Amazon Is Now a 'Para-State' Governing Global Commerce, Researcher Says

Fearing antitrust investigations, Amazon has promoted itself as a hub for entrepreneurs and made nods to the American fantasy of “mom and pop” small businesses. But the tech giant’s sprawling third party seller workforce are not like traditional small businesses. Amazon’s control of the rules for selling on the website are opaque and not clearly communicated to sellers, and broad changes can be made with little explanation and enormous repercussions.

A recent report published by the independent research nonprofit Data & Society paints a portrait of Amazon’s third party seller network as a sprawling, poorly-regulated international network of businesses that function as something between entrepreneurs and gig workers; operating on their own schedule, but beholden to Amazon’s ever-shifting guidelines. The result is that operating within Amazon’s system is more akin to day-trading than to the romanticized life of a mom-and-pop shop owner, according to sellers that the report’s author, Moira Weigel, spoke with. 

This is not just the result of Amazon’s shifting rules, according to the report, but its total dominance of seller ad data, which it charges sellers access to. 

“It's about speculating on this marketplace that is almost entirely defined by Amazon's dominance and in which Amazon ultimately controls information and can capriciously enact all kinds of rules and changes,” Weigel said in an interview with Motherboard. “Those rules change all the time, it's often not explained very clearly.”

So unstable and demanding is the system that third-party sellers navigating it expressed feelings similar to addiction. “Several shared that they were in recovery from addictions to drugs or alcohol and considered Amazon a substitute,” Weigel wrote in the report.

The report argues that merely looking at Amazon as a monopoly that eliminates competitors underestimates its power. The company’s marketplace is so vast that it operates like a regulatory regime unto itself, albeit one that transcends borders and has little transparency.

“I​​t's sort of para-state that's effectively governing global trade and global commerce in different ways,” Weigel said.

But it’s more complicated than just labeling third party sellers as glorified gig workers. Unlike workers at DoorDash or Uber, Amazon’s third party sellers have more markers that define genuine entrepreneurship; they register as limited liability corporations and are eligible for small business loans, including Minority and Women-Owned Business Loans. Many have been able to hire employees.

Yet unlike small businesses that can set their budgets based on income, expenditures, and market conditions, Amazon’s sellers have to contend with the volatility of Amazon’s own services. One seller interviewed by Weigel spent $60,000 to keep Amazon support staff on retainer through a program that Amazon offers called Strategic Account Services after realizing the company was otherwise nearly impossible to reach.

In a statement, Amazon argued that the study did not accurately reflect the experiences of all of the platform’s third-party sellers. “The fact is the majority of our selling partners utilize more than one channel to grow their business—their own websites and stores, other retailers, and social channels, with more options opening every day,” a spokesperson wrote in an email. “We continue to invest billions of dollars and introduce new tools and services to help our selling partners succeed holistically, and have a large, global team of associates who specialize in providing support to our selling partners via phone, chat, or email whenever they need assistance. We are proud of the amazing partnership we have with millions of selling partners, most of which are small- and medium-sized businesses, and the tremendous value this has created for customers, small businesses, and their communities. We look forward to continuing to partner together to delight customers and help these businesses thrive.”

The company has over the years shifted focus and banned entire types of selling. Many sellers either left the marketplace or changed their business model after it began cracking down on “retail arbitrage,” for instance, which is the practice of re-selling priced-up goods. Amazon told Motherboard that rule changes are communicated with 14 days’ notice.

Most of the people Weigel spoke to had no retail sales experience before using Amazon. Rather, they drifted to the marketplace after the 2008 recession when other economic opportunities dried up. The class profile is different from those who were driven to gig work during the same period; whereas Uber and DoorDash workers skew more working class, Weigel says many of the people who became Amazon third party sellers had professional or white collar jobs but fell on hard times after the recession. 

Initially, the company required third party sellers to stock and deliver their own merchandise. But it has since shifted to a model where it keeps the sellers’ goods in its own warehouses and delivers it with Amazon’s own delivery service. Amazon said that sellers have a choice in whether they stock their own goods or use Amazon’s infrastructure.

Because Amazon uses its vast resources to manage the entire chain of storage and delivery, sellers have far less overhead cost than if they were operating in an Amazon-less world. The result is that many people who sell on Amazon would never have otherwise run businesses. But this cost-effectiveness gives Amazon incredible leverage and influence over its sellers. 

Nowhere is this dominance over the market more clear than among China-based third-party sellers, who comprise over 40 percent of the sellers on Amazon’s marketplace. (Weigel says this is a sore spot for Amazon, because it undermines its public-facing appearance of providing opportunities to American workers.)

According to Weigel’s research, the sheer size of the third-party marketplace makes it virtually impossible for Amazon to eliminate bad actors, resulting in overly broad crackdowns that penalize or suspend sellers, including in China. 

In order to crack down fake reviews, which have long been rampant on the site, the company in 2021 algorithmically suspended 75,000 Chinese accounts. This is part of a pattern, according to the report: the tech giant frequently penalizes accounts either for unexplained rule changes or because the accounts were mistakenly swept up in enforcement against a wider problem.

“A whole bunch of people get suspended for reasons they don't even understand,” Weigel said, including friends and family-members of someone accused of posting fake reviews. “When that happens, Amazon has your products. It has your money. It has the ranking you've worked to build up over time,” she said.

Such sweeping and imprecise self-enforcement is potentially an attempt to hold off regulators, Weigel says.

“From Amazon’s point of view, it may be entirely rational to risk losing their cut of the sales of some small businesses unnecessarily by writing algorithms that over-enforce rules, if this policy makes a federal agency, such as the Environmental Protection Agency, less likely to fine Amazon,” she writes in the report.

Despite these sweeping crackdowns, fake reviews still dominate the site. They are so numerous and normalized that many third party sellers view them as the cost of doing business. 

“I spoke to people who told me they bought fake reviews, because that's just how everything is done. And they sort of took for granted that that's how they're supposed to do it,” Weigel told Motherboard.

The crackdown on fake reviews was so messy that some  Amazon sellers could manipulate the system, buying lots of fake reviews for a competitor in order to get that competitor suspended. Since it takes so long to get in touch with support staff, the falsely flagged account had little recourse.

“Amazon has longstanding, clear policies that prohibit reviews abuse—we receive millions of reviews every week globally, which are analyzed before publication by our skilled investigators and sophisticated industry-leading tools,” an Amazon spokesperson said in a statement. “In addition, we continue to monitor all existing reviews for signs of abuse and quickly act if we find an issue. We operate at a very high standard—more than 99% of products viewed in our stores contain only authentic reviews. Each review provides us with dozens of pieces of information to detect suspicious activity. We can cross-reference this information to identify fraudulent patterns and potential abuse, and we are constantly working to further improve the process. If a seller believes we have made an error, we have an appeal process in place and they can contact our Seller Support team directly 24/7 via e-mail, phone, and chat.”

Weigel isn’t sure yet what kind of regulations would curb some of these practices, but sellers she spoke with are more interested in having clearer, more defined rules, support and explanations. 

Update: This article has been updated with comment from an Amazon spokesperson.