If you want your e-commerce business to thrive it’s becoming almost mandatory that you sell on Amazon. With over 90 million Prime subscribers spending approximately $1,300 a year on the platform, business owners who are smart about leveraging Amazon’s traffic have much to gain.
Amazon is the largest online retailer in the US. With same day delivery on a variety of merchandise Amazon provides us with the convenience we crave. Where we once had to drive out to the store, find a parking space and walk through the aisles to find what we need, we can now get everything delivered to our doorstep.
Amazon’s customer-centric features have revolutionized the way we shop. And the company has been rewarded for it to the tune of 800 billion dollars, making CEO Jeff Bezos the richest man in the world and arguably one of the most powerful.
But therein lies a problem. Where there is power there is often corruption. The power Amazon has over the e-commerce industry today is reminiscent of the power America’s tycoons had over the railways in the late 1800s.
Back then if you wanted to commute or transport goods you had to go through the railway system. When two very wealthy businessmen formed Northern Securities company to acquire control of all the railroad companies in the west, it caused alarm amongst the public. The United States sued the monopoly under antitrust laws and it was forced to disband.
In modern times, Amazon’s policies dictate the ease (or challenge) of new third-party sellers entering the marketplace. Amazon typically releases payment to sellers every 2 weeks, but it has the liberty to withhold payment for up to 90 days. This can cause crippling cash flow problems for a small business.
Amazon might argue that unlike the railroads of yesteryear, they are not a monopoly. Traditional monopolies are known for posing a danger to the public by driving prices up. Amazon, on the other hand, drives prices down in a way that benefits consumers. Also, Amazon owns only 4% of the retail market. That’s just a small sliver compared to some larger retailers.
But it’s a new age and monopolies don’t always look the way they did in centuries before. Amazon’s rising power is posing new threats that should be looked at closely.
If you want to sell goods online, more often than not you have to use Amazon’s infrastructure. That’s a lot of power and with power comes responsibility. Just because the behemoth seems to be wielding its power benevolently now, it doesn’t mean it always will.
Many economists are warning that Amazon’s growing power is dangerous and that the company should be split up. Regardless of whether Amazon is forced to change, it’s worth exploring the impact it will have on third-party sellers.
Why Should Amazon be Split Up?
If you take a closer look, you will see that despite Amazon’s relatively small share of the retail market, its power is still threatening from an antitrust perspective. Amazon owns one-third of the cloud services market with its AWS division.
Amazon has the capital and influence to do what other companies can’t do in terms of research and development. And they have the size and the power to easily drive competitors out of business. Economists argue that Amazon is making it harder for new businesses to enter the marketplace and it’s bad for the economy.
At the same time, Amazon has also enabled a lot of small entrepreneurs to build businesses and quickly reach captive audiences.
But it can’t be denied that Amazon has potential conflicts of interest. Amazon is a private label seller on the same platform it invites third-party sellers to do business on. Amazon is often selling the same goods as third-party sellers, while at the same time collecting fees, commissions and lots of valuable data. And Amazon can charge lower prices than most third-party sellers because they don’t have to pay their own commission fees.
Amazon also has the ability (and the incentive) to drive up the bidding prices for product ads and compete with other advertisers. When Amazon pays for ads the money just goes from their left pocket to their right pocket. Therefore, if Amazon chose to abuse their advantageous position, it would be virtually impossible for any third-party seller to outbid them.
Another advantage Amazon has is the ability to collect data on market trends and consumer behavior. If Amazon noticed another seller’s product performing well, it could conceivably manufacture a competing product and drive the third-party seller out of business.
These are the reasons why many experts argue that it’s both imperative and inevitable that Amazon is broken up.
What will it mean for 3rd party sellers if Amazon is broken up?
One of the most famous antitrust cases in history was the breakup of the Bell System monopoly in 1982. At the time, AT&T was the sole provider of telephone service in the US and most of the telephone operating equipment was owned by the company’s subsidiary.
When the company was ordered to divest, it was split up by geographical region into smaller companies known as the “Baby Bells.”
It is possible that Amazon would be broken up in a similar fashion. Unlike eBay, which has all of its operations in a unified system, Amazon has separate systems for its US divisions and Europe divisions. For example, listing a product once on eBay makes it available anywhere in the world while Amazon requires sellers to register in each region and it maintains a separate database of products for each region. SellerCloud recently added support for Amazon China and Amazon Australia due to requests from its clients.
While dividing the company by geographic region is a relatively simple split, it would only slow down Amazon’s dominance of international ecommerce, but it wouldn’t solve the problem in the US.
But breaking up the company by service would have an even greater impact. This would mean separating Amazon the retailer from AWS, the infrastructure, and Amazon fulfillment, the shipping arm of the company. If Amazon the retailer is split off from the marketplace, its private label brands would no longer have access to the proprietary data that gives them an advantage.
This would eliminate the current conflict of interest and help create a more even playing field for third-party sellers to compete fairly.
Amazon could also employ the help of an objective third party to administer compliance. This would squash claims of conflicts of interest and weaken the argument that Amazon should be broken up. Under this scenario, sellers would benefit from having a disinterested entity play referee and ensure the marketplace stays fair for the long term.
Amazon is a resilient and adaptable company. We should also consider that a split may ultimately benefit Amazon in ways that can’t be foretold this early on. Regardless of how the debate ultimately plays out there will likely be changes in Amazon’s future that will affect how sellers do business.
Are you prepared to seize the opportunity?
If Amazon is affected, it’s possible that there will be more space in the market for other e-commerce businesses to scale up. This could pose a tremendous earning opportunity for e-commerce retailers who are ready for it by having SellerCloud help them streamline sales across multiple sales channels. It is important to ensure that your business is as competitive as it can be now so you will be poised to take advantage once the e-commerce game changes.
Are you ready to seize this opportunity? Contact SellerCloud directly to see how our tools and expertise can help position your business to win.