Amazon generated $140 billion in revenue from seller fees in 2023, putting small businesses on edge

In 2023, Amazon’s revenue from seller fees skyrocketed to a staggering $140 billion, marking a significant 25% of its total revenue. This surge in fees has placed immense pressure on small businesses, with 33% now on high alert due to rising operational costs and diminishing profit margins.

Earlier this year, Amazon introduced higher fees for sellers, exacerbating the financial strain on small businesses. Coupled with inflation, these increased fees have left many sellers with no choice but to raise their prices. However, this strategy proves insufficient for some, especially with cost-conscious consumers curbing their spending. Brands are now forced to cut expenses to maintain their pricing.

The complexity of the new fee structure, particularly for inventory management, has led to higher inbound placement fees, prompting businesses to reduce their product listings on Amazon. Notably, the number of sellers listing only one product has soared by over 300% compared to 2022.

“It’s becoming increasingly difficult to sell on Amazon,” said Albert Grazi, a highly-rated Amazon seller of seven years who sells around $5 million of water filtration products on Amazon each year through brands like the Mist filter line. “You are getting squeezed from all sides.”

However, Mira Dix, an Amazon spokesperson told Fortune that “many” sellers will end up paying Amazon less per unit sold than they did previously, but none of the six top sellers who spoke to Fortune considered that a possibility for their business.

“By splitting what was a combined outbound fee into an inbound and outbound fee and adding a low-inventory-level fee, we will more closely align fees for sellers with our underlying costs while also providing sellers with more choices for how they use our services, giving them more transparency and control over their fulfillment costs. This allows us to create incentives for sellers to use our network more efficiently so we can share the cost savings,” Dix said.

Justin Floyd, CEO of RedCloud Technology, criticizes the traditional e-commerce model, calling it “predatory and controlling” and detrimental to small businesses. Floyd argues that this centralized model, dominated by big-tech providers like Amazon, restricts access to essential growth tools for small businesses.

Adding to the concerns is “Project Nessie,” Amazon’s secret price-raising algorithms we covered back in November 2023 after the Federal Trade Commission (FTC) revealed that the retail giant had generated $1 billion. Project Nessie’s algorithm is designed to control pricing by identifying profitable products and raising their prices. This practice forces other online retailers to follow suit, inflating consumer spending. Project Nessie has reportedly generated over $1 billion in excess profits for Amazon.

As traditional e-commerce models face growing criticism, AI-driven Open Commerce platforms like RedCloud are emerging as viable alternatives. These platforms offer several advantages:

• Aggregated Purchasing Power: RedCloud leverages AI to combine purchasing power, allowing small retailers to secure better terms and discounts from manufacturers.
• Data Access and Transparency: Unlike Amazon, RedCloud provides manufacturers with comprehensive data insights, including consumer buying patterns, and optimizing production and distribution decisions.
• AI-Powered Pricing and Inventory Management: The platform uses AI to analyze pricing dynamics and inventory quality, detecting anomalies like counterfeit products or pricing discrepancies, and ensuring market integrity.
• Real-Time Market Insights: RedCloud offers immediate visibility into market dynamics, aiding informed decisions on demand forecasting, pricing trends, and inventory management across the supply chain.

“There are two million third-party sellers on Amazon. Open Commerce grants SMBs more autonomy and freedom to engage with trusted trading partners who provide authentic, top-quality products, leveling the playing field of online trade,” concludes Floyd.

For a deeper understanding of how an AI-powered Open Commerce platform can empower SMBs, consider exploring the following questions with Justin Floyd:

• What are the specific impacts of traditional e-commerce on small businesses, and what are the primary concerns of Amazon third-party sellers regarding the rising fees?
• How are inflation and increased Amazon fees forcing small businesses to raise their prices, and why is this strategy insufficient for Amazon sellers dealing with increased fees?
• How can Open Commerce grant SMBs more autonomy and freedom compared to the traditional e-commerce model dominated by big-tech providers?
• What benefits does Open Commerce provide to small and medium-sized businesses (SMBs) in the online retail space, and how does it differ from traditional e-commerce models?
• In what ways does Open Commerce create a transparent trading system that promotes fairness and growth for SMBs?

As the e-commerce landscape evolves, the rise of AI-driven platforms like RedCloud signifies a shift towards more equitable and transparent trading practices, potentially transforming the future of online retail for small businesses.