Study: Amazon goes all predatory on marketplace sellers

Discussion
Oct 29, 2014

You’ve heard the expression "with friends like this, who needs enemies?" If you’re a seller on Amazon.com’s marketplace, that may explain how you’re feeling if you suddenly find yourself competing directly with the e-tailing giant. According to new research from Upstream Commerce, Amazon tracks third-party sales on its site and uses that data to sell the most popular items in direct competition with marketplace members.

Upstream reported that it came across Amazon’s activity while conducting a competitive analysis for clients of women’s clothing brands on the site.

In total, Upstream sampled 857 women’s clothing products initially sold by marketplace sellers and checked to see when Amazon initiated selling the same items. Within 12 weeks, Amazon began selling 25 percent of the top items first sold through marketplace vendors.

Is it possible that many of these products were planned purchases all along by Amazon, but that the company was slow to pull the trigger on the buy and merchandising the items online?

"We concluded that this is more than a coincidence because the numbers are extremely significant — and operational challenges are not enough of an explanation," said Amos Peleg, CEO and co-founder of Upstream Commerce, in a statement.

Mr. Peleg said Amazon would normally be at a competitive disadvantage with late rollouts in a category that have selling cycles of between eight and 20 weeks. "It is worth being late only if you learned something during that time… something you can leverage for your bottom line," he said.

"This is probably a case where product selection and merchandising are being informed by competitive intelligence — and on a large scale," Mr. Peleg added.

This is not the first time marketplace sellers have questioned Amazon’s use of their data. Back in 2011 when Buy.com (later Rakuten.com) left Amazon’s marketplace, its then CEO Neel Grover told Internet Retailer, "We didn’t want to give them information on product pricing and sales that Amazon could potentially use against us."

Assuming it’s true, is it a wise practice for Amazon to glean data on its marketplace sellers for its own competitive purposes? What lessons can other retailers learn from Amazon’s use of competitive intelligence to help them gain an advantage in the marketplace?

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20 Comments on "Study: Amazon goes all predatory on marketplace sellers"

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Steve Montgomery
BrainTrust

Is it wise? The short answer is it is always wise to know what your competitors are doing. The issue is, do third-party sellers want to be involved with a competitor that has access to their data and is using it against them?

In the brick-and-mortar world this would be considered industrial espionage and would require someone to hack their competitor’s system. In the Amazon marketplace third-party sellers have given access to their data to Amazon, but I doubt they expected it would be used as the article portrays. If the retailers in the marketplace are OK with Amazon using their data against them then I reiterate my answer: Yes. However, I expect that Amazon will find that retailers will begin seeking alternatives.

Bob Phibbs
BrainTrust

Is this surprising to anyone? As I said in this post, Hey Retailers! Nordstrom’s Customer Service Problems Are Yours Too, with Amazon actively going after high-end brands, they are the Tony Soprano of retail.

This raises the specter of Amazon learning even more about what attracts people to those brands.

With more brands being sold on Amazon, where does a department store and their customer service fit into that?

With competitors coming at you from all over the world—literally—you have to be even better with those who actually show up in your brick-and-mortar stores.

You don’t have the luxury of having a bad day. Neither do your employees.

Herb Sorensen
BrainTrust

This is a serious problem, since Amazon Marketplace COULD be an important way for Amazon to partner their way into a much larger global business, through providing fulfillment services for a larger share of brick-and-mortar retailers. Not blatantly competing with your partner is necessary to be considered as a real partner.

It really makes NO sense for every Tom, Dick and Harry retailer to develop their own online fulfillment engine. If Amazon will not serve this role in a trustworthy way, someone else will.

Bill Davis
BrainTrust

Amazon tracks marketplace sales as it processes the transaction so my question is, is anyone really surprised that Amazon is likely tracking sales for their own benefit? Does anyone think they didn’t learn a great deal by hosting Target’s, Toys R Us’, etc., e-commerce operations? Does anyone not think that a side benefit of Amazon Local Register is to be be able to track sales of the companies using it?

Lessons to be learned—double down on your own data analytics efforts, don’t think there aren’t benefits besides just the additional revenue for Amazon and read the fine print.

Chris Petersen, PhD.
BrainTrust

Beware of biting the hand that feeds you!

Amazon has invested heavily in developing the best technology for e-commerce and quick market reactions. It is highly improbable and almost unbelievable that Amazon would not mine that mountain of marketplace data for its benefit, especially when under siege to show a profit.

Amazon is between a rock and a hard place at this moment in history. Stock price is sliding due to both slowing growth and no profit. Amazon needs the best selling, most profitable SKUs possible, but can’t begin to fund all of the inventory and take all the risks in fast moving categories like fashion.

Amazon needs premier sellers in the marketplace to continue to drive traffic and pay for the Amazon infrastructure. It is a very precarious tightrope walk for Bezos who needs to show both continued grow and profitability.

It’s about to get very interesting as other major players like Alibaba offer sellers alternatives to the Amazon machine.

Ryan Mathews
BrainTrust

I don’t know this to be true, but—if it is—it wouldn’t surprise me. Amazon doesn’t like to share.

As to the wisdom of the practice, well, if all you are focused on is the retail endgame, then maybe it’s a viable approach, but if part of your endgame involves getting things done through partners, it’s a little shortsighted.

I’d say the big takeaway for other retailers is to be careful who you partner with. The project you build together today might be the seed that grows into a toxic weed and chokes your business tomorrow.

Mel Kleiman
BrainTrust

If you’re dealing with Amazon, sooner or later you are going to begin to realize that you are sleeping with the devil. Amazon is out to control the marketplace by controlling the distribution of product.

I think we are going to begin to see a backlash, just as certain authors and book distributors are pushing back. The retail community needs to recognize that you pay one heck of a price to work with Amazon.

People talk about the control that Walmart had over suppliers. Amazon is going to be a lot worse in the long run.

Paula Rosenblum
BrainTrust

This has been floating around as a rumor forever. And if you buy from the Marketplace, sellers do try to encourage you to buy direct from them next time as well, so it’s a two way street.

But riddle me this: For Marketplace items Amazon makes 15 percent of the sale as fees with zero cost to itself. I’ll wager they don’t make that much when they sell it themselves. So why bother selling the product directly?

Gajendra Ratnavel
BrainTrust

A little surprising but at the end of the day, two things matter here:

  1. Do the marketplace sellers have a better option? I would suspect no. Amazon, even with competition from Amazon would still yield better results for them than without Amazon.
  2. Is Amazon being fair in its competitive product introduction? That is, are products being displayed to the customers in the same way or is there something Amazon is doing to give itself a competitive advantage? I suspect no, it would be a grave mistake to unfairly list Amazon products over the marketplace sellers.

So this may be an issue where the Marketplace sellers beat their chests and have their feathers ruffled a bit, but that may be it. The frustration is understandable, and the situation is unfortunate.

Jeff Hall
BrainTrust

Aggressive behavior on Amazon’s part will eventually erode Marketplace sellers’ trust in and desire to use the Amazon platform. This creates a huge opportunity for an alternative to Marketplace to emerge—one that doesn’t compete directly with its selling community.

Lee Peterson
BrainTrust

Of course it’s wise. Retail has always been a constant battle with competition, from the first marketplace bazaars to the online revolution. Why would we think anything different is happening with Amazon’s tactics? That’s what Fire is all about: Knowing what you buy, from Amazon or otherwise, and getting you to buy more of it, mostly from them. Conversion.

I think the next 10 years of retail are going to be the most fluid and exciting joyride in the history of retail. Good for consumers, not so good for a LOT of dinosaurs.

Mark Price
BrainTrust

Amazon is probably within their rights to mine the data on marketplace transactions. The question is—what should they do when they decide that a product line is worth an investment based on that information?

Marketplace retailers benefit from access to a large engaged marketplace by joining up with Amazon. Amazon is allowed to market any products they wish to.

At the same time, it feels “yucky,” which suggests that Amazon may be on some ethically unstable ground. Perhaps a one-year non-compete might be an ethical alternative?

Dan Raftery
BrainTrust

This one’s a bit fuzzy. Not all marketplace sellers are retailers. Some are manufacturers, many of whom would be delighted to ship to Amazon versus direct-to-consumer fulfillment. And wouldn’t this be a lever for Alibaba?

gordon arnold
Guest
2 years 2 months ago

I am not so sure that it is true to begin with. Why would Amazon, or any other e-commerce and/or brick-and-mortar retailer, pay to assemble information and analysis for reports they will get for free from the manufacturers that want them and any other volume reseller to market their products? There simply are no friends and loyalty in retail. Those that thrive learn quickly and focus on margin, turn and shrink. These rules are especially true for the leaders.

Camille P. Schuster, PhD.
BrainTrust

If Amazon can keep track of sales of your products on their site, why would they not? Would retailers ignore similar data if they had it? Retailers using Amazon are able to sell products to consumers using Amazon. Is that a fair trade for providing Amazon with data? That becomes part of the next discussions about the retailer-Amazon partnership.

Ed Rosenbaum
BrainTrust

No matter which way you slice this, Amazon does not come out looking like they have a halo on their head. Is anyone surprised? Amazon is going to do what is good for Amazon. We all would. But I am not in agreement with the way this has happened if the report is correct. Amazon’s halo has been tarnished.

Bill Bittner
Guest
Bill Bittner
2 years 2 months ago
There is no doubt this is happening, there was a very good description of it in a CNBC article on Amazon. In that case, the particular product was a major revenue producer for the small marketer and its takeover by Amazon had a deleterious effect on their survival. I guess the thing that is hard to gauge is how much additional revenue the Amazon association generates. The key point is the small marketer must realize they will soon be competing with Amazon if a new product becomes popular. Unless the marketer can negotiate some kind of exclusive with the producer, there is really no way to prevent this from happening. The key point is to try to get as much out of the Amazon association as you can. When a customer decides to buy from you get as much contact information as you can and try to establish a direct relationship for future purchases that does not have Amazon in the middle. There is a whole other perspective to this when it comes to brick and mortar. As everyone struggles to cover the “last mile,” I think Amazon is missing a great opportunity to support local retailers. Why don’t they… Read more »
Shep Hyken
BrainTrust

Business is business. While I don’t agree with the practice, assuming it is true, unless Amazon is doing something illegal, we live with it. The retailer has a choice as to whether they do business with Amazon or not. If they are against Amazon’s practice, then don’t do business with them. If enough retailers feel this way, then maybe Amazon will get the message and realize they shouldn’t compete against their own customers.

Arie Shpanya
Guest

It is certainly true that Amazon uses the data it collects for its own benefit and it’s just a cost that retailers must take into account when deciding to sell on that channel. However, it’s unfortunate that so many retailers are unaware of the possibility of getting “Amazoned.”

Amazon is a unique marketplace because it competes with its sellers while providing them with a place to sell (and much more than that through FBA, etc). Its predatory practices have the ability to broaden its already giant market share, but online retailers are already finding outlets to discuss ways to improve their sales—with or without Amazon. One such movement is http://www.dontgetamazoned.com/

The main takeaway about Amazon’s use of data is that competitive intelligence is central to business strategy. Amazon often uses it to cut prices and introduce impossible to beat pricing on new products, but online retailers can use competitor data both to raise and lower prices using a dynamic pricing strategy.

David Coleman
Guest
David Coleman
2 years 2 months ago

For retailers, this is the “tip of the iceberg.” When Amazon sells directly against the 3rd party sellers, a price war erupts. Items that may have been modestly discounted online, suddenly become steeply discounted. For retailers, the spread between MSRP and online pricing becomes significant enough for consumers to buy online. Retailers must manage their assortment with full knowledge of what the online pricing pressure is for every item. Those that don’t will get stuck with very slow moving inventory. Just as when infomercials first came out three decades ago, and had the tag line “not available in stores,” retailers need to come out with disciplined assortments and post signs that say “not available on Amazon.”

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