Selling on Amazon? Maybe Don’t

While Amazon has been a lifeline for a lot of people throughout this COVID-19 pandemic, some interesting (but not surprising) news about their use of 3rd-party data came to light late last month.

If you’re selling products through Amazon, you definitely need to pay attention to this.

Amazon’s Merchants

While Amazon is a juggernaut in retail, it didn’t get there on its own.

Amazon has thousands of vendors who sell products through Amazon. These 3rd-party providers make up about half of Amazon’s retail sales, and they are a big part of how Amazon has come to dominate online sales.

In the beginning, these arrangements made a lot of sense for both parties. Amazon gets access to lots of products (and a cut of the seller’s revenue), and the sellers don’t have to deal with the “boring” parts of selling physical goods (payment processing, packaging and shipping, etc).

In recent years, though, these 3rd-parties have found themselves getting squeezed, as Amazon has been creating more and more of its own brands and products. According to TJI Research, a website dedicated to analyzing Amazon’s impact across industries, Amazon now has 146 private brands and 640 Amazon Exclusive brands.

If that wasn’t bad enough, this story from the Wall Street Journal gives a peek inside how Amazon may have been so successful with their internal products: Amazon may have been using sales data from their 3rd-party sellers to help plan, develop, and price their in-house brands and products.

Amazon’s Real MVP: Data

Amazon’s retail business is essentially two different businesses under a common brand name: an online store (like Walmart) and an online platform (like Shopify).

The “store” business is relatively straightforward. Amazon buys products from wholesalers, stocks them in their warehouses, and sells them to customers. These products that are marked as “Ships from and Sold by Amazon”. These are products from companies like Samsung, Sony, Proctor and Gamble, and Amazon’s in-house products.

Then there are the merchants that are using Amazon as a commerce platform. They create (or buy) their own products, and use Amazon’s website as a platform to sell these products. These are the sellers (and products) that Amazon is often undercutting with their own private brands.

I always thought that one of the big (but long-term) downsides of selling products through Amazon would be that Amazon would have access to your sales data, but apparently Amazon has policies that explicitly prohibit this. I must admit that this was the biggest surprise about this story for me. Amazon (like Facebook) is so good at using information and data to expand their business, I couldn’t imagine them intentionally excluding any of it (except to avoid anticompetitive litigation).

This gradual turn from a company filling a real void in the marketplace to a (seemingly) anticompetitive giant using their immense power to obliterate any apparent competition is somewhat reminiscent of Microsoft, Windows, and Internet Explorer.

Competing with Amazon

If you’re selling physical product, you are (on some level), competing with Amazon. And, as the Wall Street Journal article shows, if you’re selling your product on Amazon, then you may be giving Amazon data on how to undercut your very own business.

If you’re selling a product and don’t want to be next in Amazon’s crosshairs, the answer is simple (but not necessarily easy): get off Amazon!

There are plenty of ways to sell your own product(s) online without using Amazon: Shopify, or WordPress + WooCommerce, or even eBay are all better options.

Yes, you may have to do a little bit more work to setup payments and logistics, but if you’re in the market to sell products for the long-term, it’s becoming more and more apparent that letting Amazon handle any part of your business may be setting a ticking time-bomb once your product becomes profitable.