For over two decades now, Amazon has been seen as a one-stop shop to buy virtually anything, and get it delivered in no time flat. It’s been estimated that the platform has over 310 million active users, and just in the U.S. during 2023, sold over 4.5 billion items. Amazon claims to be guided by four principles: “customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.” Certainly there is a very large quantity of retail items for sale on the platform, even if their quality or identity may be questionable. But in another much more obscure part of the business, Amazon’s supposed obsession with its customers and “commitment to operational excellence” falls flat.
Amazon Business, an operation under the umbrella of Amazon’s services, has grown as a popular procurement tool for businesses and organizations over the past few years. It’s marketed as an experience akin to that of Amazon.com, allowing users to find, compare, and easily purchase a wide variety of products needed by businesses. In reality, cities, counties, and school districts have been overcharged for such items to the tune of millions of dollars.
An investigative report from the Institute for Local Self-Reliance (ILSR) demonstrates that Amazon Business has been building a monopoly on selling office products, cleaning supplies, and classroom materials. By claiming to offer better deals and quicker service than that of small and midsized businesses, Amazon Business has secured contracts with organizations that have long typically worked with local suppliers. School districts in particular account for 70 percent of local government spending with Amazon, creating unique consequences for officials, educators, and students.
IT’S NOT UNUSUAL FOR AMAZON to do business with the federal government, but its integration into contracting with local agencies has seen an uptick. Most city and county governments work with small-to-medium-sized businesses for their needs, through a process of competitive bidding. It’s fairly straightforward: When an organization (such as a school district) needs a large amount of goods, it sends out a request for vendors to submit business proposals. Potential suppliers then place bids that are evaluated for factors such as price, quality, and risk. Finally, a contract is awarded to the vendor that meets the criteria the respective organization requires, and both entities enter into a “fixed-price contract.” Competitive bidding holds independent suppliers to high standards, and ensures that public contracts benefit both parties.
Amazon’s AI algorithm-fueled system of “dynamic pricing” constantly adjusts prices to reflect the customer’s perceived willingness to pay.
Despite the tried-and-true nature of the traditional competitive bidding process, Amazon Business’s marketplace model has become an attractive option for local agencies. “They [Amazon] make this pitch that Amazon Business is a marketplace, and it therefore offers all the competition that you need. There are different sellers, and it’s like a market, and naturally that leads to the lowest price. And so you don’t have to worry,” says Stacy Mitchell, the co-executive director of ILSR. In reality, however, under the facade of a normal shopping interface, there is a lack of transparency, price-gouging, and an exploitation of the struggles of ill-equipped organizations, particularly school districts.
For one thing, there is “dynamic pricing,” Amazon’s AI algorithm-fueled system of constantly adjusting prices to reflect the customer’s perceived willingness to pay. That means charging each customer as much as possible, and also makes cost comparisons meaningless.
For another, the promise of competitive bidding is bunk. Unlike the traditional process, Amazon has complete control over the sellers that use their platform, determines where they appear in the search results, and takes a large cut of each sale. “Behind the scenes, Amazon is a puppet master that is controlling which offers a shopper sees through the high fees that it charges. It is forcing sellers to inflate their costs substantially, and that its algorithms are operating in ways that very likely are driving prices up,” says Mitchell.
In the ILSR’s report, multiple instances were found in which separate school districts paid drastically different prices for the same product sold by Amazon. For example, in February of 2023, the Needham, Massachusetts, school district paid $9.08 each for packs of Amazon Basics tape dispensers, yet the city of Charleston, South Carolina, paid $17.99 for the very same product. On January 10th of that same year, Pittsburgh Schools bought two cases of Kleenex for $57.99 each, while Denver Schools paid only $36.91 for a single case. (Incidentally, all this is quite similar to the typical retail user’s experience with Amazon.)
“We were struck by the fact that school districts are spending much more with Amazon than cities or counties are, and we are aware that many school districts are very budget-constrained and are just struggling to have enough resources,” Mitchell reflects. Many school districts are woefully understaffed, making them particularly vulnerable to signing on to bad contracts via Amazon Business, especially when it’s portrayed as being an easier way of fulfilling their procurement needs. “It’s driving all of these local suppliers out of business who generate jobs and tax revenue that support the local schools,” Mitchell adds. “It’s a self-defeating snowball effect of undermining the resources that the schools have, but the more harried and time-constrained school employees become, the more vulnerable they are to Amazon’s pitch.”
Soon after the publication of the ILSR’s report, Amazon released a statement that labeled the research “flawed and misleading.” An Amazon spokesperson told the El Paso Herald-Post that the report “misrepresents the facts and does not reflect the significant cost savings Amazon Business provides customers by offering everyday low prices that meet or beat other online providers and powerful tools to lower their spend.”
An Amazon spokesperson sent the exact same statement to the Prospect, which added that customers have access to “price ceilings that ensure they don’t pay above an agreed price, while automatically capturing savings when prices are lower.”
FUNNELING PUBLIC DOLLARS into purchasing supplies from Amazon clearly has a harmful impact on education professionals and students. It leaves less money that school districts could use to support the needs of their employees and pupils, and undermines local competition—which means even more leverage for Amazon to lower quality and raise prices. “There’s a significant risk that school districts are going to become increasingly dependent on Amazon for basic supplies, the more they shift spending away from local and regional independent suppliers,” Mitchell says. It’s a self-perpetuating cycle.
Local businesses that rely on the steady, transparent nature of competitive bidding are now being thrust into a world of uncertainty. Some are resorting to selling their products on Amazon, while others are seeing their operations take a massive hit. When these independent suppliers fall apart, the community that they once served suffers, Mitchell points out. Once able to provide high-quality, personable service and products, many now are struggling to stay afloat. “These are people who are your neighbors, their kids go to schools in these school districts,” she says. “It’s part of having a healthy community and a healthy local economy.” Everyone suffers in the end, not just the budgets of these local entities.
In response to the impact on local communities, the Amazon spokesperson said: “Amazon Business makes it easy for customers to search for and purchase supplies from certified local businesses and diverse sellers in their area to drive local growth, foster connections, and create a positive impact in the community.” These mechanisms to prioritize local businesses, however, are not mandatory.
It’s important to note that not all school districts spend a considerable amount of money on products found via Amazon’s marketplace. Some, such as the Minneapolis School District, have decreased their Amazon purchases, and others, like Baltimore and New Orleans, have reported doing little to no spending on the platform. Entering into contracts through Amazon is not permanent either, so it certainly is not impossible for cities and counties to stop doing so, and return to the old tried-and-true methods. “All school districts can stop buying from Amazon tomorrow, whether they’re under a contract or not, they’re not required by contracts to spend with Amazon, and so it is entirely possible to stop doing so immediately,” says Mitchell. “When a school district signs on one of these contracts … they can buy from other suppliers. They can stop under the contract, so they’re not tied down in that way.”
Breaking away from securing contracts and purchasing supplies through Amazon will benefit more than just school districts—it gives more chances for local businesses and their employees to thrive in an economy that is dominated by massive corporations. Most importantly, the needs of students and teachers can be better met when there’s more money in the pockets of school districts, and high-quality supplies in their classrooms.