The Amazon Effect   //   July 18, 2019

What Amazon’s Brand Accelerator contract terms mean for small businesses

For many sellers, it’s tough to make a buck on Amazon. While the barrier to entry is nonexistent, meaning anyone can open an Amazon account and try to sell a product without realizing the how complicated the ecosystem is, actually scaling a business on the platform is much more complicated. The marketplace becomes more competitive everyday — new sellers are regularly starting up business, and frequent changes to the Amazon platform and algorithm are difficult to keep up with. At the same time, small businesses are competing directly against large multi-million dollar businesses selling third-party that have years of experience and healthy capital to help them promote their products and be visible on the platform.

For those with a potentially viable business that have difficulty scaling, the e-commerce giant has offered some programs to help burgeoning businesses succeed, yet they may have some unsavory payoffs.

The Wall Street Journal reported this week that Amazon’s Brand Accelerator program includes a clause that grants the company the right to purchase any brand it works with for a set price. Essentially, what this means is that Amazon agrees to provide resources to help a business’s sales, but it can — at a moment’s notice — decide to purchase the brand and bring the entire operation in-house. According to the report, the purchase price is often only $10,000.

This leaves small Amazon-focused businesses in a bind: Should they sign up and get help scaling, likely boosting sales quite a bit, while risking losing that brand if Amazon buys the brand? 

As Modern Retail has reported, over the last few years the company has focused on building out its slate of private label and exclusive products. For both, Amazon has specifically reached out to small brands and manufacturers to give them personalized resources — marketing help, better brand visibility, access to the Vine reviewer program — in exchange that they focus their efforts squarely on selling on Amazon.

For some small businesses, this is a great way to gin up sales and grow an account. “It’s so crowded for consumer brands today — if you cannot find a collaborative partnership with things that accelerate your business, whether that’s with Amazon or other partnerships, you’re losing out on the opportunity cost,” Alex Song, CEO of The Innovation Department, told Digiday earlier this year. The tradeoff is that if a brand is doing exceptionally well on Amazon, the company could just decide to buy it. (The WSJ, it should be said, reported that Amazon has yet to purchase any brand in the Accelerator program.)

According to Kiri Masters, CEO of Bobsled Marketing, the target business for Amazon’s Brand Accelerator is very particular. It’s aimed at companies that may have the means to manufacture an item, but don’t necessarily have the brand building or digital chops to market it. “Amazon,” she said, “has all the data you could ever want.” The company, however rarely shares metrics with anyone — so any access to data is a distinct competitive advantage for a merchant without the resources to get visibility on the platform.

Similarly James Thomson, cofounder of Buy Box Experts, said the sales clause makes sense when you look at what Amazon is offering these very small organizations. “The reality is that Amazon is offering brands the opportunity to sell for next to nothing on Amazon,” he said. The potential buyout is an insurance policy for the platform; “Amazon is basically buying options on these companies.”

Reached for comment, an Amazon spokesperson provided the following statement: “Amazon Accelerator creates new opportunities for manufacturers — including those who already offer products in our store and those who do not — to launch new brands and products and offer them directly to Amazon customers. For customers, this program adds products to our assortment and allows us to offer an even wider selection of high quality products at a great value”

As Amazon continues to focus on building out its suite of exclusive and private label brands, we will likely see more programs like this Accelerator — which could come with contract language that favors Amazon. Gartner L2 research shows that the company has been ramping up exclusive and private label launches, and exclusive brand growth has outpaced private labels over the last year. Zachary Weinberg, director at Gartner L2, explained that as part of the company’s pursuit to grow these segments, Amazon has historically given itself preferential business terms. For example, he said, “[Amazon] receives a higher cut of the product revenue as part of these exclusive partnerships. We do know that Amazon will maintain a bit more control.”

According to Masters, Amazon’s current strategy is to do as much as it can to get brands to turn to it exclusively. Amazon, she said, “is throwing spaghetti at the wall.” It has private label brands, exclusive brands, as well as manufacturers with exclusive contracts. “Amazon is trying to do everything possible to create exclusive products in their market,” she said.

Including a buyout clause for a pittance doesn’t seem crazy if it’s targeted at small businesses who need real resources, said Thomson. If the company wants to entice more businesses, it needs to focus on both the big and small — and it has a distinct negotiating advantage when dealing with the little guys.

“If Amazon wants to offer the first party tools,” he said, “there’s always a price — there’s no free lunch.”