Eliot Blondet/Abaca/Sipa USA via AP Images
This story is part of a new Prospect series called Rollups, looking at obscure markets that have been rolled up by under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.
“We are changing the American Dream. People no longer want to start their own companies—I’ve done it several times; it’s a pain in the ass. They simply want to be their own bosses.” Whether he was onto something or not, in 1999 Ari Horowitz began beating a drum and hasn’t stopped. Back then, he was running a temp worker site called FreeAgent.com, but in 2018 he helped start Thrasio. The name comes from a Greek myth and means “boldness.”
Thrasio is a self-proclaimed Amazon rollup business; it buys up successful Amazon sellers. Its alleged value-add is industry expertise, access to capital, and streamlined services, another way of saying “economies of scale.”
So far, this striving for bigness has allowed Thrasio to reach a valuation of $1 billion within two years of its founding, making it the fastest U.S. company to ever reach what the startup world calls “unicorn” status. This past fall, Thrasio was valued at between $5 billion and $10 billion.
Rollup strategies are most commonly used by the private equity industry. But Thrasio is changing that notion by pioneering what is now, unironically, being described as the hyper-competitive rollup commerce space. In 2021 alone, Amazon aggregators, which third-party sellers call “gators,” collectively raised more than $12 billion. And the seemingly endless investor interest has prompted at least 85 Thrasio look-alikes in e-commerce and neighboring sectors.
Thrasio’s competitive advantage is mainly its capital reserves of $3 billion, which can be used to scoop up more sellers. “It’s becoming a pay-to-play marketplace and will increasingly [become so],” said Ken Kubec, Thrasio’s VP of acquisitions, in an interview on The Tom Wang Show.
Being able to pay has clear upsides. Thrasio now owns more than 22,000 products on Amazon Marketplace with $1.5 billion in annual sales in 2021. The company estimates that 1 in every 6 U.S. homes have purchased a Thrasio-owned product. But this success points to a potentially ominous reality—has market dominance become more valuable and attractive than real innovation?
IN 1995, AMAZON was a closed platform that sold books. Jeff Bezos always had higher aspirations (the URL relentless.com still directs you to Amazon’s website), and in 2000 he planted the seed for the “Everything Store” by opening up the platform to third-party sellers. Today, over 60 percent of Amazon Marketplace is made up of third-party sellers, while the remaining 40 percent comes from Amazon’s in-house product lines like AmazonBasics.
Amazon running its own private labels on top of its marketplace has always meant trouble for independent vendors. FTC Chair Lina Khan described the imbalance in her 2017 paper “Amazon’s Antitrust Paradox”: “It is third-party sellers who bear the initial costs and uncertainties when introducing new products; by merely spotting them, Amazon gets to sell products only once their success has been tested. The anticompetitive implications here seem clear.”
Amazon has been caught using seller data to launch competing products and put the original seller out of business. Vendors also allege increasingly automated account suspensions, a crippling experience for suspended companies. Just last month, Amazon paid $2.25 million to settle a price-fixing investigation into a program that allowed Amazon to set the prices of third-party seller products. The program was subsequently shut down.
The gators tip the scales even further. Thrasio’s founders Carlos Cashman and Joshua Silberstein, who had experience in advertising and SEO optimization, saw an opportunity to use purchasing power to gain an advantage. Amazon third-party sellers didn’t have the capital to grow their businesses, didn’t have the expertise or the number of employees needed to operate on Amazon’s platform efficiently, and didn’t have the ability to withstand supply chain bottlenecks—all of which are limitations that independent sellers continue to face today.
In 2021 alone, Amazon aggregators, which third-party sellers call “gators,” collectively raised more than $12 billion.
In other words, the second-class experience that sellers have on Amazon Marketplace guarantees Thrasio a pool of potential acquirees. Coming before Congress to testify against Amazon, sellers have used words like “bullying,” “fear,” and “panic” to describe their relationship with Amazon. For Thrasio and the gators that followed, this translates to a buyer’s market.
In speaking with several third-party sellers, I gained a clearer picture of how the gators fit into the Amazon seller ecosystem. Gators can best be understood as a euthanizer of Amazon independent sellers, providing a less painful path to their inevitable death.
One business owner, who requested anonymity because he was in the middle of negotiations with Thrasio, told me that if he built another brand, it would exist under constant risk of being taken off the Amazon platform. “At any point in time, you can get taken down,” he said. “You are at Amazon’s mercy.” Another seller, named BisonPuncher on Discord, lamented about being automatically miscategorized and subsequently kicked off for weeks at a time, finally driving him to contact a gator and sell the business. Many third-party sellers who now spend more than a third of their revenue on Amazon’s fees wonder whether it’s all worth it.
Every negative experience an independent seller has on Amazon Marketplace is a win for Thrasio, and they understand it as such. One current Thrasio employee told me that “having worked at Thrasio, I cannot imagine being an individual seller.”
ON A 2020 INVESTOR CALL, Ken Kubec pointed out the bind that sellers are in. “Most of our sellers have 98 percent of their assets tied up in this business. So, if Amazon shuts them down, they are screwed.” This power imbalance benefits Thrasio, which has a more privileged relationship with Amazon.
On the same call, Thrasio’s former co-CEO Josh Silberstein made an eyebrow-raising comment. “We have gotten already a number of things that I am not going to say on a recorded call but are, I would say, unique benefits that almost nobody else has in terms of account protections and things like that. So, I would say, overall, our relationship with Amazon is excellent.” This hinting at preferential treatment, if true, would violate Amazon’s policies as well as antitrust laws.
Insinuations of illegal behavior don’t stop there. When Ken Kubec was interviewed on The Tom Wang Show, he explained that if a Thrasio company loses a “best-seller” tag, something that increases visibility on the marketplace, it has the luxury of lowering prices for a few months to recapture the title, which independent sellers don’t have the ability to do. “One mistake some people make is they focus so much on the margin when you can give up a dollar of profit to make one and a half six months from now … It’s hard to do when you’re boot-strapped or cash-strapped. But that’s one of the things that we’re able to do with our huge capital base.” This practice could arguably be described as predatory pricing, which again, is against the law.
Gators can best be understood as a euthanizer of Amazon independent sellers, providing a less painful path to their inevitable death.
The anti-competitive effects that ensue cannot be overstated. Let’s say you are a small business selling workout gear on Amazon, or bedsheets, or coffee grinders, or urns, or colored pencils. You now compete with Thrasio, a team with more than 1,500 self-proclaimed “Thrashers” who specialize in brand management, advertisement bidding, SEO optimization, supply chain management, and of course, legal issues. Even if you have a better product, Thrasio will almost inevitably win out, if not by digital fortitude, then by running profitless prices until you are squeezed dry. And that’s without taking into account the “special treatment” Thrasio admits to having.
So, just like BisonPuncher, a day will come for many sellers when they decide it’s not worth it. To add salt in the wound, the nearly unavoidable drop in sales sellers experience from Thrasio’s crusade to push out competition means Thrasio or some other gator will get to offer a lower purchasing price to buy up the business.
Thankfully, Thrasio just made it easy for sellers to prepare for the chopping block. Getting Your Ecommerce Business Ready for Sale, a book produced and distributed for free by Thrasio, provides 50 pages of tips and tricks on how to prep for purchase. It is likely a useful resource for sellers interested in exiting. But it comes too close to Hansel and Gretel being fattened up for the witch’s dinner.
THRASIO’S MISSION of becoming “the largest and most profitable selling group in the Amazon ecosystem” has driven it to use a number of convoluted business strategies. One of the more precarious is sneakily gaining access and control over competitor data.
Enter Yardline, the capital-as-a-service company that former Thrasio executive Ari Horowitz (the guy who claimed to be changing the American dream back in 1999) started. Capital-as-a-service is exactly what it sounds like: a pseudo-investor, in this case specifically for e-commerce sellers.
Although Horowitz left Thrasio to start the new venture, he was not saying goodbye. Yardline was started with seed funding from Thrasio, and Thrasio boasts being “actively involved in the business since its inception.” For all intents and purposes, Yardline is essentially a Thrasio subsidiary kept separate due to the clear conflict of interest. Yardline offers funding to Amazon third-party sellers, while Thrasio buys them.
For sellers who aren’t interested in being bought, Yardline offers capital to fund growth. Yardline’s access to seller information lets them see which companies are growing most successfully. It’s easy to see how that information would be a competitive advantage for Thrasio. By July 2021, Thrasio closed the loop and bought Yardline in full, bringing Horowitz back home. This of course meant that Thrasio got all of that sensitive data from Yardline’s portfolio too.
A day will come for many independent sellers when they decide it’s not worth it.
Just last week, Yardline was sold for an undisclosed sum, seemingly resolving the conflict. But the Business Insider article, “E-commerce Software Company Swiftline Buys Yardline From Thrasio,” is deceiving, because the sale offered no change of hands. Swiftline launched the day it bought Yardline and is run by three former Thrasio executives, with Ari Horowitz at the helm. So, it would take a lot to convince me that Thrasio doesn’t (and won’t) still have access to the data that the Yardline/Swiftline entity holds.
While the background of each Thrasio executive would be illuminating, Ari Horowitz deserves one more brief examination. A man known for attending his friend’s wedding and stealing the seating chart “for the sole purpose of cornering a potential investor,” his careerism is both impressive and off-putting. One of his first companies, FreeAgent.com, was pitched to buyers by outlining the benefits of temp workers, which culminates with “They do all the work, you take all the credit.”
The Thrasio playbook is just a variation on this, another way of taking others’ innovation and success. As Horowitz said back in 1999, starting a business is “a pain in the ass.” Maybe that’s why Thrasio was built using “M&A as [their] R&D engine.”
Whether you decide gators are good or bad, it’s hard to argue they won’t have a transforming effect on the markets they enter. But if Thrasio is the emblem of today’s version of innovation, which is little more than capital and consolidation, it’s hard to imagine that our economy won’t become a gutted shell of its former self.
