Photo: Getty Images/Jaroslaw Kilian
Is Amazon more friend or foe for digital start-ups?
Amazon.com offers an upside and a downside as a marketing and sales channel for digital start-ups, according to a panel of venture fund managers at an NRF Big Show session.
Adam Spivack, principal at Comcast Ventures, said Amazon gets “a lot of negative press” about the pressures it exerts on online competitors. Yet Amazon “brought in an entire new economy into DTC brands that are born out of a digital age.” If Amazon continues to drive online’s growth, “that’s by definition a rising tide.”
An example of a successful partnership was last year’s exclusive Lady Gaga beauty launch that was a top Amazon holiday seller, he added.
On the downside, by being on Amazon, “your brand and your vision for it is fairly commoditized and you’re not able to control the experience in the same way that you are when you go directly.”
Nike’s recent decision to stop selling directly to Amazon was cited as an example. Mr. Spivack added, “There’s a bunch of different ways to go about it and some companies have gone all-in and had great success with it. Some companies have said the cost is too high in losing that ability to brand. For us, we’re kind of open-minded.”
“I think Amazon can be a friend if you have a thoughtful strategic approach to it that’s backed by investment,” said Nisha Dua, general partner at BBG Ventures.
Ms. Dua cited Barkbox, the treat-and-toy subscription service for dogs, as a positive partnering example. A small internal team came up with a range of higher-margin pet products to sell on Amazon and backed the effort by recruiting ambassadors. She said, “We would support our companies doing that, but you have to be at the right stage.”
Shamin Rostami Walsh, managing director BAM Ventures, cited being “where your customers are” as a positive to working with Amazon. Amazon’s ability to bundle shipments is advantageous for a CPG company, such as a deodorant brand, versus a single-purchase online sale, she added.
If highly successful, however, Amazon “may knock you off” or force a vendor into a first-party wholesale relationship. Ms. Rostami Walsh said, “Realistically, Amazon’s priority is still Amazon.”
Discussion Questions
DISCUSSION QUESTIONS: Is Amazon more of a friend or foe to digital start-ups? What advice would you have for younger brands or online start-ups about using Amazon for marketing or sales?
Poll
BrainTrust
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
There is no doubt that Amazon can make or break your business if you partner with them. It’s not right for everybody, and any company looking to partner with Amazon has got to look at all the positives and negatives before taking the chance. The best analogy I can think of is the talented musician who takes a job as a sideman in a band. He or she may be excellent and even more talented than the star of the show, but if you’re a sideman you take orders from the leader, typically the star. You do what you’re told and as long as the leader is happy, you remain in the band and get paid. But until you decide to quit and pursue your own career, you’ll never get the shot as a solo artist. Companies signing on with Amazon must follow their lead, obey the rules, and comply with everything Amazon demands or they’ll be out. And as long as they remain with Amazon unless they’re already established, it’s doubtful they’ll be able to build their brand independent of Amazon. Amazon is very smart with how they control all aspects of their business, including third-party vendors.
Friend or foe? The cynic in me wonders if the answer to that question is dependent on how successful the start-up is. If it is unsuccessful or only slightly successful, then Amazon will pay them no heed and they are a friend. If they get on Amazon’s radar with growing success, Amazon may just elect to create competitive products and become a competitor, and thus a foe.
For retailers of any size, Amazon is a viable retail channel — but not the only channel. It gives a brand another channel and it’s worldwide. Take advantage of their offer – to use their platform to reach a wider audience. Follow the rules/process, understand the concerns, and take advantage of the opportunity.
For start-ups, Amazon is more friend than foe. The power of Amazon as an online shopping platform is undeniable. For start-ups with no brand awareness and often limited funds, it’s imperative to get your message out and leveraging Amazon’s reach can’t be beat. However, the relationship needs to be closely monitored and assessed. Ultimately, Amazon is focused on Amazon and the risk of being supplanted by Amazon itself is very real. I say proceed…cautiously.
Since the discussion is about start-ups, there are undeniable benefits. All of marketing, logistics and shipping could be offloaded to Amazon. That allows the brand to focus on positioning, designing and vendor-side supply chain.
Brands have to be smart about not being first-party suppliers to Amazon, as tempting as it might be. If they do, they have to understand that they give up the pricing, positioning and brand value.
The right way to leverage Amazon for a start-up during the startup phase is to be in the Amazon Marketplace and use FBA for inventory management and shipping logistics.
For a consumer-focused digital start-up, Amazon is a given fixture in the business landscape. It cannot be ignored or easily labeled as friend or foe because it’s both at the same time.
Amazon is maniacally driven by a desire to be the glue that integrates every consumer purchase, every home, and every life event by connecting the digital and physical in meaningful terms for consumers everywhere. As long as the digital start-up contributes to Amazon’s purpose, then life is good; should it undermine or jeopardize that purpose, or grow too fast or too big so as to challenge Amazon, then the start-up will be in a very one-sided fight for survival.
Let’s look at Amazon as a shopping mall. If you are a start-up retailer, do you want a store in that mall? It depends, of course.
Amazon will be a “friend” if it is in the best interest of Amazon. Just like the landlord will be a friend if it is in his best interest. But the landlord will want the best deal for himself. It is up to the start-up to be aware of the pros and cons of the deal.
Working with Amazon can be good initially, but like others have pointed out Amazon can simply create their own version of products and push the original to the back pages of their platform. Walmart has done the same for years in Sam’s Club by recreating their own version of a successful gadget or new cleaner, and making a Member’s Mark label with even lower price points. These monster retailers control the CPG companies, and there isn’t much we as small business start ups can do to grow significantly before a knockoff is created to cut into your sales. That is the caveat for start-up businesses. Find a way to make your own online experience work for your customers and, if successful, the start up wins, which is a good thing.
Is Amazon a competing retailer…or…a great marketing platform…or…a great third-party execution partner? It’s very tough to look at Amazon’s reach and not say, “I want a piece of that.” I don’t think it’s an all-in move. I think it’s part of a portfolio of initiatives to get a new business up and running. Eyes open!
While startups should tread carefully when entering into a partnership with Amazon, it’s clear that they will benefit from the significant scale and reach of the platform. However, these digital startups will have to play by the rules when they are on the platform. Certainly, Amazon ultimately benefits from these and their larger partnerships as well. Just as larger brands have learned through their experiences, it’s key to have more than one option outside of Amazon’s platform. There are clear advantages to having multiple selling channels, including a DTC e-commerce platform and a variety of physical showrooms/popups.
Brands, beware of diluting your image by selling through Amazon! In this era of differentiation, commoditization can be lethal. I understand the appeal of reach and revenue, but there are definitely two sides to Amazon coins…
Amazon used to be the hero of the digital start-up — or any start-up distributing directly to consumers. However, they’ve lost that. By allowing massive players to dominate with advertising, startups are now lost amid the overwhelming chaos that is Amazon.
My advice? Stay away. This deal with the devil may seem attractive. But you won’t know who bought your product — only that it sold. You won’t be seen well in searches — your big competitors will. Amazon will foist onto you the responsibility and cost of Prime delivery.
It’s sad. Four years ago I recommended that startups use Amazon and watch warily (Trust, but verify). Today, Amazon has lost all claim to being a reliable business partner for a start-up.
So … while they have something to gain they can be a “most excellent” friend, but when they smell sustainable revenue, they go for the throat. It’s really that simple. My advice to start-ups — learn from history and invest in a good legal staff before you sign anything.