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 various merchandise, Amazon provides us the convenience we crave.
Where we once had to drive to the store, find a parking space, and walk through the aisles to find what we needed, we can now have 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 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 two weeks, but it can 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, it is 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 as they did centuries before. Amazon’s rising power poses new threats that should be looked at closely.
To sell goods online, you often need 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 warn that Amazon’s growing power is dangerous and that the company should be split up. Whether Amazon is forced to change or not, it’s worth exploring the impact this 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 regarding research and development.
They also 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, which is bad for the economy.
At the same time, Amazon has enabled many small entrepreneurs to build businesses and quickly reach captive audiences.
However, it can’t be denied that Amazon has potential conflicts of interest. Amazon is a private label seller on the platform it invites third-party sellers to do business on.
Amazon often sells the same goods as third-party sellers while collecting fees, commissions, and valuable data. And Amazon can charge lower prices than most third-party sellers because they don’t have to pay their 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 its 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 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&T was the sole provider of telephone service in the US then, and its subsidiary owned most of the telephone operating equipment.
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 similarly. 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 client requests.
While dividing the company by geographic region is a relatively simple split, it would only slow down Amazon’s dominance of international e-commerce, but it wouldn’t solve the problem in the US.
However, 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, were separated 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, enabling them to compete fairly.
Amazon could also hire an objective third party to administer compliance. This would squash claims of conflicts of interest and weaken the argument that it should be broken up.
Under this scenario, sellers would benefit from having a disinterested entity act as a referee and ensure the long-term fairness of the marketplace.
Amazon is a resilient and adaptable company. We should also consider that a split may benefit Amazon in ways that can’t be foretold this early on.
Regardless of how the debate ultimately plays out, Amazon’s future will likely involve changes affecting sellers’ business practices.
Are You Prepared to Seize the Opportunity?
If Amazon is affected, there may 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 your business is as competitive as possible now so that you will be poised to take advantage when 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.
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