Amazon's online retail dominance may be partly explained by high seller fees

nanoguy

Posts: 517   +7
Staff member
Why it matters: Amazon CEO Jeff Bezos says that independent sellers are succeeding on the company's online platform, but has left out a few important points: they pay dearly for the privilege and their data can always end up helping Amazon push its own private label products.

When Amazon CEO Jeff Bezos testified before the House Judiciary Subcommittee on Wednesday, US Congress members brought into question the retail giant's apparent power over third-party sellers, which seems to extend beyond its own marketplace.

Bezos, who is currently the world's richest man, was calm and polite despite most of his answers being interrupted before he could even utter a few words. However, when he did get some time to respond he insisted that his company has fair policies that are "very, very focused on the customer" and that it strives to help small businesses thrive through the marketplace.

Republican David Cicilline, who is chairman of the subcommittee, started the five-hour long hearing with a remark on how the tech giants' "ability to dictate terms, call the shots, upend entire sectors, and inspire fear represent the powers of a private government."

Some of the documents brought forth during the hearing revealed that Amazon at times may have systematically weakened mid-size competitors that it deemed a threat in areas where it didn't hold a strong position.

For instance, Amazon wanted to make its way into the lucrative market of new parents. A congress member revealed an email where Amazon retail executive Doug Herrington wrote "we have already initiated a more aggressive ‘plan to win’ against diapers.com. [...] To the extent that this plan undercuts the core diapers business for diapers.com, it will slow the adoption of Soap.com."

Herrington referred to Quidsi -- the company behind diapers.com -- as the biggest short-term competitor. Then Amazon reportedly proceeded to sell the same products at a loss (losing as much as $200 million per month) for several months until Quidsi caved in and sold diapers.com to the retail giant for $545 million. Amazon eventually shut down that business after it supposedly failed to reach profitability.

Where it gets interesting is that one of the Congress members presented an anecdote involving a small business that had been striving to sell books on Amazon Marketplace. The business owner explained that their business grew over five times in size over a few years, and that one day Amazon just booted it from its platform with no explanation whatsoever -- not even after hundreds of messages, some of which were sent to Bezos himself.

According to a report from the Institute for Local Self-Reliance, Amazon's true gatekeeper power is found in the seller fees.

On average, the retail giant takes a 30 percent cut on each sale made by independent sellers on Marketplace, a figure that was 19 percent only five years ago. In 2019 alone, seller fees brought in revenues of $60 billion, which is more than double the amount brought in by Amazon's cloud division.

Independent sellers have little choice but to bite the bullet and pay Amazon's steadily increasing fees until they can no longer manage to stay afloat. ILSR notes that "two thirds of the third-party revenue on Amazon goes to sellers who began selling on the site within the last three years. Sellers who’ve been operating for five or more years account for only 10 percent of sales".

When these small businesses fail, Amazon can steer potential customers towards its own products.

Something else that caught the regulators' attention was that the retail giant has been accused of spying on independent sellers in an effort to outcompete them, one by one. Bezos explained that "we have a policy against using seller-specific data to aid our private label business, but I can’t guarantee you that policy has never been violated."

The European Commission has been looking into this same issue and last year started a formal investigation into the practice, it's reportedly close to filing charges. However, Bezos told the antitrust committee that he believes this isn't a systemic issue, since this doesn't align with the company's core values and "third-party sellers in aggregate are doing extremely well on Amazon."

Even if Bezos is telling the truth and Amazon doesn't systematically abuse its power over independent sellers, there's no escaping the fact that it owns 40 percent of the US online retail market -- seven times more than its closest competitor, eBay. That means that Amazon is so big that it can crush small businesses without anyone at the company even realizing it.

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Uncle Al

Posts: 7,201   +5,588
"The retail giant is in the cross-hairs for its "heads-we-win, tails-you-lose" policies"

It's' one of the reasons I have slowed down on my purchases on Amazon. That and the fact that Amazon does a terrible job policing their 3rd party sellers who routinely pass off 2nds, damaged goods, and try to overcharge customers for "restocking" and return shipping. I for one would like to see a much stronger Congress that would clamp down on these industry giants. Each has clearly demonstrated in their own way they are not capable of functioning in a fair and honest market place; and should be held accountable!
 

Shadowboxer

Posts: 736   +443
Yeah Amazon is my last resort for items at this point. But that’s not much use, they have such a dominance that you can’t avoid it for many things. We need a competitor ideally. Government regulation won’t really help anyone.
 

Evernessince

Posts: 5,172   +5,478
Apple did the same thing with f.lux and likely other developers as well.

There are laws on the books to protect those in other professions but if you sell anything online, chances are you are doing so on a marketplace and the power dynamic is never in your favor.
 
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hk2000

Posts: 135   +70
TechSpot Elite
Well there are not many other options. Paypal fees have been hurting sellers on other marketplaces just as much if not even more! Personally, when I shop on Amazon, I filter out all sellers except Amazon, because of the potential headaches. I guarantee you a lot of shoppers do the same, so it's not just the seller fees, it's the difference between dealing with Amazon when it comes to returns without questions, or dealing with - a lot of times- the unknown.
 
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Neatfeatguy

Posts: 43   +47
Tin foil hat needed.....? Eh, maybe.

Top 5 Biggest retail companies in the US (by % of US retail ecommerce sales - shorturl.at/euGLO):
1) Amazon (38.7%)
2) Walmart (5.3%)
3) eBay (4.7%)
4) Apple (3.7%)
5) Home Depot (1.7%)

What's happening when people are forced to "self quarantine" and "social distance"? They stop going out to local businesses unless they need to. They now turn to online retailers even more than ever.

What does that mean?
1a) It means less and less physical money is circulating and we're told a national "change shortage" is happening. The "change shortage" means businesses you go into won't take cash unless it's the exact amount or they'll round up to the next dollar for your purchase (the company says any amounts rounded up will be donated to such and such places they determine).
1b) Some banks have even offered to take change off your hands with a bonus of 10%. So if you cashed in $100 in change, the bank will give you $110. They slowly working on removing physical money from the hands of people.

2) It means smaller, local businesses are being hurt due to being forced to be closed if the government doesn't deem them as "essential". The smaller, local businesses if they can't be open and even if they are and people are too scared to go they can't afford to stay open. They now close and consumers have less options for obtaining products. So they, again, turn to online retailers.

3) It means online retailers boom in term of sales because people are too scared to go out or they're told they can't. This in turn just increases the amount of digital transactions and reduces the amount of physical cash transactions.... (think digital gaming over physical copies - little over head needed for digital copies. Physical means you have to pay for artwork, packaging, extra items, shipping and storage. Digital is simpler)

There are groups out there that want to digitize money. Remove all physical money and have people rely on digital money only - which leans towards the idea of chipping. The reasons above are a good indication that physical money will be phased out soon and digital will the be only way.

On to the next aspect of things:

With local, smaller businesses that are run out due to not being able to be open or they cannot compete on the scale of Walmart, eBay, Amazon or even Target (Target made the top 10 of the list linked above) for online retail..... That means more power and money shifts to big companies.

Eventually these big corporations and tech giants (see Google, Facebook, Twitter and such that control online web content) will be the ones that run things and government bodies will simply be their toys to help push agendas.

Right now, I think the governments are trying hard to limit power and curb some of the money flow to prevent this from happening....I only think this will slow down some of these large corporations some, but in the end, it's a lost battle.

Or perhaps I forgot my tinfoil hat again.....