Is Amazon’s deal with indie brands a Faustian bargain?

Discussion
Source: Amazon.com
Jul 22, 2019
Tom Ryan

Amazon is offering a program to help upstart brands gain more support and visibility on its platform. The cost: Amazon gets the right to purchase the brand at any time for a fixed price, often $10,000. 

Under the program, according to a microsite and AMZ Advisers, Amazon offers young brands: 

  • Onboarding support: Guided support and a free toolset of products to tell the brand’s story and track performance.
  • Marketing services: A suite of marketing support from Amazon’s merchandising team, including social media and email marketing. Products with high ratings and reviews can receive additional placements across Amazon.com. Participants receive free Amazon Vine reviews (normally $2,500 per product for Amazon vendors).
  • A venue to test and learn: The ability to easily test new products and get quick customer feedback, including access to a Seattle-based co-working space and participation with other brands in special projects such as co-branded pop-up stores.

Participating brands become exclusive to Amazon. 

Amazon’s Accelerator program has existed for almost a year and is seen as a way for the e-tail giant to build its stable of exclusive brands. Amazon has said its private label products still account for only about one percent of total retail sales.

The Wall Street Journal, however, revealed that as part of the partnership, Amazon gains the option to purchase the brand’s rights for a fixed price on 60 days’ notice. A contract reviewed by the Journal granted Amazon the right “to acquire all of the right, title, and interest in and to each of the Exclusive Brands” for $10,000 per brand.

Under the contract, the original owner of the acquired brand remains Amazon’s exclusive supplier for two years. After that, Amazon can source products for the brand from elsewhere. A vendor can sell the same products elsewhere under different brand names, according to the agreement.

Some brands are open to losing the upside opportunity if their brand takes off and Amazon moves to purchase their brand, but others are balking at the tradeoff. An Amazon seller told the Journal. “It’s a pseudo-partnership that’s completely one-sided.”

DISCUSSION QUESTIONS: How open should start-up brands be to the Amazon Accelerator program, given the right-to-purchase tradeoff? Is this a smart path for Amazon to develop its own private label brands?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Maybe there is some fine print in the agreement that makes this make sense, but as reported it is a terrible deal for these merchants."
"“Faustian” is too gentle a term here."
"A $10,000 payout for a brand that takes off on Amazon.com is a huge red flag."

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15 Comments on "Is Amazon’s deal with indie brands a Faustian bargain?"


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Jeff Sward
BrainTrust

Who goes through the agony and ecstasy of executing a start-up for the privilege of selling it for $10,000?

Bethany Allee
BrainTrust

Exactly! In the mid-’90s Microsoft was the big baddie, because they had a similar strategy. Amazon is now a cross-category killer and this will likely deepen the hold they have on the market. At what point will the anti-monopoly movement begin? And yet I bought three pieces of Amazon Basics yesterday, because it was easy and I need them tomorrow.

Rich Kizer
BrainTrust

Wow, this would kind of scare me. I hit a home run then it’s gone for $10,000? In 60 days? It kind of reminds me of the old song: “shut up silly woman said the reptile with a grin, you knew darn well I was a snake when you took me in.”

David Weinand
BrainTrust

$10,000? Wow. While the benefits offered are definitely valuable – the ability to purchase the brands they nurture for only $10,000 is completely one-sided. Entrepreneurs launch brands with visions of growing them to a sizable business – how a $10,000 exit would be at all appealing would be hard for me to imagine.

Brandon Rael
BrainTrust

The clear temptation and value proposition of having Amazon’s marketing/branding support, scale, platform, and reach are there. However the one concerning aspect of these partnerships is Amazon’s exclusive right to outright buy the rights to the brand name, title, and interest for $10,000.

Any accelerator program has its benefits, however ultimately in this case the advantages seem to favor Amazon in the long run. In the short term there are clear benefits in terms of reach, scale, and branding, and it may prove to be worthwhile to help differentiate your company against the competition. There is a tradeoff here at play and any prospective emerging brand should take this into consideration.

Cathy Hotka
BrainTrust

Who on earth would do this?

Georganne Bender
BrainTrust

The same indies who pay consultants that amount and more to join their magic mastermind groups. Unfortunately, we see it all the time.

Ken Cassar
BrainTrust

This sounds very much like a modern take on indentured servitude to me. Maybe there is some fine print in the agreement that makes this make sense, but as reported it is a terrible deal for these merchants.

Michael Decker
BrainTrust
Michael Decker
Vice President, Marketing Strategy
1 month 30 days ago

This is such a lopsided deal for Amazon it’s hard to imagine that it’s for real. Let the buyers beware…

Warren Thayer
BrainTrust

“Faustian” is too gentle a term here.

Tom Dougherty
BrainTrust

This speaks to the arrogance of Amazon. I would never counsel a start-up to do this. Think about this. If you’re starting up a company, what did you get into it for? This basically eliminates any kind of long-term success with next to no involvement in how your company and its products are managed. This should be a hard no for all considering it.

Liz Adamson
BrainTrust

It’s another way Amazon is using third-party sellers and brands to gather data to use for its own purposes. Rather than investing in product launches and testing the market itself, it’s dangling things like more visibility and marketing support to get brands to jump on board and cover the start up costs themselves. A $10,000 payout for a brand that takes off on Amazon.com is a huge red flag.

Josh Clouser
Guest

This is Amazon, an e-commerce juggernaut whose mission seems to be monopoly. The value proposition offered is near 100% benefiting Amazon, who becomes capable of capitalizing on new, great ideas and sellable product at a very low cost. To the wishful entrepreneur, if they truly can rebrand without a non-compete in the contract, they now face Amazon as their marketplace competition, a monster of their own creation.

Patricia Vekich Waldron
Staff

Shark Tank is a much better option for indie brands!

Rob Gallo
BrainTrust

I own a brand that sells on Amazon. No surprise here, but to break through it’s all about sales and reviews. In order to get sales, you need reviews and in order to get reviews you need sales. Amazon offers both paid and free ways to help with this some of which (paying for reviews) if done would violate Amazon’s terms of service but are acceptable if you pay Amazon to do it (Early Reviewer Program).

So the help that Amazon is offering certainly is appealing, but the acquisition price doesn’t make any sense.

To get up and running even with a basic brand offering you’re looking at a minimum of $1,000 for a trademark, legitimate UPC Code(s), and an Amazon Business Account. Then you have listing fees, FBA fees (if applicable), Amazon PPC budget (which could easily be $7,300/year).

If Amazon offered the same prioritized assistance AND a % of sales for 5-10 years, then the offer starts to get interesting.

wpDiscuz
Braintrust
"Maybe there is some fine print in the agreement that makes this make sense, but as reported it is a terrible deal for these merchants."
"“Faustian” is too gentle a term here."
"A $10,000 payout for a brand that takes off on Amazon.com is a huge red flag."

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