In conjunction with Small Business Week, Amazon for the first time released statistics about its relationship with small businesses. Criticism has grown in recent months on the retail giants’ effect on the domestic economy. President Trump has been leading the charge by alleging unfair business practices and subsidized mailing costs by the USPS. Amazon disclosed that more than one million small businesses use its platform to sell their goods and services to the world. Amazon said it based its count on a U.S. Small Business Administration guideline of having $7.5 million or less in annual revenue. As such, the biggest users were from some of the largest states, with California having the greatest number of small businesses selling on Amazon at 175,000, followed by New York with 81,000 and Florida with 75,000.
Amazon has said that over half its sales are generated from these small businesses, which allows Amazon to hold less inventory of its own, thus reducing its risk. With this comes the news that Amazon plans to create some 130,000 new full-time and part-time jobs, 50,000 of which will be located in its soon to be determined second headquarters location. This rapid growth has fueled Amazon to become the second largest company by market capitalization, behind only to Apple, which itself is $16 away from hitting the $1 trillion mark.
According to Forbes, 73 percent of small business merchants are considering joining marketplaces at Amazon or eBay. Among other things, it brings instant market access and visibility for your product that you could get nowhere else. Those that sell on Amazon, and eBay as well, are often subject to the whimsical policies of the company. Without warning or notice, one of your products or your entire business could be banned or removed from Amazon. Ouch. That hurts. Thus, as a small business owner, you have to take a hard look at what percentage of your business is exposed to the “Amazon Risk.” Again, without warning, cause or explanation, you could vanish into thin air as if Amazon had never heard of you. Just like investing, you don’t want to put all of your eggs in the Amazon basket. Diversification is generally key to maintaining the stability of your business. In addition, sellers have also drawn more scrutiny recently, as states seek to ensure they are paying sales tax.
One never seems to be able to get away from discussing China in any business topic these days. It has been alleged that China is doing business on Amazon by creating shell companies that are subsidized by the Chinese government to push its goods. Due to the nature of the business structure of these alleged shell companies, it would be very difficult to find the owner of origin, as to pin this on the Chinese.
President Trump certainly has the brashness to take on Bezos and Amazon. Trump may have stated this position at some point, but I would wager that over at the FTC, anti-trust issues at Amazon have been expressed. Amazon could be a case study against vertical integration, which allows a company to control a product from A to Z. It isn’t the typical monopoly, in that it is able to control pricing in a particular industry, but it is Amazon’s distribution platform that looks to be monopolistic, in that it controls distribution across multiple industries. Such is the dichotomy of Amazon.