Whether it's improving conversion rates or maximizing brand placement strategies, chances are you've invested quite a bit as a small business selling on Amazon. But is Amazon investing in you?
The Amazon aggregator market has been drawing no small share of attention over the past few months. And Amazon's fully aware that many brands are looking to exit, even if it means negotiating through a business broker specializing in selling businesses launched on the marketplace.
Third-party business is, of course, a cash cow for Amazon. And they're not likely to sacrifice it anytime soon. But are they doing enough for merchants?
Small Business on Amazon
It's not an exaggeration to state that Amazon has permanently altered the face of the retail landscape — not the least of which has resulted in much greater accessibility for small businesses.
Before the launch of Amazon Marketplace in 2000, most digitally native small businesses had to rely on chance as much as costly marketing strategies for the slightest hint of visibility. But the necessary capital and supply proved to be an excessive gamble, particularly in the face of a dot com bust which saw nearly 1000 promising new startups fold as a result.
Today, third-party sellers represent approximately 60% of Amazon's gross merchandise value — a far from meager distinction given 2021's revenue of nearly $470 billion.
But digital retail is far from a level playing field. Amazon may hold the vast majority of the eCommerce market share in the US. Yet even with over 3,000 new sellers being added to Amazon Marketplace each day, a new business can establish a successful business off Amazon.
Amazon's aware that there are multiple options for third-party brands to sell on. And Amazon has helped by providing multiple resources for marketing support. But are their small business investments exactly what they claim?
Amazon's Investments in Small Business
When Amazon announced an investment of over $18 billion in small business services in September 2021, it wasn't necessarily a selfless gesture of gratitude designed to gain confidence. They're all too aware of the impact the third-party marketplace has had on their sales over the past twenty years.
But the need to expand has been a consistent hallmark for the retailer, with the pandemic only serving to boost both their physical and digital presence. In particular, the former. The result was a reported 50% increase in Amazon's logistics and fulfillment network, with over 60% of Amazon FBA warehouse inventory space being allocated to third-party merchants.
That expansion might be encouraging news for Amazon's logistics team, but how has it affected their third-party business?
Amazon and Small Business Empowerment
In October, Amazon released their annual Small Business Empowerment Report for 2021. Among the findings claimed by the retailer was an increase of some 45% of small businesses new to Amazon Marketplace, leading to the creation of an estimated 1.8 million jobs in the US.
When is a Small Business not Necessarily Small?
Yet Amazon's definition of “small and medium business” relies on the same standard established by Gartner, typified by annual revenue between $1 million to $1 billion and with less than 100 employees.
By comparison, SpaceX (Jeff Bezos's chief competitor in rocket development and exploration) logged approximately $1.5 billion in revenue in 2018 and maintains a workforce of some 12,000 employees as of 2022. Neither are insignificant numbers, but the latter is just barely enough to escape the "small business" designation.
Yet according to Amazon's report, the annual revenue for the average US-based third-party business in 2021 was no more than $200,000 (an increase of $25,000 from the previous year) despite their claims that the number of businesses surpassing $10 million in annual sales increased by almost 40% in 2021.
Success and Small Businesses on Amazon
Another claim from the report was an average sales lift of 20 - 25% for over 70,000 new sellers who subscribed to Amazon FBA last year. It's far from an insubstantial number; but is it the result of Amazon or the result of a successful product line?
It's not particularly certain; nor is it clear how that number will play out against the ongoing supply chain crisis affecting all retailers — a crisis Amazon has been curiously silent about compared to their primary competitor, Walmart.
A Small Business Advantage on Amazon?
Not all seller resources introduced in 2021 resulted in Amazon's expansion and gain.
A partnered test pilot program of Amazon Lending in September 2021 promises to drive small business expansion through short-term loans of up to $100,000 for qualified sellers with a standard APR of 8 to 9%, while a $100 million small business investment during Prime Day 2022 resulted in reported sales of over $12 billion — and an 11.7% revenue increase for Marketplace sellers.
Yet despite claims of an increasingly broad sales advantage for third-party merchants on Amazon, it's not uncommon to hear complaints of Marketplace practices being as confusing as they can be cutthroat. That's largely because visibility is frequently algorithm-driven, a practice Amazon has reportedly exploited to its advantage.
Without an effective strategy in place, Amazon's claim of six-figure-plus growth for new businesses isn't always realistic. While 60% of Amazon sales are the result of small businesses, it was recently estimated that only 19% of third-party merchants earn annual sales of over $300,000.
Given frequently unannounced policy changes as well as recent allegations of internal search result manipulation, new sellers might be justified in asking if it's possible to succeed on Amazon. The answer is yes; so long as you understand what you're up against.
Navigating the Amazon Landscape
Amazon is neither a rational marketplace nor a particularly transparent one. They may not be the only game in town, but they are the most successful. But it's a success that comes with both advantages and disadvantages for sellers.
Both visibility and growth can be achieved on Amazon, so long as you understand both its landscape and the ability of your product line to navigate it efficiently. That means understanding best practices on Amazon as well as understanding your customers.
It's easy enough to be cynical towards Amazon's investments in small businesses. After all, third-party business is the majority of their sales traffic and Amazon's not going to jeopardize that volume. They're just as likely to allocate resources for small business success as they are for their gain. But even the most jaded of sellers can hardly deny that Amazon continues to innovate retail as much as they continue to innovate marketing solutions.
You can't necessarily fight Amazon's system. But understanding its system can sometimes mean fighting your own limitations as a brand.
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