Valued at nearly $1 trillion, Amazon is one of the most powerful companies in the world. The Seattle-based retail giant employs over 600,000 people and operates 100 sortation and fulfillment centers in North America, sometimes sending out as many as 1 million items per day. But Amazon does more than retail. Much more. Amazon publishes its own books and comics, finances TV shows and movies, operates a Texas wind farm, builds robots, streams music, delivers prescription meds, and operates web services for everyone from Medium to the CIA. And that’s not even counting its high-profile acquisitions, which include Twitch, IMDB, Zappos.com, and Whole Foods.
What’s it like working from inside the beast? OneZero has been talking to workers at every level of the Amazon empire to find out. Welcome to The Amazon Diaries.
In September, Democratic presidential candidate and senator Elizabeth Warren criticized Amazon’s position as both a marketplace and a retailer, which she said grants it a “special information advantage” that it could use to wipe out other businesses. The implication is that Amazon’s access to vast amounts of sales data gives it a distinct (and unfair) edge over others — especially small and medium-sized retailers that are already struggling with Amazon’s scale. In March, Warren promised to use antitrust laws to “break up” Amazon, along with other tech giants like Facebook and Google, if elected president. As the senator put it last year: “You got to pick one business or the other, baby.”
Few retailers feel the sheer might of Amazon’s power like the estimated 2.5 million Amazon Marketplace sellers. These vendors do most of the actual fulfilling of the purchases on what is now the largest online retailer in the United States. According to one analysis, the $175 billion in sales on the Amazon Marketplace accounted for 68 percent of Amazon’s total sales and 31.3 percent of e-commerce sales industry-wide in 2018. (Walmart and eBay also have third-party seller platforms.)
An extensive report from The Verge last year revealed the Marketplace to be a sort of capitalist fever dream: unceasing and treacherous competition between sellers, presided over by a seemingly arbitrary “quasi-state,” complete with its own bureaucracy and court system, all of which generated $19 billion in revenue for Amazon from seller commissions and fees in the first half of 2018.
Recently, OneZero spoke with one of those sellers: a small retailer in the mid-Atlantic region who has been active on the Marketplace since 2010 and spoke on the condition of anonymity for fear of getting booted from the platform. As Amazon grew, Alex* grew increasingly dependent on Amazon: in 2010, when he started selling on the Marketplace, Amazon sales accounted for five percent of his revenue; today, Amazon sales account for between 40 and 50 percent. Alex described his situation as that of an “indentured servant.”
Unlike some on the Marketplace, Alex is not a manufacturer, but a distributor; he sells automotive tools like drill bits, flashlights, and spark plugs. A former traveling salesman, he started his business before the recession — “before the economy took a crap,” as he put it — to get off the road. “I used to sell on the street. I wanted to sell online so I didn’t have to leave the house every day and drive everywhere,” he said. “It was a good idea then, but unfortunately some good ideas only last a decade and not decades.”
Now, he’s increasingly concerned about will happen if Amazon decides that they don’t want to share revenue with smaller distributors like him anymore. “If they keep doing what they’re doing, ” he says, “there’s just gonna be manufacturers and Amazon and that’s it.”
The following interview has been edited and condensed for clarity.
OneZero: What’s the day-to-day operation of your business and how does selling on Amazon fit into that?
Alex: I get up and I’m at the business by about 7 a.m every day, and then from 7 a.m. to about 8 a.m. I go through to see where the orders are, shoot emails. And then I also have to do paperwork, so I do a download on PayPal of all the orders that came in overnight because I sell on eBay, too. That usually takes a half hour to an hour. Once you’re done with that, you start shipping and looking at orders. If you realize you’re out of stuff, then you have to start placing orders. I buy from a distributor over in New Jersey for a bunch of stuff. He ships UPS same day and I’ll get it the next day, because I’m only one state over.
And then you gotta also look on the websites. There’s a lot of fake orders coming in using stolen cards, you have to know what to look for. The problem is if you ship an order purchased with a stolen credit card, eventually someone complains their card was stolen. And the credit card company takes the money right out of your bank account and gives it back to the person who had their card stolen and you’re out the item and the money. Some do still get through but the majority of them I catch.
Once I do that, then I start looking at all the things that I ship through. I ship through Amazon, Walmart, eBay, and then I have two websites, so I ship to both of those too. Amazon is the largest, eBay is the second, websites are the third, and Walmart is — I don’t even know why they’re doing it. I don’t know what they’re selling, but it’s not my stuff, let’s put it that way.
What proportion of your total business would you estimate goes through Amazon?
Probably 40 to 50 percent. In 2010, when I first started doing this with Amazon, I think they were maybe 5 percent of my sales. But Amazon’s a juggernaut now. I mean, 50 percent of all dollars on the internet go through Amazon. [Editor: This is a slight exaggeration, but Amazon did account for nearly half of all e-commerce sales in the United States last year.] When I started doing eBay, back in 2009, it was 23 percent market share. I make good money on eBay but unfortunately people don’t go there like they used to.
It seems like Amazon wants lots of small businesses to use its platform. Is that fair to say?
Exactly. I call them “indentured servants,” because that’s what we are. I mean, you can’t go back to another job working for someone else, because you make a decent living, but then you’re resigned to working 10 to 12 hour days, six days a week. If you wanted to become a large company selling on Amazon, it’s very difficult. It works for me, because it’s just me and one other person, and I can micromanage things. But once you start getting too many people, they make mistakes. One mistake is enough to kill your career on Amazon.
In anything with Amazon, if you happen to be at the wrong place at the wrong time, or anger the wrong person in their corporation, they suspend you. Getting back on is near impossible. That’s just how they are. I always tell people, “I’m not complaining about Amazon, that’s just how they are. I understand how they are, they make me a living, but it’s very hard to make a living and the margins suck.” That’s the best way to put it.
Amazon has this thing that’s called a “phantom order.” Basically, when you sell stuff, and you sell out, you’ll keep the inventory “out of stock,” because you don’t have any. Well, sometimes your item will phantomly come back up to be sold again. Then, the item sells, and you can’t get the item because the manufacturer is out of stock so the customer can’t have it for several weeks. Amazon says, “Well, we don’t know anything about this phantom order, but you gotta fill it.”
Then, you have to cancel the order, but, because it’s Prime, the maximum amount of cancellations you can have in a month is half a percent. Now, I do a lot of business with Amazon. I probably do about a half million dollars a year, which is a lot for me. I do sell through other platforms too, but when you cancel one order out of 178 orders in a month, that one order almost puts you over that half percent.
To make Prime, you have to be 97 percent efficient, delivered on time. They do it on a weekly basis. Ninety seven percent — that’s ungodly. You have to be Jesus to be able to achieve that. I mean, we had that weird freak snowstorm this week that was supposed to be nothing and then that made UPS and the Postal Service do a bad job. And then, of course, there was that cold weather, so I had three or four packages not delivered on time in one week. Now, I have the big red X that says, “You can be suspended if you keep this up.”
You started selling on Amazon in 2010. How has your relationship to the platform changed over time?
As Amazon grew, I decided to make changes, too. I used to sell really well on there not doing Prime — I didn’t want to do Prime because you have to get something there in two days, and it has to be free freight, which is costly on a lot of items. I didn’t want to follow that model, but then the manufacturer went in and did Fulfillment by Amazon, which means they send the merchandise to Amazon and Amazon takes care of the orders and everything.
I couldn’t compete against that. I basically decided that I was selling against the manufacturer. I couldn’t make any money on it anymore. I was forced to either do Fulfillment by Amazon or basically go with no sales. I decided to follow the manufacturer and do the fulfillment. Now, the problem with doing that is the margins suck, you don’t really make any money. There’s a lot of orders that go out and you’re actually losing money on them.
Then how do you make money?
You try to make it up with the ones you do make money on. It’s not a good business model, I can tell you that! If you decide not to cover that area, then you just don’t sell anything.
What do you mean?
When you do sell Prime, let’s say you’re willing to cover anywhere in the country for two-day air or two-day delivery. You pick the area. You could pick the whole Eastern Seaboard, anywhere that UPS says they do in two days, that kind of thing. That’s what we did at the beginning and it worked rather well. In fact, at that time I was doing FedEx ground. But then Amazon changed their algorithm, which basically made it so if you didn’t cover a large part of the country, they barely ever let you be found in Prime… Rest assured, if Amazon is selling the same thing as you, they don’t go down, no matter what happens. They always get to keep their stuff up. The rules that I have to abide by, they don’t have to.
They have a new policy that they’re starting. Something called Vendor One. The manufacturer sells directly to Amazon, Amazon then sells it for whatever they want. Well, since they don’t have to pay the 15 percent fee that I have to pay, naturally they can sell it for less, right? So you can’t compete. They buy direct from the manufacturer, sell for whatever they like, and then they wipe out all the small businesses because we can’t compete.
Is there any way that you think sellers like yourself could stop that from happening?
I think the only way sellers can stop it is if they would band together and actually do their own website or stop selling on Amazon… The problem with that is that never works. You can never get everyone to band together to do this, you know what I mean? There’s always someone who will say, “I’ll go do it, because I’ll get all the orders.” You can’t get them to stick together.
I don’t have a solution for it, I really don’t. To me, Amazon is a monopoly — there’s just a reverse monopoly. A normal monopoly raises prices to an exorbitant amount of money, because they’re the only person doing it. Television, the internet carriers, that kind of stuff. Well, Amazon is upside down: their version of the internet is to sell the stuff as cheap as possible to the cheapest person out there. That way they will always be overlooked by the regulators because they say, “Well, they’re a monopoly by definition, but they are giving consumers extreme value, so we’re not gonna do anything about it.” So, they get left alone.
*The interview subject’s name has been changed to protect his identity.