Amazon made sweeping changes to its terms of service for third-party sellers this week in an effort to address an issue that's plagued the biggest piece of its e-commerce business.
As part of a settlement it reached with German antitrust authorities over its marketplace policies, Amazon said it will now give a 30-day notice to sellers facing suspensions and provide specific reasons to those who are blocked for "alleged legal infringements." Until now, Amazon could terminate seller accounts at any time "without justification," according to the agreement announced by The Federal Cartel Office of Germany.
But sellers and marketplace experts who have become all too familiar with Amazon's increasingly cavalier approach to suspensions are worried that the changes, set to go into effect globally on Aug. 16, don't go far enough to protect merchants from having their business suddenly disrupted, or even decimated, without recourse.
"It's a good step forward, but the update fails to address some of the root cause issues around the suspension problems," said Peter Kearns, a former Amazon Marketplace manager who now works for 180Commerce, providing consulting and strategy services to third-party sellers.
The marketplace has been a blessing and a curse for Amazon since the company flung open its doors to many more outside sellers around the world, particularly from China. Third-party merchants now account for 58% of items sold on Amazon, up from 31% a decade ago, and produce higher margins than Amazon's retail model, because sellers pay for all sorts of services, like storage, shipping and advertising, and keep Amazon from having to spend so much on inventory.
"Third-party sellers are kicking our first party butt," Amazon CEO Jeff Bezos wrote in his annual shareholder letter this year.
But with millions of new sellers sourcing products from tons of unvetted manufacturers, counterfeits have flooded the marketplace, leading to a swarm of infringement claims. As Amazon has cracked down on the counterfeit problem by aggressively suspending abusers, many honest sellers have gotten kicked off as well, and Amazon has been unable to manage the deluge of complaints.
Germany's antitrust office wrote in the agreement that it looked into the suspension problem mainly because "numerous sellers complained about the unsubstantiated and surprising cancellations and resulting loss of turnover." U.S. regulators haven't taken specific action, but presidential candidates, including Sen. Elizabeth Warren (D-MA) and Sen. Bernie Sanders (I-VT), have publicly criticized the company for having too much market power, and European Union officials recently launched an antitrust investigation into Amazon's business practice regarding third-party sellers.
Seller anecdotes of wrongful terminations are not hard to find. For example, CNBC previously reported that one seller got suspended after a fake law firm filed a false complaint, while another seller was attacked and wrongfully suspended by a competitor calling himself the "virus of Amazon." Last year, a small business called Cheapskates Liquidators was suspended because of incorrect claims that it sold inauthentic items and, in trying to get reinstated, the company entered a dark hole of unresponsiveness.
In the updated agreement shared with third-party sellers on Wednesday and viewed by CNBC, Amazon included a red-lined version that compares the old and new language. Here's the most relevant part to suspensions:
Old version: "We may terminate or suspend this Agreement or any Service for any reason at any time by notice to you."
New version: "We may terminate your use of any Services or terminate this Agreement for convenience with 30 days' advance notice. We may suspend or terminate your use of any Services immediately if we determine that (a) you have materially breached the Agreement and failed to cure within 7 days of a cure notice unless your breach exposes us to liability toward a third party, in which case we are entitled to reduce, or waive, the aforementioned cure period at our reasonable discretion; (b) your account has been, or our controls identify that it may be used for deceptive or fraudulent, or illegal activity; or (c) your use of the Services has harmed, or our controls identify that it might harm, other sellers, customers, or Amazon's legitimate interests. We will promptly notify you of any such termination or suspension via email or similar means including Seller Central, indicating the reason and any options to appeal, except where we have reason to believe that providing this information will hinder the investigation or prevention of deceptive, fraudulent, or illegal activity, or will enable you to circumvent our safeguards."
Chris McCabe, a former Amazon employee who now helps sellers get reinstated and stay compliant, said he's encouraged by the update but still needs to see how it's implemented. The 30-day notice will give sellers more opportunity to respond to unfair suspensions and make their case, but the rest of the language is vague and gives Amazon plenty of leeway, he said.
"They need better training and to be more specific in terms of reason and causality around the suspensions," McCabe said.
Much of McCabe's time is spent helping sellers file their appeals for reinstatement and finding the right person inside Amazon to actually see the documentation because so many of the processes are automated and the system is overwhelmed. Slow response times and the lack of awareness that employees have about specific violations result in small businesses losing revenue at critical times of the year, like the holiday season or Prime Day. Furthermore, Amazon's suspension notices often don't provide specific remedies, making it difficult for sellers to understand the corrective actions they need to take.
In an emailed statement, an Amazon spokesperson said the updates are intended to "clarify selling partner rights and responsibilities."
"These changes allow Amazon to continue to protect our customers and selling partners from abuse, while making explicit our practice of providing notice and offering a path to appeal our decisions for sellers who believe we've incorrectly taken action against their accounts," the company said.
In online seller forums, merchants have voiced their complaints about issues like a lack of clarity in emails from Amazon representatives and low levels of engagement. One seller, who was suspended for violating a little known pricing policy, wrote about the frustrating nature of the appeals process. Email correspondence between Amazon and another suspended seller shows how challenging it is to dispute certain allegations.
Then there's Amazon's reliance on imperfect technology. Amazon's automated system, driven by machine learning algorithms, often flags non-violations, creating "false positives," especially when there are dirty tricks involved like a competitor trying to take down a higher-ranked seller, according to Jerry Kavesh, an Amazon seller and consultant. The changes don't mention those issues or how to address them, he said.
"Currently, appealing false positives go into a black hole, and even if they're resolved, they stay on your account as a black mark," Kavesh said. "Too many sellers can get their account suspended even though they've done nothing wrong."
Kearns of 180Commerce said the updated language still gives room for unexpected account terminations. Even with the 30-day notice requirement, Amazon said in the new agreement that it could suspend accounts "immediately" under certain conditions, like if a seller engages in illegal activity or harmful conduct. While there are logical reasons for Amazon to maintain that right, it can leave sellers who were attacked by rivals in a helpless position.
"It still has that level of ambiguity that Amazon can just say, 'We think you're doing something wrong and we're going to shut you down,'" Kearns said. "In this case, you're guilty until you can prove you're innocent."