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How Amazon Crushes Small Business

Much has been written over the past year about how Amazon treats its warehouse workers and other employees and its attempts to prevent their unionization. But the mistreatment of Amazon’s labor force is far from the only negative effect of having once-thriving mom-and-pop shops gobbled up by or placed at the mercy of a faceless […]
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Much has been written over the past year about how Amazon treats its warehouse workers and other employees and its attempts to prevent their unionization. But the mistreatment of Amazon’s labor force is far from the only negative effect of having once-thriving mom-and-pop shops gobbled up by or placed at the mercy of a faceless e-commerce leviathan. Amazon’s ascent means that more and more Americans are losing their commercial autonomy, the right to dictate and introduce innovations into the terms of their own transactions and business relations, and, ultimately, their ability to control their financial—and, therefore, personal—destinies. 

At least some of Amazon’s most offensive practices and policies have been the focus of recent inquiries from congressional, FTC, and local officials. The subjects of these investigations have included Amazon’s disturbing practice of forcing its top third-party sellers to disclose their shipping and manufacturing contacts, appropriating those contacts for itself, and then competing with or simply imitating the third-party sellers’ best-selling items and steering search results to Amazon’s own listings. As Harvard Business School Professor Feng Zhu has described it, Amazon essentially “run[s] the platform as a lab, letting people innovate and compete against one another, and then cherry-pick[s] the best product for [it]sel[f] and capture[s] the value.” Other questionable Amazon practices under investigation have included the control it wields over product pricing, with a bot devoted to monitoring listing prices to make sure they fall within a particular price range, and downgrading the listings of sellers who offer their products for lower prices on other sites where they maintain similar listings. Perhaps more disturbing still is Amazon’s penchant for suspending sellers’ accounts on the pretext that the goods on offer are inauthentic, seizing the stock of goods, and then—remarkably—selling those products itself or through other companies, such as its wholly owned subsidiary Woot.  

But Amazon is responsible for another set of problematic practices that, though noted by regulators, is harder to place as squarely in regulatory crosshairs. Such practices may not all rise to the level of anticompetitive or outright illegal behavior, but they surely make the lives of many of Amazon’s third-party sellers something of a daily hell. In the most colloquial terms, Amazon treats its sellers like crap. It wields over them the kind of absolute hegemony that 20th-century totalitarian regimes exercised over their hapless subjects—acting with an immediacy and technological reach that would have been the envy of such regimes—and dispenses seemingly arbitrary, self-contradictory, or flat-out-absurd edicts. It throws sellers’ financial lives into disarray with a figurative wave of an automated hand, exacts forced confessions of wrongdoing, ignores reasoned protests and desperate pleas for clemency alike, and shows a cavalier disregard for their fortunes. 

The case of one seller, Mikhail Fenko, is a representative example. On June 23, 2021, Mr. Fenko’s heart skipped more than a few beats when he received, out of the blue, an e-mail from Amazon’s Seller Performance Department informing him that his “seller account has been deactivated” and his “listings have been removed.” His account and unremitted funds from pending sales would be frozen. The bare-bones explanation provided by Amazon was that these measures were taken “due to multiple intellectual properties [sic] and non-infringement violations.”

* * *

Since 2015, Mr. Fenko, a hard-working immigrant and entrepreneur from the former Soviet republic of Belarus, had earned his livelihood operating an Amazon account under the “Strong Faith” trade name, selling miscellaneous religious artifacts imported from biblical Holy Land sites like Nazareth and Bethlehem. Over the years, he built up a modest but successful business, the kind that in earlier eras would have been a well-regarded, if somewhat quirky, small-town corner store. Now, in the age of Amazon, Fenko’s business was operated through the e-commerce giant’s monolithic platform. 

Working through Amazon is something of a Faustian bargain. On one hand, the platform’s ability to reach households across the world gives a successful corner store the potential to realize far greater revenue than in days of yore. But, on the other hand and by the same token, while each small town has room for its own corner store, and maybe even more than one, the consolidation of industry that Amazon has facilitated forces businesses across small-town America onto the same platform and makes them fight for market share in what is often a zero-sum, cutthroat battle against similar merchants not only in the next town over but in the next state or, indeed, halfway across the world, including those nations where business ethics may not be up to our standards. 

As a June 2021 fact sheet from the Institute for Local Self-Reliance makes clear, Amazon’s marketplace dominance—the company now accounts for over 40 percent of U.S. ecommerce sales—has been predictably catastrophic for small businesses: “As Amazon has grown, the number of independent businesses has fallen. Between 2007 and 2017, the number of small retailers [under 500 employees] fell by 65,000. About 40 percent of the nation’s small apparel, toy, and sporting goods makers disappeared, along with about one-third of small book publishers.” It is hard to see a whopping 40 percent decline in a mere decade as anything less than an act of commercial genocide. Even as it gobbled up independent vendors and left them with few options but to sell through its platform, Amazon has tightened the screws, ratcheting up its own commission on sales from 19 percent in 2014 to 30 percent in 2019. Feeling that squeeze, only 11 percent of Amazon sellers report that their businesses on Amazon have been successful; the vast majority of third-party sellers that choose to hawk their wares through Amazon’s platform are dead and buried within a few years’ time.

Like any merchant that operates for long enough in a customer-service-driven industry, Fenko, despite overwhelmingly positive customer reviews, has dealt with his share of opportunistic, dishonest, and difficult customers, situations that he learned to approach with equanimity and aplomb. Like any merchant that has operated for long enough in Amazon’s highly competitive e-commerce environment, Fenko has also been forced to play offense and defense against unscrupulous sellers resorting to extreme measures to get an edge—whether selling knockoff goods or accusing him of the same. In the course of these interactions, he has had to tangle with Amazon as well. 

Amazon’s onerous and one-sided seller agreement includes terms that permit Amazon to suspend an account for essentially any reason, allowing Amazon to suspend accounts for its own “convenience with 30 days’ advance notice” and to suspend or terminate an account immediately for any material breach not cured within seven days (or less, if Amazon decides the breach may expose Amazon itself to liability). It allows Amazon to suspend accounts for any use that the company deems deceptive, fraudulent, or illegal, and for uses of an account that Amazon determines may harm other sellers, customers, or Amazon. But Fenko’s account suspension notice contained, without explanation, no seven-day—or, for that matter, any—cure period. Although the seller agreement promises that Amazon “will promptly notify you of any such termination or suspension via email or similar means including Seller Central, indicating the reason and any options to appeal,” in practice, Amazon often sends out suspension or termination notices that are so vague as to leave the seller with little clue as to what actually prompted the move. Moreover, there is no one at Amazon whom a seller can chat with or call to clear up any ambiguity and resolve the matter expeditiously. The scant seller phone support Amazon offers is of a sort where the Amazon functionary on the other end is given no access to specific seller information, so that all they can do is reiterate generic Amazon policy statements. They cannot discuss or clarify the seller’s specific situation. The seller is thus plunged into a high-stakes guessing game—or, rather, a game that is high-stakes for the seller but very low-stakes for Amazon, and with no mechanism in place to help even those odds.

The actual considerations that inform Amazon’s decision to suspend an account virtually invite shenanigans by other sellers and customers alike. For example, sellers—whether acting in their own names or through alter egos—sometimes file dubious or outright false reports of I.P. violations against their competitors. Amazon routinely accepts such complaints and takes down allegedly infringing listings and—when dealing with those it concludes are serial infringers—resorts to account suspensions and terminations. (Conversely, when its algorithms blow a fuse, Amazon may start serially rejecting a particular copyright holder’s legitimate infringement notices without explanation.) Another example: One of the main reasons an account might be revoked is repeated negative customer feedback pointing to product quality violations. A relatively small number of such complaints made in succession is often sufficient to draw Amazon’s ire. Aware of this vulnerability, sellers willing to resort to bad-faith measures to get a competitive edge will create fake orders just to leave positive reviews for themselves and negative feedback for others. Some will even pay “feedback services,” offering to give them positive reviews or tar their rivals for the right price, which is a particular issue among Chinese Amazon sellers. Amazon, cognizant of where its corporate bread is buttered, operates with a customer-is-nearly-always-right mindset, and such “negative feedback” is near-impossible for sellers to refute. Other sellers, conscious of Amazon’s attempt to crack down on those who buy fake reviews, will actually go so far as to pay fake review services to buy obviously fake positive reviews for their competitors to get those competitors suspended. Even without bringing such fake-review mills into the picture, however, Amazon’s actual customers are similarly motivated to blacken a seller’s reputation by asserting that products they want to return without paying a return-shipping fee were delivered broken or did not match the seller’s description. 

Another category of violations that has spurred a recent account deactivation wave involves “related accounts,” i.e., sellers who Amazon concludes are furtively operating multiple accounts under different names. (Amazon’s “Seller Code of Conduct” does not permit sellers to “operate more than one selling account on Amazon without a legitimate business need.”) Amazon’s blind algorithms might conclude accounts are related for any number of reasons—family members sharing a computer or physical address, friends using Amazon to send gifts to each other’s addresses, sellers who happened to stay at the same hotel and so on. As the harrowing experience of one Washington State seller of cherries testifies, Amazon can falsely conclude that a seller is related to another one based on a bad actor’s false flagging of the relationship and then force the seller to spend costly months dealing with Amazon’s automatons to try to restore the seller’s account. 

The end result of Amazon’s policies is that instead of spending their time improving existing products, developing new ones, or otherwise finding ways to take their businesses to the next level, sellers—especially smaller sellers unable to afford the luxury of staff devoted to such issues—can waste days, weeks, or months fending off all manner of underhanded assaults by competitors trying to game Amazon’s algorithms to get an edge. All the while, Amazon itself offers virtually no support as sellers tangle with wrongdoers and Amazon alike. 

* * *

An entire industry of attorneys and consultants has emerged, charging sellers fees ranging from $500 to upwards of $5,000 to guide them through the head-scratching process Amazon expects sellers to follow in attempting to restore the accounts upon which many sellers depend for their livelihoods. Among the advice such guides dispense is not to ask Amazon why a suspension actually occurred, as one popular dealing-with-Amazon lawyer’s website explains: “Your next step [upon being suspended] is to prepare an Amazon Suspension Appeal, BUT step aside, take your time and think it through. DO NOT send a message to Amazon asking for clarification. Any such message is counted as an appeal[,] and they will not tell you the reason.” The general advice they offer to sellers—regardless of whether the sellers are in the wrong or whether they have clearly been wronged by Amazon—is to approach Amazon with confessions, contrition, self-denunciation, and statements of how they will work tirelessly in the future to avoid any repetition of their real or perceived misdeeds: 

If Amazon or any other online selling site has suspended your seller account and allows you to appeal, they don’t want to hear excuses or arguments about the validity of the suspension. They want you to identify and admit the violation of their policies, identify what the issues were that caused the suspension, and to propose a definite and concrete plan of action how to prevent future policy violations.

Amazon’s most typical response to appeals—and the response time can be weeks or even months—is the issuance of generic denials still more uninformative than the initial termination or suspension notice: “We received your submission but do not have enough information to reactivate your account. Since you were unable to provide sufficient and required information in the appeal submitted, we decided that you may no longer sell on Amazon.com.” The seller can try to muster further appeals, hoping, at some point, to hit a contrite note in the right octave. In the meantime, time keeps ticking, which means the seller is not only losing more revenue by the day, but also faces the prospect of bearing the mounting costs of product-storage fees and employee salaries, dealing with perishable goods that may pass their “sell-by” date, and contending with the potentially massive headache caused by either breaching or honoring existing contracts with suppliers. 

Should appeals to Amazon fail, the seller is without many attractive options. Amazon’s seller agreement contains another onerous term requiring disputes to be resolved via binding arbitration conducted on Amazon’s home turf in the State of Washington. These private, one-off, hometown arbitration proceedings—insulated from public scrutiny and all-but-devoid of the kind of precedential value that could attract a flood of similarly situated litigants and compel Amazon to alter its policies—are, per the anecdotal reports of attorneys who specialize in all things Amazon, unsuccessful more often than not. The reason is simple: Amazon has no obligation to permit any particular seller to use its platform in the first place. Thus, unless the seller can point to Amazon’s egregious violation of its own agreement—a one-sided agreement that, moreover, Amazon can modify to make still more one-sided at its discretion—the seller may well be out of luck, and, soon enough, out of business. As the U.S. House Judiciary Committee’s 2020 report on Amazon’s anticompetitive behavior explains, the forced-arbitration remedy is very rarely invoked by sellers, and for good reason: “Because sellers are generally aware that the process is unfair and unlikely to result in a meaningful remedy, they have little incentive to bring an action.”

Fenko’s initial salvo upon receiving his June 23 account suspension notice was to work through Amazon’s appeal process. Devoting himself to the study of first-person accounts and words of wisdom in online Amazon-seller-support forums relaying horror stories galore, Fenko resigned himself to setting aside his righteous indignation and adopting the requisite tone of subjection and contrition that Amazon demands of its subjects. But he still had a larger problem with no obvious solution: Though ready to confess to sins he did not commit, he had no clue which sins Amazon wanted him to confess. 

Fenko was aware that other sellers and non-seller third parties had accused him of intellectual-property violations in the past through Amazon’s internal mechanisms, but all those violations, as far as he knew, had already been addressed. They had involved such plainly frivolous matters as a trademark-violation claim in which the alleged “trademark” was not even a registered trademark of any sort, and a copyright-infringement claim on a generic heart-shaped paperweight in which the claimant, a competing seller, furnished a different Amazon listing for a similar item as proof of copyright. This and other purported violations of the sort were little more than nuisance claims, exactly the kind of bad seller conduct regrettably encouraged by Amazon’s policies. Apparently, however, a blind Amazon algorithm had been triggered by the accumulation of such meritless claims. And those were just the intellectual property violations. As to the “non-infringement violations” to which the cryptic June 23, 2021, account suspension e-mail had referred, Fenko simply had no idea what Amazon’s army of bots could possibly have in mind.

Fenko did what he could. He gathered all the relevant information he could find on his past “misdeeds”—invoices, individual listings, communications both with Amazon and with the third-party wrongdoers with regard to these earlier accusations, and infringement notices and counter-notices sent pursuant to the Digital Millennium Copyright Act. Following the various appeal guidelines he had read about, he put together a detailed plan of action outlining steps he would take to prevent the repeat of such earlier incidents. On July 19, he submitted this painstakingly assembled compendium of material to Amazon, hoping for the best.

A week went by with no response. Just then, by chance, he heard from a longtime friend of his that the latter’s Amazon seller account had also been recently deactivated at around the same time as Fenko’s account. The stated reason for the deactivation was a violation of Amazon’s “related account” policy. Fenko’s friend’s account had been inactive since 2017; the formal deactivation did not matter to him. But that got Fenko thinking: Could this be the “non-infringement violation” about which Amazon was concerned? Could something about the numerous personal intersections and interconnections between Fenko and his friend have hit Amazon’s radar and resulted in a false flagging of the two accounts as “related” in Amazon’s universe? Leaving no stone unturned, Mr. Fenko read up on how to clear up such situations and submitted further proofs to Amazon—including corporate tax identification documents, utility bills, credit card statements, and even a copy of his passport—to demonstrate that the two accounts were not related and promised Amazon that he would take care to avoid even the appearance of impropriety in the future. 

When no response to this second salvo was forthcoming, Fenko bit the bullet and retained a well-known law firm specializing in Amazon-account suspension and reinstatement to help him tackle the issue. The lawyers submitted multiple appeals on his behalf, laying out all the information they saw as relevant. On August 24, 2021, they filed an appeal that addressed the entire range of possible issues, summarizing every incident, whether open or closed, marshaling evidence, accepting responsibility, offering remediation of every sort. 

* * *

Finally, on August 31, 2021, over two months after Fenko’s seller account had first been deactivated and with his entire business sitting in limbo, Amazon deemed the situation worthy of a response. Without indicating in any way which of his numerous appeals its August 31 e-mail was responding to, Amazon issued a pithy denial notice, still more inscrutable than its initial suspension. “Your Amazon selling account remains deactivated,” it read. “Your listings have been removed. Funds will not be transferred to you and may be held for 90 days or longer.” The e-mail then posed for the likely curious seller the question, “Why is this happening?” to which it supplied only this answer: “This decision was made after reviewing both your account and the information provided.” To add insult to injury, the communiqué closed with “We may not respond to further emails about his issue. Sincerely, Amazon.com.”

Fenko’s heart sank. What was he to do now? He posed the question to his attorneys. They tried one more appeal, submitted on September 8. Receiving no reply from Amazon after some time had passed, they then leveled with Fenko: It’s not looking good. They had no more advice to offer. Even the experts were stumped.

More months have now passed. Amazon has taken no further action with regard to Fenko’s appeal and has not responded to any of his correspondence on the issue. Instead, day by day, hundreds of Amazon boxes show up at his home. His own stock of “Fulfilled by Amazon” goods, held at Amazon’s warehouses, are being returned to him. The shipping costs are being charged to his account. He spends his days sorting through thousands of perfectly good items that he can no longer offer for sale, items he must now put in paid-for storage in the hope that one day he will be able to sell them once again.

Fenko does not know what to do. He is willing to confess to anything, including things he did not do—I.P. violations, maintaining related accounts, being a generally bad person, even the Kennedy assassination—if it means that he can have his business back and provide for his family, which includes kids who are a nursing student and a special-forces soldier in the U.S. army. He says:

I watch these other sellers resorting to all sorts of underhanded tactics, like fake positive reviews, hijacking listings, selling counterfeits, all this unfair competition. I’ve never done any of that. I don’t need to. I offer good stuff at great prices, get good reviews from real customers, ship out the same day and have a perfect track record, so I’ve never needed to do any of those illegal things. But the incentives are all wrong. The way Amazon has this set up, the competition among sellers is getting out of hand, especially when the holidays come around. I know that if just one reasonable person at Amazon would actually read my appeals and explanations, they’d reinstate the account. I’m sure of it. I have nothing to hide. But I can’t get anyone’s attention. I’m totally ignored. I keep reading these horror stories from others, and they get me down sometimes, but I try to stay positive. Maybe it’s stupid of me, but I still believe all the time and money I spent building up a solid business and then dealing with these appeals can’t possibly go to waste. There’s one case I read about where someone’s account was restored after four years and eight months. I don’t think I can wait that long. But maybe at some point, someone at Amazon who actually cares will do the right thing.

To call Fenko’s absurd predicament—one echoed in its essence in seller blogs and forums presenting myriad variations on the same depressing theme—“Kafkaesque” would significantly understate the horror of this distinctly 21st-century form of casual inhumanity. In Kafka’s day, one could at least communicate with concrete human beings and harbor some fleeting hope, as Fenko has, at least in moments, of hitting upon a bureaucrat with a brain and a soul, or, failing that, at least know whom to blame for one’s troubles. 

In the age of Amazon, however, the curtain can no longer be lifted at all; in an era when instantaneous communication is cheaper and easier than ever before, Amazon has ironically cut off its sellers from all access to useful real-time interaction. And even if the curtain behind the curt, cryptic, oft-senseless and unresponsive e-mail dispatches Amazon sends its sellers after weeks gone by ever were lifted, it is unclear whether behind it we would find any actual human beings at all, whether those human beings would be the very picture of uncomprehending bare-literacy some of their e-mails evoke, or just the desk-job equivalents of Amazon’s overworked, underslept warehouse wage laborers, foreign help-desk sweatshop workers to whom these tasks have been outsourced or people taking direction from bots…or whether Amazon’s brusque, unempathetic, cookie-cutter rejoinders are exactly what they appear to be on the surface: the work of bots all the way down. Either way, there is no one to talk to and no one with a name or a face to blame. 

And so Fenko continues to sit at home without a business to run, waiting, losing sleep, increasingly losing hope and losing more and more revenue day by day, wondering whether the apparatchiks of the former Soviet bureaucracy who made it impossible to succeed in an honest business—with all their routine corruption and their byzantine rules selectively enforced—were really any worse than this. At a loss as to how to go on, he gets philosophical:

Back there, we kept hearing about the American Dream. Don’t get me wrong: America gave me and my kids a lot, just enormous possibilities. But this place, Amazon, is like its own massive country with its own rules. It’s a jungle with endless twists and turns and a tangled-up bureaucracy and lots of us forced to act like savages towards each other to survive. It’s the law of the jungle here. The fact that I happen to be in America doesn’t matter to these people. I could be anywhere in the world. I’m on their turf. It’s not the American Dream; it’s the Amazon Dream now, but it’s not a dream; it’s a nightmare in which we’re all trapped and lost. We’re lost in the Amazon.

The greatest danger to our core freedoms—freedom of speech, freedom of association, freedom to make our own medical decisions, freedom of contract and to run our businesses as we see fit—used to come from governments. That is no longer the case today. The provisions of our Constitution and its Bill of Rights, which were designed to keep us safe from government overreach, are no longer sufficient to protect us. They are, in many critical respects, relics of an era in which the mega-corporations that now dominate our social and commercial lives did not exist. Just as, in the social realm, Twitter and Facebook wield the power to de-platform celebrities, prominent publications, and even American presidents and deprive them of a good portion of their political reach at the touch of a button, Amazon pulls the strings in the commercial realm. Just as bots and backroom technocrats at the likes of Twitter, Facebook, and Google are now our self-appointed public arbiters of what constitutes truth and falsehood, what is in-bounds political speech or out-of-bounds hate speech, and even what is visible and what is rendered all-but-invisible, Amazon’s bots and functionaries rule the commercial roost, determining what can be bought and sold, what goods are real or counterfeit, what prices may be charged, who can do the buying and selling and who no longer can, and what the terms of such transactions will be, down to the smallest detail. 

In April of this year, Amazon took the significant step of completely severing the most basic connection between its sellers and their own customers, cutting sellers off from those customers’ names and addresses. The message was blunt and clear: Those customers aren’t yours; they’re ours. And a business without customers is not a real business; it’s a disposable bit actor in a worldwide production, with legions of stand-ins itching to take over the role. Not surprisingly, most of those stand-ins for our home-grown small businesses are based in China: 49 percent of Amazon’s top sellers are now Chinese, while only 47 percent are U.S.-based. As is the case for so many of our multi-national corporations, an essential component of Amazon’s business model, whether intentionally or otherwise, entails putting Americans out of work.

While our slow-moving and perennially gridlocked political class is dithering about whether and how to regulate the massive private entities that now dominate our public sphere, those same entities, operating without any similar hesitation or compunction, are zealously regulating us, infiltrating and re-making more and more aspects of our lives, and, in the case of Amazon, turning what once was a thriving economy built on the backs of countless vibrant, creative small businesses into an undifferentiated, dysfunctional mush of near-powerless sellers, incentivized to push, shove, beg and plead in the hopes of gaining a bit of ground on a field now occupied by a single ever-growing monopoly. Fenko says, with respect to his own situation, “I’m just afraid that by the time anyone there wakes up and tries to fix this, there won’t be anything left to fix.”

Alexander Zubatov is a practicing attorney specializing in general commercial litigation. He is also a practicing writer specializing in general non-commercial poetry, fiction, essays, and polemics that have been featured in a wide variety of publications. He lives in the belly of the beast in New York, New York. He can be found on Twitter @Zoobahtov.

This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.

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