If you can't beat Amazon.com, join them

By J. Carlton Collins, CPA

Q. Our company is thinking about launching an online webstore, but we are worried about competing with the giant online retailers. Given the competition, are we wasting our time? Do you have any suggestions?

A. Competing against Amazon is a daunting proposition; fortunately, you can leverage Amazon's success and sell through the Amazon platform. More on that in a minute, but first, here are a few thoughts about webstores today.

Twenty years ago, I foresaw an explosion of internet shopping, but I imagined the internet would serve up thousands of boutique specialty shops, with each shop specializing in a given item such as guitars, luggage, or headphones. I never imagined that one gigantic retailer, Amazon, would emerge to dominate online shopping. But there are good reasons for Amazon's success, and those are worth a quick look.

Perhaps the most significant reason for Amazon's success is search engine marketing. Although search engine ranking algorithms are kept secret from the public, it's obvious that prior to Google Ads (formerly called Google AdWords) and other similar pay-for-better-search-ranking marketing opportunities, many smaller online webstores thrived. However, once big online retailers started investing in enhanced search engine marketing opportunities, search engine results started to favor those big online retailers with ample marketing dollars to spend. While the big online retailers gained traction, smaller webstores (without big search engine marketing budgets) saw their rankings and customer visits decline. I personally experienced a ranking decline the past two decades as my own website fell from its No. 1 ranking (which I enjoyed for almost 10 years based on a search of the term "accounting software") to a ranking many million places lower today. If you are not among the top 50 results according to your key search term, your website traffic starts to dry up. Therefore, I learned the hard way that perhaps I should have engaged in search engine marketing opportunities all along to ensure my rankings remained high.

More reasons for Amazon's success include one-click shopping, next-day delivery, and a customer-friendly return policy. Many online retailers seem to have missed these key customer service points, as some online webstores force their customers to click a dozen or more times just to place a small order. Other webstores take days or weeks to ship merchandise, and in many cases, returning merchandise is a significant hassle. While I patronize other online retailers, I personally find it easier to shop with Amazon. Perhaps other online retailers would compete better if they stepped up their customer service to match Amazon's.

In contemplating how one might compete with Amazon, the challenges do seem formidable. For example, consider the comparison between the Amazon and Walmart webstores. Both have a similar main page layout, including top-border search tools and left-column menus, as shown in the screenshot below.

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Both webstores offer product images, customer ratings based on five stars, and summary product information. For example, pictured at the top of the next page is the APC 650 UPS battery backup device as sold on both websites as of April 23, 2019 — both websites seem to offer similar product details.

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Both webstores offer low prices and, in an informal comparison, I picked five random items and shopped them on both webstores. To my surprise, Walmart's price was the same or lower than Amazon's price for four of the five items, even after factoring in the shipping costs (to my home in Atlanta). One item (the BedJet) was not available at Walmart.com. The screenshot below contains a snapshot of the five items and the prices I found on April 23, 2019.

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Despite the similarities of these webstores and Walmart's competitive pricing, Amazon's online sales for 2018 were more than 10 times higher than Walmart's 2018 online sales (approximately $233 billion versus approximately $22 billion). This disparity raises the question: If Walmart can't compete any better with Amazon, how can anyone?

Recommendation: Competing with Amazon and Walmart online would indeed be difficult, but you don't have to compete with them, as both online retailers (as well as other retailers such as eBay) allow third-party sellers to sell through their webstores. In fact, more than 50% of Amazon's sales are generated by third-party retailers like you. So, my recommendation is to proceed with your plans to create a webstore and also sell your products through Amazon, Walmart, and other online retailers. The Amazon webpage at services.amazon.com explains how you can become a seller on Amazon.com. Amazon charges a fee of either 99 cents per item sold or $39.99 per month for all items sold. Likewise, Walmart offers marketplace.walmart.com, where you can learn more and apply to become a seller through its website. Walmart charges no fees for setup or sales, but you have to be accepted as an approved seller.

Final notes: As you venture on the road to becoming an online retailer, be mindful of the needs of your existing supply chain partners, as underselling them could upset those relationships. You might also want to investigate the sales tax laws in those states in which you sell products, because they may have changed in recent years.


About the author

J. Carlton Collins, CPA, (carlton@asaresearch.com) is a technology consultant, a conference presenter, and a JofA contributing editor.

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