Hitting the buy button on Amazon often comes with a twinge of guilt. Whether a gift, kitchen item, or a book (especially books), I feel like I’m cheating local businesses out of their livelihood.
But like millions of other consumers, I’m hooked by the convenience, low prices, free shipping, and fast delivery. Plus, many times Amazon is the only place where I can find certain items.
Amazon’s ownership of the e-commerce market is jaw dropping. In 2020, its share of the US e-commerce retail market reached 47%, up from 37% in 2017, according to Statista. By the end of 2021, Statista expected Amazon to rack up 50% of the market’s gross merchandise volume.
Amazon’s closest online retail competitor in the US is Walmart, with market share reaching 5.6% in 2020.
Amazon is the first and only shopping destination for many consumers. Nearly two-thirds of American households belong to Amazon Prime, eMarketer estimates. Amazon’s customers are among the most loyal, with 88% not looking anywhere else for their purchases, Consumer Intelligence Research Partners found.
How does any retailer, let alone a small business, compete with that?
Amazon and convenience go hand-in-hand, and brands are taking notice. Consumers expect simplicity and omnichannel capabilities for e-commerce purchases – and they're loyal to the companies who excel in those areas.
With that kind of e-commerce dominance, retailers don’t have many options if they want to get their products in front of consumers.
According to the Institute for Local Self-Reliance, Amazon exploits small businesses that sell in its marketplace, charging them increasingly steeper fees. The group’s report argues that the company operates as an unregulated monopoly, thwarting competition.
Some of the key findings:Moreover, the report claims, Amazon uses profits from seller fees to subsidize other parts of its business, helping to further expand its dominance.
ILSR contends that seller fees help Amazon absorb losses from Prime benefits like free shipping and streaming videos, and that seller fees are also used to subsidize its retail division to sell household items at low prices.
Asked for a response to the report, an Amazon spokesperson told me in an email:
“This report [ILSR] is intentionally misleading because it conflates Amazon’s selling fees with the cost of optional services like logistics and advertising. Combining seller fees with the costs of additional services—services our sellers would procure somewhere else if not from us—is like saying that the cost of coffee has gone up at Starbucks because you also chose to buy a muffin.”
Creating e-commerce marketplaces can allow operators to capture revenue from industry giants and help brands stay relevant in an Amazon-dominated world.
Jason Boyce, an Amazon expert and former seller, isn’t convinced that Amazon is using seller fees to buoy its other retail business, but supports many of the ILSR findings.
In his view, the “most nefarious thing” Amazon does to independent sellers is what Boyce calls buy-box and search suppression.
When looking at an item, shoppers often see “add to cart” and “buy now” buttons, which Amazon gives to eligible sellers. But if Amazon sees the product on another site at a lower price – say Walmart – those buttons are replaced by “see all buying options,” said Boyce. Without the one-click buttons, sales can tank.
The same delisting can happen in the Amazon search function. “If you get your product above the fold, you can have wild success,” Boyce said. Anything below that first page spells doom for sellers.
A brand with a best-selling product lost 30% of its sales in one week after deciding to also offer it on Walmart, which sold the product for less than Amazon, Boyce said. After 10 days, the brand lost half of its sales.
To avoid that, sellers will raise prices or pull products from other marketplaces, he said, ultimately raising prices across the internet. “If Congress would outlaw buy box/search suppression, overnight the competitive doors would open,” he said.
Amazon says sellers are free to set prices, but that the company is committed to meeting customer expectations for low prices.
When Amazon spots another retailer offering an item at a better price, it notifies all potential sellers so they can decide if they want to adjust their pricing, or it will match the price if it’s selling the product itself.
The Amazon effect is disrupting the B2B industry, just as it evolved B2C and e-commerce models, placing customer experience at the forefront of everything.
As Amazon continues to amass more of the e-commerce market, scrutiny of its practices has grown over the past few years.
Sellers have accused Amazon of spying on them, copying their best-selling products, and giving its own products preferential search results. The company has refuted the claims, but lawmakers are skeptical.
Amazon’s data security also has taken a hit. According to a recent Wired investigation into how Amazon handles customer data, the company’s lack of data security led to insiders “taking bribes to help shady sellers sabotage competitors’ businesses, doctor Amazon’s review system, and sell knock-off products to unsuspecting customers.”
Amazon asserts that its data security practices are top-notch and told Wired that it’s taken quick action when it detects anyone abusing its systems. But this summer, European regulators fined the company $867 million, accusing it of violating the General Data Protection Regulation. The fine was the biggest GDPR fine to date. Amazon has appealed the ruling.
In the US, antitrust sentiment against Amazon — and other tech giants like Facebook and Google — has been growing.
In May, the attorney general of Washington D.C. filed an antitrust lawsuit against Amazon, accusing them of thwarting competition with pricing policies that prevent its sellers from selling their products for lower prices on other e-commerce marketplaces.
In June, the House Judiciary Committee passed a package of legislation, including the Ending Platform Monopolies Act, which aims to rein the tech giants by eliminating “the conflicts of interest that arise from a dominant platform’s ownership and reach across multiple business lines.”
Months after three Amazon execs say they were forced out for raising concerns surrounding data privacy policies within the global e-commerce behemoth, Amazon is facing a massive potential GDPR fine, to the tune of $425 million.
Despite these issues, it appears Amazon’s e-commerce machine hasn’t slowed down one bit.
The company continues to enjoy wild success, including what it reported as record-breaking Black Friday and Cyber Monday sales.
To be sure, Amazon is vital for many businesses, with about 2 million active sellers in its marketplace. In the US, 4,000 sellers reported more than $1 million in sales between September 2020 and August 2021, according to the 2021 Amazon Small Business Empowerment Report.
There’s no question that Amazon is a logistics leader and usually excels when it comes to customer experience. Amazon e-commerce became a critical resource for many consumers seeking essential supplies during the pandemic, and many now can’t imagine life without it.
But the ILSR study and other reports raise legitimate questions as to the ultimate cost of Amazon’s e-commerce success: Is it worth it?
