Amazon’s Toll Road

New report finds the tech giant funds its 'monopoly empire' by 'exploiting small businesses’

Katie Hill - Editor-in-Chief, My Green Pod

Home » Amazon’s Toll Road

Published: 12 December 2021

This Article was Written by: Katie Hill - My Green Pod

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Amazon has ‘exploited its power as a monopoly gatekeeper’ to impose increasingly steep fees on the independent businesses that sell on its site, according to Amazon’s Toll Road, a new report from the Washington-based Institute for Local Self-Reliance (ILSR).

Seller fees are Amazon’s fastest growing revenue source, and they generate more profit than Amazon Web Services (AWS), the report finds.

Amazon now pockets a 34% cut of the revenue earned by independent sellers on its site, up from 19% in 2014, the report states.

In just two years, Amazon’s take from sellers has more than doubled, soaring from $60 billion in 2019 to a staggering $121 billion this year.

A ‘river of cash’

While these fees are bankrupting sellers, they’re a major source of profit for Amazon – even bigger than AWS, ILSR concludes.

Amazon has repeatedly declined to disclose the profitability of seller fees, but ILSR estimates that Marketplace generated roughly $24 billion in profit in 2020, compared with $13.5 billion from AWS.

‘Operating an unregulated, monopoly tollbooth that sits between businesses and their customers is wildly lucrative. The extraordinary amount of money Amazon is able to extract from these businesses is a striking illustration of its gatekeeper power and the high costs that come with it.’

STACY MITCHELL
Co-director of the Institute for Local Self-Reliance and author of the report

Profits from seller fees play a pivotal role in how Amazon maintains and expands its dominance.

As the report details, Amazon relies on this river of cash to absorb massive losses in other areas of its operations — including Prime and its own retail division.

These predatory losses keep consumers locked in to Amazon and ensure it faces no meaningful competition.

Inflating prices around the web

The report also found that Amazon’s steep and growing fees make it nearly impossible for sellers to sustain viable businesses. Most fail.

Yet Amazon faces no risk of running out of sellers; a growing share of those on its US site are based in China.

Amazon penalises sellers that offer lower prices on other, less expensive shopping sites. This thwarts competition by ensuring that Amazon’s steep fees inflate consumer prices across the web and not just on its own site.

Amazon’s revenue

A primary way Amazon has hiked its fees is by compelling sellers to buy product advertising on its site.

Between 2020 and 2021, Amazon’s advertising revenue from third-party sellers nearly doubled, from $9 billion to $17 billion.

Over the last two years, seller fees grew much faster than Amazon’s own retail sales and even outpaced AWS, the company’s large cloud-computing division. This year, seller fees will generate twice the revenue of AWS.

The fees Amazon extracts from independent businesses fuel the company’s growth and tighten its grip on the online market, enabling it to sustain massive, predatory losses on shipping and undercut major retailers like Walmart. 

Monopolisation of the online market

Despite its growing fees, Amazon’s monopolisation of the online market means that businesses that want to reach consumers online have little choice but to sell on Amazon’s site.

That’s because two-thirds of Americans looking to buy something online start their product search on Amazon, rather than a search engine.

Amazon has threatened to shut down its online marketplace if Congress acts on legislation to rein in Big Tech, but the report shows that the third-party marketplace is by far the most lucrative part of Amazon’s operations.

‘Amazon would sooner shutter its retail division. Without intervention by policymakers, Amazon will continue to exploit smaller businesses and use the revenue it extracts from them to spin its monopoly flywheel, pulling an ever larger share of our economy under its control.’

STACY MITCHELL
Co-director of the Institute for Local Self-Reliance and author of the report

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