government officials are hoping e-commerce saves time, creates
more competition for the government's business and provides better
information about how taxpayer money is spent. It is already
reshaping government procurement, with federal workers using
government-issued purchase cards on sites including Amazon. These
"open market" purchases are legal under $10,000 -- a threshold
above which additional regulations kick in -- but are also
difficult to track.
"There is a real benefit to GSA stepping in and taking the lead
on a whole-of-government approach" to purchasing online, said Laura
Stanton, a deputy assistant commissioner at the agency.
For Amazon, the bid to supply federal workers reflects its
significant ambitions to ramp up government business. It already
sells to many state and local governments, accepts federally funded
food stamps, ships via the U.S. Postal Service and hosts
cloud-computing for dozens of federal agencies.
It is opening a second headquarters in northern Virginia for up
to 25,000 employees. Founder Jeff Bezos owns a home in the capital
as well as The Washington Post, which offers free digital
subscriptions to federal workers. Amazon spent more on federal
lobbying than any other U.S. corporation this year through
September, according to the Center for Responsive Politics.
"If you look back to 2013, Amazon wasn't even a crumb on the
table" in terms of government spending, said Daniel Ives, an
analyst at Wedbush Securities. The cloud-computing business
especially has fueled a "meteoric rise," Mr. Ives said. He
estimates Amazon Web Services, or AWS, now has about $2.5 billion
in annual federal contracts, up about 10-fold since 2013.
Amazon has also become the target of government scrutiny.
President Trump has criticized the company and the Post's
reporting. Amazon is arguing "unmistakable bias" in a legal protest
of the Pentagon's recent decision to award a $10 billion cloud
computing contract to competitor Microsoft Corp. The Pentagon says
the award was proper.
Both the Federal Trade Commission and the Justice Department
have talked with other companies about how Amazon treats sellers
and competitors, according to people familiar with the meetings.
(Amazon hasn't disclosed being formally notified of a U.S.
antitrust investigation, in contrast to Facebook Inc. and Google
owner Alphabet Inc.)
The e-marketplace program could be lucrative for Amazon and
others. Though it will initially cap transactions at $10,000,
transactions under that amount represent a market of about $6
billion annually, the GSA estimates. That number could grow to
include more of the $50 billion the agency roughly estimates the
government spends annually on commercial goods.
The marketplace providers will collect fees -- Amazon generally
charges merchants that sell products on its site between 8% and 15%
per transaction, not including shipping, advertising and other
fees. Marketplaces also could profit by selling their own goods,
the way Amazon sells its own-brand products on Amazon.com.
Congress ordered the GSA to test e-commerce portals in defense-
spending legislation signed by Mr. Trump in December 2017. Rep. Mac
Thornberry (R., Texas), then chairman of the House Armed Services
Committee, proposed the idea as a way to speed up military
purchasing.
Before the bill passed, GSA officials and Mr. Thornberry's staff
separately traveled to Amazon's headquarters in Seattle to discuss
how Amazon's online store works, according to current and former
officials.
The meetings helped fuel speculation the program was tailored to
Amazon. Trade associations representing other contractors have
raised a host of concerns that echo criticism of Amazon's consumer
marketplace. They question whether Amazon engages in a form of
self-dealing, such as favoring its own goods in search results --
which Amazon denies -- and whether it properly vets sellers,
products and supply chains -- a particular concern when the
military is the customer.
Both a spokesman for Mr. Thornberry and the GSA say their staff
also met with other interested companies and didn't design the
program to benefit one company. GSA says the program will follow
applicable federal rules governing supply chains and other matters.
Amazon says competition on its platform is fair and that it spends
heavily to ensure products and sellers are aboveboard. Walmart and
eBay also attended public meetings about the GSA program, records
show. They didn't respond to requests for comment.
"We are helping to level the playing field and to make it easier
for sellers to reach government buyers," said Anne Rung, a former
senior procurement official in the Obama administration who now
runs the public-sector part of Amazon Business, its marketplace
tailored to professional purchasers. She wouldn't say if Amazon has
bid on the GSA program.
Maj. Gen. Cameron G. Holt, who manages contracting for the Air
Force, said he sees e-marketplaces as a step up from clunky, Cold
War-era purchasing procedures. Today when purchasing officials are
in a pinch, they use a credit card. That leaves him with unanswered
questions: Is the government getting a good price? Where was the
item made?
As part of an existing collaboration, Amazon has been sending
the Air Force more-detailed information about what employees buy on
the company's business-to-business site, Maj. Gen. Holt said. It
also is helping to steer purchases to contractors located near
bases, he said: When an Air Force officer logs on, Amazon places a
blue ribbon next to sellers in those ZIP Codes.
"The power of this is enormous," Maj. Gen. Holt said of
e-commerce. He said Amazon accounts for a fraction of the Air
Force's purchasing and he welcomes other e-commerce operators: "I
don't really care if it's Amazon or not."
Rita Bonarrigo's 20 year-old Houston office-supply business set
a sales record in 2018, the year it began selling on Amazon
Business. She believes government customers "are finding us on
Amazon because they're looking for diversity." Amazon labels her
company as woman-owned, certified by the Small Business
Administration, she said.
Today she sells on Amazon to companies and government agencies,
as well as directly to the federal government. Her prices on Amazon
are higher, to cover Amazon's fees, she said.
Write to Ryan Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
November 29, 2019 05:44 ET (10:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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