How Amazon turned small businesses into “day traders”

How Amazon turned small businesses into “day traders”

Reuters/Rick Wilking/File Photo

Amazon has radically transformed small businesses in both the U.S. and China, making them dependent on the e-commerce giant while also obscuring their existence, according to a new report published Wednesday by Data & Society.

The foundation-supported research institute spent over a year interviewing 40 current and former merchants on Amazon, who described a largely hidden economy that bears little resemblance to the traditional retail industry. The company’s alleged unfair treatment of its third-party sellers has previously come under scrutiny in Congress and by antitrust watchdogs in several states.

But a number of merchants stressed that they don’t all see themselves as victims. Rather than simply making their livelihood worse, Amazon changed how their jobs function. “It’s less like running a mom-and-pop than like day trading,” said Moira Weigel, a communications professor at Northeastern University who authored the report. Selling on Amazon “blurs the lines between small business and gig work.”

Amazon lists products on its website in two different ways, though it’s not always easy for consumers to tell the difference. First, like any brick-and-mortar shop, it buys merchandise from wholesale manufacturers and then marks up the price.

But it also operates a marketplace akin to eBay — with one crucial difference. The majority of third-party sellers rely on Amazon not just to market their goods, but also for shipping and logistics, making it easy to miss that a pair of flip-flops or a spatula came from an independent company (especially when the package arrives in an Amazon box).

There were an estimated six million merchants on Amazon’s marketplace in 2021, and around 2,000 opened new accounts each day. On average, Amazon collects 34% of each sale they make, according to research published the same year by the Institute for Local Self-Reliance. Estimates from 2020 showed that around 54% of Amazon sellers in the U.S. market were based in the country, while 40% were in China.

What’s new about Weigel’s report is that it illustrates how Amazon sellers built their companies by adapting to the specific quirks of the e-commerce giant, rather than by using Amazon to support their own businesses within the wider market. Amazon often touts the ways it helps smaller enterprises, but in reality, it spurred the creation of an army of contractors who are reliant on it, she argues.

“When I first began this research, I had naively thought that when I spoke to Amazon sellers, I would be speaking to people who had pre-existing businesses,” Weigel said. “But the people I talked to — for better or worse — have to create businesses that are designed around Amazon.”

One seller, for example, told Weigel how she got started on Amazon by peddling shoe inserts, a product she chose randomly after buying a book in Beijing about “how to become a billionaire selling on Amazon in China.”

The seller said she spends 80% of her time optimizing the keywords she uses in her product descriptions and advertisements, in order to ensure her goods rank highly in Amazon’s search results. “I don’t use any other social media channels to draw traffic to my store,” she told Weigel.

A spokesperson for Amazon said there was a “wide range of public information” contrary to the claims Weigel makes in her research. They pointed to Amazon’s Small Business Empowerment report released in November, which says Amazon has two million selling partners worldwide, who have created an estimated 1.5 million jobs in the U.S. as of 2021.