Should brands trust Amazon?
Amazon's problem with transparency
Amazon is growing at a tremendous rate. According to Marketplace Plus, the number of Sellers with at least $100,000 sales reached 280,000 in 2019. Up from 200,000 in 2018, 140,000 in 2017, and 70,000 in 2016. Sellers with $1 million or more in sales increased from 25,000 in 2018 to 30,000.
Third-party Sellers paid Amazon $39.7 billion in fees in 2018, 24.8% of the $160 billion in marketplace GMV. Those fees include commissions and any related fulfillment and shipping fees, and other third-party Seller services. However, they don’t include advertising spend, which would raise the total fee amount above 30%.
For comparison, eBay captured 9.6% of the marketplace GMV as revenue ($8.6 billion in fees on $83.8 billion in third-party sales). But there is a reason for this. Amazon Prime has more than 100 million subscribers in the US alone, and Amazon continues to grow as a percentage of all retail sales in most geographics.
There are, of course, public concerns surrounding the volume of data Amazon has. Not even touching the issue of Amazon smart devices effectively placing microphones in everyone’s house, the shopping data that Amazon has provides enough information to build profiles able to rival the accuracy of Google’s or Facebook’s. We should all have a meaningful conversation about how much we trust these brands to analyze and assess our lives.
With that said, brands face other, more immediate concerns. Amazon's third-party Sellers are responsible for 58% of Amazon e-commerce sales. Right now, Amazon holds one big power-play over all of them — the ability to easily suspend any brand from their platform without warning,
While Amazon has teams dedicated to Seller compliance, many account suspensions are the result of algorithmic decisions made by Amazon's internal software. There is a growing cottage industry of specialist lawyers that can expedite this process. But the entire development has led to a mistrust of Amazon’s motives – helped by the company being less than transparent about what its aims are and how it goes about things.
The feeling that Amazon's motives are sometimes opaque, and therefore open to interpretation, fuels a constant rumor mill. For example, in March 2019, tens of thousands of Amazon Vendors didn’t receive their weekly purchase orders from Amazon. What followed was a scare known as the Amazon Vendor Purge. The theory was that this was the start of Amazon reducing the amount of vendors it bought from directly and moving them onto the Amazon marketplace as third-party suppliers.
The purchase orders resumed weeks later. However, in May, there were still more reports of small brands, under $10 million in sales, losing the vendor relationship with Amazon.
The large scale purge of vendors appears to be at least on pause. During the first quarter, the company forced some Sellers to become vendors, and vice-versa, but there is no indication of Amazon getting more aggressive with it.
However, according to people with inside knowledge, the purge was going to happen, but they believe that the storm of the negative press coverage has made Amazon put it on hold.
Although Amazon has this Big Brother reputation – the evidence would point to there being at least a way of living and thriving on the Amazon marketplace platform. Active Sellers typically remain so for multiple years.
For example, 70% of the top 10,000 Sellers in 2015 continued to be active Sellers through their fourth year on Amazon. 80% of top Sellers continued to be active three years later, 88% of top Sellers continued to be active two years later, and 95% of top Sellers continued to be active after one year. These percentages hold for the top Sellers from 2015 through to 2018.
At the end of 2018, Amazon was investigated by Germany’s Federal Cartel Office (FCO). The German regulator said that “numerous” complaints have been received from Sellers on Amazon about the way the company gathers information on products in order to build their own and steal a march on competitors
On July 17, 2019, the FCO terminated its dominance probe into Amazon’s business terms towards Sellers on its marketplace after Amazon agreed to wide-ranging changes
The amendments are pretty far reaching:
Until now Amazon was practically exempted from any liability towards Sellers.
There will now be a limitation in Amazon’s exclusion of liability in favor of the Sellers. The terms will also be more narrowly defined.
Amazon is fighting on other fronts. In the US, there is a case where a lower court has found against Amazon, holding it responsible for an injury caused by a third-party marketplace product to one of its customers. This could seriously challenge the role of a marketplace and the due-diligence it carries out on potential Sellers.
Last year, Amazon also removed the requirement for third-party sellers to price their products on Amazon lower than they price them anywhere else, Price parity agreements, or most-favored nations clauses (MFNs), were used by Amazon to ensure that sellers on the platform did not sell the same products for cheaper on any other platform.
Termination and blocking of accounts:
Amazon has had an unlimited right to immediately terminate and block Sellers’ accounts without justification.
In the future an ordinary termination of an account will require a 30 days’ notice. In the case of an extraordinary termination (based on the alleged legal infringements by a seller) and the blocking of a seller’s account, Amazon is now obliged to inform the Seller and provide reasons for such measures.
There is still some doubt as to whether this actually addresses Amazon's ability to suspend an account rather than terminate it.
Returns and reimbursements:
Nothing will change for customers. Amazon’s rules on returns and reimbursements for customers will remain unaffected by the amendments.
So far Sellers have had to unilaterally bear the costs and other consequences of a decision by Amazon to reimburse the customer. If they consider that the return was unjustified, they are entitled to compensation from Amazon.
Product information and rights of use:
Until now Sellers have had to grant Amazon very extensive rights to use their own product material such as information, descriptions, images etc. Sellers also had to provide Amazon Marketplace with product material of the same high quality as the one that they use in other sales channels (“parity requirement”).
The so-called “parity requirement” will no longer apply. In the future it will be possible to use material of higher quality or more specific product information and descriptions/images on other websites.
Product reviews and Sellers ratings:
Many Sellers also complained about Amazon’s practice with regard to product reviews.. Amazon argued that there is a considerable risk of fake and manipulative reviews and stated that it is willing to address the fundamentals of the problem. In particular, Amazon’s own “Vine” rating program, which was previously available only to suppliers of Amazon Retail, will be gradually made available to those marketplace Sellers which own a brand name registered with Amazon.
Sharing of data
Amazon is starting to realize that monetizing the data they have and making it available for purchase, not personally identifiable information, could open a revenue stream that wasn’t there before. It’s dealing with one of the most valuable data assets in the world — and while more data has been shared with Sellers on Amazon — there is still the suspicion that Amazon has more data and more data scientists to exploit that data. There has always been a concern as to how Amazon algorithms are formulated (do they favor Amazon’s fulfillment services) and how Amazon uses purchasing data for its own brand products.
The A9 Algorithm is the system which Amazon uses to decide how products are ranked in search results. It is similar to the algorithm which Google uses for its search results, in that it considers keywords in deciding which results are most relevant to the search and, therefore, which it will display first.
However, there is one key difference between Google and Amazon’s algorithms: the A9 Algorithm also puts a strong emphasis on sales conversions. This is because Amazon is a business, and has a vested interest in promoting listings which are more likely to result in sales. Therefore Amazon will rank listings with a strong sales history and high conversion rate more highly.
In newly released answers to a House panel investigating four Big Tech firms, Amazon maintained it does not use data from individual third-party Sellers to come up with its own products. But it does use “aggregated data” to inform its private label brands, the company said.
Amazon’s use of private data to shape and promote its own branded goods seems to be a key question for lawmakers and regulators probing the company’s competitive practices. Bloomberg reported in September that the Federal Trade Commission has been interviewing Sellers on Amazon’s marketplace over antitrust concerns.
However, there is evidence that apart from a few commodity successes such as batteries, Amazon own brands have not been a great success. As a comparison, Costco generated over $39 billion in 2018 with its Kirkland Signature private label brand, more than 30% of all Costco sales. Kirkland Signature is ten times the size of AmazonBasics revenue.
In recent years, people have become more and more concerned about their privacy – especially online. PII (Personally Identifiable Information) is a term used commonly in the technology field to describe any information about a person that could be retained. That includes any data that can be used to distinguish or trace an individual‘s identity, and also any other information that is linked or linkable to an individual person.
For Amazon Sellers, access to information like the buyer name, recipient name, and shipping address fields, are now only granted for select purposes, primarily tax and merchant fulfilled shipping – but it doesn’t include things like Buyer-Seller Messaging or searching, or anything outside of scenarios where contact is absolutely required.
Coping with scale and dominance
Amazon is facing challenges that come from the scale of the marketplace — fake reviews, counterfeit products, fraudulent Sellers, and more. Brand Registry was introduced by Amazon to help address these counterfeit and IP infringement issues. It also moves some of the burden of policing violations onto brand owners. Amazon is incentivizing this by making free valuable data available only if you're brand registered (Brand Analytics for instance for Sellers).
Amazon is also facing legal questions surrounding its liability for marketplace Sellers and, more importantly, whether its actions are anticompetitive.
None of those are new issues, however, even if they are getting louder. And, so far, none are significantly affecting its growth — hundreds of millions of customers still shop on Amazon every month, and in more countries than before.
Amazon will spend 2020 growing its international marketplaces, giving access to more data, and expanding the advertising service. No notable changes, but instead focusing on what’s working.
Amazon has become essential for many brands today and learning how to make the most of it is potentially make-it-or-break. The key to understanding and exploiting Amazon’s dominance is to focus on everything as if you were the consumer. There are analytics software tools available to process Amazon data and give you this insight. To help, we have also written a free ebook on how to make sense of your Amazon customer data.
Amazon will always be driven by what is good for the consumer rather than what is good for the supplier. By spending the time and using the analysis tools available to properly support your listings, suppliers should be able to successfully compete and ride the Amazon success story.