'Amazon is not your friend'

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On Monday night, I sat down to grab a drink with a startup founder in the middle of raising his next funding round. Tired and a bit overwhelmed, he had just spent the day in back-to-back meetings with venture capitalists pitching his marketplace delivery business. 

While the faces and firms changed from meeting to meeting, one question remained constant. At some point in each and every pitch, the VC would turn to the founder and ask some variation of, “Why won't Amazon crush you?” 

Amazon’s impact on both the retail and delivery spaces is not new. But their announcement earlier this week might all but makes the funding slowdown inevitable for retail startups. The e-commerce giant will reportedly soon sell private label groceries and household products exclusively to Amazon Prime members. The move is huge because Amazon already owns half of all e-commerce sales. With all the growth in retail happening online, anything Amazon does to increase their already massive share is bad news for retail startups looking to scale.

This 800-pound gorilla of a reality was present in every room at the Shoptalk conference in Las Vegas this week. A conference geared toward investors and brands in retail, Shoptalk’s panels and discussions are all about the future of retail and ecommerce. Most founders and execs that I met with tried to avoid talking about Amazon at all costs, but the topic finally came up on a panel discussion on venture capital perspectives on retail.

"Amazon is not your friend and that is really the bottom line," Jeremy Liew of Lightspeed Venture Partners warned the founders in the room. “They have done a fantastic job of sucking the unit economics out of e-commerce from everybody. If they haven’t sucked it out of you yet, just wait.”

Liew’s investment track record is more than proof that he knows what he is talking about: New age retail brands like Bonobos, Honest Company and Stitch Fix are all in his portfolio. His take is the only way to survive is to build a brand that can grow without Amazon’s distribution. This is nearly impossible for most startups given Amazon’s control of online shopping, but Liew think unique brands with loyal customers still have a shot.

Brian O’Malley, a partner at Accel, only furthered the Amazon doom and gloom by bringing up the platform’s power when it comes to product discovery. When Target or Walmart comes out with a new private label product, it typically goes on the bottom shelf in the store to make way for the outside brands that pay good money to have quality shelf space. But when users go to Amazon and search, the e-commerce powerhouse can basically make it impossible for users to find anything but Amazon’s proprietary items.

“Not only does Amazon target you based on what you purchased in the past, but they also control the screen real estate,” he said. “That is something that is very different than [traditional retail.]”

A spokesperson from Amazon says that O'Malley's observation is "completely false." Pointing to search results examples of bluetooth speakers and baby wipes, the spokesperson said, "One of the many benefits of Amazon is that there is unlimited shelf space so" to think anything else is "very misleading and doesn’t represent Amazon accurately."

To try and prevent all the founders in the room from giving up entirely, Scott Friend of Bain Capital Ventures mentioned where startups come from a position of strength in the Amazon battle. Namely, Amazon hasn’t proven that it can build inspirational brands. While they have mastered the ability to get customers commodity products, no one goes to Amazon to discover something they didn’t already know about, he said. This leaves room for startups like Birchbox, Bonobos and others to thrive without Amazon’s support. 

“Brand is not something you can sprinkle on an operation after the fact,” Friend said.

That may be true. But the look in the startup founder’s eyes that I met with for a drink tells me that the fear of Amazon eventually taking over everything is very much real.

Update: This post has been updated to reflect some comments that came in from Amazon after the post originally published.