June 23, 2024

In a candid discussion, Steve Chou sheds light on how major tech companies like Amazon, eBay, Etsy, Facebook, and Google are increasingly squeezing sellers dry. Initially, these platforms offered remarkable services to solve critical problems for users, but as they grew, their service quality declined while fees skyrocketed. This shift reflects a broader trend among big tech companies, where the focus has moved from user satisfaction to maximizing profits for shareholders.

In recent years, e-commerce has undergone a seismic shift, primarily driven by the growing influence of big tech companies like Amazon, eBay, and Google. Initially lauded for their innovative solutions and customer-centric approaches, these giants now face criticism for practices that prioritize profit over user experience. Sellers and buyers feel the pinch as fees increase, services decline, and the market becomes more saturated with cheap products, often from overseas.

Amazon: A Focal Point of Discontent

Amazon, once hailed as a revolutionary platform for small sellers, has become a focal point of discontent. Many long-time sellers recall the early days of the Fulfillment by Amazon (FBA) program, which provided an efficient and affordable way to manage inventory and logistics. However, these same sellers are grappling with escalating fees and a marketplace dominated by low-cost, often low-quality products from international sellers. This shift has not only squeezed profit margins but also diminished the overall quality of goods available to consumers.

The ripple effects of these changes extend beyond Amazon. Platforms like eBay and Etsy are also experiencing similar trends, with increasing fees and declining service levels driving frustration among users. Sellers find it harder to maintain profitability, while buyers face longer shipping times and questionable product quality. This broader trend, often referred to as the “crappification” of big tech, highlights a growing disconnect between these companies’ corporate strategies and their users’ needs.

Future of E-Commerce Remains Uncertain

Looking ahead, the future of e-commerce remains uncertain. As regulatory pressures mount and new competitors emerge, the industry may be poised for another wave of transformation. However, the lessons from Amazon and other tech giants are clear: sustainable success in e-commerce requires balancing growth and maintaining high service standards. For now, sellers and buyers are left navigating a complex and often frustrating digital marketplace, hoping for better days ahead.

Amazon’s Transformation

When Amazon launched its Fulfillment by Amazon (FBA) program, it revolutionized e-commerce. “You could send your products to Amazon, and they’d handle storage and shipping at a very reasonable price,” Chou recalls. The fees were a small fraction of a seller’s revenue back then, making it an attractive platform for new businesses. “Everyone was making money hand over fist,” Chou noted.

The Rise of Fees

However, as Amazon grew, the costs for sellers began to rise. “Amazon charges a 15% referral fee, about 10-15% for FBA, and another 20-30% for advertising,” Chou explains. This year alone, Amazon introduced a new receiving fee, adding to the financial burden on sellers. “Now you have to pay a fee between $2.10 to $6 per unit for Amazon to accept standard and large bulky products into their warehouse,” Chou points out. This fee reflects the cost of distributing inventory to multiple fulfillment centers, but many sellers feel squeezed.

Impact of Chinese Sellers

Another significant change came with Amazon’s aggressive recruitment of Chinese sellers. “In 2016, Amazon’s Dragonboat program allowed Chinese sellers direct access to U.S. fulfillment centers,” Chou says. This influx of Chinese sellers, often offering lower-priced products, has made it difficult for U.S. sellers to compete. “They started knocking off existing sellers, blatantly copying their IP, gaming the reviews, the rankings—everything,” Chou observes. Despite these practices, Amazon did little to protect legitimate sellers, focusing instead on keeping prices low for buyers.

Quality and Service Decline

Service quality also suffered as Amazon tightened its grip on buyers and sellers. “Back in the day, you could get a hold of a human on the phone, but today it’s impossible,” Chou laments. The company’s focus shifted to maximizing profits, often at the expense of the sellers who helped build its platform. “It’s always a canned response if you manage to get a reply at all,” Chou adds, highlighting the deterioration in customer service.

The Future for Sellers

For sellers, adapting to these changes has become crucial. “The secret to long-term success is to ride the wave as it comes and then jump on newer waves as they appear,” Chou advises. This means diversifying sales channels and investing in owned marketing platforms to reduce dependency on Amazon. “Focus more of your efforts on your own website that you physically own,” Chou suggests, emphasizing the importance of building a direct relationship with customers.

Impact on Sellers and Buyers

The evolving landscape of Amazon and other big tech platforms has profoundly affected both sellers and buyers. For sellers, the increased fees and the influx of low-cost Chinese products have made it increasingly difficult to maintain profitability. “Sellers are getting squeezed on fees and barely making any profit,” Chou notes. The competitive environment has intensified, pushing many small businesses to the brink.

Challenges for Sellers

Sellers now face a multitude of fees that erode their margins. In addition to the referral and FBA fees, Amazon has introduced fees for receiving inventory and maintaining stock levels. “Amazon charges a low inventory search charge if your stock levels are below what they expect, adding to the financial strain on sellers,” Chou explains. This fee applies if a seller’s inventory levels are consistently low relative to their sales, which can be particularly challenging for small businesses with limited resources.

Deteriorating Product Quality

For buyers, the quality of Amazon products has also declined. “Most of the products on Amazon are now just cheap repackaged products from Alibaba,” Chou points out. This has led to an increase in counterfeit and low-quality items, undermining consumer trust. “You can’t really trust what you are buying anymore,” Chou adds, highlighting a growing concern among shoppers.

Customer Service Woes

Furthermore, Amazon’s customer service has deteriorated, affecting sellers and buyers. “It’s impossible to get a hold of a human on the phone, and if you do, it’s always a canned response,” Chou remarks. This decline in service quality has frustrated many users who once relied on Amazon’s reliable support.

Despite these challenges, sellers are finding ways to adapt. Many are focusing on building their websites and utilizing owned marketing platforms to reduce dependency on Amazon. “The key to long-term success is to diversify and not rely solely on one platform,” Chou advises. This strategy allows sellers more control over their business and builds direct customer relationships, fostering greater resilience in an ever-changing e-commerce landscape.

Broader Tech Industry Trends

The trends affecting Amazon are not unique to the e-commerce giant but reflect a broader pattern across the tech industry. Many major tech companies initially gain traction by offering exceptional services and support. However, their practices often shift as they grow and seek to maximize profits, leading to increased costs and reduced service quality. “Every big tech company follows the same pattern,” Chou observes. “They start off great and then go to crap as they become more successful.”

Nickel and Dime Approach

This shift is characterized by a “nickel and dime” approach, where companies introduce numerous small fees that collectively add up. “Google, Facebook, and other big tech companies are all guilty of this,” Chou notes. “They start charging higher fees and offering less in return, which hurts both sellers and buyers.” For instance, Facebook’s decision to limit the reach of fan pages and groups unless users pay for ads has frustrated many businesses that rely on organic reach.

Increasing Fees and Declining Service

eBay and Etsy have also followed similar paths. Sellers on these platforms have seen fee increases and more restrictive policies that make it harder to operate profitably. “eBay and Etsy have become more expensive and less supportive over time,” Chou says. This trend of increasing fees and declining service quality is a common complaint among users of various tech platforms.

Impact on Small Businesses

Small businesses, in particular, are feeling the squeeze. “Big tech’s practices are making it increasingly difficult for small businesses to survive,” Chou emphasizes. Many small businesses have had to adapt by diversifying their marketing strategies and seeking alternative platforms to reduce their dependency on major tech companies. This includes focusing more on owned marketing channels like email and SMS, which provide more control and stability.

Adapting to Change

As the tech landscape evolves, businesses must stay agile and ready to pivot. “The secret to long-term success is to ride the wave as it comes and then jump on newer waves as they appear,” Chou advises. This approach ensures that businesses remain resilient and can continue to thrive despite the challenges posed by big tech companies’ changing practices.

In summary, the broader trends in the tech industry show a clear pattern of initial user-centric growth followed by profit-driven changes that can disadvantage both sellers and buyers. This has significant implications for the future of e-commerce and tech services, underscoring the importance of adaptability and diversification for businesses.

Future Outlook

Looking ahead, the landscape for e-commerce and tech companies remains dynamic and unpredictable. Many industry experts predict further consolidation and increased regulation as governments worldwide scrutinize major tech firms’ practices. “Regulatory pressure is likely to increase, especially in the EU,” said technology analyst Karen Smith. “We could see more stringent rules aimed at protecting small businesses and consumers from unfair practices.”

Potential for New Entrants

New entrants could also disrupt the market. “Innovation never stops, and there’s always room for new players to shake things up,” noted Chou. Emerging platforms prioritizing transparency, fairness, and user experience could carve out significant market shares by addressing the shortcomings of established giants. “Businesses need to stay agile and be ready to pivot to new opportunities,” Chou advises.

For sellers, the emphasis will likely shift toward owned marketing channels. As reliance on platforms like Amazon, eBay, and Facebook becomes more costly and less reliable, businesses invest more in direct communication channels such as email marketing and SMS. “Building a strong, direct relationship with customers is more important than ever,” Chou asserts. “It’s the best way to ensure stability and control over your business’s future.”

Technological Advancements

Technological advancements, such as AI and blockchain, could also significantly shape the future of e-commerce. These technologies have the potential to enhance transparency, reduce costs, and improve efficiency. “AI can help businesses optimize their operations and provide better customer experiences,” Smith explains. Meanwhile, blockchain offers promising solutions for ensuring fair practices and transparency.”

Continued Adaptation

Ultimately, the key to thriving in this evolving landscape is continued adaptation. Businesses that can stay ahead of the curve, anticipate changes, and leverage new technologies and platforms will be well-positioned to succeed. “The tech industry is always changing, and the only constant is the need to keep evolving,” Chou concludes. “Those who adapt will thrive, while those who resist change may struggle to survive.”

This future outlook underscores the importance of vigilance, innovation, and strategic planning for businesses navigating the complex and ever-changing tech landscape. As the industry transforms, staying informed and adaptable will be crucial for long-term success.