Longterm success of Amazon, or any other platform for that matter, lies on its ability to make brands like it. Not one likes it today.
While Amazon is unquestionably one of the most innovative companies in the US, and in the market of e-commerce no one has been able to slow down its growth, it does many things surprisingly poorly. In fact, the success of Amazon is built on fulfillment, Prime memberships, and the marketplace. All infrastructure pieces. These three are so fundamental, and done at a scale and at a cost their competitors cannot match, that nothing else matters.
This is why, despite the aging website, thousands of scam sellers, millions of counterfeit products, and dozens more issues they continue to grow. There are still hundreds of millions of customers coming to the website everyday, often willing to jump through hoops to get what they want. Some, of course, are aware of those issues, but the majority are happy to get things in two days without a worry.
Having built this online retail economy - it is hard to call Amazon a website when it accounts for half of US online sales and consists of millions of sellers and brands - they are now in a position where the choice not to participate is often unwise. Sure, some brands have explicitly decided against selling on Amazon, and some more banned their retailers from listing products on Amazon. But most realize that not selling on Amazon often means reducing their market reach by 50%. Or more.
Brands thus have no choice.
Once on Amazon they are faced with a sea of new problems they haven’t dealt with before. Random sellers listing their products below MAP price, counterfeits being sold on their listings, lack of access to customers who bought their item, etc. The complexity and messiness of selling on Amazon has created a whole industry of brand managers who solely focus on making the brand successful on Amazon.
David Kahan, CEO of comfort-focused footwear company Birkenstock, said this when they quit selling on Amazon:
“The Amazon marketplace, which operates as an ‘open market,’ creates an environment where we experience unacceptable business practices which we believe jeopardize our brand. Policing this activity internally and in partnership with Amazon.com has proven impossible.”
Birkenstock, like all brands, wants to reach as many customers as possible, but the chaos of Amazon made that impossible.
It is important to note that in business impossible means unprofitable. Amazon could have made Birkenstock problems go away, but at their scale few brands are worth the human resources. In the age of artificial intelligence they want machines to make brands happy, even though today that works almost never.
They are not the only brand who faced this. This year Nike has agreed to sell to Amazon, but not because it wanted to do so, instead to limit third parties selling their products in an attempt to control pricing and counterfeits. They too have found that it is impossible to control this, and the only way Amazon could fix it is by offering to work on it themselves.
Nike had no choice either.
For many brands the headache has also been that if they decide not to sell to or on Amazon, this doesn’t stop others to sell their products there. First-sale doctrine is at work in the US. Last week European Court of Justice (“CJEU”) ruled that luxury brands are permitted a degree of control over where their products are sold. Most importantly for them they are now able to pull their products out of Amazon.
Herein lies Amazon’s struggle. It has a marketplace growing by a million sellers a year, it has Amazon-native brands launching weekly, and yet it is full of counterfeits without a path to a solution. The marketplace model makes selling counterfeits very effective. And that’s just one of the problems.
All of these problems could be solved. But brands would still debate selling on Amazon. Because selling on Amazon still means no tools to inform previous customers about a deal, capturing what customers search for, and seeing what customers want to buy. Even something as simple as having a newsletter. All of those things are available by a having a website, and that’s why all brands have one.
In Why Amazon Won’t Let Brands Talk to Customers we wrote what has become one of our core ideas:
“As Amazon grows it needs to redefine what is the Amazon marketplace, and how businesses on it get to interact with the bigger picture. By moving away from the original marketplace model of suppliers, there is an opportunity to rethink Amazon.”
Walmart, which is trying hard to become the hip e-commerce upstart going against Amazon, could do this too. Instead of taking a page from Amazon’s book, they could rethink what brands want from marketplaces.
For Amazon to be successful 10 or 20 years from now it needs brands to want to sell on Amazon. This involves many things, but ultimately relies on two major areas: fixing negative impacts to a brand like counterfeits, and building tools for brands to not need anything else.
Brands don’t want to be on Amazon so bad they needed to have the European Court of Justice step in.