Here's what every entrepreneur should know about Amazon's marketplace and third-party selling

If you want to sell via third-party platforms - you can, but you just have to kiss the ring.

With so many customers switching to online shopping, it is a must for brands to have an online presence. How do you get to sell online? With so many options nowadays, in just a few clicks, you can add a Facebook page store, start selling on Instagram, put your products on Amazon — there are so many platforms to choose from. It’s relatively cheap and easy to start on any of them vs selling on your own website. What’s better though?

Joel Bines, global co-head of retail at consulting firm AlixPartners

Amazon, eBay, Etsy, Facebook, Instagram? Whose brand are you really building when you lean on third-party platforms as your main place for people to find you?

A silent giant: AmazonBasics

AmazonBasics is Amazon’s private label brand which offers products ranging from electronics accessories to kitchen products and more. So, it’s Amazon’s house brand. It is an elephant in the room. It is a silent giant and he is growing… right before the eyes of their competitors. The company is able to leverage internal data (as they know what their customers are looking for) and if Amazon has your category and product insight, they won’t think twice to create their own version and sell it to the public. Probably for the lower price you’re offering. On the other hand, if you start selling your products on Amazon, the silent giant collects 27 cents of each dollar customers spend buying your product, a 42 percent jump from five years ago, according to Instinet, a financial research firm. I don’t even have to mention that it does not include what you have to pay to place ads on their platform. Say hello to the giant, what else can you do, right? Do the math. How much does it cost you — per week, month, year? Is it cheaper than building your own brand? Does it cost you less to invest in a good domain, a functioning website, your own online empire? 

Big brands are breaking up with Amazon.

Just a month ago, Nike agreed to sell a limited product assortment to Amazon, in exchange for stricter policing of counterfeits and restrictions on unsanctioned sales of its products. The company decided to shift its focus on sales straight to consumers through its website, stores, and various apps. Wondering why?

Less brand growth, increased competition, dependency, commissions, no split loyalty, the fact that Amazon may ban you for factors beyond your control? What about false negative feedback on your products, copycats, your data? I won’t ask because I know that’s certainly not what you want for your brand.

Bernie Thompson, a top seller who Amazon has highlighted in its marketing to other merchants

The official Nike products had fewer reviews (and therefore received worse positioning on the site) thanks to Amazon’s algorithm.

The sportswear giant has more than 8,990 domain names in its ownership including all the possible ways you can think of misspelling the name., Again, in order to keep its reputation under control, the company has made sure no one has those domains. What about Nike’s iconic “Just Do It” slogan? You guessed it, belongs to Nike. Belongs to Nike. Nike Fit, which app uses AR and AI to scan feet for the perfect fit? Of course, the company has acquired the domain name NikeFit(.com) to protect its brand and convert app users to website buyers.

Does such a strong brand, that has taken all possible measures to provide direct traffic, happy customers, a strong brand presence and a reputation in check, need a third-party seller offering counterfeit products on the marketplace? Should such a brand think about what will happen with the next algorithm change? By making sure that it sells through its own distribution channels (such as its e-commerce site and its brick-and-mortar stores), Nike doesn’t need that. So… they just did it. Because they can do it. Because they should do it.

Randal Konik, Equity Research Analyst, Specialty Retail

You just have to kiss the ring

Nike is not the only brand that has decided to break up with Amazon. Founded more than 240 years ago in Germany, Birkenstock also walked away from this e-commerce platform when Chinese merchants started flooding the site. Redirecting them to their official site, the company told its consumers that any of its products listed on Amazon can’t be trusted.

Tumi, the luxury bag maker, sold its products at wholesale prices to Amazon for years. Last year, Tumi decided to sell its bags to another company, which then listed the items on Amazon. The arrangement gave Tumi more control over inventory and better sales data. A few months later, Amazon gave Tumi an ultimatum: Stop selling through the middleman, or do not sell to the retailer’s 150 million customers at all. 

One morning in June, Mr. Fishman from Zulily, opened his Amazon app and typed “VitaCup” into the search bar at the top of the screen. On the results page was an ad for Amazon’s own line of coffee. He had been paying Amazon almost $200,000 a month for ads. Mr. Fishman posted a screenshot on LinkedIn and raged. “I have a major problem with this!!!” he wrote. What happened, what response did he get? As you can probably guess — his post was left hovering in the air. He has a major problem, he should solve it. Why Amazon should care.

Quartile, among the largest of a new breed of companies that help brands navigate Amazon advertising, tested the importance of the ads last year. It stopped running ads for 750 popular products. Immediately, sales shrank by 24%. That’s because the fewer recent sales a product has, including sales driven by ads, the lower it ranks on the site. At the end of 10 weeks, sales of the products without ads had tumbled 55%. 

Melissa Burdick, a 10-year Amazon veteran who now advises major consumer brands.

Seems like it’s by far not just Nike. Many sellers and brands on Amazon are desperate to depend less on the tech giant. More than 12,000 people signed a petition on asking Amazon to alter an arcane rule on counterfeit products that they said could “destroy” an entire business.

Oh, another giant in the room: Apple AppStore and all its problems.