Is Amazon Losing Control Of Its Platform?
Updated: Sep 10, 2019
Just as social media sites have struggled to limit misinformation on public platforms, Amazon has been ineffective in its handling of third-party sellers.
When one uses Amazon’s online store service, there is a sense of relative security that you can shop with ease without fear of being swindled or cheated in a sale. However, this may not be the case, as the U.S.- based firm has apparently ceded control of its flagship online service to third-party sellers.
A report on the Wall Street Journal recently found that Amazon continues to host thousands of unsafe or banned products on its site, which can be purchased by anyone who wishes to do so. With 60% of products coming from third-party sellers, this was always a risk. These items can range from seemingly harmless toys that lack the proper health risk disclosures to more sinister products such as medication and subscription drugs.
Amazon third-party merchants sold $160 billion worth of goods on its marketplace last year, dwarfing eBay's (NASDAQ:EBAY) $95 billion in gross merchandise volume for 2018. As Amazon retains between 10-15% of each transaction made from a third-party sale, and with retail accounting for roughly 65% of Amazon’s revenue, there is a lot of money to be lost if the company was to start restricting such sales on their website.
As the main competitor with a longer-established presence in ecommerce, eBay has had a similar issue with third-party merchants for years but has yet to take any preventive measures against the practice of illegal sales on its website. There is not much evidence in Amazon’s past to suggest it might do something to combat the growing issue it now faces, unless it is forced.
Such is the severity of the situation that in late August this year, three U.S. senators wrote to Amazon CEO Jeff Bezos asking him to take action to stop the sale of unsafe items and to ensure accurate warning labels on his company’s sales platform. The senators posed a series of questions to Bezos, mainly wanting to know why safety procedures are failing and what Amazon will do to rectify its shortcomings. The senators have requested a response from Bezos by September 29th.
A spokesman for the U.S. Consumer Product Safety Commission said that when public reports find “recalled or violative products” for sale online, the agency is in contact with those companies to take those products down from its websites. He declined to give details on communication between the CPSC and Amazon, but between this and letters from senators, Bezos will need his PR team working around the clock.
Amazon’s issues are not unlike those suffered by many large social media companies such as Facebook or Twitter, who have found it increasingly difficult to combat the rise of ‘trolls’ and the posting of unsavory content. YouTube is another company who have struggled to keep banned content off of its website.
What has happened on social media has crept into the retail world in the form of these banned products. As of the end of August, there are over 8,000 items on Amazon which have been declared unsafe by federal agencies. Such items may seem insignificant, but can actually cause serious harm financially to a retail service provider if a customer was to suffer damage from such an unlabelled product.
One possible lifeline for Amazon, in the case of an incident, is that in the past, U.S. courts have deemed the company to be not liable for claims related to third-party products sold on its marketplace. In 2018, a court found Amazon had no liability in a case where a hoverboard purchased from its site exploded and burned down a family home. The judge wrote, “Amazon’s role in the transaction was to provide a mechanism to facilitate the interchange between the entity seeking to sell the product and the individual who sought to buy it.” There was still, however, much controversy surrounding the trial and public image of Amazon was somewhat tarnished.
Amazon has not been free of controversy this year as antitrust regulators up the ante against Big Tech firms in the U.S. Earlier this year, the company received significant public backlash when it admitted that its employees had been listening to customer voice recordings from Echo and other Alexa-enabled smart speakers. The idea behind this, the company claims, is to allow Alexa to learn and grow, making it a better product.
Amazon is a trusted name in the online retail market, commanding more than 5% of the total U.S. retail market alone. With such a large number of consumers worldwide using its brand, it would be in the company’s best interests to deal with such a damaging public-image issue as quickly as possible, before competitors begin to encroach on its (admittedly enormous) territory.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon. Read our full disclosure policy here.