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Grow Your Business Sales & Marketing

How Small Businesses Must Adapt to the Amazon Effect

Countering Amazon's Impact on SMBs
Credit: plantic/Shutterstock

Amazon is seemingly everywhere. The e-commerce giant delivers our groceries, hosts our websites, sells just about anything and can get it to you in two days or less. Its founder, Jeff Bezos, is a ruthless leader, a small business lender, a software developer, a rocket man and a Rockefellerian corporate titan. Plus, he's positioned his business to thrive in what feels like hundreds of industries. Amazon has effectively changed everything – and that includes small business.

A quick Google search about Amazon's impact on small business yields countless articles praising the glory of Jeff Bezos or crying foul at a company crushing the hopes and dreams of every mom-and-pop shop in America. As is typical in our modern age, this polarization is the reflection of loud opinions and not the actual truth of the matter, which is that all Amazon is doing is changing the way small business owners sell their products.

"It has forced [small businesses] to embrace e-commerce as a critical route to reach their consumers and revenue source," said Jeff Somers, president of Insureon, an insurance company that sponsors various polls and surveys on small businesses.

This movement toward e-commerce is undeniable, but the real question is whether the transition from brick-and-mortar retail sales is annihilating small businesses or causing closures that result from natural economic growing pains. It's also not clear whether the transition is all because of Amazon. Still, in the age of e-commerce and two-day delivery, businesses are struggling to weather a storm that's brewing despite booming economic times.

The only advice experts are giving business owners everywhere: Get online or die.

Amazon released a small business impact report earlier this year, claiming half the items sold on Amazon are produced by small and medium-sized businesses. It also introduced Amazon Storefronts, a separate section of the website where SMBs advertise their products and build their brand.

This is Amazon's latest attempt to distance itself from the evil reputation some peg it with, providing fanciful statistics and an exclusive section of the website where it can show off its best SMB partners. There is, however, some truth in its PR blitz: Amazon has allowed any and all businesses to sell its products to anyone in the country. Its popularity among consumers separates it from other e-commerce platforms like eBay, according to Somers. Insureon polled 2,400 business owners and found that 81 percent said online sales are important or very important to their business's success.

The push to online sales has led to the emergence of Amazon resellers, which some claim threaten small business. Resellers buy goods in bulk and sell them on Amazon at low prices and slim profit margins. Alex Shvarts, CTO for small business lending platform FundKite, said Amazon resellers are crushing small business because of low overhead costs.

However, other experts say that resellers won't be able to compete with many small businesses because they can only offer generic products. Part of what makes a small business unique is an individual and distinct product or service. That means that while resellers could undercut some businesses, if a small business has a unique, quality product, it won't have to worry about resellers.

"I think resellers are destroying big business," said Iain McNicoll, U.S. country manager for international payments and e-commerce company Payoneer. "If you have a unique product or something that the public wants, it's only going to enhance your offering if you go online with it."

More and more businesses are adding e-commerce as a sales avenue, but this doesn't necessarily mean Amazon is the company spurring all this forward. It could be the result of a variety of factors, including changing consumer tastes, lower pricing online and more variety or products.

The short answer: It can. Insureon's poll found that 68 percent of businesses surveyed said that online retailers had a positive impact on their business. Yet, according to Shvarts, the typical overhead costs of a small business naturally give e-commerce businesses an advantage. This natural advantage will end up dramatically affecting small businesses that don't start selling online.

In theory, Amazon's access and reach should be helping everyone. Madelyn Newman, director of product and customer marketing for small business call tracking and data service CallRail, said she's seen small businesses shifting ad spend away from traditional outlets and toward Amazon. In fact, Amazon was recently listed as the third-biggest digital ad seller in the U.S. behind Google and Facebook. This shows business owners are valuing Amazon sales.

"Amazon is starting to democratize their ad platform, and make it more accessible and easier to understand," she said. "That's just another avenue where they can get a really quick sell at a pretty low cost compared to some of these more traditional advertising routes."

Small business should view Amazon as just another e-commerce route – if a business is already selling online, why avoid a platform where so many are apparently succeeding? Newman said she doesn't think Amazon is killing small business, it's just changing the way we buy and sell products.

As logic follows, Amazon should be a great thing for small business. In practice, there are still some challenges. Some small business products and services don't translate to the e-commerce world. Others may struggle to adjust operations to account for shipping costs, taxes and maintaining an online presence. Still, others will find that there is no demand for their product outside of their local area, where consumers aren't shopping and visiting brick-and-mortar locations like they used to. Then there's how Amazon facilitates and manages sales between small businesses and consumers.

Amazon is impacting small business. Whether it's a positive or negative impact, however, depends on many factors. Removing Amazon from the equation, the retail experience is still in decline. Businesses that don't embrace e-commerce will struggle to stay relevant in the modern age of convenient online shopping, but selling online doesn't just mean selling on Amazon. Insureon's poll also found that a small business's website is the most common online selling platform.

Regardless of Amazon's impact, if you're not already strategizing about how to sell online, it's probably in your best interest to do so.

"People see Amazon as crushing small business," McNicoll said. "Really, I think it opens up a door for small business, allowing them to now reach new customers that they wouldn't have been able to reach in the past."

Matt D'Angelo

Matt D'Angelo is a Staff Writer based in New York City. After graduating from James Madison University with a degree in Journalism, Matt gained experience as a copy editor and writer for newspapers and various online publications. Matt joined the team in 2017 and covers technology for Business.com and Business News Daily. Follow him on Twitter or email him.