Amazon and the eCommerce merchant. It’s a Shakespearean tale where love and hate is often a blurred line. There’s no doubt that for many merchants, Amazon is a huge source of revenue for their product. But there’s also plenty of pitfalls when you decide to sell on Amazon.

To kick off our month-long series about all things Amazon, we’ve got a reality check about the potential problems with selling on Amazon. While it presents many opportunities for increasing your products’ reach, it’s important to be aware of the company’s policies that have undermined many eCommerce businesses.

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(With your host Andrew Youderian of eCommerceFuel.com and Bill D’Alessandro of Rebel CEO)

Andrew: Hey guys, Andrew here and a quick note before we get into that official theme music. Today is going to kick off a four part month-long series on Amazon. If you’re in eCommerce, which you probably are, obviously that’s a huge aspect of what we’re doing these days. So over the next month we’ll be covering all sorts of different topics Amazon-related, and I want to kick off this series with just an episode just to make you think a little bit more carefully about some of the things you should be considering from a downfall perspective on Amazon.

Obviously a lot of opportunity there, but given when we’re focusing on it and given the fact that some people make Amazon sound like, you know, just a money machine, I wanted to kind of have a reality check to launch us into this series. So hope it’s useful, hope you make a bunch of money on Amazon, and hope you enjoy. Thanks.

Welcome to the eCommerceFuel podcast, the show dedicated to helping high six and seven figure entrepreneurs build amazing online companies and incredible lives. I’m your host and fellow eCommerce entrepreneur, Andrew Youderian.

Hey guys, it’s Andrew here and welcome to the eCommerceFuel podcast. Thanks so much for tuning in today. Today, talking about the dangers of Amazon and the FBA business model. You know, Amazon is the talked-about game in eCommerce these days. Big courses coming out, you know money seemingly just falling freely from the skies, it’s incredible, right? It’s like the old, old days of AdWords when they were three cents a click. There’s no downside! But there definitely are some pitfalls that we want to talk about today as a reality check, hat tip to David Heacock for the inspiration and some of the finer points on this episode. Thank you, David. And joining me to really dive into it, a man who knows a ton about Amazon, Mr. Bill D’Alessandro. Bill, welcome sir.

Bill: Yup! Glad to be here. This is the topic I love to talk about.

Andrew: Yeah, it’s interesting, and you’ve been on, like I said, I mean you’ve been on Amazon for years. I have very little experience with it. It’ll be interesting to kind of take the opposite approach of what I think has been a lot of ra-ra-ra cheering over the last, you know, two years or so.

Bill: Yeah, and some of it well-deserved, but not without potential other sides of the coin.

Beware the Hijacked Niches

Andrew: Bill, I think the biggest thing that stands out as a potential danger of going onto Amazon is that building your core business on Amazon is, ultimately, is going to lead to heartbreak. A lot of people, I’m not sure if they realize, Amazon is not your friend at all. They’ve got a long track record of hijacking niches, of selling directly out from under merchants, and if you don’t own the platform off Amazon somewhere, you’re gonna get hosed eventually.

Bill: Yeah, I think talk to anybody who used to sell any of the products now covered under the Amazon Basics program. You know, all the cables, all the SD cards, you know Amazon is more than willing to private-label their own stuff and compete with you directly, you know, obviously at much lower cost and with preferential algorithmic ranking. And also they’re expanding into clothing now, they’re doing some of their own clothing lines.

Andrew: They’re doing suits.

Bill: Yup. They are not afraid…basically, they’re using you as their guinea pig, see what sells, and then they’re more than happy to, if it’s a big enough opportunity, go into it themselves and kick you off or take you over.

Andrew: Yeah. I mean this is something that the Amazon employees admitted, and I think maybe even Bezos admitted it in the “Everything Store” book. We’ve had members in the community tell horror stories about Amazon just came into their niche. It actually, yeah it’s a reality and it’s… You know, some of the other things that can specifically happen if you build completely on Amazon.

If your account gets banned and you don’t own the platform, you’re just completely out of luck. If, you know, you’ve got a bunch of inventory and you lose that channels, you’re screwed. Unless you have another platform to sell it on, you either take an enormous loss or what you do is you have to liquidate it at almost certainly a much lower price, and with Amazon there’s kind of, you know there’s ways to try to market people back to your site but for the most part, you don’t own the customer. You can’t remarket to them, you don’t have their email address, and so the biggest thing I’ve heard from savvy merchants and Bill, I’d guess, is what you could take as well is… People are saying, “I’ll take the money while I can get it, but at the end of the day I’m looking at Amazon as a tool to build up my own brand on my own website and platform.”

Bill: Yeah, I mean really it’s…the way I look at it is a single point of failure. I mean, I would say if you sell on Amazon right now and are successful on Amazon, I would say your Amazon account is the biggest single risk to your business. Period, because it only takes one thing. I’ve heard countless stories of people shipping, like three packages late and getting their account banned for life, and you have no recourse because it’s not illegal for them to ban you. It’s just their policy and they can do whatever they want to do. You have no recourse at all, they own the channel, they own the customer, there’s…

If your business relies entirely on Amazon and you’re not selling eCommerce, you are at the mercy of Amazon completely, and I will also throw this in there, regular listeners of the podcast know that I’ve bought several businesses and am kind of always in the market looking to acquire small brands with potential.

And all the time, I mean it’s rampant, I’m getting… I’ve seen it just in the past one to two years, all of the brokers that I work with are sending me all of these growing Amazon eCommerce business, and you look at the offering memo and they’re doing 98% of their sales on Amazon. I wouldn’t touch that business with a 10-foot pole. To buy that business is signing up for such a massive risk. I mean, not only could Amazon ban your account, Amazon could change their algorithm, other competitive products could come into the market, and you don’t have any way to defend against them because you can’t contact your customer.

And also, most of the time, people buying Amazon, they’re really not buying because they love your brand. Oftentimes they’re buying…instead of typing your brand of shampoo into Amazon and buying it, they’re just typing shampoo into Amazon and buying it, and when they come back that’s the same thing they’re going to do. And if they find your product they’ll buy it, but they could very easily find something else though an algorithm change, or if you’re out of stock, or if Amazon bands your account.

So if you are relying on Amazon as your only channel, I would advise you to change that quickly, and if someone is trying to sell you a business where Amazon is the only channel, I would advise you not to buy it.

Private Labeling Is (Almost) Over

Andrew: Would you say that the days of easy, private labeling on Amazon, buying a me-too product from China, slapping your brand on it, throwing it up on Amazon, would you say those are pretty much…I mean, would you go into that market today? Let me put it that way.

Bill: If we say those days are over, plenty of counter examples will come out of the woodwork. I would say it is much, much harder than it used to be, and also your run will be a lot, lot shorter. If you do happen to find some miraculous niche that is totally untapped and you can easily private-label a product and start selling it, well guess what? If you were easily able to do it, lots of other people are going to easily be able to do it, too. And as soon as they see your success in the days of Jungle Scout and Unicorn Smasher and all of these things that you can use to guess at sales volume, as soon as you start to succeed your competitors are gonna be a dime a dozen and there’s really gonna be nothing you can do to fend them off.

So I would say the days of easy money via private-label on Amazon are, if not over, I can see the darkness at the end of t