Amazon and The Rise of the Guerrilla - Part I
I founded my first company at 16 years of age, and it was more successful than I could have imagined. I invented herbal ecstacy and ignited the 1990s natural smart drug revolution. Less than a year later, we reported more than $350 million in earnings. I was a teenage millionaire, and I had created a winning product and brand with little monetary investment or experience. I succeeded by beginning with an idea and the business model of risk versus opportunity. But that was before the internet.
The ‘90s herbal revolution was fueled by increasing government regulation of supplements and the subsequent resistance to those regulations. I was a product of the times. The publicity associated with the supplement struggle made me and my company into a headline-worthy controversial phenomenon.
We sold millions of units through brick and mortar locations and less conventional means like concerts and clubs. Now, the times have changed.
I first noticed the shift in 2010 during a brainstorming session. I sat in my office window mapping out the next five years for my latest nootropic supplement venture. Excelerol is the brain pill that I was hoping would catch the world’s attention. During my planning, I noticed something strange. Mixed in with the books, toys, jewelry, and baby products, Amazon was selling supplements, and people were buying.
Something big was coming, and it was just a matter of time before the supplement business was changed forever. As if the metaphorical light bulb had switched on, I quickly realized that my company could be the first to market a brain supplement on Amazon. Knowing I could lose my valued subscribers to Amazon, I took the chance and listed my product on the site. Then I sent an email asking 100 of my subscribers to leave an honest and unbiased review on my product listing. I had no idea where this small effort would lead.
When I woke the next morning, I saw that we had close to 65 reviews, mostly positive. That was only part of the story, however. We had sold 50 units at nearly $100 each, $5000 in sales in one night alone! No other brain supplement sellers were listed on Amazon yet, and it seemed like easy money at first. We spent nothing on advertising or SEO, and Amazon did all the work and marketing.
Then we faced the dilemma I had anticipated. Since Excelerol was a subscription product, thousands of customers were getting it regularly, delivered to their door each month. If we shifted to also selling on Amazon, would these customers continue to stay on subscription or would they just buy it on Amazon instead? Would Amazon bring new customers and traffic to our business or would it take it away? What were the downsides of selling on Amazon, if any?
As it turned out, selling on Amazon was a double-edged sword. Initially, our listing accelerated sales and brought new customers and revenue into the fold, but then Amazon changed its terms of service and policies to be more buyer centric and less focused on the seller.
We began to realize that customers who bought on Amazon were Amazon’s customers and not ours. Also, like many sellers, we learned that Amazon was a giant force with a long-tail business model that cared little for its sellers. It could and would slap sellers by restricting their products, suspending their accounts or using other disciplinary tactics if it deemed fit. Moving our product again could mean being out of business for weeks or months while dealing with Amazon’s overseas customer service people who had little desire or knowledge of how to get us back on track.
A secondary market has even arisen out of Amazon’s disregard for sellers, the marketing of suspension insurance. You can purchase such a policy sold by a third-party insurance carrier underwritten by a major insurer like Lloyds of London. In the event Amazon suspends your seller account or your company’s products, you will be covered for the loss.
Once we learned the new ground rules, we gained the ability to harness the power of this giant to our benefit. Now, once our products are listed, there is no going back. The item resides under that smirky Amazon smile, and sellers are clicking for it. The brand owner can never pull the listing.
Learning to navigate this complicated mesh, and thrive in the process, has taken my company over five years. Now, I lead a team of Amazon experts who consult Fortune 500s and startups alike on how they can win in the Amazon marketplace.
In my next post, I explore the Amazon marketplace and how the Amazon Buy Box works.