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Third-party sellers represented 58 percent of all sales on the Amazon website in 2018, according to the company.
Amazon has warned hundreds of thousands of its third-party sellers through direct email communications that it may be forced to shut down its online marketplace if Congress passes bills regulating the conduct of digital platforms, according to a seller advocacy group.
The Online Merchants Guild, a trade association representing thousands of digital marketplace sellers, says that the emails started going out to a core group of sellers who have worked in the past with Amazon’s public-policy team, and then progressed to “almost everyone.” The emails pushed sellers to register at an in-house website, supportsmallsellers.us, to “stay informed and involved on legislation that could impact your business.”
The website asks for emails and physical addresses from sellers, and says that signing up will “afford you opportunities to communicate directly with your elected officials.” With physical addresses, Amazon could target messages from potentially thousands of seller constituents directly to their own members of Congress. This amounts to building a large lobbying army out of its seller partners, by asserting that their livelihoods are at grave risk from the legislative effort.
“When a company like Amazon is allowed to occupy this dominant gatekeeper position, it opens them up to holding small businesses hostage and misinforming them,” said Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly group. “It underscores the problem with Amazon’s market power in the first place.”
Amazon’s communications highlight a suite of bills introduced by a bipartisan group of House members in June that would, among other things, prohibit so-called “self-preferencing” on digital platforms, in which the platform’s own products are put forward ahead of rivals.
Amazon has been accused recently of copying competitor products and preferring their own in-house copycat brands in search results on their marketplace in India. Another recent investigation by The Markup showed that Amazon disproportionately gave the coveted featured merchant slot for a widely available good—known as the “Buy Box”—to its own products. Lawmakers this week accused Amazon of lying to Congress about self-preferencing.
“Sellers’ biggest fear is that one day the marketplace will be shut off.”
The congressional bills are intended to curtail these practices. While referencing them, the language in the emails, which is mirrored on the supportsmallsellers.us website, is relatively unequivocal about the third-party marketplace, known as Seller Central. “If enacted, these bills would jeopardize Amazon’s ability to operate a marketplace for sellers, potentially resulting in hundreds of thousands of American small and medium-sized businesses losing access to Amazon’s customers and services,” the website states.
Amazon has also made this claim publicly, with vice president Dharmesh Mehta telling Axios that “sellers may not be able to sell in our store if certain legislation is passed.” But communicating this threat directly to sellers in a bid to agitate them to contact lawmakers goes beyond making such claims in the media.
“We believe it’s something we have to take seriously,” said Matthew Colvin, chief operating officer of the Online Merchants Guild, in a press briefing on Wednesday. “Do we think Amazon would shut down Seller Central? We know that they have overtly threatened to do so. Whether they are doing that to get people to advocate on their behalf or whether it’s something they are actually considering, that’s something only Amazon can answer.”
Amazon has not responded to a request for comment.
AMAZON HAS ALREADY SENT updates to sellers who have signed up at supportsmallsellers.us. The first, sent last month, indicated that the company was working with Congress and listed some of its objectives. In the past week, a second email was sent, encouraging sellers to attend a webinar put on by the Connected Commerce Council, a trade group funded by Amazon and other digital platforms. Amazon did not respond when asked whether it discloses its funding of the Connected Commerce Council in communications to its sellers.
The Connected Commerce Council has asserted in a blog post that Congress’s proposed legislation, in particular the American Choice and Innovation Online Act, would force Amazon to stop selling “its own products” on the marketplace. This, the trade group says, would force Amazon to “either shut down its entire wholesale (aka ‘first-party’) retail operation, which is over 40% of its business, or divest or cease to operate its marketplace for independent sellers.”
Rep. Ken Buck (R-CO), one of the co-sponsors of the legislation, accused Amazon lobbyists of “attempting to gaslight” about the bill. He says that Amazon could still sell their own products on the website, so long as they didn’t engage in anti-competitive conduct.
“Amazon is threatening to boot small businesses off their platform if antitrust reform passes,” Buck tweeted. “It’s a sign of brazen retaliation for supporting bills that will help small businesses and innovation.”
This amounts to building a large lobbying army out of its seller partners, by asserting that their livelihoods are at grave risk from the legislative effort.
A recent Amazon “Small Business Empowerment Report” indicates that there were over 500,000 third-party sellers in the U.S. as of the end of August 2021. Third-party sellers represented 58 percent of all sales on the Amazon website in 2018, according to the company.
With those numbers, it’s unlikely that Amazon would simply shut down Seller Central. That would significantly reduce its inventory and weaken its claim to being the “Everything Store” that fulfills all retail needs.
But Paul Rafelson, executive director of the Online Merchants Guild, believes that Amazon is teeing up a legal strategy in response to the legislation (should it pass) that would allow it to remain in business, while consolidating power further over sellers.
The bills seek to regulate online platforms. But, Rafelson says, “Amazon is positioning itself to say, ‘We’re not a platform, we’re a store.’” This would be an inversion of Amazon’s traditional legal arguments that it is a marketplace, effectively renting space on its website to outside sellers. This has allowed Amazon to avoid responsibility for collecting sales tax on behalf of those sellers, and to avoid liability for malfunctioning products that harm customers.
Recent rulings in California that hold Amazon accountable for product liability, and changes to online sales tax law, make it more difficult for Amazon to keep up the legal argument. “Amazon has no reason now not to migrate to a model where they call third-party sellers vendors,” said Rafelson. He believes Amazon is “lining up for years of litigation where Amazon says that they’re not a marketplace,” and therefore not subject to marketplace restrictions.
According to the Online Merchants Guild, this would have devastating impacts for sellers, and subject them even more to Amazon’s control. First, selling their own generic products is sanctioned activity for stores like Costco or Walmart, and would become so for Amazon if its description shifts from “platform” to “store.” Second, if Amazon relabels itself a consignment store with sellers acting as vendors, it could get rid of the Buy Box and other practices that reinforce the claim that it operates as a marketplace. Like Walmart, it could squeeze sellers to offer the lowest possible price directly, rather than indirectly through incentives. And it could potentially continue to self-preference and make use of seller data.
Sellers already operate largely at the whim of Amazon. They must follow continually changing rules laid down by the company, and fend off dirty tricks from competitors that Amazon doesn’t really intervene to stop. They can have accounts suspended and inventory frozen based on Amazon’s discretionary reaction to customer complaints. It can take weeks to get reinstated. Sellers are bound by an arbitration agreement and cannot sue Amazon over disputes.
“Sellers’ biggest fear is that one day the marketplace will be shut off,” said Rafelson. “It happens all the time to our members.” The Online Merchants Guild says that the supportsmallsellers.us site plays into those fears. Colvin noted that members of the Guild are afraid to speak out about the situation. “Amazon could flip one switch and your business could be gone,” he said. “When you see Amazon making overt statements like this, you get scared.”
The Online Merchants Guild believes the definitions contained in the congressional bills make it too easy for Amazon to shift from a marketplace to a store. They prefer a “merchant bill of rights” model that establishes the rights and responsibilities of both merchants and website platforms in the digital marketplace. It would also establish remedies for violations of those rights. “The fact of the matter is that there is a way for [Amazon] to shut down their marketplace and continue to operate,” Colvin said. “We can’t support some of the proposed legislation if it results in consolidation of control.”
Miller, of the American Economic Liberties Project, agrees that Congress will “have to be extremely specific to prevent that sort of language manipulation in the current judicial environment.”
Other businesses with a large customer or contractor base have used this technique to enlist them into lobbying for the company’s preferred policies. Uber and Lyft drivers were coerced into formally supporting Proposition 22, a California measure that created a new class of employment, in order to sign in to drive for the companies, according to a driver lawsuit. Wielding similar power over its sellers, Amazon looks to be going the coercion route, too.
