Amazon

Amazon: Friend or Foe? You Decide.

Do you see Amazon as a partner or an enemy? In a recent survey 42 percent of businesses saw the retail giant as having a negative effect, though fully 83 percent said they hadn't felt one personally.
Amazon: Friend or Foe? You Decide.
Image credit: EMMANUEL DUNAND | Getty Images
Guest Writer
CEO of Insureon
5 min read
Opinions expressed by Entrepreneur contributors are their own.

Today, the second half of Prime Day 2018, a lot of us are thinking about Amazon in one way or another: as a place to score a good deal, perhaps, if we're consumers, or, if we're small business owners, even as an outright foe.

In fact, Amazon’s massive presence naturally fosters fear among some in the small business community. After all, the online giant seems to have infiltrated virtually every industry imaginable, from groceries to books to home services and beyond. If you need it, Amazon probably has it.

Related: The Best Amazon Prime Day Deals for Entrepreneurs

That helps explain the fear among a sizable proportion of small businesses: A recent study from CNBC and SurveyMonkey found that 42 percent of owners in this category who were surveyed believed Amazon has a negative effect on small business – though 83 percent said they hadn't felt any negative effects directly.

Yet for all the talk of how Amazon will kill small business, with its sprawling resources and convenient offerings, plenty of small business owners remain enthusiastic about the opportunity for an Amazon partnership: Small businesses that sell online via Amazon often experience a significant increase in sales, according to a recent poll from Insureon and Manta, which surveyed 2,400 small business owners about their businesses’ online selling activities.

Leaders of nearly a quarter of those small businesses said they had sold their goods on Amazon, and 68 percent agreed that online sales through Amazon and other sites had had a positive effect on their business.

While there are some drawbacks to selling via the ecommerce giant, Amazon’s capabilities can provide a big boost to small businesses that want to reach a broader audience. Here are some of the top pros and cons.

The pros

Easy fulfillment, returns and refunds. One of the major barriers for small business owners that want to scale their operations to wider audiences is the need for return and refund resources. In 2017, returns accounted for more than $351 billion in lost sales, according to Appriss Retail.

Here, Amazon is a logistics force, and online sellers can benefit from its fulfillment capabilities. Small businesses selling through Amazon can store, ship and track returns through Amazon's fulfillment centers -- eliminating shipping and return-based hurdles. Selling via Amazon gives business owners access to the best fulfillment strategy in the online sales game.

Related: Amazon Will Let Entrepreneurs Start Their Own Delivery Business and Earn Up to $300,000 a Year

Thorough guidance. Amazon provides in-depth onboarding to the small businesses that want to sell on its platform. When it comes to insurance, the retail giant has robust requirements to make sure businesses have adequate coverage for their products. For example, Amazon requires general liability insurance before businesses list products on its platform. This policy typically includes protection against claims of trademark infringement, as well as product liability coverage, which can pay for expenses if someone is injured or sickened by a product sold on the site.

As the founder of a lean small business operation, you may find it easy to view business insurance as an afterthought. After all, 75 percent of U.S. businesses are underinsured. But one lawsuit could cause you irreparable damage. For example, you could be sued for using someone else’s photo in a product listing or if a customer has a bad reaction to a healthcare product. These types of lawsuits could easily cost you or any small business owner thousands of dollars in legal fees, and potentially force his or her shop to close. Policies such as general liability insurance can help business owners protect their livelihood.

Significant ROI. Amazon’s platform may have hefty insurance requirements, but the effort and cost of coverage is worth the difference it can make for a small business’s sales. We’ve worked with online sellers who have seen a dramatic increase in their sales once they began working with Amazon.

The power of Amazon is that it’s top of mind for today’s consumers.Consider that 64 percent of American households have an Amazon Prime subscription, according to experts at the Internet Retailers Conference and Exhibition.

The cons

Lack of relationship-building. Amazon doesn't allow its sellers to put any funds or effort toward targeting the customers they’ve previously sold to on its platform. If Amazon becomes a business owner's main avenue of selling, this could severely limit the percentage of customers with whom a relationship could be built.

However, for entrepreneurs who only sell products online as a side business to their 9-to-5 jobs, this prohibition against relationship-building could be a relief. These owners may not have the funds or time to target customers with marketing and advertising efforts. Relying on Amazon makes their job that much easier.

Cost barrier to entry. For all the perks that selling on Amazon can offer to small businesses, there will be some added expenses sellers may not be used to, such as business insurance. However, the average general liability insurance policy costs $576 per year, which works out to only $48 per month.

Of course, while Amazon does require small business sellers to arm themselves with the right coverage, small business owners should not blindly rely on the ecommerce powerhouse to explain which insurance policies are needed to operate safely. No matter where you’re selling online, it's important to perform your due diligence and research the required policies to cover your inventory.

Related: Small Businesses Should Be Thankful for Amazon.com

However, once you’re adequately covered, Amazon is a great avenue for exposing your products to new audiences outside of your immediate geographic area. Its wide reach can lead to increased sales, opening up new (virtual) doors for your small operation, on Prime Day or any day of the year.

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