Amazon, the retail giant often seen as the epitome of big business, paradoxically relies significantly on small- and medium-sized businesses, which contributed over 60% of its sales last year. This symbiotic relationship, however, is not without its complexities, as highlighted by the recent Federal Trade Commission (FTC) antitrust lawsuit against Amazon.
Small businesses, drawn to Amazon’s vast reach and extensive customer base, find themselves grappling with rising costs to sell on the platform. The FTC lawsuit alleges that Amazon leverages its “monopoly power” to increase prices, stifle competition, and impose hefty fees on sellers, creating an environment where businesses feel compelled to rely on the e-commerce giant to stay afloat.
Scott Lieberman, an e-commerce consultant, emphasizes a familiar pattern in the business world, stating, “It’s the same playbook again and again.” Companies initially present a welcoming facade to attract small businesses, but over time, rules change, and operational costs escalate, making it increasingly challenging for businesses to sustain their operations on the platform.
Despite these challenges, many small businesses continue to view Amazon as a crucial component of their e-commerce strategy. While some sellers acknowledge the need for regulatory scrutiny, there’s skepticism about whether the FTC case will bring substantial changes to their relationship with Amazon.
Scott Needham, a seller on Amazon and provider of tools to other sellers, acknowledges the considerable power Amazon holds over its sellers but expresses uncertainty about the lawsuit’s potential impact on this dynamic. “I’m not sure if this would actually change that,” he notes, highlighting the pervasive influence Amazon wields in the e-commerce landscape.
Amazon’s success has inspired a proliferation of online marketplaces, allowing independent sellers to reach consumers across various platforms. The shift to third-party sellers, akin to online bazaars, is transforming the retail landscape. A recent survey by product marketing specialist 1Worldsync reveals that consumers increased their shopping activities on major marketplaces, such as Amazon and Walmart, by 30% in 2023 compared to the previous year. Additionally, third-party online marketplaces are projected to represent the fastest-growing retail channel globally, constituting 60% of all e-commerce sales growth in the next five years.
This shift, however, presents new challenges for small businesses. Unlike the traditional model where businesses sell directly to first-party sellers, the rise of third-party marketplaces demands a more hands-on approach. Small businesses must actively manage pricing, placement, advertising, and more to succeed in this dynamic environment.
In the realm of third-party marketplaces, particularly Amazon, pricing becomes a delicate balancing act. Amazon’s “anti-discounting strategy” penalizes sellers who offer lower prices elsewhere by removing their listing from the coveted “click to buy” box. This puts pressure on small businesses to maintain the lowest prices on Amazon, potentially affecting their relationships with other e-commerce platforms.
The cost structure of selling on Amazon compounds the challenges for small businesses. With fees amounting to almost half the listing price, including 15% to list, 10-15% for fulfillment services, and another 15% for advertising, businesses must carefully manage their margins. Competing platforms like Target, Walmart, or a seller’s own website come with their unique cost structures, further complicating pricing strategies.
Phil Masiello, founder, and CEO of CrunchGrowth Revenue Acceleration Agency, notes the challenge of being forced to be the cheapest on Amazon, whereas different economics may apply on other platforms. Small businesses selling on multiple platforms find themselves in a paradoxical situation of competing with themselves, a phenomenon increasingly observed in the evolving e-commerce landscape.
Small businesses navigating the Amazonian waters face intricate challenges and strategic decisions. While Amazon’s dominance in e-commerce is indisputable, the path to success for small businesses involves meticulous attention to pricing strategies, cost structures, and active management of their online presence across diverse platforms. As the regulatory landscape evolves, businesses must remain agile and adaptive to thrive in the ever-changing world of e-commerce.
