By Angus Loten And Adam Janofsky
Some small-business owners are coming to grips with the reality
that Amazon.com Inc. is not just a partner--it is a rival, too.
Among them is Jordan Lindberg of Traverse City, Mich., whose
four-year-old business, Stardust Memorials LLC, sells cremation
urns. So far, about 10% of his firm's $3 million annual sales is
from Amazon buyers. He pays Amazon a 15% fee on every sale through
the site. "If you say no to Amazon, you're closing the door on tons
of sales," he said.
But there is a risk to partnering with the e-commerce platform.
A fast-growing business may find itself competing with Amazon for
customers.
"You can't really be a high-volume seller online without being
on Amazon, but sellers are very aware of the fact that Amazon is
also their primary competitor," said Kevin North, the CEO of
e-commerce analytics firm Terapeak, which sells software to about
25,000 online merchants.
The dilemma for merchants is, "How do I diversify away from
Amazon so that I'm not completely dependent on them?" said Todd
Bairstow, a partner at online-marketing firm Keyword Connects.
That's crucial for a venture's long-term survival, Mr. Bairstow
added, because a single change to Amazon's merchant policies or
retail algorithm can have a crippling effect on sales.
Today, there are a total of more than two million third-party
merchants on Amazon's platform, up from about one million in 2006.
An Amazon spokesman said most sellers pay it fees of somewhere
between 8% and 15% of sales, though its fees range from 6% (on
sales of personal computers) to 50% (on sales of, say, 3-D
printable designs).
Third-party merchants sold over 40% of the items snapped up on
Amazon last year. Altogether, these outside sellers accounted for
roughly two billion items sold via Amazon, double the total from
2013, the Seattle-based e-commerce company said last week.
"Amazon is a technology-driven company and through innovation we
work every day to make selling on Amazon as easy as possible," said
Amazon spokesman Erik Fairleigh. He added that "fulfillment by
Amazon is a wonderful service as it gives all sellers the option of
warehousing their inventory in our fulfillment center network."
Grace Yum, a Chicago dentist who last year created a line of
teeth-cleaning products for infants, said she became a third-party
merchant six months ago. She now pays Amazon about 20% on every
sale: "It's costly, but the upside is getting your product in front
of a big audience. That outweighs the added costs when you're
trying to grow."
Though local pharmacies and baby boutiques also carry her
products, roughly 80% of sales in the past six months came from
Amazon, she said. "We're under no illusion that we'll be able to
attract customers the way Amazon can," she said, adding that her
business plan has "baked in the cost" of selling on Amazon.
But eventually, even small firms that sell their products
wholesale to Amazon say they can feel competitive pressure. "It's
been a challenge at times keeping control of our brand with
Amazon," said Patrick Crowley, co-founder of Chapul LLC, a Salt
Lake City purveyor of energy bars.
He has come to understand that smaller businesses simply can't
afford to compete with Amazon's robust search-engine marketing.
Just 2% of the 200,000 in Chapul's unit sales last year came
directly from Amazon itself. Yet when people search Google for
"Chapul Energy Bars," Amazon's listing to buy the bars is often
second from the top of the search results, and ahead of Chapul's
own Facebook, Twitter and Kickstarter profiles.
Anxious his brand will be lost in the shuffle, he said he is now
planning to focus sales efforts on other e-commerce sites, such as
Overstock.com that allow sellers greater scope to develop their
brand and "tell their own story," he said.
"It's very easy to get lost on Amazon, because there are tons
and tons of products out there," added Gary Elsasser, chief
executive of Fugoo, a wireless-speaker maker with 11 employees and
$5.5 million in sales last year. About 20% of Fugoo's sales came
from Amazon, at wholesale, and 15% from the company's own website.
He uses Amazon as a vehicle for targeted advertising, and described
the site's online reach beyond its own platform "a force to be
reckoned with."
Mr. North of Terapeak said he cautions people who are just
getting into the game that "it's more competitive than ever" to be
a third-party merchant on Amazon. "Larger merchants and retailers
have become far more present online, and you're competing with
low-cost shipping and same-day shipping," he said, adding that one
of the biggest challenges is simply finding customers. Competition
with international firms that have joined Amazon's platform as
third-party merchants can sink profit margins for small U.S. firms
if they lower their prices to better compete. Amazon has sellers
from 101 countries--from Togo to Liechtenstein, it says.
Because of this--and the fact that Amazon pockets a percentage
of every sale for itself--many small businesses look to sell their
products on multiple platforms, including their own online
storefronts.
"Sellers use Amazon and eBay as marketing vehicles, but they
make their bread and butter through their own websites," Mr. North
added, pointing to growth in companies such as Shopify, which
allows business owners to create their own e-commerce websites.
"There's no doubt that selling directly is more prevalent than
ever."
"So many online searches begin and end on Amazon, so you need to
be there. But in a way it's a deal with the devil," said Steven
Power, president of Bigcommerce, an e-commerce platform with 55,000
merchants. A small merchant may or may not get a sale through the
site, but either way, their brands get very little mention there,
he said.
At Mr. Lindberg's firm, the tension played out last fall, when
Amazon's Seller Performance Team sent a missive to the company.
"Notice: Policy Warning," the message said. "It has come to our
attention that you may be attempting to redirect Amazon.com buyers
to another Web site."
This notice arrived a day after a shopper had messaged the firm
through its Amazon sellers' account, asking whether the $45 to $400
funeral urns sold via Amazon could be engraved, a so-called custom
order. One of Mr. Lindberg's employees had responded through the
messaging system that engraving is possible when the items are
bought from the company's own website, Stardust-Memorials.com.
The notice from Amazon threatened to revoke Stardust's "selling
privileges" if his company continued to provide links, email
addresses or any other language that might send buyers to other
stores--including its own.
"Amazon makes it very clear that if you're selling to customers
on their platform, you're selling to their customers, not yours,"
Mr. Lindberg said.
Mr. Fairleigh, the Amazon spokesman, said that these rules are
for "customer protection and payment protection." If a user is
driven off Amazon to complete a purchase and something goes wrong,
it would be difficult for Amazon to provide assistance, he
said.
According to Amazon's general guidelines, any attempts to "lead,
prompt, or encourage Amazon.com users to leave the Amazon.com
website are prohibited."
Mr. Fairleigh added that Amazon offers engraving through its 3-D
Printing Store, which is exclusive to third-party merchants.
Write to Angus Loten at angus.loten@wsj.com and Adam Janofsky at
ADAM.JANOFSKY@dowjones.com
Access Investor Kit for Amazon.com, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0231351067
Access Investor Kit for eBay, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2786421030
Access Investor Kit for Google, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US38259P5089
Access Investor Kit for Google, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US38259P7069
Subscribe to WSJ: http://online.wsj.com?mod=djnwires