Report: Amazon invested in startups to access information

Written by: Jayson Derrick
July 27, 2020
  • Amazon allegedly bought stakes in startups to obtain secret information.
  • Case in point, Amazon invested in a startup called Nucleus in 2016.
  • Months later, Amazon launched a product very similar to Nucleus'.

How does Inc. (NASDAQ:AMZN) fuel its growth? In part by investing in companies that are complementary to its own products and accessing its trade secrets, The Wall Street Journal reported.

Case in point: DefinedCrowd

Amazon’s venture capital arm invested in a company called DefinedCrowd Corp which gave the e-commerce retailer access to the startup’s confidential information, according to WSJ. Within four years, Amazon’s cloud computing business AWS launched its own artificial intelligence-powered product called A2I that ironically does almost exactly the same thing DefinedCrowd’s products do, according to the WSJ report.

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DefinedCrowd Chief Executive Daniela Braga told WSJ Amazon’s new launch competed directly “with one of our bread-and-butter foundational products.” She is one of more than two dozen startup executives, investors or deal advisors who told the publication Amazon may have developed competing products through an investment or deal-making process. 

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Amazon responds

In other cases, Amazon presented itself as being interested in taking over a startup, only to launch a competing product of its own after gaining inside knowledge of the startup, according to WSJ.

Amazon told WSJ it doesn’t use confidential information obtained in discussions with companies. A spokesman also told the publication that all legitimate disputes about intellectual property ownership “are rightly resolved in the courts.”

These startups might disagree

Amazon’s venture capital fund invested in a company called Nucleus that makes home-video communication devices that integrate with Amazon’s Alexa voice assistant. The startup even received reassurances from Amazon’s venture capital arm that there is a firewall between the fund and Amazon proper.

However, once a deal was signed in 2016, Amazon’s venture capital arm got access to Nucleus’ financials, strategic plans, and other secret information, sources told WSJ. Fast forward eight months later and Amazon announced the launch of its Echo Show device, video chat device that mimicked many features of Nucleus.

In response to the allegations, Amazon told WSJ that the venture capital arm notified Nucleus of its plans to launch its own device prior to assuming a stake. But several people from Nucleus dispute the statement. 

Nucleus ultimately settled with Amazon for $5 million without admitting wrongdoing, sources said. Both sides also agreed not to discuss the matter publicly.

LivingSocial, a daily-deals website, sold Amazon a 30% stake of itself in 2010. After the deal closed, Amazon started asking for data, including a customer list and merchant list. While LivingSocial refused to hand over the data, a source said, the startup started to hear from clients that they are being pitched by Amazon.

“We may have been naive in believing they weren’t competitive with us, and we ran into conflicts over employees, merchants, customer lists and vendors,” John Bax, LivingSocial’s chief financial officer until 2014, told WSJ.

Amazon used deal making and investments as part of a strategy to allegedly obtain secret information before launching its own competing device, according to a WSJ report.