Amazon could never go out of business, could it?
The ecommerce giant appears to be growing on paper, but some holes underneath the surface are exposing serious vulnerabilities that – unless addressed – could result in a slow death for the online retail giant.
If you’re an Amazon entrepreneur, like myself, then you’ve certainly asked yourself the question, and it’s probably kept you up at night.
And no matter how many times you’ve heard the fear soothed, the thought remains: “What happens if Amazon went belly up tomorrow morning? How would I maintain my business?”
If you’re a stock shareholder in Amazon (also like myself), then you probably have asked yourself if Amazon’s stock – down 25% over the last year while the rest of the market surged – will ever return to the growth leader that it once was.
As both a multimillion dollar Amazon seller and an investor in the company, I have my concerns for both.
Truthfully, the chances of Amazon disappearing overnight is zero. It’s not going to happen, so stop worrying about it. If Amazon were to go down, it would die a slow death. If you’re an Amazon seller, you’d have plenty of time to pivot and go in a different direction in this event. And the only way that it would go down is if a new channel popped up in it’s place, giving you new opportunities to sell. However, the chances of that happening may be higher than you’d think.
Marketers Take Over Amazon
Ultimately, I predict that Amazon.com will thrive as a company due to their obsession with growth, as well as their diversification in properties like Audible.com, Zappos, and Pets.com. However, they are actively neglecting their core competency, leaving them exposed.
My concern is that, unless addressed, some weaknesses under the hood may point to the beginning of a slow death for Amazon.com.
Gary Vaynerchuk was right when he said that “[us] marketers ruin everything.” We exploit a good thing until it hurts, and then the markets consolidate.
In the last twenty-four months, tens of thousands of marketers and advertisers have poured into Amazon.com to capitalize on the volume that is available in the marketplace, with many of them following step by step directions that us marketers made popular. In the short run, this is a great thing for Amazon as a company. However, Amazon was not prepared for this downpour of sellers, and it’s causing major issues.
Amazon was built to be a storefront and a shipping juggernaut, but it has become the primary channel through which many online companies take their orders. This is creating a huge incentive to attempt to rig the system in the favor of marketers. While some of that is to be expected, Amazon is ignoring the problems that it is causing for legitimate sellers.
When Amazon launched, its differentiating factor was being the pioneer of the online review system. Over the years, Amazon reviews have become one of the primary ways that consumers evaluate products. Often imitated but never duplicated, Amazon.com reviews are still the most respected form of feedback in the online retail space.
However, that differentiating factor is diminishing, mostly to sloppiness within Amazon’s own system.
Cheating Becomes Normal
Due to the massive influx of marketers onto Amazon.com over the last few years, review fraud has become commonplace. In fact, many of the top Amazon sellers – in many different categories – are achieving their aim by faking their reviews. It’s almost considered normal to cheat one’s Amazon.com reviews. In fact, entire communities have been built upon the idea of faking Amazon reviews.
It has become far too easy for sellers to cheat at leaving reviews. A few hundred fake accounts with $10 prepaid credit cards can be setup quite easily. Once used to leave hundreds of fake reviews for a product, it can take a product from selling nothing to being the industry leader in sales. Yes, it’s that easy. Or, if you wanted to make it even easier, you could hire a few people on oDesk.com to leave reviews on your behalf.
Of course, this is to say nothing about the ethics of this process; I’m proud to say that I have never faked a review on any of my products. However, it’s almost considered weird if you DON’T fake your reviews.
One marketer told me, “Yeah, my reviews are fake. Competitors leave fake negative reviews on my listings to kill my sales, so why shouldn’t I combat that with fake positive reviews?”
It’s not that people don’t notice that reviews get faked – it’s fairly easy to spot. It’s that Amazon turns a blind eye to the practice that is the major concern. Therefore, Amazon’s major differentiating factor has become its most exposed area of fraud. Amazon’s major emphasis in growth is on innovations in shipping and technology, but they are neglecting the very thing that made them great in the process.
When Amazon does take action against cheaters, they often react with a slap on the wrist. I’ve personally proven to Amazon that my competitors are faking their reviews, and Amazon does little to nothing. While the company will occasionally ban a user if their activity is overly aggressive, they usually will delete a handful of reviews, and the cheating sellers can simply put them back up.
Since Amazon does little to defend against the fraud, marketers have taken matters into their own hands, either by out-frauding the next guy, or by policing one another. Amazon sellers regularly report each other, even when the reports are unfounded. In fact, almost any Amazon seller can be taken down if enough sellers band together to report him or her, even if the reports are untrue. As a result, the good guys get taken down, while the cheaters thrive.
One of my students received a threatening email just this week about his practices, even though he was doing nothing wrong. However, the threat of being reported is real, as is the paranoia of sellers who are trying to abide by the rules.
As it stands right now, the Amazon marketplace starting to become overrun with cheaters, and those who attempt to play nice are being punished. Yes, there are still opportunities. Yes, there are still plenty of opportunities to crush it on Amazon.
But unless Amazon.com does a better job of policing the fraud that exists in its own marketplace, the company could be headed for decline.
What Could Take Down Amazon?
If you’re old enough to remember MySpace.com, you’ll recall that it was the kingpin in social media until it got overridden with spam by marketers. I was one of these marketers, and it was clear to us that MySpace was going to go down quickly, and it was only a matter of time. It was too easy to manipulate.
Then, a site by the name of Facebook took over the social media landscape, and MySpace became a joke.
I fear that the same demise is possible for Amazon.com, unless they proactively solve the problem of fake reviews. It is far too easy to inflate one’s own positive reviews, or to leave negative reviews on competitors’ products. As a result, the public faith in the system is starting to fade.
Customers are catching onto this. Trust in Amazon reviews is waning. Customers are noticing that things look fishy. The only question is how quickly Amazon will do something about it, and if they can do it before a competitor figures it out.
Amazon is vulnerable to any competitor that can perfect the peer review system. Just like Facebook captured market share (very quickly) by solving the holes of MySpace, a competitor that perfects the review system could capture the online retail market if Amazon does not act quickly.
What You Need To Do
If you’re an Amazon entrepreneur, there is nothing to fear or change for now. The only thing that you can do is keep a close eye on your reviews and the reviews of your comeptitors, and to report those that you know are cheating. Plenty of opportunity still exists. Worst case scenario, a new competitor will emerge that is better for marketers and harder to game. Best case, Amazon gets their you know what together. Encourage Amazon to be proactive in the fight against fraud, and for the love of God, develop and nurture your customer lists, just in the event that you need to pivot quickly.
Amazon is a channel, just like any other sales platform. There will always be channels, and there will always be areas that you can exploit. As a result, there is still plenty of opportunity to be had on Amazon until the consolidation matures (predicted for September 2015). What you need to worry about is preparing your assets in case you ever need to pivot. However, I do not foresee that as being necessary, because I hope that Amazon will get their act together in time to survive.
If you’re an Amazon.com shareholder, there is reason to be concerned. Losing 25% of your value in the face of one of the biggest bull markets in history is not to be ignored. As I write this, I am considering dumping my AMZN holdings. And long term, they have holes that they need to address. While I’m confident that they will eventually figure out how to best police their marketplace, this has been going on for two years now, with little to no change.
Amazon is making some amazing innovations – specifically in shipping. But you cannot innovate on top of a broken sales system.
Will Amazon fix its internal problems before a competitor takes over their marketshare?
Do you think the obvious problems in Amazon’s review system threaten them as a company? Share your thoughts in the comments below.