While governments and pundits are debating how best to deal with COVID-19 since March, there is one thing everyone agrees with- it has been a rough ride for small businesses. The $525B Paycheck Protection Program (PPP) for small businesses is indicative of how dire it is without a clear end in sight. Since COVID-19 began, more than 100,000 small businesses have closed indefinitely. Related to small business, Amazon is about to release its 2020 Prime Day figures this week, which will likely show that it drove $3B in revenue across millions of small businesses.
I think this is ironic that the company receiving so much flack for competing with small businesses is actually helping small businesses. I think it also begs the question of whether Amazon even belongs in the House’s antitrust subcommittee hit list along with Apple, Facebook, and Google.
How Amazon drives revenue to SMBs
Amazon says in its SMB impact report that American SMBs sold $3.4 billion products in Amazon’s stores, $160,000 in average annual sales, and the number of sellers that have reached $1M in sales grew by 20%. While I think I holistically captured how Amazon drives so much business to SMBs with this and this note, let me quickly bulletize how I believe Amazon does it.
- $18B investments- logistics, tools, services, programs, and people to make SMBs more effective and safer
- AWS credits- more than $1 billion since 2019 to run their businesses
- Supply discounts- 10% off recurring delivery business supplies
- Promotion- Amazon is investing an additional $100 million to help small businesses reach new customers
- Tools- Amazon also launched 135 free tools this year for its sellers to help them gain insights, protect and build its brands, delight customers, and increase sales
- Content creation platforms- Kindle Direct Publishing (KDP) has earned authors $1.28B. There are now more than 700,000 developers for Alexa and more than 100,000 Alexa skills built with Alexa Skill kits
- Delivery- more than 1,000 Amazon Delivery Service Partners in the U.S. alone, employing more than 82,000 drivers
With a very high degree of confidence, I can safely say that neither Walmart, Target, Costco, or Kroger are helping small businesses this much.
One thing does not look like the other
Contrary to the U.S. House special antitrust subcommittee’s claims, I do not believe Amazon fits in well with the hit list along with Apple, Facebook, and Google. This isn’t to say that Amazon doesn’t deserve some scrutiny- it does. It is just a lot harder for me to see how it fits with the rest.
Apple dominates with a 50% U.S. smartphone market share and has been at the center of questionable App Store practices, where many times it adds minimal value yet demands a 30% fee. Google has over 75% search market share and an end to end ad platform, and I can see how the subcommittee could see the conditions for abuse. Google is also accused of manipulating search results for ideological purposes, questioning its legal protection as an open platform. Facebook has repeatedly shown it has abused consumer information and, like Google, is accused of filtering, which could put it in an entirely different category.
Amazon is accused of being bad for small businesses by evidence of its size and leveraging small business data for its own use. The challenge with this argument is that Amazon has a bit over 1% retail market share. Some Americans may see online as the way to buy products in the U.S., but the reality is that most retail purchases are very much bricks and mortar. Think about where your friends and family buy most of their clothes, food, home improvement products, and white goods.
Another fact I think needs highlighted is that Amazon does not have a “lock” on buying online, which has been best illustrated well in the COVID-19 timeframe. A recent MarketWatch article said it best in that, “since the coronavirus hit our shores, such retailers are reporting soaring digital sales: Best Buy grew online sales by 250%, Target by 195%, Lowe’s by 135%, Kroger by 127%, and Walmart by 97%.” This shows me that if retailers want to lean into online and leverage bricks and mortar to drive sales, they can, and buyers will buy.
The U.S. isn’t the old Soviet Union
Let’s say you reject everything I’ve said above about Amazon’s 1% retail market share, its $18B SMB investments, and other U.S. retailers having online success when they try. This likely means you agree with what some are saying in that “you have to sell through Amazon, and therefore it’s a public utility and needs to be government-controlled.”
First off, this isn’t the old Soviet Union of government-controlled businesses; this is the United States that has fought 80 years of cold wars against communism. While it appears the country is moving a bit more left, we are very far away from communism.
The truth is that Amazon took some colossal business and reputational risks to grow from struggling bookseller to what it is today, amassing years of income losses in the process. Every year, the company removed more friction from the buying process and then took that innovation to the delivery process with three day delivery, one-day delivery, and then two-hour delivery.
Walmart, Target, Costco, and Kroger could have done what Amazon did- but did not. Those companies decided not to take risks, incur losses, and continue not to invest.
When I step back and take all this into account and connect it to the level of business Amazon drove to SMBs throughout the year, it sure seems like the company is being scrutinized for reasons other than the way it treats SMBs. I think his has more to do with Amazon and Jeff Bezos’s level of success than what Amazon does with SMBs.