By Jack M. Germain
6/21/2021 12:24 PM PT
Amazon continues to be scrutinized more intensively, from antitrust lawsuits to allegations of inhumane working conditions. However, despite the criticism, consumers continue to feed the huge digital market, which is supposedly filled with dubious practices. According to ecommerce veteran and Amazon entrepreneur Jason Boyce, now is the time for consumers to wake up to the cost of convenience.
“What does it really cost to have everything delivered to your door? It kills small businesses and third-party companies,” said Boyce, CEO and founder of Avenue7Media. “As consumers in a free country, we have to wonder if a business with the power of Amazon is good for American consumers and small businesses.”
Boyce, an entrepreneur and innovator, started selling on Amazon as a direct retailer in 2002. The following year he moved to a third party Amazon.
He sold on Amazon for 17 years. Along the way, Boyce developed a seven step method that helped him become a top 200 Amazon seller and a top 1000 ecommerce seller, according to Digital Commerce 360.
The E-Commerce Times discussed his experiences as an Amazon entrepreneur with Boyce. The conversation was about why consumers and sellers don’t always get the upper hand.
Despite his success as Amazon’s top seller, Boyce focused on the reasons behind his business mantra that “Amazon is not your friend.”
“That’s absolutely the truth. There are hidden costs consumers pay for shopping conveniently on Amazon,” he told the E-Commerce Times.
In the Amazon game, different players compete against each other. There are investors or sellers, workers and drivers and consumers.
No level playing field
In the early days, many little mom and pop e-tailers started selling on Amazon, and life was good. Boyce recalled that these small retailers were quickly making more sales on Amazon than they were making from their neighborhood storefront.
A friend of his has closed his retail location and only sold on Amazon. Small town retailers were pretty happy with what they could do. Many of them were resellers.
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“Obviously this game was short-lived because the more competition there is in selling the same product,” he said. “The only way to win the buy box is to lower the price.”
So the sales game switched to offering private label products. Sellers really had to create their own brand names to be successful so they didn’t have to struggle in the buy box.
“It was a really good game for a long time, especially for small US sellers. Then the situation changed,” observed Boyce.
One of those changes was the use of Amazon Basics. Many sellers viewed this as a major disadvantage for selling on Amazon. They believed that the lower price and the required private label were affecting their sales capacity. But it’s still a very small percentage of their sales, he said.
The bigger problem was that Amazon rolled out the red carpet for factories in China. Many of these factories supplied these little mom and pop vendors in the United States.
“So Amazon undercut US sellers by going straight to their factories,” said Boyce. In essence, Amazon invited the factory products to eliminate the middleman by selling China-based products directly on Amazon.com.
Amazon has made it easier for China-based merchants to ship goods directly to the Fulfillment by Amazon (FBA) program. Fulfillment by Amazon enables sellers to store their products in Amazon’s fulfillment centers, where Amazon employees pick, pack, ship and provide customer service.
“They forced some of these factories to prepay a little bit to get special services from Amazon that were frankly never available to the US seller because they saw this as an opportunity to maintain lower prices than the US seller “said Boyce.
Section 230 Protection
Boyce says domestic sellers can be sued if they fail to perform proper safety testing on a listed product that harms an Amazon buyer. Amazon is not liable except in some states as they are protected by Section 230 of the Communications Decency Act (CDA).
On the other hand, China-based sellers can offer an untested product because Amazon doesn’t need it. So good luck trying to find the factory in china to sue them.
“It’s just not going to happen,” said Boyce. “US sellers have a very strong incentive to ensure that what they sell is safe and secure on Amazon. China-based sellers have no such incentive.”
Several lawsuits in California, Ohio, and Pennsylvania upheld the Amazon standard, which cannot sue.
Waiting for rule changes
Legislative proposals to better regulate such situations with foreign providers selling on US-based digital marketplaces have spread through Congress in recent years. Amazon, which spends more than $ 20 million annually on lobbyists, has weeded out the requirement that sellers place more than a certain number of orders, according to Boyce. Amazon did not want to meet this requirement.
“Laws were on the table to fix this problem. But at least it was a step in the right direction, and Amazon turned it upside down,” he said.
New legislative proposals to regulate big tech companies like Amazon are again working through the maze of Congress. Boyce sees this as a golden opportunity to take control of monopolies that should be viewed as controlling monopolies.
In early June this year, five bills in the House of Representatives began working their way through Congress to address this issue. One of them explicitly calls for the dissolution of large technology companies.
“If you are a platform, you shouldn’t be allowed to sell your products on that platform. You should be a neutral platform,” noted Boyce. “The old rules, developed in the 1920s and refined in the 1980s, don’t apply to today’s marketplaces. Legislators need to modernize the rules for the digital age to pay attention to how these tech companies are stifling competition under the existing laws. ”
Unfair Marketing Restrictions
So big is Amazon that it now has the ability to get sellers in other markets like Walmart to match their price to Amazon’s price, claims Boyce. He sees use cases where sellers remove their products from the Walmart website, which he calls the largest U.S. retailer in the world, for fear of losing the number of sales they can make on Amazon.
“If that’s not a monopoly power, I don’t know what it is,” he said. “I think it is in the best interests not just for the online market but for the market in general that competition can thrive and innovate.”
Walmart has a lower cost structure for sellers. But sellers who generate large volumes of offers on Amazon are afraid of losing that revenue. That’s a problem, according to Boyce. Walmart and other online marketplaces should be competitive, even if they can’t compete with Amazon with its logistics network, delivery speed, and choice.
“If they can get in and offer competing products at a lower price because their cost structure is lower, they should be able to do that,” he said.
But the way Amazon is set up, this competition is not possible unless this seller on this competing marketplace does not also sell on Amazon. Otherwise, they’ll give up half the available market, he advised.
Boyce calls what Amazon does digital price fixing. They are secret strategies that the retail platform uses to control prices and limit third-party success.
“When I signed my first contract with Amazon for the first time, they legally included it in the contract that products listed on Amazon cannot be sold anywhere else.
How it works
Boyce can now sell its products at lower prices. That turns out not to be great thanks to the effects.
He quickly found out that Amazon was using something called buy box suppression. For example, a product that his company sold on Amazon for a certain price was also offered on all other marketplaces. He started lowering his prices on these other marketplaces compared to Amazon as his cost structure was lower elsewhere.
But then his Amazon sales dropped 30 percent after the first week. Amazon has removed the “Add to Cart” and “Buy Now” buttons. Instead, its product pages showed buttons that said See all purchase options greyed out. Clicking this button took buyers to another screen. Then he found that he could no longer drive traffic to his best-selling offers.
“Amazon limits your ability to drive traffic. If you don’t get traffic, you don’t get clicks. No clicks mean you don’t make sales. That’s how Amazon does it,” Boyce said.
Amazon’s response to his inquiries was that he was unable to compete with offers on other websites, so Boyce said he had to adapt.
Conclusion: prices increase or go away
Doing business on Amazon forces sellers to lose money, Boyce noted. In his case, he either had to lower his price on Amazon, which didn’t justify his higher cost structure, or increase his price on the Walmart marketplace.
“The bottom line is that I can’t cut my price and make money anymore because it’s too expensive to do business on Amazon. The cost per click is higher on Amazon,” he concluded.