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Amazon is transforming what a small business is, and it looks just like Amazon. Is that a good thing?

Amazon is transforming what a small business is—and it looks just like Amazon. Is that a good thing?
Third-party sellers account for the bulk of Amazon’s sales. But this new breed of small business is enmeshed in Amazon’s e-commerce infrastructure in ways that both benefit and exploit them, says Moira Weigel, assistant professor of communications studies at Northeastern University. Credit: Alyssa Stone/Northeastern University

What do former U.S. Marines, stay-at-home moms, retirees and Chinese business veterans all have in common? You've probably bought something from them on Amazon.

Third-party sellers, people who sell their products through Amazon's marketplace, come from every walk of life and increasingly make up more and more of the online giant's sales. Amazon launched its third-party marketplace in 2000, allowing to put their products on Amazon (for a price). There are now millions of third-party sellers on the site, and third-party sales make up about 60% of Amazon's physical product sales, Jeff Bezos told the House of Representatives in 2020.

Third-party sellers at the center of Amazon's ecosystem––and the debate around the company's complicated place in the world. Is Amazon exploiting these small businesses or lifting them up?

Moira Weigel, an assistant professor of communication studies at Northeastern University, says it's not that simple.

"It's transforming what a small business is," Weigel says.

Weigel and her graduate research assistant Zhaozhou Dai spent the last two years talking with third-party sellers across the global e-commerce market, charting Amazon's impact on a "hidden, yet really important part of the global consumer economy." Her report, "Amazon's Trickle Down Monopoly," published this week by Data & Society, is the culmination of that work. The research is available as a working paper on the SSRN Electronic Journal.

"To be an Amazon seller does not look much like running the mom-and-pop corner store that politicians and pundits evoke when they talk about American small business," she adds. "As several of my interviewees put it, it typically looks more like daytrading—interpreting and trying to speculate on global data flows that you experience primarily through screens."

The impact of that shift goes beyond Amazon and its third-party sellers. Weigel says the U.S., China and E.U. place "an enormous amount of faith" in small businesses and entrepreneurs to help remedy structural inequities and create opportunity for people.

"Entrepreneurship is a state project," Weigel says. "We have low interest rate loans, we have tax breaks, we have subsidies for small businesses. If Amazon's market dominance is fundamentally transforming what a is, that is a matter of public interest."

For third-party sellers, the advantages of selling on Amazon are clear: They gain access to the largest online marketplace in the world. All they have to do is supply their inventory––and pay Amazon to ship, store, list and advertise it. The whole enterprise is low-risk for Amazon and high-risk, high-reward for sellers.

There are concrete ways Amazon harms third-party sellers, whether by purposefully using data collected from sellers to make its own competitive products or through algorithmic errors that randomly suspend accounts or products. But Weigel also talked with many sellers who saw Amazon as "the best available opportunity" and made multi-million dollar businesses by selling through the platform.

Beyond whether Amazon is hurting or harming small businesses, Weigel says her research highlights the ways Amazon is radically transforming the world of commerce and business––and making it look a lot more like Amazon.

"[Third-party sellers] are ground zero or the entry point where we see Amazon remaking the world in its image," Weigel says. "To succeed on Amazon's platform, which is entirely governed by Amazon's metrics and algorithms, means, in many ways, to build your business Amazon-ready."

People turn their cars and houses into smaller versions of Amazon fulfillment centers. A Chinese told Weigel that Amazon-supported training courses encourage merchants to accept that they'll have to sell at a loss for their first six months––just like Amazon.

Amazon's transformational strategy is most clear in its approach in China.

After an attempt to move into the Chinese market in the 2010s, Weigel says Amazon realized it couldn't compete against domestic e-commerce companies like Alibaba, Pinduoduo and Taobao. It focused instead on attracting Chinese and merchants as third-party sellers.

Around the same time, China was introducing initiatives to support entrepreneurs who were involved in cross-border e-commerce. This is where Amazon stepped in.

"Amazon partnered with regional governments in China on a number of initiatives to recruit and train merchants and manufacturers to sell through the platform," Weigel says. "I found evidence that Amazon served as a consultant to the Chinese state in developing these new duty free warehouses that would facilitate getting goods out more easily. … They created this pipeline over the border into the duty-free zone and then directly to the U.S. customer with no other intermediary."

Moving forward, Weigel says there needs to be regulatory and legislative changes to ensure Amazon is held accountable for its impact on sellers, warehouse workers and the e-commerce world at large. That includes antitrust measures and even potential alliances and joint efforts between third-party sellers and Amazon logistics workers. Change and action are not impossible, Weigel says, but they need to happen sooner rather than later.

"Industrialization and the rise of railroads totally revolutionized how things were made in the 19th century," Weigel says. "Laws were passed around that and new standards were developed. It's important to remember that the forms technology takes are never inevitable—change is possible around these things."

More information: Moira Weigel, Amazon's Trickle-Down Monopoly: Third-Party Sellers and the Transformation of Small Business, SSRN Electronic Journal (2023). DOI: 10.2139/ssrn.4317167

Citation: Amazon is transforming what a small business is, and it looks just like Amazon. Is that a good thing? (2023, January 30) retrieved 17 April 2024 from https://phys.org/news/2023-01-amazon-small-business-good.html
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