While the rapid growth of e-commerce has helped small entrepreneurs grow their businesses, these brands are seeing diminishing returns in an ever-growing market. Mainly because a handful of Big Tech companies, like Amazon and Google, are consolidating their power and using it to create obstacles for online sellers.
To provide support for the millions of merchants who sell on online platforms and ensure a competitive market where they can thrive, Congress and the FTC are beginning to show signs of mastering Big Tech. Enforcement of the existing law and passage of modernized antitrust legislation this year is essential.
You don’t have to be an expert to see how big Big Tech has grown in recent years and how much its grip on the economy has tightened. While these companies were already budding goliaths long before the pandemic, a greater reliance on technology has spurred them on. Amazon, for example, has seen a huge $470 billion in revenue last year ($600 billion GMV) – the pre-pandemic $281 billion it saw in 2019 pales in comparison.
The average consumer can agree with this growth, enticed by convenient one-day shipping and access to millions of products. But despite these apparent advantages, the power of Big Tech comes at a steep price for small companies whose financial success relies solely on the whims of a few big platforms. This is something I’ve seen too many times with Amazon. As someone who works with the company’s third-party sellers and brand owners — and having been one of Amazon’s top 200 sellers myself — I know how shocked Big Tech has been to independent merchants.
Amazon, for example, engages in this online sellers commonly referred to as “Buy Box Removal”. Over the years, the tech giant has been able to use access to its coveted sales tool, identifying where other online products are selling for less and punishing Amazon sellers who don’t comply. Sellers are regularly forced to choose between raising prices on competing platforms or removing ads altogether to preserve their Amazon sales, which often represent 50% or more of their total sales. You can understand how this story ends.
Fulfillment by Amazon, or FBA, the company’s logistics department, is just another in the long list of methods by which it maintains power over sellers. Although Amazon does not require sellers to use this service, it does require them to eligible for premium, which can generate 30% more revenue and preferential search rankings to online third parties. Sellers are also likely paying a much higher price for FBA than it costs Amazon to ship its own private label merchandise to customers in its dominant logistics network.
In fact, private label products now seem to be a emerging source of profitability for Amazon. The company has engaged in questionable tactics to keep them at the top of shoppers’ minds — and search results. One of my clients saw this firsthand, finding that its product was pushed to the bottom of the search while Amazon’s own brand fared much better. So blatant”self-preference” can no longer be left unanswered.
Amazon has sunk even lower, it seems steal innovative product concepts companies on its platform and sell them at lower prices. These tactics suppress the will of entrepreneurs, with many finding it impossible to compete with an 8,000 pound gorilla. And the company continues to make a profit, walking away with a 34 percent cut on average from the sales of its sellers. This represents an increase from 30% in 2018 and 19% in 2014.
Regulators have recognized why boundaries between the most dominant and dependent entities are fundamental. Take the banks, for example, which are regulated from the purchase of homes in most cases. It would simply be unfair to give banks the opportunity to make a profit without ever having to pay the same premium as real estate business owners. Likewise, online marketplaces should not be able to sell private label products, as this can put small business entrepreneurs at a serious disadvantage.
Congress needs to restore balance to the US economy and crack down on Big Tech to protect online sellers. Antitrust Legislation currently under study in Washington is an appropriate first step, and I was pleased to see that Biden Administration agreed.
Let’s be clear: Amazon and other mainstream tech companies are suppressing the innovative spirit of entrepreneurs so vital to a thriving economy because they know the odds are not in their favor. Although consumers may not always realize it, third-party sellers are experiencing it. Lina Kahn’s new FTC Majority will do its part, but it is now up to Congress to step in and modernize existing laws to meet today’s challenges. Unless lawmakers act, online sellers will continue to end up with a smaller and smaller share of the US economy.
Written by Jason Boyce.
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