A story has circulated around the world this week, about an Amazon seller called Barak Govani who closed his retail store and sent all his stock – worth $1.5 million – into FBA instead.
Govani’s account was later suspended following customer complaints over fake products, and although he provided supplier invoices, they did not meet with Amazon’s approval. Eventually, all his remaining inventory was destroyed by Amazon, leaving him broke and homeless.
It’s a tragic story, but not at all uncommon. I believe it highlights some misconceptions about how Amazon operates, and how sellers should interact with it.
Selling on Amazon isn’t like going into partnership with a friend, it’s a symbiotic relationship with a much larger organism that barely knows you are there. If it doesn’t like the signals you are sending out, Amazon’s immune system will take action against you.
How Amazon’s immune system works
Put yourself in Amazon’s shoes. Imagine that you have a huge business with 350 million different products for sale, but you only sell 3% of those products yourself. The rest come from two million independent businesses that sell on your website. More than half of your total sales volume, amounting to hundreds of billions of dollars per year, comes from these strangers that you allow into your world.
How on earth do you run your business, serving customers well and protecting your reputation, when you depend on all these outsiders?
There’s only one feasible way to do it and that’s by creating a system that automatically looks for signs of bad behavior, makes decisions on the likely cause, and takes action accordingly. You can think of it as Amazon’s immune system.
Like the gut bacteria working in perfect symbiosis with our own digestive systems, third-party sellers are incredibly beneficial – necessary, even – to Amazon’s existence. But if those organisms, those sellers, start disrupting Amazon’s core mission to satisfy its customers, its immune system will take decisive action against them.
Now, immune systems work on signals, on recognizing patterns that indicate something might be wrong. With all the noise of activity on the Amazon marketplace, how can they find the information that actually matters?
It’s a technology and data processing problem, and that’s where Amazon excels. They take all the information about orders, customers, products, sellers, shipping times, product reviews, seller feedback and so on, and turn it into concise numbers, attributes and warning flags.
With that in hand, the immune system can act on a whole range of signals:
- Negative feedback from customers
- Specific keywords in product reviews, like “fake”
- Cancelled orders and late shipments
If you, as an Amazon seller, are generating too many of those signals then Amazon’s immune system will respond.
Remember, just like our own immune systems, this is an automated response. When you have millions of sellers, hundreds of millions of customers, and billions of orders it’s impossible to have people involved every time there might be a problem. It would take an army of staff to do this manually. Far more than you could feasibly recruit, train and pay.
Without this immune system, with its predefined rules and interlocking algorithms, Amazon as it stands today would simply be unviable. The scale of the business, with millions of independent actors and razor-thin profit margins, would fall apart if people had to constantly intervene.
Your place in the system
The Amazon PR machine would have you believe that selling on its marketplace is like joining a happy tribe of small businesses all working in harmony with their best friend Amazon. Any problems? Just give your knowledgeable and easily-available Amazon account rep a call and they will patiently educate you on everything you need to know.
No, it’s not like that. When you sell on Amazon, you are just one more cog in an enormous machine. One more bacteria in Amazon’s gut. You take your place, serve Amazon’s customers, and profit as a result. Amazon doesn’t like you, and it doesn’t hate you either. You are just there, a neutral and unremarkable part of the system.
Until, of course, you aren’t. Everything you do, and every interaction customers have with you, is generating data. If Amazon’s immune system starts picking up signals and patterns in this data that it doesn’t like, it will take action against you.
Fairness doesn’t come into it. A process has begun. If there is a positive outcome, it will be because you have successfully navigated the system, not because you are a nice, honest, well-intentioned person. You can’t systematize decency, only data.
Play the game
Here’s the good news. Systems have rules. Amazon’s system is a complex web of terms, policies, processes and good practices. There’s no great mystery to them, but there is a lot to learn. Sellers need to be uber-nerds when it comes to understanding how to behave on Amazon.
For example, be ready with exactly the right documentation in case you are asked to provide invoices or other proof that your products are authentic. It isn’t just about having a genuine invoice, but having a genuine invoice that ticks all the boxes that Amazon is looking for. They don’t know you, and they don’t know if your invoice is actually genuine. They just know what their internal procedures say to look for.
So being a good seller isn’t enough, you also have to know how to play Amazon’s game. But the risk of disqualification is always present, no matter how well you play. Always take calculated bets, don’t stake your livelihood on it. Send some of your inventory into FBA, to stay in stock and keep shipping costs down, but hold the rest back. Go and find other sales channels. If your products will only sell on Amazon, develop new products that do sell somewhere else.
There’s a lot of hostility towards Amazon at the moment. It is seen as an evil empire, mistreating sellers, employees, suppliers and everyone else it comes into contact with. But the clinical systemization that has led people to demonize Amazon, is also what makes it work as a business. The question should not be if Amazon is behaving acceptably, but whether or not we will tolerate this level of automation.
An Amazon without a highly automated immune system might well be a fairer, kinder place for marketplace sellers. But it will also be a much more expensive venue to police.
The result? Amazon would have far fewer sellers, who they can vet and control much more closely. There would be some big winners. For consumers, there would be less product choice and higher prices. And the small businesses who have profited enormously by selling on Amazon might become a thing of the past. I don’t think that’s a price worth paying.
You can read Barak Govani’s story by Spencer Soper on Bloomberg.