A significant report from a US-based nonprofit organization has claimed that Amazon is exploiting its position as a gatekeeper to impose steep and growing fees on third-party sellers, raking in big moolah.
In 2019, Amazon pocketed $60 billion in seller fees. This year, its take will soar to $121 billion, according to the report titled ‘Amazon’s Toll Road’ by the Institute for Local Self-Reliance.
Even as these exorbitant fees bankrupt sellers, they are generating huge profits for Amazon, a fact that the tech giant conceals in its financial reports.
“These profits are not only the spoils of Amazon’s monopoly power. They are the essential fuel that feeds its market-domination strategies, enabling it to absorb massive, predatory losses designed to lock-in market control and fund breakneck expansion,” said study author Stacy Mitchell.
Over the last few years, Amazon has faced growing scrutiny for spying on sellers, copying their products, and giving its own brands preferential placement in search results.
Amazon Founder Jeff Bezos recently told the US Congress that the increasing amount of money going from sellers to Amazon is something of an “optical illusion”.
“I think what you’re seeing there when you see these fees going up, what’s really happening is that sellers are choosing to use more of the services that we make available,” Bezos had replied to a question.
In a statement to TechCrunch, Amazon called the report “inaccurate,” and added that it “conflates Amazon’s selling fees with our optional add-on services”.
According to Mitchell, the staggering scale of these fees provide evidence of Amazon’s monopolization of the online market and the high costs that come with it.
“Using a variety of fees, Amazon now pockets a 34 percent cut of the revenue earned by independent sellers on its site, our analysis found. That’s up from 30 percent in 2018, and 19 percent in 2014,” she noted.
According to the report, over the last few years, seller fees grew much faster than every other major revenue stream at Amazon.
“They grew faster than Amazon’s own retail sales and faster than its Prime membership program. They even outpaced Amazon Web Services (AWS), the company’s massive cloud-computing division,” the report claimed.
AWS is on track to post about $61 billion in sales this year – a vast sum, but still, only half the revenue Amazon will generate from seller fees.
In a similar fashion, Amazon has compelled sellers to buy its warehousing and shipping service, Fulfillment By Amazon (FBA).
“Amazon’s algorithms heavily favor sellers who do so, making FBA all but required in order to generate sales on the site. As a result, the share of sellers who have left other carriers and signed on to FBA has soared in recent years,” the report further said.
By compelling this captive base of businesses to use its shipping service, Amazon has grown into a major logistics provider almost overnight.
“The findings of this report make clear the need for action by policymakers. Absent intervention, Amazon will continue to exploit smaller businesses and use the revenue it extracts from them to spin its monopoly flywheel, pulling an ever-larger share of our economy under its control,” Mitchell said.
To stop Amazon from gouging sellers and using the proceeds to expand its dominance, policymakers must target its market power directly, she added.