Sonos: Amazon Selling Smart Speakers Below Cost is Illegal

Posted on August 6, 2020 by Paul Thurrott in Amazon, Smart Home, Sonos with 35 Comments

In the wake of its legal challenge to Google, Sonos has finally gone after the market leader, Amazon, albeit indirectly, in claiming that the online giant sells its smart speakers below cost illegally.

But here’s the amazing bit: The Sonos claim is backed by comments that Amazon CEO Jeff Bezos made during a congressional hearing last week.

When asked by representative Jamie Raskin whether Amazon priced its Echo speakers below cost, Bezos admitted that they did.

“Not its list price,” he said, “but it’s often on promotion. And sometimes when it’s on promotion, it may be below cost, yes.”

“That’s predatory pricing,” Sonos CEO Patrick Spence told Protocol. “That’s illegal. They just take money from their monopoly business, they just subsidize, subsidize, subsidize.”

It’s not clear why Sonos hasn’t sued Amazon, as the firm also claims that Amazon, like Google, has stolen its intellectual property. But Spence says he was happy that Amazon and Google are finally in the antitrust hot seat.

“We were encouraged by the hearing last week,” he said. “You gotta stand up to bullies.”

In related news, Sonos this week reported revenues of $249.3 million for the quarter ending June 30, a decline of 4 percent year-over-year, a falloff the firm attributes to COVID-related retail store closures, especially IKEA.

“One of the key factors in our ability to achieve this was the investments we’ve made in our [direct to consumer (DTC)] efforts,” a letter to Sonos shareholders reads. “We quickly adapted when physical retail stores started to close in the second quarter, and drove a 299 percent year-over-year increase in our DTC revenue in the third quarter.”

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Comments (44)

44 responses to “Sonos: Amazon Selling Smart Speakers Below Cost is Illegal”

  1. ajgisler

    Antitrust laws are just disgusting and Sonos claiming its "predatory pricing" is just them being the bullies.

    • Paul Thurrott

      In reply to ajgisler:

      Wow.


      You think this tiny company that is getting screwed over by the world's third largest corporation is ... the bully in this scenario? I'm sorry, but that's literally incredible.

      • Michael Sorrentino

        In reply to paul-thurrott:

        Here's the thing though, antitrust laws aside, hypothetically speaking (obviously they aren't, which is the real issue) if Amazon (or any business for that matter) is fairly compensating all their employees, paying their legally required amount in taxes, and still has enough money to subsidize the cost of their products below market value and undersell their competitors.


        How and why should that be illegal exactly? Isn't that the exact definition of a Free Market Economy? Wherein the customer controls what businesses live and die based on their spending habits, which will of course be directly influenced by their ability to spend the least amount on a given product?

        • jimchamplin

          In reply to msorrentino:

          One could easily argue that Amazon is not fairly compensating all of their employees. For one, they use the sleazy "contractor" loophole that so many other of these modern companies use to not have to call the people who you know... actually do the work that makes Amazon function... part of the company. Even if they didn't do that, they wouldn't pay a living wage, that is, a wage that's been adjusted for inflation in the past 20 years.


          So... It's dubious that they're paying enough. Let's look at the next criterion you named. Paying legally required amount in taxes. I mean really. Who actually does this?


          Oh yeah. People like us. We don't make enough money to not pay taxes. So of course Amazon isn't paying their taxes. They have an army of accountants and lawyers to make sure of that. More scummy crap. Practically all multinational corporations are guilty of this. But hey, we're asking the hard questions here. So they aren't doing either of those things.


          Why do they deserve a pass again? Let's also not forget about the economic mayhem they've caused as they crushed smaller businesses under their boots and gave nothing back. Consider that with the money Bezos makes in an hour, he could feed the homeless of America and never miss it.


          And the free market is a fantasy, concocted by rich, miserable people, to pile more misery onto society.

        • Paul Thurrott

          I feel like this is obvious. Amazon enters the smart speaker market. Fine. They make cheap shit. Fine. Over time, they build better and more expensive products. OK. Then they start making smart speakers that sort of compete with Sonos. Also OK. But when you control distribution and access to consumers like Amazon does, and when you literally prevent competitors from selling on your platform as Amazon does, and then you literally sell your smart speakers at a loss, you've moved into new and illegal anticompetitive territory. Sonos is right to complain.
          • nwebster

            In reply to paul-thurrott:

            Sonos is tiny compared to Amazon overall, but that is not where they compete. You can't compare Amazon overall to Sonos overall, as they play in different markets. So that is not really a valid point.


            I agree a monopoly does not matter on size, but on practices. Amazon can sell their speakers below cost if they want to. That act is NOT monopolistic. It only is if they do so to drive others out of the market. But are they really trying to do that? or are they just trying to get more echo devices in your home to sell you more Amazon services. You could argue that they are trying to lock you into their ecosystem (which is something Sonos has done forever, and as the former big player in the market, could be argued THEY were being monopolistic). As for Amazon preventing them from selling things, that is not totally monopolistic. Sonos has plenty of other means to sell their hardware. They can work with other vendors. Walmart is a great example. Amazon is a strong player in the global online marketplace, but, and here is where size does matter, they are not dominating or driving others out of it with monopolistic practices. They got to where they are because they just operate smarter. Being smarter doesn't make you monopolistic. It just makes you better at business.

        • youwerewarned

          In reply to msorrentino:

          Life isn't long enough to list all the ways "the market" is not free. Just another illusion like "free will".

          But thinking it exists does make us feel warm and fuzzy, which IS the point.


      • nwebster

        In reply to paul-thurrott:

        This is the same "tiny" company that tried to brick their speakers so consumers couldn't resell them? Sonos needs to look at their own practices before calling out others...

        • Paul Thurrott

          It's confusing to have to keep explaining this, but ... the laws are literally different when you're small vs. when you're dominant. They are not "tiny," they are literally tiny compared to Amazon and the abuse that that latter company is capable of is exponentially worse than the customer service mistake you're still so burned by for some reason.
  2. SvenJ

    So Sonos is having trouble selling their $400-$500 speakers? What makes them worth that much more than Amazon's similar under $100 offerings? I'll acknowledge that Sonos, or Bose, or others sound better than Echo, but that much better? If you sell Cadillacs don't complain that Kias exist.

    • KingPCGeek

      In reply to SvenJ:

      Sonos sells the very high quality and sounding Sonos One for $200. Sans Alexa for $180. The sound quality between those and a $80 Echo is not even close.

      • Paul Thurrott

        True. But the problem is, Amazon has the eyeballs and those eyeballs are looking for lower prices. And free shipping. And some digital credits if they accept slower shipping...
    • mattbg

      In reply to SvenJ:

      That's generally not the way it works. A $400-500 speaker won't be 4-5x better. The problem is that a speaker that is 2-3x better won't sell in sufficient quantities at 2-3x the price to make it worthwhile. That's why the race to the bottom works the way it does, with people going after volume to make up for low margins. Most of the people willing to pay 2-3x more will also pay 4-5x more, and at that point the business makes sense. It also gives some additional funds to put into marketing and polishing, cementing the deal for people that are looking for something better and making them feel part of something special.


      I get Sonos's complaint. They sell speakers and only speakers, and once people have bought their speaker they expect Sonos to support it with upgrades and software for years to come with out any more outlay. Amazon sells speakers, harvests your data to drive other sales opportunities, and uses revenue from those subsequent purchases to support the feedback loop that Alexa kicks off. I don't see how that is fixed by making people spend an extra $5 for their Alexa so that it's not being sold below cost.


      Apple doesn't sell below cost, but they are also in a better position than Sonos because they have a diversified business.


      Someone at some point is going to buy Sonos, I would guess. No clue who that would be given the antitrust climate, because if Apple (the most logical suitor) did it it would only be to kill off a competitor.

    • Paul Thurrott

      I always enjoy the animosity that people have for companies. The issue is that Cadillac doens't rely on Kia to show and sell its vehiclees.
  3. winner

    2019: Sonos bricks old devices to make them non functional.

    2020: "You have to stand up to bullies"

  4. mattbg

    I get the gist of what he's saying, but... loss leaders are illegal? I don't see selling an individual product line that is a gateway to the rest of the service occasionally below cost as predatory pricing. Otherwise, you'd go after Gillette for selling razors below cost in order to sell blades, or gaming console vendors to sell below cost in order to sell games. Amazon occasionally sells Alexa below cost to bring you further into the Amazon ecosystem, and to collect data about your household.


    I get why Sonos may see it the way they do, because they only sell speakers... but that seems like their own marketing issue (I have two Sonos speakers and they are great and I hope they survive as a business - I am not interested in Alexa).


    The time to go after Amazon for predatory pricing seems over. To me, Amazon's whole retail business was based on predatory pricing at the beginning. For whatever reason, its shareholders tolerated big losses that allowed them to compete heavily on price against most other retailers while also losing money on shipping. They did it across the board to gain market share. Traditional businesses with shareholders that expected dividends or profits could not compete. That is "predatory pricing", but at the time they were not the behemoth that they are now. They have toned that back as they gained market share, as you would expect. I regularly find things cheaper elsewhere now and Amazon is more about convenience and harder-to-find stuff.


  5. chump2010

    The bad part if they are selling it below cost, is that potentially they are pricing others out of the market. It creates huge barriers to entry for other retailers. If people are not sure why a potential monopoly is a bad thing, I would point to internet providers. In many places, there are only three super large corporations offering an internet service. No one else can compete with them, because as soon as a new player comes to the market, they drop prices and lose a bit of money in the short run. In lots of places, only one major provider exists.....so it is not like you get a choice of the three major providers.


    arstechnica.com/information-technology/2018/07/comcast-or-charter-is-the-only-25mbps-choice-for-68-million-americans/


    So if Amazon are selling products as loss leaders (and it may not just be Sonos speakers) they are stopping other retailers from joining the market potentially. With less retailers, that means less places for suppliers to sell their goods. Which means Amazon will start to control all aspects of the supply chain. ie they can say to Sonos sell them to us at this rate, otherwise we will not stock them, which will mean your sales will drop massively. Or we will automatically put your products at the bottom of the page. Amazon control enough of the online market share (I think 38% of online commerce goes through Amazon?), for loss leading to be considered a highly dubious practice. And I would imagine an illegal one.


    Having said all that, I am no lawyer. Enjoy the rest of your day!

  6. youwerewarned

    Americans will tolerate most any misbehavior when it includes free shipping. Imagine--sending a box 40 miles from Baltimore to D.C. in only six days is free, when you pay for Prime. Yup, free when paid! Whoopie!



  7. beckoningeagle

    This could be the "smoking gun". Jeff Bezos is on record admitting to illegal pricing, although he did say "it may be...".

  8. papalakaka

    "And sometimes when it’s on promotion, it may be below cost, yes.”

    “That’s illegal."


    Is it tho?


    Doesn't Sony also subsidize the PS4? Where's the difference?

    • rosyna

      In reply to papalakaka:


      Having loss leaders is perfectly legal while predatory pricing (the accusation here) may not be legal, depending on the jurisdiction.

      • Michael Sorrentino

        In reply to rosyna:

        Except, there's an argument to be made that the PS4 isn't a loss leader, it out sells it's primary competition the Xbox One, regularly, meaning that at the end of the day with value added services like PlayStation Plus, Sony recoups their "losses" easily and turns a profit.


        Meanwhile, Nintendo just sits back and laughs as they make profits by not trying to compete with Sony or Microsoft, the Switch and its games sell explicitly because they aren't what Sony and Microsoft are offering.

  9. cavalier_eternal

    I buy the argument that it could be predatory pricing but what is the monopoly that speakers are tied to? Amazon isn’t even in the top five of music streaming services. I guess online shopping?

    • beckoningeagle

      In reply to cavalier_eternal:

      He is talking specifically about Smart Speakers. I don't know the market share, but Amazon probably has a monopoly of Alexa enabled smart speakers. The power that it gets by being the largest online retailer is also a point to consider.


      If the FTC ever charges Amazon for abusing monopoly power it is going to be one for the history books, just the re-interpretation of already interpreted laws should provide enough entertainment

      • cavalier_eternal

        In reply to BeckoningEagle:

        Yeah, I get that it is smart speakers but the claim is they are selling smart speakers below cost because they can subsidize the the loss with their monopoly. I'm curious what monopoly they claiming is subsidizing the smart speaker business.

        • Michael Sorrentino

          In reply to cavalier_eternal:

          That's the flaw in their argument, Amazon doesn't have an actual monopoly in any industry, they just have the controlling stake in most industries like eBooks, Digital Comics after their purchase of Comixology, Online Retail, etc.


          They then use their size to undersell* their competition.


          *Personally, I see nothing wrong or illegal with that premise, if a company can afford to sell their products below market cost due to excess cash on hand, that just demonstrates financial efficacy and sound business strategy. However, that excess cash on hand should not be due to underpaid workers or lack of benefits to workers.

          • haywardi1

            In reply to msorrentino: I understand your arguement, but it misses a crucial element, they are a big rich company and use their financial muscle to crush competition, that's wrong. Why? Look at diapers.com, beat Amazon in every way. Amazon tried to buy them, they refused, so Amazon dumped their price until diapers.com couldn't complete. Amazon crushed a competitor and then bought their assets at rock bottom price. After the purchase that's right Amazon price went up again. They did this by using the financial muscle, that's a bully in a smart suit! And ultimately hurts consumers. Don't believe me, the FTC is using this example in their anti trust case against Amazon and what they did is documented, even if Bezos says he can't remember the detail.


            • Greg Green

              In reply to haywardi1:

              Intuit did something similar with Parsons tax software. I used it for years, then Intuit bought Parsons, spun off the non tax business under the condition they not make tax software for 5 years, and we never saw Parson tax software again.

          • cavalier_eternal

            In reply to msorrentino:

            The definition of monopoly is the tough bit. A monopoly is defined as possess sufficient power in an accurately defined market for its products or services. Amazon might rise to that on the retail commerce front though it’s a pretty broad service. The other that I could think of is potentially the ebook areas. IDK, I kinda feel the Sonos guy might have been tossing around the word.

          • Paul Thurrott

            It's amazing to me how hung up people get on the word monopoly. It doesn't mean what you think it means, and you don't need to have 90 percent marketshare or whatever to have a monopoly.
        • BrianEricFord

          In reply to cavalier_eternal:


          Presumably, he’s talking about their control of the online retail market.

  10. garethb

    Well _IF_ that's the case someone had better have a go at both Playstation and Xbox. They also sell the hardware below cost - at least in the early part of any models life (and hope to make it back in game sales).


    As @mattbg says, I'm not sure the underlying accusation is actually correct. Manufacturers sell products below cost all the time. We even talk about whether an item is the "razor" or the "blade". One could just as easily refer to the "printer" or the "ink"...


    I know it's awfully inconvenient if you only sell very expensive razors....

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