- Amazon is getting investigated by the DOJ and FTC for anti-trust violations.
- Third-party sellers, some of which generate millions in sales every year, are gearing up to complain to the governmental bodies about why Amazon is competing against them too — and destroying their businesses.
- Amazon’s third-party platform is worth some $307 billion, according to a Morgan Stanley report.
- Visit Business Insider’s homepage for more stories.
Third-party sellers quietly power Amazon’s retail dominance.
According to a recent analyst note from Morgan Stanley, Amazon’s third-party business is worth $307 billion of the company’s $1.1 trillion enterprise value, comprising 58% of all merchandise sales. Meanwhile, the first-party platform is worth $93 billion.
Amazon founder Jeff Bezos raved about third-party sellers, which he described as mostly small- and medium-sized businesses, in his 2018 letter to the shareholders. From 1999 to 2018, these sellers had a compound annual growth rate of 52%. On eBay, those same small sellers had a CAGR of 20%.
"To put it bluntly: Third-party sellers are kicking our first party butt," Bezos wrote. "Badly."
But third-party sellers who spoke to Business Insider aren’t exactly feeling the same love towards Bezos as he professed to them.
"I’ve been selling on Amazon for seven years," Scott Needham, CTO of Amazon marketplace seller BuyBoxer, told Business Insider. "From the beginning, if you look at the mechanics of things work, in some situations, it just wasn’t a fair marketplace."
Some sellers say that Amazon has an unfair advantage in accessing sales data on its third-party platform. For instance, one company told Bloomberg in 2016 that its top-selling laptop stand was displaced when Amazon Basics launched a very similar product — at half the price.
Another leading complaint from Amazon sellers is that they might have their accounts suspended without much notice or explanation. The process to get one’s account reinstated is brutal, sellers told Business Insider.
"I think a lot of sellers sense who they’re up against and that Amazon’s not their friend," Paul Rafelson, a tax law attorney at Francissen Rafelson Schick, LLP whose practice is focused on helping Amazon sellers, told Business Insider. "Amazon will use them when necessary and dispose of them when appropriate. There’s no love there."
Pat Greenhouse/The Boston Globe via Getty Images
Chris McCabe worked at Amazon for more than five years on account compliance. McCabe, who is now an independent consultant who helps Amazon sellers whose accounts have been suspended, explained to Business Insider why it’s so stressful for sellers whose accounts are abruptly canceled.
When customers complain to Amazon about a seller, Amazon takes those complaints seriously and is likely to jump to suspend the account, even if the reasons are "murkier," McCabe said.
"Amazon’s a ‘buyer experience is king’ marketplace," McCabe, the founder of consulting firm ecommerceChris, said. "So any buyer complaint, unless it’s determined to be from a competitor by your account, is considered a valid complaint that needs to be addressed by a seller. So as you can imagine, it’s easy to accrue a handful of complaints that might warrant further scrutiny."
But, McCabe added, "buyer complaints aren’t really vetted to much of a degree. They’re more or less considered to be valid almost every time out." That means seller accounts can sometimes be suspended when they really shouldn’t be.
Third-party sellers are not always dinky mom-and-pops
While they may be thought of as small businesses, some of these marketplace sellers are massive. Around 50,000 third-party Amazon sellers generated more than $500,000 in sales last year.
Take BuyBoxer, where Needham works. The Logan, Utah-based company partially manages Amazon selling for BIC, Hasbro, 3M, and around 200 other massive household name brands, according to its storefront page. In total, BuyBoxer has about 100,000 products on Amazon at any given point.
BuyBoxer was indeed suspended for seven days for what Needham said was ultimately an incorrectly formatted label. The company wasn’t told of its suspension until two days into the process.
"We had to send a hundred employees home for a week," Needham said.
"I just know that like every seller out there has feared the policy enforcement out there," Needham said. "Amazon says that they’re going after the bad actors. I completely support and I want them to do that, but I can name dozens of sellers that have tried to do things in good faith and they still come across this."
NOAH SEELAM/AFP/Getty Images
But if BuyBoxer were to be suspended for longer than just a few days, that would be catastrophic for their employees and their business.
"There are all these stories of ways that Amazon has basically ruined seller’s lives," Rafelson said. "One strong suspension or misunderstanding can destroy a seller’s business."
Amazon did not respond to Business Insider’s request for comment on this story. Amazon told The Wall Street Journal in a 2012 report that sellers who join Amazon and use its fulfillment service report a 50% boost in their sales.
"All of our focus is on helping making sellers successful," Peter Faricy, then the Amazon Marketplace vice president, told the Journal at the time.
Amazon sellers big and small are seeing the need to organize
In order to gain ahold of their businesses, Amazon sellers have been organizing to communicate their needs to the Department of Justice and the Federal Trade Commission. Both bodies have launched anti-trust probes into Amazon this summer.
These probes have largely centered on how Amazon has crushed its rivals by undercutting logistics costs and bundling myriad services, like Amazon Prime Video and Amazon Prime two-day delivery, under one fee. Both are considered predatory and anti-competitive.
But the sellers are trying to push for another perspective — how Amazon unfairly competes with its own third-party sellers. To that extent, Needham is gathering a group of sellers to approach the FTC and DOJ through a public comment.
"We’re a group of sellers or kind of a movement," Needham said. "We are trying to unify the voice and just make sure that us who contribute to the Amazon marketplace are listened to as well."
Stephen Brashear/AP Images for Amazon
It’s not the first time Amazon sellers have banded together to voice their concerns to political authorities. Rafelson formed a nonprofit organization for sellers called the Online Merchants Guild, which is currently campaigning the state of California on a tax law that would collect back sales tax from online merchants.
Rafelson said it can be challenging to get sellers to understand the importance of banning together.
"It’s an effort," he said. "It’s hard to get small businesses to understand the importance of this."
Nevertheless, these concerns have already been heard by major political figures.
Senator Elizabeth Warren, who is also a frontrunner for the 2020 presidential election, says Amazon is "crushing" its own third-party sellers.
Some argue that Amazon can see from its own online data which products are selling the best. Then, the retail giant is able to launch its own product to capture sales in that specific area. That allows Amazon to only launch private label products in the most popular verticals, rather than creating products that no one will buy.
"It is their site. It’s Amazon’s site," Needham said. "But you never know exactly when it’s them leveraging something that they’ve built or where it’s an open marketplace that should be all things equal."
Are you an Amazon seller? Email the reporter at email@example.com.
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