While fast e-commerce growth has helped small entrepreneurs grow their businesses, brands are seeing diminishing returns in a continually growing market.
The main reason is that a handful of Big Tech companies, such as Amazon.com and Google, are consolidating their power and using it to create hurdles for online sellers. To lend support to the millions of merchants selling on online platforms, and ensure a competitive marketplace where they can thrive, Congress and the Federal Trade Commission are beginning to show signs of reining in Big Tech. Enforcing existing law and passing modernized antitrust legislation this year is a must.
It doesn't take an expert to see how massive Big Tech has grown in recent years, and how tight its grip on the economy has become. While these companies were already budding Goliaths long before the pandemic, a greater reliance on technology boosted them. Amazon, for instance, saw a whopping $470 billion in revenue last year ($600 billion in gross merchandise volume), compared with a pre-pandemic $281 billion in 2019.
The average consumer might be okay with this growth, won over by convenient one-day shipping and access to millions of products. But despite these apparent benefits, Big Tech's power comes at a high price to the small businesses whose financial success rests solely on the whims of a few large platforms. As someone who works with third-party sellers and brand owners — and previously was a Top-200 Amazon seller myself — I know how Big Tech has choked independent merchants.
Amazon, for instance, engages in what online sellers commonly refer to as "Buy Box Suppression." Over the years, the tech giant has been able to use access to its coveted selling tool, identifying where online products are being sold for cheaper, and punishing Amazon sellers who do not comply. Sellers are regularly forced to choose whether to raise prices on competing platforms or remove the listings outright to preserve their Amazon sales, which often account for 50% or more of their total sales.
Fulfillment by Amazon (FBA), the company's logistics service, is another item on the laundry list of methods by which it maintains power over sellers. While Amazon might not require sellers to use this service, it makes them eligible for Prime, which can drive 30% more revenue and preferential search ranking to third parties online. Sellers are also likely paying a much higher price for FBA than it costs Amazon to ship its own private-label merchandise to customers from its dominant logistics network.
In fact, private-label products now appear to be a burgeoning 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 his product was pushed to the bottom of search while Amazon's own brand fared far better. Such egregious "self-preferencing" can no longer be left unaddressed.
Amazon has stooped even lower, reportedly stealing the concepts for innovative products from businesses on its platform and selling them at lower prices. And the company continues to profit, making off with a 34% cut on average from its sellers' sales. That’s up from 30% in 2018 and 19% in 2014.
Regulators have recognized why boundaries between the most dominant entities and those who rely on them are fundamental. Take banks, which are regulated from purchasing homes in most cases. It would simply be unfair to give banks an opportunity to profit without ever having to pay the same premium as real estate business owners. Similarly, online marketplaces should be unable to sell private-label products because it can severely disadvantage small business entrepreneurs.
Congress must restore balance to the American economy and clamp down on Big Tech to protect online sellers. Antitrust legislation currently being considered in Washington is an appropriate first step, and I was pleased to see that the Biden administration has come to agree.
Amazon and other dominant tech firms are suppressing the innovative spirit of entrepreneurs who are so vital to a thriving economy, because it knows the scales aren’t tipped in their favor. Lina Kahn's new FTC majority will do their part, but the onus now lies on Congress to step in and modernize existing laws to meet today's challenges. Unless lawmakers act, online sellers will continue to find themselves left with a smaller and smaller slice of the American economy.
Jason Boyce is the author of The Amazon Jungle, and founder of an Amazon managed-services agency, Avenue7Media.
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