It's not really a surprise that Amazon wants to offer customers the overall lowest prices on the products it sells in order to capture more sales. And it has created an incredible marketplace for third-party sellers to grow and thrive. But that's not the entire story. It turns out that the company could also be keeping a close eye on companies that also sell their products at other sites, such as Walmart.com.
That's according to a recent report by Bloomberg that says that when Amazon finds Marketplace sellers that offer the same product elsewhere for less than the price on Amazon's site, the company sends those sellers a warning "via a web platform they use to manage their Amazon businesses" and often makes it harder to find the product on its own site. Effectively, the message is: Raise your prices, or else.
Really, there are two aspects of this story that are worth paying attention to.
Play by the rules.
The first is the amount of control that Amazon exerts over its sellers. The company has policies that even dictate how third-party sellers should design the packaging for their products. It also determines how products are displayed and how easily they are found by customers.
Additionally, Amazon runs the third-largest advertising platform, which many sellers find themselves resigned to pay for, lest their products go unnoticed.
Ultimately, Amazon's would likely prefer sellers to lower their price on its site, however many sellers tell Bloomberg that they have been hit by so many fee increases that the only real course of action is to raise prices elsewhere.
In fact, those same sellers report that when you include advertising, Amazon takes as much as 40 percent of every marketplace sale on the site.
Amazon didn't immediately respond to my request for a comment, but according to Bloomberg, a spokesperson said in a statement that "sellers have full control of their own prices both on and off Amazon, and we help them maximize their sales in our store by providing them insights on how to be the featured offer."
That isn't exactly a denial that it sends the warning.
I think it also takes a little liberty with the meaning of "help them maximize their sales," especially if "providing them insights" really means "make sure your prices aren't lower anywhere else."
The risk of building on someone else's platform.
The second lesson here is about the risk of building your business on someone else's platform. The two happen to be more closely related than they might seem.
When your business is selling products online, Amazon certainly has one of the most desirable platforms, considering its vast reach. It makes sense, then, that a business would want to make its products available to as many people as possible. That's why many sellers list products on a variety of sites like Amazon, eBay, and Walmart.
But at what cost?
If you build a business on someone else's platform, you allow them to exert considerable control, since you have to be willing to put up with the rules and policies created by that platform. Those rules could change at any time, and your only real option is to change your business or leave. Often, neither is ideal.
As an entrepreneur, it can be tempting to make decisions that help you greatly as you grow, but you should consider what effect those choices will have down the road. Are you able to run your business the way you want, or will you be at the mercy of another company that makes the rules with its own interests first?
Pay close attention to those rules. After all, the one who made them is probably paying close attention to you.