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Amazon\u2019s headquarters in downtown Seattle. JOHN MOORE\/GETTY IMAGES<\/p><\/div>\n
When\u00a0Amazon.com<\/a>\u00a0Inc.\u2019s<\/span>\u00a0AMZN\u00a00.42%\u00a0<\/a>venture-capital fund invested in DefinedCrowd Corp., it gained access to the technology startup\u2019s finances and other confidential information.<\/p>\n Nearly four years later, in April, Amazon\u2019s cloud-computing unit launched an artificial-intelligence product that does almost exactly what DefinedCrowd does, said DefinedCrowd founder and Chief Executive Daniela Braga.<\/p>\n The new offering from Amazon Web Services, called A2I, competes directly \u201cwith one of our bread-and-butter foundational products\u201d that collects and labels data, said Ms. Braga. After seeing the A2I announcement, Ms. Braga limited the Amazon fund\u2019s access to her company\u2019s data and diluted its stake by 90% by raising more capital.<\/p>\n Ms. Braga is one of more than two dozen entrepreneurs, investors and deal advisers interviewed by The Wall Street Journal who said Amazon appeared to use the investment and deal-making process to help develop competing products.<\/p>\n In some cases, Amazon\u2019s decision to launch a competing product devastated the business in which it invested. In other cases, it met with startups about potential takeovers, sought to understand how their technology works, then declined to invest and later introduced similar Amazon-branded products, according to some of the entrepreneurs and investors.<\/p>\n An Amazon spokesman said the company doesn\u2019t use confidential information that companies share with it to build competing products.<\/p>\n Dealing with Amazon is often a double-edged sword for entrepreneurs. Amazon\u2019s size and presence in many industries, including cloud-computing, electronic devices and logistics, can make it beneficial to work with. But revealing too much information could expose companies to competitive risks.<\/p>\n PHOTO:\u00a0<\/span>PEDRO FIUZA\/NURPHOTO\/ZUMA PRESS<\/span><\/p>\n<\/figcaption><\/figure>\n<\/div>\n \u201cThey are using market forces in a really Machiavellian way,\u201d said Jeremy Levine, a partner at\u00a0venture-capital firm Bessemer Venture Partners. \u201cIt\u2019s like they are not in any way, shape or form the proverbial wolf in sheep\u2019s clothing. They are a wolf in wolf\u2019s clothing.\u201d<\/p>\n Former Amazon employees involved in previous deals say the company is so growth-oriented and competitive, and its innovation capabilities so vast, that it frequently can\u2019t resist trying to develop new technologies\u2014even when they compete with startups in which the company has invested.<\/p>\n Drew Herdener, an Amazon spokesman, said that \u201cfor 26 years, we\u2019ve pioneered many features, products, and even whole new categories. From amazon.com itself to Kindle to Echo to AWS, few companies can claim a record for innovation that rivals Amazon\u2019s. 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.\u201d<\/p>\n In February, the Federal Trade Commission\u00a0ordered five large technology companies<\/a>, including Amazon, to provide details on certain investments and acquisitions from 2010 through 2019 to determine whether any of the deals were anticompetitive. The FTC declined to comment on the status of that review.<\/p>\n Amazon\u00a0also is facing scrutiny<\/a>\u00a0from Congress,\u00a0the FTC\u00a0<\/a>and the Justice Department over whether it unfairly uses its size and platform against competitors and other sellers on its site. Amazon Chief Executive Jeff Bezos and fellow technology CEOs\u00a0are scheduled to testify to Congress<\/a>\u00a0on Monday about their companies\u2019 business practices.<\/p>\n In April, the Journal reported that Amazon employees on the private-label side of its business\u00a0have used data about individual third-party sellers on its site to create competing products<\/a>. Amazon said it was conducting an internal investigation into the practices described in the story.<\/p>\n Estimated number of investments, by year<\/p>\n<\/div>\n 25<\/p>\n<\/div>\n 20<\/p>\n<\/div>\n 15<\/p>\n<\/div>\n 10<\/p>\n<\/div>\n 5<\/p>\n<\/div>\n 0<\/p>\n<\/div>\n 2015<\/p>\n<\/div>\n \u201916<\/p>\n<\/div>\n \u201917<\/p>\n<\/div>\n \u201918<\/p>\n<\/div>\n \u201919<\/p>\n<\/div>\n \u201920*<\/p>\n<\/div>\n<\/div>\n *As of July 21<\/p>\n Source: PitchBook<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n Amazon takes stakes in some startups and acquires others outright. Many investments are made through its Alexa Fund, an investment vehicle launched in 2015 after Amazon unveiled a line of smart speakers that became a runaway technology hit. The fund aims to support companies involved in voice technology.<\/p>\n In one instance, an investment from the Alexa Fund led to an acquisition. The fund made an investment in smart-doorbell maker Ring in 2016, then\u00a0bought the company in 2018<\/a>. \u201cOur constant collaboration and joint innovation with the Alexa [Amazon] team has enabled us to bring more value and better security products and services to our customers,\u201d said Ring founder Jamie Siminoff, who now works for Amazon, in an emailed statement.<\/p>\n In 2016, a group of investors led by the Alexa Fund bought a stake in Nucleus, a small company that made a home-video communication device that integrated with the Alexa voice assistant.<\/p>\n Nucleus\u2019s founders and the venture-capital funds investing alongside the Alexa Fund had reservations about collaborating with an Amazon-backed firm, according to some of the co-investors.<\/p>\n PHOTO:\u00a0<\/span>ANDREW BURTON\/BLOOMBERG NEWS<\/span><\/p>\n<\/figcaption><\/figure>\n<\/div>\n \u201cOur biggest concern at the time that we invested was that Amazon could come up with a competing product,\u201d one of the investors said. Representatives from the Alexa Fund told co-investors there is a firewall between the Alexa Fund and Amazon itself, the investor said.<\/p>\n Some investors and people involved with the deal said Amazon assured them and Nucleus\u2019s leadership it wasn\u2019t working on a competing product.<\/p>\n After striking the deal, the Alexa Fund got access to Nucleus\u2019s financials, strategic plans and other proprietary information, these people said. Eight months later, Amazon announced its Echo Show device, an Alexa-enabled video-chat device that did many of the same things as Nucleus\u2019s product.<\/p>\n Nucleus\u2019s founders and other investors were furious. One of the founders held a conference call with some investors to seek advice. He said there was no way his small company could compete against Amazon in the consumer space, according to people on the phone call, and began brainstorming ways to pivot his company\u2019s product.<\/p>\n An Amazon spokeswoman said that the Alexa Fund told Nucleus about its plans for an Echo with a screen before taking a stake in the company. Several people on the Nucleus side of the deal disputed that.<\/p>\n Before Amazon introduced its product, the Nucleus device was sold at major retailers such as\u00a0Home Depot<\/a>,<\/span>\u00a0Lowe\u2019s<\/a>\u00a0and\u00a0Best Buy<\/a>.<\/span>\u00a0Once the Echo began selling, those sales declined sharply and retailers stopped placing orders, said two people involved in the deal.<\/p>\n Nucleus threatened to sue Amazon, which settled with Nucleus for $5 million without admitting wrongdoing, according to people familiar with the settlement. Both sides agreed not to discuss the matter.<\/p>\n Nucleus reoriented its product to the health-care market, where it has struggled to gain traction, some of those people said.<\/p>\n In 2010, Amazon invested in daily-deals website LivingSocial, gaining a 30% stake and representation on the startup\u2019s board. Former LivingSocial executives said Amazon began requesting data. \u201cThey asked for our customer list, merchant list, sales data. They had a competitive product and they demanded all of this,\u201d said one former executive. LivingSocial declined to hand over the data, this person said.<\/p>\n LivingSocial executives began hearing from clients that Amazon was contacting them directly and offering them better terms, some former executives said. Amazon also began hiring away LivingSocial employees.\u00a0Groupon<\/a>\u00a0Inc.<\/span>\u00a0bought LivingSocial, including Amazon\u2019s stake, in 2016.<\/p>\n PHOTO:\u00a0<\/span>JACQUELYN MARTIN\/ASSOCIATED PRESS<\/span><\/p>\n<\/figcaption><\/figure>\n<\/div>\n \u201cWe may have been naive in believing they weren\u2019t competitive with us, and we ran into conflicts over employees, merchants, customer lists and vendors,\u201d said John Bax, LivingSocial\u2019s chief financial officer until 2014.<\/p>\n Vocalife LLC, a Texas-based sound-technology firm, has sued Amazon, alleging it improperly used proprietary technology. Amazon had contacted the inventor of Vocalife\u2019s speech-detection technology in 2011 after he had received an award at the Consumer Electronics Show, said Alfred Fabricant, a lawyer representing Vocalife.<\/p>\n The inventor thought the visit could be a prelude to some kind of licensing deal or buyout offer, according to Mr. Fabricant. He demonstrated a microphone array, for which he had filed for two patents, and sent over documentation related to its invention and engineering, Mr. Fabricant said. Shortly after the meeting, Amazon\u2019s executives didn\u2019t respond to several emails from the inventor, Mr. Fabricant said.<\/p>\n Vocalife contends that Amazon used the technology in its Echo device, infringing on its patents.<\/p>\n \u201cThey find technology they think is extremely valuable and seduce people to engage with them, and then cut off all communication after initial sessions with an inventor or company,\u201d Mr. Fabricant said. \u201cYears later, lo and behold, the technology is in an Amazon device.\u201d<\/p>\n Amazon has disputed Vocalife\u2019s claims in responses to the court, an Amazon spokesman said. The case is slated for trial in September.<\/p>\n Leor Grebler created a voice-activated device called Ubi that had much of the functionality of an Amazon Echo, and he got it on the market well before the Echo was introduced. In late 2012, he said, he began meeting with Amazon about his technology. He said he thought Amazon would want to acquire Ubi or license the technology.<\/p>\n Both parties signed nondisclosure agreements meant to prevent them from improperly using information gleaned in the discussions. They held five discussions bound by the agreement, Mr. Grebler said.<\/p>\n PHOTO:\u00a0<\/span>ANDREW FRANCIS WALLACE\/TORONTO STAR\/GETTY IMAGES<\/span><\/p>\n<\/figcaption><\/figure>\n<\/div>\n In early 2013, a team of Amazon executives, including two involved in developing the Echo speaker, flew to Toronto for a demonstration of the technology, Mr. Grebler said. Before the meeting, Amazon called and said that it would be terminating its nondisclosure agreement, which Mr. Grebler said he interpreted as a step that could lead Amazon to buy Ubi.<\/p>\n During the demonstration, the Ubi device told the participants the weather in the area after receiving voice-activated instructions, it checked flight statuses and sent emails, said Mr. Grebler. He asked the Ubi to turn the lights on and off.<\/p>\n Mr. Grebler said he provided Amazon with lots of proprietary information during the meetings. \u201cThey saw all the things we wanted to do with the device [like] music and shopping. It was almost a road map for the product,\u201d he said.<\/p>\n After that final meeting, Amazon began engaging less with Mr. Grebler, he said. On Nov. 6, 2014, he received an email from his brother with the subject line \u201cUh Oh.\u201d It contained a link to an article about Amazon\u2019s planned Echo device.<\/p>\n An Amazon spokesman said that work on its Echo device had been under way for some time by 2012, when it began meeting with Mr. Grebler, and that it told him it was working on a competing product.<\/p>\n Mr. Grebler said he met with a law firm to consider his legal options, but decided he didn\u2019t have the funding to sue Amazon. The Echo launched on June 23, 2015.<\/p>\n In the six months that followed, Mr. Grebler said, \u201cWe ended up burning through our cash and ended up having to downsize most of the company. We moved out of our offices.\u201d Six months after the Echo started selling, Ubi discontinued its product and tried to pivot to becoming a voice-enabled services provider.<\/p>\n PHOTO:\u00a0<\/span>ETHAN MILLER\/GETTY IMAGES<\/span><\/p>\n<\/figcaption><\/figure>\n<\/div>\n Matthew Hammersley, the co-founder of a voice-driven storytelling app company called Novel Effect Inc., said he accepted an investment from the Alexa Fund in 2017 despite hearing about Nucleus\u2019s experience with the Alexa Fund.<\/p>\n As part of Alexa\u2019s incubator program for early-stage startups, he had meetings with a half-dozen Amazon executives, including top Alexa executives, he said. In the end, Mr. Hammersley, a former patent lawyer, decided not to let his app operate on Alexa devices.<\/p>\n \u201cWe could never work out a deal because Alexa can\u2019t do what our voice technology does, and our options were either we teach them how to do this and you use our software, or you license this from us,\u201d said Mr. Hammersley, who said Amazon asked to be shown how the technology works. \u201cWe couldn\u2019t come to an agreement there, because obviously I\u2019m not going to teach them how to do it.\u201d<\/p>\n An Amazon spokesman said that Alexa Fund has a strong relationship with Novel Effect.<\/p>\n Vivint Smart Home<\/a>\u00a0Inc.,<\/span>\u00a0VVNT\u00a0-0.19%\u00a0<\/a>a maker of doorbell cameras, garage-door openers and other connected-home devices, was one of the first smart-home companies to integrate with Amazon\u2019s Echo devices. In 2017, Amazon was launching an update to its Echo speakers. It told Vivint that it would only allow the company to remain on the Echo if Vivint agreed to give it not only the data from its Vivint function on Echo, but from every Vivint device in those customers\u2019 homes at all times, according to people familiar with the matter and emails reviewed by the Journal.<\/p>\n Vivint customers typically have about 15 of the company\u2019s devices in their homes, and the company has more than 1.5 billion pieces of data coming in daily from customers the company monitors for home-security issues. The company declined to hand over the data. Even so, Vivint remained integrated with the Echo devices.<\/p>\n A Vivint spokeswoman confirmed that Amazon asked for all such device data. An Amazon spokesman said the company didn\u2019t request information on devices not connected to Alexa.<\/p>\n \u2014Jim Oberman contributed to this article.<\/p>\n<\/div>
DefinedCrowd founder and CEO Daniela Braga said Amazon launched a product that competes directly with one of her company\u2019s.<\/h4>\n
Deal Pipeline<\/h3>\n
Amazon’s Alexa Fund has invested in many companies involved in voice technology.<\/h4>\n
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Amazon launched the Alexa Fund after it unveiled its Echo line of smart speakers, which became a runaway technology hit.<\/h4>\n
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Amazon invested in daily-deals website LivingSocial in 2010.<\/h4>\n
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Leor Grebler, far right, who created a voice-activated device called Ubi, said he provided Amazon with lots of proprietary information during meetings. Also pictured are co-founders Mahyar Fotoohi, left, and Amin Abdossalami.<\/h4>\n
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Vivint Smart Home, a maker of doorbell cameras and other connected-home devices, was one of the first smart-home companies to integrate with Amazon\u2019s Echo devices.<\/h4>\n