
Amazon has long been synonymous with the idea of ecommerce success. With its massive customer base, seamless fulfillment services, and access to Prime membership perks, it’s no surprise that many businesses see it as the ultimate platform for growth. But in recent years, the landscape has shifted. Ecommerce startups are facing new challenges, and relying solely on Amazon may no longer be the foolproof strategy it once was.
In this blog, based on Episode 61 of The Operators Podcast, we’ll look into the pros and cons of selling on Amazon, the risks of over-reliance, red ocean vs blue ocean strategy, and how ecommerce businesses can diversify to create sustainable growth.
The Pros of Selling on Amazon
Massive Customer Base
Amazon’s marketplace boasts millions of users who trust the platform for fast and reliable shopping. As an ecommerce business, tapping into this ready-made audience can accelerate your brand’s visibility and sales. For ecommerce startups, it’s an effective way to bypass the often-slow process of building traffic from scratch.
Logistics & Fulfillment by Amazon (FBA)
Amazon’s Fulfillment by Amazon (FBA) service is a major advantage for sellers. It handles everything from warehousing to shipping and customer service. This allows businesses to focus on scaling rather than getting bogged down by logistical challenges. The FBA service also comes with the benefit of Prime membership, meaning your products qualify for Amazon’s two-day shipping, making it more appealing to potential customers.
Ease of Setup and Operation
Setting up an Amazon store is relatively straightforward, especially compared to creating a fully functional direct-to-consumer (DTC) ecommerce site. This ease of entry allows businesses to quickly get their products in front of a wide audience without needing in-depth technical knowledge. This is particularly helpful for those mastering ecommerce basics.
Access to Prime Members
Prime membership is a huge driver of sales on Amazon. Prime members are known to spend more than non-Prime users, and they often prioritize products eligible for fast, free shipping. By using Amazon’s FBA service, sellers can access this lucrative segment of buyers who expect speedy deliveries.
The Cons of Relying Solely on Amazon
Fee Structure and Profit Margins
While selling on Amazon offers access to a massive audience, it comes at a price. Amazon seller fees can quickly eat into profit margins. These include fulfillment fees, referral fees, and storage fees for FBA users. As your sales grow, so too do these fees, which can make it difficult to sustain profitability. Understanding Amazon fees and how they impact your bottom line is essential for anyone considering an Amazon ecommerce strategy.
The Amazon Algorithm and Its Risks
Amazon’s algorithm determines how visible your products are to shoppers. However, this black box system can be difficult to navigate. Changes to the algorithm can lead to sudden drops in rankings, significantly impacting sales. The unpredictability of Amazon algorithm updates can leave sellers vulnerable to sudden revenue declines. As discussed on The Operators Podcast, the challenges of mastering this algorithm can be immense, especially for businesses that rely heavily on it to drive traffic and sales.
High Competition and Saturation
Amazon is a highly competitive marketplace. Sellers face competition not only from other third-party vendors but also from Amazon itself, which offers its own branded products. This saturation makes it harder to stand out, especially for newer ecommerce startups. Amazon competition can quickly drive down prices, forcing sellers to compete on razor-thin margins.
Account Suspensions and Black-Hat Tactics
One of the biggest risks of relying on Amazon is the possibility of account suspension. If your account gets suspended—whether due to policy violations, a sudden influx of negative reviews, or even an Amazon algorithm flag—it can cripple your business. There are also risks from competitors engaging in black-hat tactics to sabotage your listings. Knowing how to avoid Amazon account suspension is crucial for long-term success.
Loss of Brand Identity
Another downside of selling on Amazon is the difficulty in building a strong brand identity. Customers often care more about price and delivery speed than the brand itself. This focus on transaction efficiency can limit your ability to cultivate a loyal customer base and differentiate your products from competitors. In a subscription-based ecommerce model, for instance, customer loyalty and brand recognition are essential, but these elements are harder to foster in the Amazon marketplace.
The Importance of Diversification
The Dangers of Putting All Your Eggs in One Basket
Over-reliance on Amazon has proven to be a risky decision. Businesses that place all their eggs in the Amazon basket face the risk of sudden algorithm changes, fee hikes, and policy shifts. The ecommerce ecosystem is increasingly unstable, and the smartest operators are diversifying their channels to protect themselves. For instance, ecommerce investments are better spread across various platforms to mitigate risk.
Building a Multichannel Ecommerce Strategy
Diversifying beyond Amazon is essential for sustainable business growth. A multichannel ecommerce approach allows you to tap into various platforms, reducing your dependency on Amazon. Selling on Walmart, eBay, or even directly through your own website can offer new opportunities and more control over your brand.
For instance, Walmart ecommerce and eBay ecommerce are viable alternatives where sellers can establish a foothold with less competition. Similarly, Meta ecommerce and Google Ads can help drive traffic to your website, allowing you to retain more control over customer data and experience.
The Power of DTC Ecommerce
One of the most effective ways to diversify is by building a direct-to-consumer (DTC) ecommerce business. By selling through your own website or through a platform like Shopify, you can control the entire customer journey—from the first click to the final purchase. You’re not subject to Amazon’s rules or fees, and you have the ability to foster stronger customer relationships through personalized marketing strategies like email marketing and SMS marketing. These owned channels allow you to cultivate brand loyalty and increase customer lifetime value.
Using Social Media and Other Owned Channels
Social media platforms like Facebook and Instagram offer excellent opportunities for driving traffic to your DTC site. By creating engaging content and running targeted ads, you can build a community around your brand and attract customers away from third-party marketplaces. Additionally, utilizing email marketing tips for ecommerce sellers can help keep your audience engaged and encourage repeat purchases. SMS marketing is another effective tool for building a direct line of communication with your customers.
Red Ocean vs. Blue Ocean Strategy in Ecommerce
In the ecommerce space, understanding the distinction between red ocean and blue ocean strategies is crucial for long-term success. A red ocean strategy involves competing fiercely in an existing, saturated market—such as selling on Amazon—where companies battle for market share by offering lower prices or optimizing logistics. This results in intense competition, lower margins, and constant pressure to innovate within a constrained space.
On the other hand, a blue ocean strategy encourages businesses to create entirely new markets or reinvent existing ones, thereby reducing or eliminating competition. Companies like Shopify exemplify this approach by creating a platform that allows businesses to build their own ecommerce websites, bypassing traditional marketplaces like Amazon altogether. By creating unique value propositions and focusing on innovation, businesses can tap into unexplored markets, often leading to higher profitability and growth.
In the context of your ecommerce strategy, blending both red and blue ocean tactics could be beneficial. While Amazon offers access to a massive audience, diversifying with a blue ocean mindset allows you to explore new opportunities, differentiate your offerings, and reduce the risks of competing in a saturated market.
This balance between competing in established markets and creating new, uncontested spaces can help you navigate the ecommerce seas more effectively.
Conclusion: Is Amazon Still the Best Place to Sell Online?
Overall, Amazon remains a powerful platform for ecommerce businesses, but it’s no longer the only or best option for long-term growth. While it offers unparalleled reach and logistics support, the risks of fee increases, algorithm changes, and account suspensions make it a risky sole channel for business growth. Diversification is key. By expanding into other marketplaces, building a strong DTC presence, and leveraging owned marketing channels, you can create a resilient ecommerce business that can weather the inevitable challenges of today’s marketplace.
By mastering ecommerce diversification, businesses can reduce risk and ensure sustainable growth, turning red ocean markets like Amazon into a blue ocean of opportunity. To learn more about how to dominate in the ecommerce industry, check out The Operators Podcast on Spotify, YouTube, or Apply Podcasts.
Resources:
E061: Part 1: How to build resiliency into your business – The Operators
Podcast35 E-Commerce Statistics of 2024 – Forbes
Market share of leading retail e-commerce companies in the United States in 2023 – Statista